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30/03/2023
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Tran, Q. T., Nguyen, X. M., Nguyen, T. D., Nguyen, T. T., Dao, T. H., & Nguyen, Q. T. (2023). State ownership and corporate investment: evidence from Vietnamese stock market. Journal of International Economics and Management, 23(1), 39-51. https://doi.org/10.38203/jiem.023.1.0060
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State ownership and corporate investment: evidence from Vietnamese stock market
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Abstract
The literature shows that the relationship between state ownership and corporate investment is debatable. This study examines this relationship in Vietnam as a transitional economy. Our sample consists of 4,680 observations from 2009 to 2020. Using fixed effects and random effects for panel data, random effects Tobit, and pooled OLS, we find that state ownership decreases investment expenditures. Moreover, this negative impact is stronger if the firms are financially unconstrained. Our results indicate that weak corporate governance and soft budget constraints arising from state ownership may fail to determine investment decisions. A government’s negative attitude toward risk and conservatism may effectively affect corporate investment.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
State ownership, Investment, Vietnam
References
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Borisova, G., Fotak, V., Holland, K. and Megginson, W. L. (2015), “Government ownership and the cost of debt: evidence from government investments in publicly traded firms”, Journal of Financial Economics, Vol. 118 No. 1, pp. 168 - 191.
Borisova, G. and Megginson, W.L. (2011), “Does government ownership affect the cost of debt? Evidence from privatization”, The Review of Financial Studies, Vol. 24 No. 8, pp. 2693 - 2737.
Boubakri, N. and Cosset, J.-C. (1998), “The financial and operating performance of newly privatized firms: evidence from developing countries”, The Journal of Finance, Vol. 53 No. 3, pp. 1081 - 1110.
Boubakri, N., Cosset, J.-C. and Saffar, W. (2013), “The role of state and foreign owners in corporate risk-taking: evidence from privatization”, Journal of Financial Economics, Vol. 108 No. 3, pp. 641 - 658.
Chang, C., Liu, Z., Spiegel, M.M. and Zhang, J. (2018), “Reserve requirements and optimal Chinese stabilization policy”, Journal of Monetary Economics, Vol. 103, pp. 33 - 51.
Chen, R., El Ghoul, S., Guedhami, O. and Wang, H. (2017), “Do state and foreign ownership affect investment efficiency? Evidence from privatizations”, Journal of Corporate Finance, Vol. 42, pp. 408 - 421.
D’Souza, J., Megginson, W. and Nash, R. (2005), “Effect of institutional and firm-specific characteristics on post-privatization performance: evidence from developed countries”, Journal of Corporate Finance, Vol. 11 No. 5, pp. 747 - 766.
D’Souza, J. and Megginson, W.L. (1999), “The financial and operating performance of privatized firms during the 1990s”, The Journal of Finance, Vol. 54 No. 4, pp. 1397 - 1438.
Dang, L.N., Nguyen, D.D. and Taghizadeh-Hesary, F. (2021), “State-owned enterprise reform in Viet Nam: progress and challenges”, in Taghizadeh-Hesary, F., Yoshino, N., Kim, C.J. and Kim, K. (Eds.), Reforming State-Owned Enterprises in Asia: Challenges and Solutions, Singapore: Springer Singapore, pp. 231 - 254.
Du, J., Li, W., Lin, B. and Wang, Y. (2018), “Government integrity and corporate investment efficiency”, China Journal of Accounting Research, Vol. 11 No. 3, pp. 213 - 232.
Harford, J. (1999), “Corporate cash reserves and acquisitions”, The Journal of Finance, Vol. 54 No. 6, pp. 1969 - 1997.
Ho, T., Phung, D.N. and Nguyen, Y.N. (2021), “State ownership and corporate risk-taking: empirical evidence in Vietnam”, Australian Economic Papers, Vol. 60 No. 3, pp. 466 - 481.
Jaslowitzer, P., Megginson, W.L. and Rapp, M.S. (2018), “State ownership and corporate investment”, Available at https://ssrn.com/abstract=2735698 (Accessed on 25 November, 2021).
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305 - 360.
John, K., Litov, L. and Yeung, B. (2008), “Corporate governance and risk-taking”, The Journal of Finance, Vol. 63 No. 4, pp. 1679 - 1728.
Kang, W., Lee, K. and Ratti, R.A. (2014), “Economic policy uncertainty and firm-level investment”, Journal of Macroeconomics, Vol. 39, pp. 42 - 53.
Kornai, J. (1979), “Resource-constrained versus demand-constrained systems”, Econometrica: Journal of the Econometric Society, Vol. 47 No. 4, pp. 801 - 819.
Kubo, K. and Phan, H.V. (2019), “State ownership, sovereign wealth fund and their effects on firm performance: empirical evidence from Vietnam”, Pacific-Basin Finance Journal, Vol. 58, 101220.
Kusnadi, Y., Yang, Z. and Zhou, Y. (2015), “Institutional development, state ownership, and corporate cash holdings: evidence from China”, Journal of Business Research, Vol. 68 No. 2, pp. 351 - 359.
Laffont, J.-J. and Tirole, J. (1993), A theory of incentives in procurement and regulation, MIT Press.
Le, Q.C., Nguyen, T.P.T. and Do, T.N. (2021), “State ownership, quality of sub-national governance, and total factor productivity of firms in Vietnam”, Post-Communist Economies, Vol. 33 No. 1, pp. 133 - 146.
McLean, R.D., Zhang, T. and Zhao, M. (2012), “Why does the law matter? Investor protection and its effects on investment, finance, and growth”, The Journal of Finance, Vol. 67 No. 1, pp. 313 - 350.
Megginson, W.L., Nash, R.C. and Van Randenborgh, M. (1994), “The financial and operating performance of newly privatized firms: an international empirical analysis”, The Journal of Finance, Vol. 49 No. 2, pp. 403 - 452.
Megginson, W. L., Ullah, B. and Wei, Z. (2014), “State ownership, soft-budget constraints, and cash holdings: evidence from China’s privatized firms”, Journal of Banking & Finance, Vol. 48, pp. 276 - 291.
Modigliani, F. and Miller, M.H. (1958), “The cost of capital, corporation finance and the theory of investment”, The American Economic Review, Vol. 48, pp. 261 - 297.
Nguyen, T.Q.N., Tran, Q.T. and Doan, H.P. (2021), “Foreign ownership, state ownership and cash holdings under the global financial crisis: evidence from the emerging market of Vietnam”, International Journal of Emerging Markets, ahead-of-print(ahead-of-print).
Richardson, S. (2006), “Over-investment of free cash flow”, Review of Accounting Studies, Vol. 11 No. 2-3, pp. 159 - 189.
Shailer, G. and Wang, K. (2015), “Government ownership and the cost of debt for Chinese listed corporations”, Emerging Markets Review, Vol. 22, pp. 1 - 17.
Shao, L., Kwok, C.C.Y. and Zhang, R. (2013), “National culture and corporate investment”, Journal of International Business Studies, Vol. 44 No. 7, pp. 745 - 763.
Tran, N.M., Nonneman, W. and Jorissen, A. (2014), “Government ownership and firm performance: the case of Vietnam”, International Journal of Economics and Financial Issues, Vol. 4 No. 3, pp. 628 - 650.
Tran, Q.T. (2020a), “Creditor protection, shareholder protection and investment efficiency: new evidence”, The North American Journal of Economics and Finance, Vol. 52, 101170.
Tran, Q.T. (2020b), “Foreign ownership and investment efficiency: new evidence from an emerging market”, International Journal of Emerging Markets, Vol. 15 No. 6, pp. 1185 - 1199.
Vo, X.V. (2018), “Do firms with state ownership in transitional economies take more risk? Evidence from Vietnam”, Research in International Business and Finance, Vol. 46, pp. 251 - 256.
Vu, K.A. and Pratoomsuwan, T. (2019), “Board characteristics, state ownership and firm performance: evidence from Vietnam”, International Journal of Managerial and Financial Accounting, Vol. 11 No. 2, pp. 167 - 186.
Wang, Y., Chen, C.R. and Huang, Y.S. (2014), “Economic policy uncertainty and corporate investment: evidence from China”, Pacific-Basin Finance Journal, Vol. 26, pp. 227 - 243.
Whited, T.M. and Wu, G. (2006), “Financial constraints risk”, The Review of Financial Studies, Vol. 19 No. 2, pp. 531 - 559.
Wooldridge, J.M. (2010), Econometric analysis of cross section and panel data, 10th ed., Cambridge: MIT Press.
Xiao, G. (2013), “Legal shareholder protection and corporate R&D investment”, Journal of Corporate Finance, Vol. 23, pp. 240 - 266.
Borisova, G., Fotak, V., Holland, K. and Megginson, W. L. (2015), “Government ownership and the cost of debt: evidence from government investments in publicly traded firms”, Journal of Financial Economics, Vol. 118 No. 1, pp. 168 - 191.
Borisova, G. and Megginson, W.L. (2011), “Does government ownership affect the cost of debt? Evidence from privatization”, The Review of Financial Studies, Vol. 24 No. 8, pp. 2693 - 2737.
Boubakri, N. and Cosset, J.-C. (1998), “The financial and operating performance of newly privatized firms: evidence from developing countries”, The Journal of Finance, Vol. 53 No. 3, pp. 1081 - 1110.
Boubakri, N., Cosset, J.-C. and Saffar, W. (2013), “The role of state and foreign owners in corporate risk-taking: evidence from privatization”, Journal of Financial Economics, Vol. 108 No. 3, pp. 641 - 658.
Chang, C., Liu, Z., Spiegel, M.M. and Zhang, J. (2018), “Reserve requirements and optimal Chinese stabilization policy”, Journal of Monetary Economics, Vol. 103, pp. 33 - 51.
Chen, R., El Ghoul, S., Guedhami, O. and Wang, H. (2017), “Do state and foreign ownership affect investment efficiency? Evidence from privatizations”, Journal of Corporate Finance, Vol. 42, pp. 408 - 421.
D’Souza, J., Megginson, W. and Nash, R. (2005), “Effect of institutional and firm-specific characteristics on post-privatization performance: evidence from developed countries”, Journal of Corporate Finance, Vol. 11 No. 5, pp. 747 - 766.
D’Souza, J. and Megginson, W.L. (1999), “The financial and operating performance of privatized firms during the 1990s”, The Journal of Finance, Vol. 54 No. 4, pp. 1397 - 1438.
Dang, L.N., Nguyen, D.D. and Taghizadeh-Hesary, F. (2021), “State-owned enterprise reform in Viet Nam: progress and challenges”, in Taghizadeh-Hesary, F., Yoshino, N., Kim, C.J. and Kim, K. (Eds.), Reforming State-Owned Enterprises in Asia: Challenges and Solutions, Singapore: Springer Singapore, pp. 231 - 254.
Du, J., Li, W., Lin, B. and Wang, Y. (2018), “Government integrity and corporate investment efficiency”, China Journal of Accounting Research, Vol. 11 No. 3, pp. 213 - 232.
Harford, J. (1999), “Corporate cash reserves and acquisitions”, The Journal of Finance, Vol. 54 No. 6, pp. 1969 - 1997.
Ho, T., Phung, D.N. and Nguyen, Y.N. (2021), “State ownership and corporate risk-taking: empirical evidence in Vietnam”, Australian Economic Papers, Vol. 60 No. 3, pp. 466 - 481.
Jaslowitzer, P., Megginson, W.L. and Rapp, M.S. (2018), “State ownership and corporate investment”, Available at https://ssrn.com/abstract=2735698 (Accessed on 25 November, 2021).
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305 - 360.
John, K., Litov, L. and Yeung, B. (2008), “Corporate governance and risk-taking”, The Journal of Finance, Vol. 63 No. 4, pp. 1679 - 1728.
Kang, W., Lee, K. and Ratti, R.A. (2014), “Economic policy uncertainty and firm-level investment”, Journal of Macroeconomics, Vol. 39, pp. 42 - 53.
Kornai, J. (1979), “Resource-constrained versus demand-constrained systems”, Econometrica: Journal of the Econometric Society, Vol. 47 No. 4, pp. 801 - 819.
Kubo, K. and Phan, H.V. (2019), “State ownership, sovereign wealth fund and their effects on firm performance: empirical evidence from Vietnam”, Pacific-Basin Finance Journal, Vol. 58, 101220.
Kusnadi, Y., Yang, Z. and Zhou, Y. (2015), “Institutional development, state ownership, and corporate cash holdings: evidence from China”, Journal of Business Research, Vol. 68 No. 2, pp. 351 - 359.
Laffont, J.-J. and Tirole, J. (1993), A theory of incentives in procurement and regulation, MIT Press.
Le, Q.C., Nguyen, T.P.T. and Do, T.N. (2021), “State ownership, quality of sub-national governance, and total factor productivity of firms in Vietnam”, Post-Communist Economies, Vol. 33 No. 1, pp. 133 - 146.
McLean, R.D., Zhang, T. and Zhao, M. (2012), “Why does the law matter? Investor protection and its effects on investment, finance, and growth”, The Journal of Finance, Vol. 67 No. 1, pp. 313 - 350.
Megginson, W.L., Nash, R.C. and Van Randenborgh, M. (1994), “The financial and operating performance of newly privatized firms: an international empirical analysis”, The Journal of Finance, Vol. 49 No. 2, pp. 403 - 452.
Megginson, W. L., Ullah, B. and Wei, Z. (2014), “State ownership, soft-budget constraints, and cash holdings: evidence from China’s privatized firms”, Journal of Banking & Finance, Vol. 48, pp. 276 - 291.
Modigliani, F. and Miller, M.H. (1958), “The cost of capital, corporation finance and the theory of investment”, The American Economic Review, Vol. 48, pp. 261 - 297.
Nguyen, T.Q.N., Tran, Q.T. and Doan, H.P. (2021), “Foreign ownership, state ownership and cash holdings under the global financial crisis: evidence from the emerging market of Vietnam”, International Journal of Emerging Markets, ahead-of-print(ahead-of-print).
Richardson, S. (2006), “Over-investment of free cash flow”, Review of Accounting Studies, Vol. 11 No. 2-3, pp. 159 - 189.
Shailer, G. and Wang, K. (2015), “Government ownership and the cost of debt for Chinese listed corporations”, Emerging Markets Review, Vol. 22, pp. 1 - 17.
Shao, L., Kwok, C.C.Y. and Zhang, R. (2013), “National culture and corporate investment”, Journal of International Business Studies, Vol. 44 No. 7, pp. 745 - 763.
Tran, N.M., Nonneman, W. and Jorissen, A. (2014), “Government ownership and firm performance: the case of Vietnam”, International Journal of Economics and Financial Issues, Vol. 4 No. 3, pp. 628 - 650.
Tran, Q.T. (2020a), “Creditor protection, shareholder protection and investment efficiency: new evidence”, The North American Journal of Economics and Finance, Vol. 52, 101170.
Tran, Q.T. (2020b), “Foreign ownership and investment efficiency: new evidence from an emerging market”, International Journal of Emerging Markets, Vol. 15 No. 6, pp. 1185 - 1199.
Vo, X.V. (2018), “Do firms with state ownership in transitional economies take more risk? Evidence from Vietnam”, Research in International Business and Finance, Vol. 46, pp. 251 - 256.
Vu, K.A. and Pratoomsuwan, T. (2019), “Board characteristics, state ownership and firm performance: evidence from Vietnam”, International Journal of Managerial and Financial Accounting, Vol. 11 No. 2, pp. 167 - 186.
Wang, Y., Chen, C.R. and Huang, Y.S. (2014), “Economic policy uncertainty and corporate investment: evidence from China”, Pacific-Basin Finance Journal, Vol. 26, pp. 227 - 243.
Whited, T.M. and Wu, G. (2006), “Financial constraints risk”, The Review of Financial Studies, Vol. 19 No. 2, pp. 531 - 559.
Wooldridge, J.M. (2010), Econometric analysis of cross section and panel data, 10th ed., Cambridge: MIT Press.
Xiao, G. (2013), “Legal shareholder protection and corporate R&D investment”, Journal of Corporate Finance, Vol. 23, pp. 240 - 266.