Research motives
The Oil and Gas industry, also known as the Petroleum industry, plays a crucial role in Vietnam's societal and economic development, as highlighted in the country's strategic plan through 2030 With nearly 35 years of growth, this sector has significantly contributed to energy security, export revenues, and the national budget, while also driving the industrialization and modernization of Vietnamese society Its impact has been instrumental in improving the living standards of the Vietnamese people, helping the nation achieve medium-income status globally Additionally, the upstream activities of the industry are vital to maintaining national sovereignty.
The participation of the Oil and Gas industry in Vietnam heavily relies on the collaboration between firms and the government The industry's efficiency hinges on various factors, prompting an exploration of the key contributors to its success Among these, the profitability of the firms emerges as a crucial element.
Firms inevitably face challenges such as competitiveness, government policies, technological advancements, business management, and resource allocation Therefore, it is essential to effectively manage these factors that impact profitability, enabling managers to develop initiatives for implementing an efficient operational framework.
This study aims to analyze the impact of various determinants on the profitability of firms in the Oil and Gas industry in Vietnam, highlighting the significance of understanding these relationships for better decision-making and strategic planning.
“Determinants affecting profitability of firms in Oil and Gas industry listed onVietnam Stock Market”
Research purposes
The ongoing evolution of the Oil and Gas industry necessitates research into the factors affecting company profitability, providing valuable insights for investors and managers By utilizing econometric models, this study assesses the impact of various determinants on profitability, leading to actionable recommendations for effective business management in this sector.
To obtain this purpose, it is necessary for the study to answer following questions:
- Do the determinants affect the profitability of the firms in Oil and Gas Industry?
- What type of influence do the determinants have? Negative or positive?
- To better the profitability of the enterprises, which methods should the managers and administrators implement?
Research Scope and Subjects
This study examines the factors influencing the profitability of companies in the Oil and Gas industry listed on the Vietnam Stock Market, specifically focusing on the Ho Chi Minh Stock Exchange (HSX), Hanoi Stock Exchange (HNX), and the Unlisted Public Company Market (UPCOM).
In terms of timing, the data was collected during an eight-year period from
This article analyzes various factors influencing the profitability of firms listed on the Vietnam Stock Exchange, specifically focusing on the Oil and Gas Industry The study is based on audited financial statements from 2012 to 2018, providing insights into the key determinants of financial performance in this sector.
Methodolody
This research utilized data collected from financial statements during six years from 2012 to 2018 of Oil and Gas firms listed in Vietnam Stock Market and index from Bloomberg.
This research utilized both qualitative and quantitative methods to analyze the profitability determinants of firms in Vietnam's Oil and Gas Industry The qualitative approach involved classifying and sorting data from various domestic and international documents, while the quantitative method focused on gathering financial data from listed companies' official websites on the Vietnam Stock Market Using Excel 2019 for calculations and Stata 14.0 for data processing, the study reached significant conclusions regarding the factors influencing profitability in this sector.
Research content
Apart from Introduction and References, the research includes five chapters :
Chapter 2: Theory bases about determinants affecting profitability of firms in Oil and Gas Industry
LITERATURE REVIEW
International research
Numerous international studies have explored the connection between capital structure and firm profitability, with a prevailing trend indicating a negative relationship between the two variables.
Vijayakumar (2003) examined the factors affecting the performance of the Indian Public Sector Petroleum Industry, identifying key variables such as leverage, fixed assets turnover ratio, and operating expenses The research revealed that these independent variables accounted for 93% of the profit variation in petroleum enterprises The findings indicated a negative relationship between leverage and profit, while the fixed assets turnover ratio showed a positive correlation Additionally, other factors contributed variably to the companies' returns.
Patrick (2017) explored the impact of capital structure on profitability within Ghana's Oil Marketing Companies, focusing on Ghana Oil Company Limited and Total Petroleum Ghana Limited Utilizing multiple regression analysis, the study examined short-term and long-term debt as independent variables against return on assets (ROA), return on equity (ROE), and net profit margin (NPM) as dependent variables The findings suggested that excessive financial leverage could negatively affect profitability, advising managers to use leverage cautiously and prioritize equity financing for project funding Despite its insights, the study faced limitations due to a narrow sample size, restricting broader industry conclusions.
In the manufacturing sector, Raheman et al (2010) analyzed the profitability of Pakistani enterprises using net operating profit, examining the impact of various determinants on firm performance from 1998 to 2007 The study, which focused on 204 manufacturing firms listed on the Karachi Stock Exchange, revealed that capital structure negatively affects company performance, indicating that higher debt levels lead to lower net operating profit Additionally, the research identified other influential factors, such as cash conversion cycle (CCC), net trade cycle (NTC), and inventory turnover in days (ITID), that similarly impact profitability.
Abbasali et al (2012) examined the connection between capital structure and firm performance evaluation measures, utilizing data from 400 companies listed on the Tehran Stock Exchange.
Between 2006 and 2010, 12 different industries were listed on the Tehran Stock Exchange, with firms' performance evaluated using return on assets (ROA) and return on equity (ROE) The study found a significant negative relationship between debt ratio (DR) and profitability, while factors such as growth (GROW), asset turnover (TURN), size (SIZE), and tangible asset ratio (TANG) positively influenced performance In contrast, the age of the business (AGE) showed an insignificant relationship with performance The authors concluded that a lower debt ratio could enhance enterprise profits and boost shareholder wealth.
In their 2012 study, Melita et al explored the relationship between risk and profitability among firms listed on the Indonesian Stock Exchange from 1998 to 2010, focusing on key sectors such as Food and Beverage, Consumer Goods, and Apparel, which are vital to the Indonesian economy The findings revealed that a higher debt ratio, indicative of increased risk, negatively impacted the return on assets (ROA) of these firms.
Ahmadimousaabad et al.(2013) also investigated about capital structure of enterprises listed on Tehran Stock Market during ten-year period from 2001 to
In a study conducted in 2010 involving financial data from 123 companies, a total of 1,230 samples were analyzed to evaluate the Trade-off Theory and Pecking Order Theory The findings revealed a negative impact of debt on the profitability of the enterprises examined Consequently, it is recommended that managers minimize their reliance on financial leverage within their capital structure to enhance overall performance.
Tharmila and Aruvle (2013) conducted a study on 30 companies listed on the Colombo Stock Market (CSE) from 2007 to 2011, utilizing data from financial statements, social media, and official company websites Their findings revealed that the debt ratio negatively impacted the profitability of these firms, as indicated by a decrease in return on equity (ROE).
Lucy et al (2014) conducted a study on the impact of financial leverage on the performance of firms listed on the Nairobi Stock Exchange (NSE) in Kenya The research utilized a sample of 42 non-financial companies over a seven-year period, from 2006 to 2013.
In 2012, research indicated a negative correlation between financial leverage and financial efficiency, as measured by Return on Assets (ROA) and Return on Equity (ROE) It is strongly advised that managers consider reducing long-term loans within their companies' capital structures to enhance profitability.
Enekwe et al (2014) investigated the influence of capital structure on the profitability of pharmaceutical companies in Nigeria, analyzing data from three firms over a 12-year period from 2001 to 2012 Their study utilized a model incorporating debt ratio (DR), debt-to-equity ratio (DER), and income-contingent repayment (ICR) as independent variables, with return on assets (ROA) as the dependent variable Through descriptive, correlative, and Pearson regression analyses, the findings indicated that both the debt ratio and debt-to-equity ratio had a negative impact on the profitability of these enterprises Notably, the authors highlighted that the independent variables accounted for only 16.4% of the variation in ROA, suggesting a limited significance in their influence on profitability.
Ahghusin (2015) examined the impact of financial leverage on return on assets (ROA) using data from 25 companies listed on the Aman Stock Market (ASE) in Jordan over a ten-year period (1995-2005) The study revealed a negative correlation between financial leverage (FL) and ROA, indicating that higher debt ratios can adversely affect profitability However, the research has limitations, including a restricted sample size that only encompasses manufacturing companies similar to the selected firms.
Ahmad et al (2015) conducted a study on the impact of financial leverage on the profitability of the Cement Sector in Pakistan, analyzing a sample of 18 companies over six years (2005-2010), resulting in 108 observations Utilizing an OLS model, the study found a negative relationship between financial leverage and profit, indicating that companies with higher leverage tend to experience lower profitability, while those with lower debt ratios are positioned to enhance their returns.
Despite a prevailing number of conclusions about negative relations between leverage and profitability, there have been some studies which resulted in opposite findings.
Magalam and Govindasamy (2010) investigated the relationship between financial leverage and earnings per share (EPS) using a sample of seven companies listed on the Bombay Stock Market over a seven-year period Their research, which employed ANOVA methods, revealed a significant positive correlation between financial leverage and EPS, indicating that higher debt levels can enhance EPS, while lower financial leverage may result in disappointing profits for shareholders Consequently, the authors concluded that optimized earnings for shareholders are likely to be achieved through higher debt ratios.
Aburub (2012) researched over “Capital structure and firm performance:
Research in Vietnam
In terms of study in Petroleum Group, Vu Thi Ngoc Lan, Nguyen Tien Dung
In their 2013 study, researchers examined the factors influencing the capital structure of subsidiaries within the Vietnam Oil and Gas Group, analyzing financial data from 151 companies between 2007 and 2011, supplemented by a questionnaire The study identified five key internal determinants affecting capital structure: growth, size, relation to core business, business risk, and managerial avoidance of debt The findings revealed distinct relationships between these independent factors and the dependent variable, demonstrating the significance of asset structure in capital decisions.
The concept of "equity structure" or government ownership has been theoretically linked to its impact on various outcomes; however, practical evidence suggests no significant relationship between these factors and the dependent variable This discrepancy may indicate an underlying "irrationality" in the capital structure of these specific enterprises.
In his 2016 study, "A Study on Factors Affecting the Efficiency of Vietnam’s Oil and Gas Business," Hoang Tung analyzed the profitability of 30 oil and gas companies listed on the Ho Chi Minh Stock Exchange (HSX) and Hanoi Stock Exchange (HNX) during a downturn in the Vietnamese securities market from 2010 to 2014 Utilizing both Fixed Effects Model (FEM) and Random Effects Model (REM), the research identified three key factors influencing business returns: capital structure, growth, and receivables management Notably, the study found that capital structure negatively impacted returns, while fixed assets investment showed no significant effect.
Nguyen Tuyet Khanh, Le Khac Hoai Thanh, and Phan Thi Quynh Trang (2017) conducted a study examining the impact of capital structure on the profitability of oil and gas enterprises, utilizing data from 30 companies listed on the Vietnam Stock Market over a five-year period The research focused on return on equity (ROE) and return on assets (ROA) as dependent variables, while total debt over equity (TDE), short-term debt (STD), and debt over total assets (DTA) served as independent variables Employing three regression models—Pooled, Fixed Effects Model (FEM), and Random Effects Model (REM)—the study found that total debt over equity (TDE) has a negative effect on profitability as measured by ROE.
Bui Ngoc Toan (2016) investigated the impact of working capital management on return on assets (ROA) within Vietnam's Real Estate sector, analyzing data from 35 publicly listed companies from 2010 to 2014 The findings revealed a negative correlation between financial leverage (LEV) and profitability, suggesting that an increased debt ratio can hinder the growth of enterprise returns.
Le Thi Khanh An's 2019 thesis examines the impact of capital structure on the financial efficiency of petroleum enterprises listed on the Vietnam Stock Market Analyzing financial statements from 37 oil and gas companies between 2009 and 2018, the study identifies key interactions between capital structure and returns Utilizing a model that includes long-term debt (LTD), debt over equity (DE), age of business (AGE), enterprise size (SIZE), and government ownership (STATE) as independent variables, with return on assets (ROA) as the dependent variable, the findings reveal that long-term debt and debt over equity negatively affect ROA In contrast, government ownership shows no significant impact The conclusion drawn is that a negative relationship exists between capital structure and profitability, indicating that increased debt may lead to diminished returns for oil and gas companies.
In contrast to previous findings, Dong and Su (2010) identified a positive correlation between debt ratio and profitability in their study titled "The Relationship between Working Capital Management and Profitability in Vietnam." Unlike many other studies that utilized ROE or ROA as dependent variables, the authors employed gross operating profit Their research analyzed secondary data from listed enterprises on the Vietnam Stock Market from 2006 to 2008, yielding an R-squared value of 20.3%.
Bui Bao Ngoc Dong (2016) investigated the factors affecting profitability, revealing a positive correlation between oil prices and profitability The study found no significant relationship between capital structure and profit using the Generalized Method of Moments (GMM), while the Pooled Regression Model and Random Effects Model (REM) indicated a positive effect at a 10% significance level This suggests that financial leverage may not be an effective strategy for managing Oil and Gas companies The research also took into account various macroeconomic variables, including financial crises and advancements in oil shale technology.
Analyzing profitability, Nguyen Tuyet Khanh (2017) has a research of
This article analyzes the financial performance of publicly listed petroleum companies using the Dupont Model, focusing on financial statements from 2013 to 2015 to evaluate return on assets (ROA) and return on equity (ROE) The analysis breaks down ROA into total asset turnover and net profit margin, while ROE incorporates financial leverage The study exclusively examines commercial enterprises due to significant differences in size and capital structure within the petroleum sector Findings reveal that various determinants influence performance over different periods; specifically, in 2014, a decline in ROA was primarily driven by a reduced net profit margin due to increased production costs, whereas in 2015, total asset turnover emerged as the key factor affecting both ROA and ROE Additionally, financial leverage positively impacted returns.
Nguyen Khuu Huy's 2018 research, "The Influence of Government Ownership on Profit Management of Enterprises Listed on the Vietnam Stock Market," analyzed data from 536 non-financial companies on the Ho Chi Minh Stock Exchange and Hanoi Stock Exchange from 2007 to 2017 Utilizing GMM regression, the study found that higher levels of government ownership correlate with improved profit management strategies However, it also identified that significant state ownership can lead to inefficiencies in management policies, operational performance, resource allocation, and ethical conduct Consequently, managers of firms with elevated government ownership are better equipped to enhance profitability Additionally, factors such as capital structure, growth potential, and audits by Big 4 firms further influence profit management tendencies.
Research on the determinants affecting profitability in the Oil and Gas industry has produced extensive information from both Vietnamese and international authors, establishing a solid foundation for this study However, the Petroleum sector remains a contentious area for researchers and managers, particularly in Vietnam, where studies are limited This presents an opportunity for economists to explore and provide valuable insights Therefore, conducting research on the "Determinants Affecting Profitability of Firms in the Oil and Gas Industry Listed on the Vietnam Stock Market" is crucial This study aims to enrich the existing knowledge base in the Petroleum industry, offering data and recommendations that can assist investors and managers in making informed decisions for their businesses.
THEORY BASES FOR DETERMINANTS AFFECTING FIRMS’ PROFITABILITY IN OIL AND GASINDUSTR Y
Profitability in Oil and Gas Industry in Vietnam 25
The oil and gas industry is characterized by the unpredictable nature of oil discovery, making oil production a speculative venture Investors are drawn not by average earnings but by the potential for substantial gains, despite the significant risks involved Profitability varies across different sectors, each possessing unique characteristics that influence earning potential.
The oil and gas industry faces a minimal threat from new competitors due to significant upfront costs and extensive knowledge requirements Despite the presence of thousands of companies, rivalry among existing players is intense, primarily because of the overall low growth rate in the industry This limited growth is distributed among numerous competitors, resulting in a smaller share of opportunities for each company.
Therefore, the growth in profit of most Oil and Gas enterprises seem to be strongly affected, shown in recent periods when
Table 2.2: Financial indicators of several Oil and Gas firms in 2019
Source : Financial statements of listed Oil and Gas enterprises
In 2019, many companies in the Oil and Gas Industry, including GAS, PVD, and PVS, experienced a decline in profits due to increased competition from foreign corporations, fluctuations in oil prices, and various changes in both the global and Vietnamese markets.
In Figure 2.3, PVGas (GAS) belonging to midstream sector regarded as the pioneer in Oil and Gas industry an increase in ROA, while most companies show a reverse case.
Figure 2.3 Return on Assets (ROA) of different enterprises in three sectors
Total debt Total debt+Total equity unit :%
— GAS — PVD — PVT -BSR — PXS — PVC
Source : Financial statements of listed Oil and Gas enterprises
In the industry, particularly within the upstream sector, companies like PVD and PXS are significantly influenced by exploring demand, resulting in a strong dependence on market fluctuations for their profits In contrast, downstream firms such as PVC generally experience less impact and damage compared to their upstream counterparts However, this dynamic can vary; for instance, BSR, a refining company classified as downstream, is closely linked to exploration activities since its profits are derived from the cracking spread between the input costs of oil—adjusted by exploration quantities—and the output prices.
The profitability of most corporations is significantly affected by fluctuations in the petroleum market, creating a high level of risk across various industries However, the extent of this impact can vary depending on the specific business sector.
Determinants affecting profitability of firms in Oil and Gas
In terms of Subjective factors, there are numerous amounts to consider to result in initiatives to have an efficient framework for an Oil and Gas enterprise.
This study has elected several determinants sufficiently influencing the Oil and Gas Industry and representing the outstanding feature of this industry.
Being a Petroleum company, it virtually requires a large amount of financial resources to run the business, leading to the important role of capital structure in the companies’ framework.
Capital structure refers to the mix of debt and equity that a company uses to finance its operations and enhance efficiency It is reflected in the balance sheet, which includes both long-term and short-term debt, as well as common and preferred shares.
A company with a higher proportion of debt is often perceived as more aggressive, which can increase risk for both investors and the business itself Nevertheless, this risk is also seen as a significant driver of growth for companies.
On the contrary, higher equity ratio would lead to low financial leverage and a conservative pattern, triggering lower growth rates.
Capital structures differ widely across industries, with cyclical sectors such as mining—an integral part of the petroleum industry—often being ill-suited for debt financing The unpredictable cash flow profiles in these industries create significant uncertainty regarding their capacity to service and repay debt obligations.
In addition, Private companies may have a harder time using debt over equity, particularly small businesses which are required to have personal guarantees from their owners.
When discussing capital structure, several ratios indicate the risk associated with a company's borrowings One key measure is Financial Leverage (FL), which can be expressed through a specific formula.
FL When measuring Financial leverage, the analysts use data in financial statements From the formula, it is seen that the higher Financial leverage illustrates the larger Debt.
The role of fixed assets in companies, particularly in the Oil and Gas Industry, has sparked considerable debate, as this sector typically exhibits a higher fixed asset ratio compared to others Investing in fixed assets is essential for these firms, enabling them to modernize technology, achieve economies of scale, save time, and enhance profitability.
A fixed asset is a long-term tangible property or equipment owned by a company to generate income through its operations Unlike current assets, fixed assets are not anticipated to be converted into cash or consumed within a year Typically listed on the balance sheet as property, plant, and equipment (PP&E), fixed assets are also known as capital assets.
When a company acquires or sells a fixed asset, these transactions are reflected in the cash flow statement under investing activities The acquisition of fixed assets results in a cash outflow for the company, whereas the sale of such assets generates a cash inflow.
When an asset's value drops below its net book value, it triggers an impairment write-down, necessitating a downward adjustment of its recorded value on the balance sheet to align with its actual market value.
When a fixed asset reaches the end of its useful life, it is typically disposed of by selling it for its salvage value, which is the estimated worth if the asset is broken down into parts In some instances, the asset may become obsolete and lack a market, resulting in disposal without any payment Regardless of the method, the fixed asset is removed from the balance sheet, as it is no longer utilized by the company.
Understanding a corporation's assets is essential for accurate financial reporting, business valuations, and comprehensive financial analysis Investors and creditors rely on these reports to assess a company's financial health and make informed decisions about purchasing shares or lending money Given that companies may employ various accepted methods for recording, depreciating, and disposing of assets, it is crucial for analysts to review the notes in the financial statements to understand how the reported figures were derived.
Fixed assets play a crucial role in capital-intensive industries like manufacturing, which necessitate significant investments in property, plant, and equipment (PP&E) Consistently negative net cash flows related to fixed asset purchases may signal that a company is in a growth or investment phase.
The Oil and Gas Industry plays a crucial role in Vietnam's economic development, leading the government to maintain significant oversight and investment in this sector By holding a substantial share of equity in petroleum companies, the government aims to manage and control these firms effectively, facilitating the country's industrialization and modernization efforts.
Government ownership, also known as state or public ownership, refers to the control of an industry, asset, or enterprise by the state or a community-representing public body, rather than by individuals or private entities This form of ownership is one of the three primary types of property ownership, distinct from private, collective/cooperative, and common ownership.
In market-based economies, state-owned assets are typically managed as joint-stock corporations, with the government holding a majority stake, known as state-owned enterprises (SOEs) These enterprises can function as not-for-profit organizations, commercial entities in competitive markets, or natural monopolies Additionally, governments may leverage profitable SOEs to bolster their general budgets The process of transforming public property into a state-owned enterprise is referred to as corporatization.
The OECD highlights a rising trend in enhancing transparency and accountability in state ownership rights This includes establishing a clear rationale for state enterprise ownership, creating a centralized or coordinated ownership function, and ensuring regular public disclosure of aggregate reports on the state-owned enterprise sector.
Descriptive statistics
Table 4.1 : Descriptive statistics of data
FL GOV DIV FA logEXR OIL
Source SS df MS No of obs
The table 4.1 illustrates descriptive statistics of data Apparently, ROA- dependent variable has an average number of 0.0093046, standard deviation of 0.1065098, ranging from -0.5568675 to 0.2758909.
Similarly, we can conclude the descriptive statistics of other determinants.
The average FL is 0.7076579, with standard deviation of 0.7647454, ranging from 0.0659977 to 8.104655
The mean of GOV is 0.2751867, standard deviation of 0.3486372, ranging from 0 to 1.
The average DIV is 674.6847 (VND), standard deviation of 1012.6, ranging from 0 to 5500.
For FA, the mean is 0.2078515, standard deviation of 0.1778223, ranging from 0 to 0.6978574.
With logEXR, the average amount is 9.990688, standard deviation of 0.0319172, ranging from 9.953651 to 10.04432.
Lastly, OIL’S mean is 77.85576 (USD/barrel), while standard deviation is26.23298, ranging from 45.13182 to 111.6755.
Correlation analysis
Table 4.2 demonstrates a significant correlation between the independent variables, particularly between IogEXR and OIL, which has a value of -0.7762, exceeding the threshold of 0.5 As a result, OIL has been excluded from the final equation.
ROA it = O 1 + 0 2 FL t + 0 3 GOV t + 0 4 DIV t + 0 5 FA t + 0 6 logEXR it + S it
It would also be implemented in FEM, REM and GLS regressions in following results The final models are :
ROA it = O 1i + 0 2 FL t + 0 3 GOV t + 0 4 DIV t + 0 5 FA t + 0 6 logEXR it + S it
ROA it = 0 1 + 0 2 FL it + 0 3 GOV it + 0 4 DIV it + 0 5 FA it + 0 6 logEXR it + Vi + S it
(While O 1i describes fixed effects and Vi describes random effects )
Empirical results
The table 4.3 shows the results of applying OLS model for this study.
Table 4.3 : Results in OLS model
Mean VIF 1.12 _ Prob > chi2 = 0.0011 Prob > F = 0.0400
Source : STATA 14.1 FEM _ REM _ Hausman Test
Table 4.4: Hypothesis Testing in Pooled Regression (OLS)
From Table 4.4, it has been shown that although the Pooled Model do not have multicollinearity (vif = 1.12 chi2 = 0.0011< 5%) and Autocorrelation (Prob > F = 0.0400 chi2 = 0.0000 Prob > F = 0.0400
FEM had R-squared of 0.2377, meaning that the model can explain 23.77% the change of ROA Similarly, the model of REM can explain 53.98% ROA adjustment.The models can be written as :
The Hausman Test yielded a Prob > chi2 value of 0.0000, indicating that the Fixed Effects Model (FEM) is more appropriate for this study compared to the Random Effects Model (REM) Consequently, additional hypothesis tests were conducted for the FEM.
Table 4.6 : Hypothesis Testing in Fixed Effects Model (FEM)
No of groups Time periods Wald chi2(5) Prob > chi2
ROA Coef Std Err z P>z [95% Conf Interval]
Table 4.6 indicates that the Fixed Effects Model (FEM) does not exhibit multicollinearity issues (VIF=1.12, which is less than 10) However, the model is influenced by heteroskedasticity and autocorrelation, which may result in distorted outcomes To address these issues, Generalized Least Squares (GLS) has been utilized.
Table 4.7 : Results in Generalized Least Square (GLS)
Coefficients: generalized least squares Panels: heteroskedastic
Correlation: common AR(1) coefficient for all panels (0.3177)
Consequently, the final results in different models are displayed below:
Table 4.8 presents the analysis results of Return on Assets (ROA) in the Oil and Gas industry from 2012 to 2018, utilizing Generalized Least Squares (GLS) estimation The findings indicate that four factors significantly impact ROA: Financial Leverage (FL), Government Ownership (GOV), Dividend Payout (DIV), and the log form of the Exchange Rate (luger) In contrast, Fixed Assets to Total Assets (FA) shows no influence on ROA.
Therefore, the final regression model can be written as :
Financial leverage (FL) significantly negatively impacts return on assets (ROA) at a 1% significance level, with a coefficient of -0.0576 This indicates that a 1-unit increase in financial leverage results in a 0.0576-unit decrease in profitability, assuming other factors remain constant This finding aligns with previous research, both domestic and international, suggesting that higher debt levels increase risks for companies, potentially undermining their health and competitiveness Consequently, companies with higher financial leverage tend to exhibit lower profitability Additionally, this supports the theory that the petroleum industry is often ill-suited for high debt levels due to unpredictable cash flows and uncertainty regarding debt repayment capabilities.
The exchange rate (EXR), calculated in logarithm, has shown a significant negative impact at the 5% level, with a coefficient of -0.156, indicating that it adversely affects the performance of the firms analyzed, contrary to previous studies This negative influence is particularly relevant in the petroleum industry, where exchange rates significantly impact operational activities such as importing inputs, exporting oil and gas products, and engaging in foreign contracts Additionally, financing activities, including debt acquisition for fixed asset investments and addressing short-term liquidity needs, are also affected While oil prices could not be included in this analysis due to correlation issues, they are known to significantly impact the industry, as they are closely tied to the sector's core business Furthermore, the relationship between exchange rates and oil prices helps explain the overall influence of these variables on the industry's performance.
Government ownership (GOV) is a significant factor in the petroleum industry, demonstrating a positive correlation with the financial performance of firms, as evidenced by panel data analysis This relationship is not surprising, given that petroleum companies often receive government backing due to their high-risk nature, substantial investments, and crucial role in the Vietnamese economy These findings align with the perspectives of Nurul (2011) and Nguyen Khuu Huy (2018) within the Vietnamese context, although they contradict the conclusions of Ken & Greg (2016) and Le Thi Khanh An (2019), which indicated a negative relationship.
Dividend payments (DIV) can enhance return on assets (ROA) and profits, aligning with the theory that stable, high-earning companies consistently distribute dividends This finding supports previous studies by Uwalomwa (2012) and Munaza (2017), suggesting that customers and investors tend to trust companies that maintain regular dividend payments Such trust fosters stronger relationships with clients and enables companies to operate more efficiently, ultimately leading to increased profitability.
Research indicates that Fixed Assets to Total Assets (FA) does not significantly impact the profitability of petroleum firms This finding aligns with Hoang Tung's 2016 study within the same industry, contrasting with varied results from foreign studies in different sectors and countries It suggests that fixed assets may not directly influence the profits of petroleum enterprises, or that the distinct operations and business methods across upstream, midstream, and downstream segments may skew the overall conclusions.
CONCLUSION AND RECOMMENDATION
Utilizing capital structure
To enhance a firm's profitability, managers must strategically leverage capital structure, especially financial leverage, while thoroughly assessing its benefits and drawbacks In the petroleum industry, financial leverage is crucial for funding operational activities in both the short and long term.
This study highlights that financial leverage can negatively impact company performance, emphasizing the need for administrators to carefully manage debt ratios It is crucial for petroleum enterprises to avoid excessive reliance on financial leverage and to view it as a supplementary tool, using moderate amounts in conjunction with other financing sources like shareholders' equity to enhance operational efficiency and profitability.
In today's business landscape, financial leverage serves as a key strategy for many companies across various sectors However, in the petroleum industry, characterized by high-risk activities and significant exposure to unpredictable global market fluctuations, managers must exercise caution when incorporating debt into their capital structure.
Utilizing government ownership
In the Oil and Gas industry, government ownership significantly influences corporate profitability, compelling administrators to modify decisions regarding the distribution of shareholders' equity.
Research indicates that increased government equity ownership can enhance company profitability Managers are encouraged to seek greater government investment to finance projects and maximize profits This suggests that higher state ownership can lead to more substantial support for enterprises, particularly during challenging times Additionally, the oil and gas industry, known for its high risks, plays a crucial role in the economy.
It would be unquestioned that the Government needs to control and manage carefully via shareholders’ rights.
Utilizing dividend policy
A well-defined dividend policy is crucial for optimizing firm performance, compelling managers to thoughtfully decide on adjusting dividend rates and selecting between cash or stock payments for shareholders.
This study demonstrates that increased dividend payments positively impact profitability, suggesting that higher dividends contribute to the sustainability of operations and enhanced earnings This aligns with the belief that efficient operations enable shareholders to receive greater dividends, thereby instilling confidence in investors and clients regarding the effectiveness of the business Consequently, this reliance on operational efficiency can lead to more valuable contracts and ultimately drive higher profits.
As a result, this research advises the managers to have suitable dividend policy to attract investors, especially wealthy investors, to finance their projects and run business effectively.
Utilizing other resources
Managers should also take into account additional factors not covered in this research, as these elements can significantly influence the performance of petroleum firms, both directly and indirectly.
Human resources play a crucial role in enhancing operational efficiency across various roles, including manual laborers, accountants, finance professionals, and strategic planners Therefore, it is essential for managers to prioritize and invest in this key resource, recognizing its importance for the overall success and growth of the organization.
In addition, other motives including infrastructure, technology, etc would also contribute to improve the profitability of Petroleum firms in Vietnam.
While this study provides valuable insights for managers and investors in the Oil and Gas industry, it is limited by a small sample size that does not represent the entire sector Additionally, several key factors influencing profitability in Vietnam's Oil and Gas enterprises were overlooked, hindering a comprehensive understanding of the industry's dynamics Nevertheless, these limitations can inspire future economists and researchers to address these gaps and improve upon this foundational work.
The study by Pouraghajan et al (2012) investigates the correlation between capital structure and various measures of firm performance, providing empirical evidence from the Tehran Stock Exchange The research highlights how different capital structures can influence financial outcomes, offering valuable insights for businesses aiming to optimize their performance metrics in competitive markets.
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