MANAGERIAL OWNERSHIP AND THE PERFORMANCE OF FIRMS: EVIDENCE FROM VIETNAMESE FIRM LISTED ON HOSE

Abstract

Based on the data collected from 126 companies listed on HCM city Stock Exchange (HOSE) during the period 2006 - 2009, this empirical study investigates the relationship between managerial ownership and corporate performance. It is found that there is a strong non-linear relationship between the corporate performance and the managerial ownership. The corporate performance varies directly with the managerial ownership when the managerial ownership ratio is less than 59.1%. However, when the managerial ownership ratio is over 59.1%, the performance varies inversely with the managerial ownership. The nonlinear relationship is a result of interactions between the alignment of interests and the managerial entrenchment: when the managerial ownership is below a certain value, managers have more incentive to work if they have more stakes in the firm. However, when the managerial ownership is high enough, they use the increased power to advance their own interests rather than the interests of the shareholders (managerial entrenchment).