The link between firm risk-taking and CEO power of listed firms on the Vietnamese stock market: the role of state ownership

Abstract

The Chief Executive Officer (CEO) is pivotal in firm governance and is tasked with policy implementation and maximizing shareholder benefit. However, predicting CEO behaviour remains challenging, especially when considering CEO power (CEOP). Hence, this study explores the link between CEOP and firm risk-taking (FRT) in selected firms on the stock market in Vietnam from 2010 to 2020. Utilizing the Entropy weight methodology, a CEOP index combines structural, ownership, and expert power indicators. The SYS-GMM approach mitigates potential endogeneity issues, revealing a positive correlation between CEOP and FRT. Interestingly, CEO risk aversion increases in state-owned firms’ participants, suggesting heightened supervision. Moreover, each characteristic of the CEOP index uniquely influences FRT. The findings offer theoretical and practical insights for enhancing governance and supervision mechanisms to optimize stakeholder benefits.

IMPACT STATEMENT

In business, avoiding all risks is impractical, and risk-taking endeavours can present growth opportunities. However, uncertainties from risks can impact financial performance, requiring corporations to demonstrate effective risk management. Decision-making and oversight of organizational activities are decided by the Chief Executive Officer (CEO). Hence, this study explores the interaction between CEO power and firm risk-taking in the context of Vietnam. Powerful CEOs tend to gravitate towards risks, but effective governance mechanisms and board independence can balance this tendency. The study recognizes the influential role of CEO power in shaping risk-taking behaviours and emphasizes the positive impact of state ownership. Balancing CEO empowerment with organizational supervision is crucial, and solutions include comprehensive risk assessments and clear operating frameworks. However, the study acknowledges limitations and recommends guidelines for a more comprehensive analysis in future research.

Keywords:

• CEO
• ownership power, structural power
• expert power
• risk-taking
• state ownership
• Vietnam

JEL CLASSIFICATION:

• M00
• G30
• G32

REVIEWING EDITOR:

• David McMillan, University of Stirling, United Kingdom

SUBJECTS:

• Asian Studies
• Risk Assessment
• Business, Management and Accounting

Disclosure statement

All of the authors declare that there is no conflict of interest among them.

Data availability statement

The data presented in this study are available on request from the corresponding author.

Additional information

Funding

This research is funded by the Ho Chi Minh City University of Economics and Finance. This research is partly funded by University of Economics Ho Chi Minh City (UEH), Vietnam. This research is partly funded by University of Finance-Marketing, Ho Chi Minh City, Vietnam. The sixth author would like to thank Professor Wing-Keung Wong for their ongoing counselling and encouragement.

Notes on contributors

Ngoc Thanh Tran

MA. Ngoc Thanh Tran is a lecturer at the Faculty of Finance and Accounting, Ho Chi Minh City University of Economics and Finance, Vietnam. She holds a Master of International Business at the University of Melbourne, Australia in 2019, and going on the PhD program. Her research interests include corporate finance, corporate governance, international taxation, foreign trade, and sustainable finance.

Thi Ngoc Dung Pham

MA. Thi Ngoc Dung Pham is a lecturer at the University of Finance – Marketing, Ho Cho Minh City, Vietnam. She is actively involved in research, particularly in the fields of corporate finance, sustainable development, and accounting. She has published many research papers in various journals.

Dien Duan Nguyen

MA. Dien Duan Nguyen serves as a lecturer at the University of Finance – Marketing in Ho Chi Minh City, Vietnam. Her primary focus lies in research, with a keen interest in corporate finance, sustainable development, and accounting. She has contributed significantly to academia, with numerous research papers published across various reputable journals.

Trung Kien Tran

DR. Trung Kien Tran is a lecturer at the University of Economics Ho Chi Minh City, Vietnam. His research interests centre on taxation, customs management, public policies, and sustainable development. He is currently the director of the Taxation Bachelor Program at the University of Economics Ho Chi Minh City. MA.

Gia Quyen Phan

Gia Quyen Phan is a lecturer at the Faculty of Accounting and Finance, Nha Trang University, Khanh Hoa Province, Viet Nam. His research focuses on corporate finance, sustainability, and business management, and he becomes a reviewer of the Journal of Accounting and Investment, Universitas Muhammadiyah Yogyakarta.

Tran Thai Ha Nguyen

DR. Tran Thai Ha Nguyen is a researcher and lecturer at Van Lang University, Ho Chi Minh City, Vietnam. His publications primarily focus on various aspects of corporate finance, sustainability, and business management, particularly in Vietnam and other emerging economies. He is also serving as an Editorial member and Reviewer of many international journals, such as Cogent Business & Management, Cogent Economics & Finance, International Journal of Emerging Markets, Advances in Decision Sciences, Annals of Financial Economics, Journal of Risk and Financial Management, etc.