International Journal of Economics and Finance; Vol. 6, No. 5; 2014 ISSN 1916-971X E-ISSN 1916-9728 Published by Canadian Center of Science and Education 274 Managerial Ownership, Leverage and Dividend Policies: Empirical Evidence from Vietnam’s Listed Firms Duc Hong Vo 1 & Van Thanh-Yen Nguyen 2 1 Economic Regulation Authority, Perth, Australia & Open University, Ho Chi Minh City, Vietnam 2 Open University, Ho Chi Minh City, Vietnam Correspondence: Duc Hong Vo, Economic Regulation Authority, Perth, Australia & Open University, Ho Chi Minh City, Vietnam. E-mail: duc.vo@erawa.com.au Received: March 27, 2014 Accepted: April 14, 2014 Online Published: April 25, 2014 doi:10.5539/ijef.v6n5p274 URL: http://dx.doi.org/10.5539/ijef.v6n5p274 Abstract The purpose of this paper is to examine the interrelationship among managerial ownership, leverage and dividend policies. The analysis is performed using three-stage least squares (3SLS) estimation on a sample of 81 listed firms on HCM City Stock Exchange (HOSE) during the period 2007–2012. The empirical results indicate that managerial ownership has a negative relationship with leverage. This finfing is supported by Agency Theory. Also, the results provide strong support for Pecking Order Theory, which suggests that there is a negative relationship between leverage and dividend. However, contrary to expectations, managerial ownership is found to have positive impact on dividend. It means that companies with higher levels of managerial holdings are consciously choosing higher level of dividends. Keywords: managerial ownership, leverage, dividend, interrelationship, 3SLS, Ho Chi Minh City’s stock exchange 1. Introduction The role of managers is to maximize shareholder’s wealth. However, managers who do not have a significant ownership in the firm may have incentives to make decisions which are not at the best interest of shareholders. Such conflicts will lead to agency problem and incur significant costs. Corporate governance has emerged as an important issue for Vietnamese-listed firms in the broader context of financial development. Most Vietnamese-listed firms were privatized from State-Owned Enterprises. The government is generally a major shareholder after the firms go public and managers are delegated to act on their behalf. As a result, it is expected that managers of these firms will act on the interest of the controlling shareholders. Nevertheless, in recent years, there have been a number of company scandals from corporate governance failures involving in managerial opportunism. Eventually, achieving the goal of maximizing the value of the firm often becomes unattainable. Previous studies suggest that corporate ownership structure and financial policies can affect firm’s performance and value by mitigating agency costs of the firm. A large body of literature indicates that insider ownership helps aligning managerial interests with those of the external shareholders (Jensen, 1986; Fama, 1980). Debt holders and related monitoring tools are also considered important mechanisms for controlling managerial behavior and mitigating the agency problems (Jensen & Meckling, 1976; Rozeff, 1982; Easterbrook, 1984; Stulz, 1990; Bathala, Moon, & Rao, 1994). Given the array of internal monitoring tools that can be used to resolve agency problems, owners of the firms can adopt a combination of these policies. This also implies that a firm’s managerial ownership, leverage and dividends might be simultaneous and there is substitution effects between the three financial variables directly related to each other (Jensen, Solberg, & Zorn, 1992; Chen & Steiner, 1999; Crutchley, Jensen, Jahera, & Raymond, 1999). Prior empirical studies have been conducted to mainly investigate each policy independently in the context of Vietnam. In light of the direct relationships among these policies, empirical studies on this topic are limited in the Vietnamese context. As such, this paper empirically analyzes the relationship between a firm’s managerial ownership, leverage and dividend policies. According to Kim, Rhim and Friesner (2007), this clearly has the potential of creating an endogeneity problem and thus the use of simultaneous equation models is essential in the empirical test. These equations are estimated using the Three stage least squares (3SLS) technique and each