Researchbackground
Inr e c e n t years,p r i v a t i z a t i o n i n d e v e l o p i n g c o u n t r i e s h a s b e e n a c c e l e r a t e d t o m eett h e requiremento f s o c i o e c o n o m i c d e v e l o p m e n t F o r a d e v e l o p i n g c o u n t r y a s V i e t n a m , t h e p r i v a t i z a t i o n isbecomingmoreandmoreimportantinreformationp rocessandconsideredasanessentialenginefortransformationofState- ownedenterprises(SOEs)intheperiodofthecountry’seconomyongoingtointegratewiththeworldecon omy.
After Vietnam joined the World Trade Organization (WTO) in 2007, it became essential to create a capital mobilization regime aligned with market mechanisms and international practices to foster socioeconomic development The Vietnamese government recognized that relying solely on State-Owned Enterprises (SOEs) would hinder long-term economic growth, prompting the consideration of SOE privatization as a solution to this challenge According to a 2015 Asian Development Bank report, the production levels of Vietnamese SOEs lagged behind those of their private sector counterparts, negatively impacting economic growth Data from 2009 to 2013 indicates that state-owned enterprises had significantly lower net turnover compared to private domestic and foreign enterprises In competitive markets, state ownership may be less favorable than private ownership for these reasons.
(1)theState’s prioritiesfocusonsocialandpoliticalg o a l s opposedtomaximizationof firmvalue;(2)humanresource formanagement/ leaderp o s i t i o n isfrompoliticalalliesratherthanexperiencedstaff;and(3)highertransaction cost(Hess, Gunasekarage&Hovey,2010).
Before1986,Vietnamhadacentralized- planningeconomy,whichhadonlytwotypesoff i r m ownershipintheeconomyincludingStatean dcollectiveenterprises(Tran,Nonneman
Under the central planning system, the Vietnamese government controlled and allocated social properties, leading to a weak market mechanism that distorted prices in the economy In 1992, the government launched the "Doimoi" reform program aimed at improving the performance of state-owned enterprises (SOEs) This initiative transitioned Vietnam from a centralized to a market-based economy through privatization Despite this shift, Vietnam's economic growth remains stable compared to other economies, resulting in a gradual and careful privatization process that has progressed from smaller SOEs to larger ones.
The primary goal of restructuring Vietnamese State-Owned Enterprises (SOEs) is to improve socio-economic efficiency, reduce the financial burden on the government, and focus resources on SOEs that require investment (Yuen, Freeman & Huynh, 1996) In recent years, Vietnam's public and publicly guaranteed debt-to-GDP ratio has significantly increased, reaching concerning levels As of the end of 2015, public debt accounted for approximately 61.3% of GDP, and this ratio has been rising continuously The public debt is growing three times faster than GDP, indicating persistent budget deficits and lower-than-expected nominal GDP (International Monetary Fund, 2016) This trend is projected to push the debt ratio toward 70%.
2018andonlyst ar t t o d e c r e a s e f r o m 2 0 2 0 ( F i g u r e 3 ) T h e s l o w p r o g r e s s o f S O E s p r i v a t i z a t i o n i s con si d er ed asoneofthefactorsaffectingthedistributionofthecountry’sfinancialres ources.T h e r e f o r e , Governmentareinhurrymotivatedtocompletetheprivatizationprocessandeven
Vietnam Public Debt to GDP (2006-2015 )
2006200720082009201020112012201320142015 Year Public debt/GDP ratio (%) plantosellstakesatmanylargecompaniesatnow.However,torestructureorprivatizeSOEsm ay alsorequirep ublicfunds.
RegardingtotheperformanceofSOEs,therearemanycorporatesthatkeeptheformer cor po rat e governance,oldmanagementmethods,inefficientworkingenvironment,etc.afterp r i v a t i z e d B e s i d e s , themanagementmechanismandpolicysuchas wagepolicy,bonusands o onarestillappliedasbeforetheprivatization.In2013,VietnamGo vernmentissuedthe
The privatization process in Vietnam faces challenges such as corporate value issues and debt settlements, which can be expedited through effective management Many state-owned enterprises (SOEs) that have undergone privatization have shown increased efficiency, while some have unfortunately faced bankruptcy due to the loss of state guarantees and competitive capabilities Additionally, failures in privatization often stem from a lack of understanding of corporate governance and organizational capital In the Vietnamese context, the government remains a dominant shareholder in many privatized firms, leading to a reliance on state control that undermines the intended autonomy and decision-making power of these enterprises, ultimately hindering effective management and the original goals of privatization.
Problemstatement
Informofa State-ownedenterprise, ownershipis fullyonthehandsoftheState andfirmassets aremanagedbyp u b l i c sector and civil servants(Tranetal.,2015). However,privatization ofSOEsleadstotheestablishmentofvariousformsofownershi pstructures.A cc o r d i n g toTsegbaandEzi-
Herbert(2011),ownershipstructureincludesdominantshareholder,c o n c e n t r a t e d o w n e r s h i p , i n s i d e r o w n e r s h i p , f o r e i g n o w n e r s h i p i n s t i t u t i o n a l o w n e r s h i p , andgovernmentownership.Amongwhich,dominantshareholdersisthe mosti n f l u en ce variablesincetheytakedominantlycontrolofcompany’sbusiness.Accordi ngtoWattanakul(2002),theownershiptransformationmaydivideintotwocases:fullprivatizationa n d partial privatization.Inpartial privatization, itcanbesubdivided intoState- dominanto w n e r s h i p andprivate-dominantownership.
Previousstudiesshowed someargumentsabout the S t a t e ownership Musallam ( 2015)r e s e a r c h e d a n d s t a t e d t h a t p r i v a t i z e d firmsw i t h h i g h S t a t e o w n e r s h i p c o u l d h a v e s t r o n g governmentprotectionandgovernmentmechanism,thus,theyeasilyp erformbetter.O t h e r w i s e , somestudiesstatedthatprivatizedfirmscouldnotfocusonprof itmaximizationb e c a u s e Statehasdifferentpurposes,especiallyinclinedpolitical,andthatleadtolow erfirmperformanceb e c a u s e o f w e a k e r c o r p o r a t e g o v e r n a n c e a r r a n g e m e n t s O
Previous studies have shown a positive correlation between private ownership and corporate performance, as private shareholders tend to prioritize maximizing firm performance This is achieved through stronger governance, improved supervision, effective control, strategic investments, and balanced management discretion Consequently, this raises an important question about whether the prevailing ownership structure impacts the performance of privatized state-owned enterprises (SOEs).
Accordingly,consideringcaseoftransformationof SOEsis thefollowofrestructuringofc a p i t a l s t r u c t u r e A d e w a l e a n d A j i b o l a ( 2 0 1 3 ) s t a t e d t h a t f i r m s r e c e i v e d d i r e c t i o n a n d orientationc o n c e r n i n g t h e i r b u s i n e s s a c t i v i t i e s w i t h c a p i t a l s t r u c t u r e ; a n d t h r o u g h privatization ,itbecomesmoreimportantinthedevelopingcountries.Dharwadkar,Georgea n d Brandes( 2000)specifiedthatdebtmechanismwouldcarriedouteffectivelyinthestrongg o v e r n a n c e c o n t e x t o f d e v e l o p e d c o u n t r i e s H o w e v e r , t h i s s o l u t i o n w o u l d n o t w o r k ine merginge c o n o m i c s , s u c h a s Vietnam,w h e r e l e g a l s y s t e m i s notc l e a r l y a n d stablea n d c o r p o r a t e informationisnottransparent.Therefore,itisexpectedthatfirmswithlowDebttoEquit yratiocouldshowabetterperformanceinVietnam.
Inbrief,thisstudywillfocusontheexaminingtheeffectsofownershipstructure(State- dominantownershipandprivate- dominantownership)andcapitalstructure(DebttoEquityr a t i o ) o n f i r m p e r f o r m a n c e o f p r i v a t i z e d S O E s i n V i e t n a m F u r t h e r m o r e , t h e studya l s o examinesthemodera tingeffectsofthesetwodominanto wne rs hi p structureonther e l a t i o n s h i p ofcapit alstructureandfirmperformance.
Researchobjectives
TheresearchisconductedwithprivatizedSOEs.Thepurposeofthisresearchistostudyt h e pri vatizationprocessinVietnam,inwhichthesubstantialobjectiveistoinvestigatethee f f e c t s o f p r i v a t i z a t i o n o f VietnameseSOEso n t h e i r f i r m p e r f o r m a n c e H e r e a f t e r , s o m e s p e c i f i c objectivesarelistedasfollows:
- Exploret h e m o d e r a t i n g r o l e s o f p r i v a t e - d o m i n a n t o w n e r s h i p a n d S t a t e - d o m i n a n t ownershiprespectivelyontherelationshipbetweenprivatizedSOEs’performance andc a p i t a l structure.
Researchquestions
Researchscope
ThestudywasconductedbasedondatafromallprivatizedVietnameseSOEscurrentl yl i s t e d onHoChiMinhStockExchangeandHaNoiStockExchange.Thepaneldatawer etakenfromannualreportandauditedfinancialstatementinthelatestfiveyears(from2011t o 2 0
1 5 ) t o p e r f o r m t h e o r e t i c a l t e s t i n g T h e r e f o r e , t h e r e s u l t o f s t u d y only s t a t i s t i c a l l y performsa periodprocessofhowprivatizationmadeimpactonperformanceofVietnamesep r i v a t i z e d fir ms.
Researchcontribution
Thisstudyc o n t r i b u t e s t o b e t t e r u n d e r s t a n d i n g o n p r i v a t i z a t i o n i n p r e v i o u s l i t e r a t u r e Firstly,a l t h o u g h t h e r e a r e a n u m e r o u s o f p r e v i o u s s t u d i e s onl yf o c u s e d o n t h e s t a t u s o f p r i v a t i z a t i o n , somestudiesconductedonprivatizationanditseffec tonfirmperformancethat usedtheoutdateddata.Thus,thisstudywillcontributetothecurrentliteratureonprivatizationwithrecentdataseti ncontextofVietnam.
Secondly,thisstudyexaminestheinteractionbetweenownershipstructure(representedbyp r i v a t e - d o m i n a n t ownershipandState- dominantownership),capitalstructure(representedbyd e b t t o e q u i t y r a t i o ) a n d f i r m p e r f o r m a n c e o f privatizedSOEs,e s p e c i a l l y i n V i e t n a m H i e r a r c h i c a l multipleregressio n analysis wasemployedfor the testofmoderatingeffectsofo w n e r s h i p structure(e.gCohen&Conhen,1983).Whiletherearemanyst udiesassessingthei m p a c t ofprivatizationonfirmperformance,therearenosystematicdataonpercentageshareso f p r i v a t e s e c t o r i n p r i v a t i z e d S O E s T h e n i t h a s n o t b e e n yeta s s e s s i n g t h e r e s u l t ofprivatization underprivate-dominantownershipandState- dominantownershipaffecttofirmv a l u e H e n c e , t h i s s t u d y p r o v i d e s f u r t h e r i n s i g h t o f t h e o w n e r s h i p s t r u c t u r e a n d c a p i t a l structureofprivatizedfirmsinanemergingma rketasVietnam.
Moreover,priorstudiesuseddatafromalimitrangeofsamplesuchaschoosingsampleins p e c i f i c industries,f i r m size,etc.whilet h i s s t u d y appliesdataf r o m thealmostlistedp r i v a t i z e d firmsinVietnamesemarket.Therefore,thisstudycontributestobuildasystematicd a t a andgiveoverallp ictureforVietnamGovernment,thepotentialinvestors,andscholarsinbuildinganappropriateown ershipstructuredependingoneachtypesofSOEsorassessinga firmperformance.Finally,thisstudycouldenri chtheprofoundliteratureaboutprivatizationa n d recommendsomeissuesforfutureresearch.
Researchstructure
I n t r o d u c t i o n : s t a t e s t h e b a c k g r o u n d o f t h e r e s e a r c h , r e s e a r c h q u e s t i o n s , r e s e ar c h contributionandobjectivesdoing thisresearch as wellasgeneral methodologyandscope.
Literaturereview:providesreviewoftherelevantacademicliteratureonp r i v a t i z a t i o n ofVietnameseSOEs,theeffectsofownershipstructureandcapitalstructureon firmp e r f o r m a n c e O n g r o u n d o f p r e c e d i n g l i t e r a t u r e , i t w i l l d e v e l o p t h e h y p o t h e s e s a n d model.
Chapter three–Methodology: performsdetailedmethodologyintermsoftheapproachesu s e d andthedatacollectionaswellasdata analysismethod.Itincludesdescriptivestatisticsa n d regressionanalysis,whichareusedtotestthehypot hesisandinvestigatethecorrelation.
Dataanalysis:analysesthecollecteddatathatcontaintheresultsfromusingd e s c r i p t i v e analysisandregres sionanalysis,andapplyingsomeothermethods.
Conclusionandrecommendation:discussesthefindingsandsomeimplicationsmadebyt heresearch.At last,the researchpresentssomerecommendationsforf u t u r e studies.
Thisc h a p t e r c o m p r i s e s t w o p a r t s : F i r s t i s tor e v i e w c o m p r e h e n s i v e l y t h e t h e o r e t i c a l argumentsa n d e m p i r i c a l s t u d i e s o n p r i v a t i z a t i o n , t h e e f f e c t s o f ownerships t r u c t u r e andc a p i t a l structureonfirmperformance.Itbeginswithresearc honstatusofprivatizationandVietnameseeconomyinrecent years.Subsequently,theoreticallytacitlyeffectofownershipstructureandcapitalstructureonfirmper formancearecarriedout.Thirdly,itisbasedonthep r e v i o u s studiestoemploytwotheoreticalmod elstoexplainthefindings.Thischapteraimsto provideacomprehensionofpreviouspapersandtodevelop theresearchmodeltoexaminetheprivatizationaswellastoprovideabasisfortheresearchhypothesesand methodologiesi n followingchapters.
Privatization
Definitionofprivatization
Privatizationh a s becomea w o r l d w i d e p h e n o m e n o n t h r o u g h i t s e f f e c t s o n e c o n o m i c g r o w t h Since1989,countriesinCentralandEasternEuropewereconductedtheprivatization pro cess form o r e t h a n 7 0, 0 0 0 e n te r p r i s e s, a n d n ow i t becamea majoritemont h e p o l i c y a g e n d a inmanyd e v e l o p i n g countries.Privatizationwasakeyi s s u e s becomingmo reimportantindevelopingcountriesineveryindustryandservicesector.Itwasconsideredasap o t e n t i a l methodo f e c o n o m i c policyformanygovernments a l l o v e r th ewo rl d ( P h a m &Carlin ,2008).
Privatizationisdefinedinmanywaysinpreviousliterature.Manystudiesalsoreferred p r i v a t i z at i o n a s “ r e f o r m a t i o n ” , “ t r a n s f o r m a t i o n ” , o r “ equitization”.I t ist h e t r a n s f e r t h e p ro perti es orbusinessesofawholly ownedState- ownedenterpriseandsellsharetoprivates e c t o r tocreateajoint- stockcompany(JSC).TheprivatizedJSCoperatesincompliancewiththeEnterpriseLawandbeconsidered as“publicfirm”.
Privatizationwasforcefullycarriedonwiththegreatexpectationsofthegovernmentonpro motingefficiencyofSOEsandincreasingrevenue.Itincludedtheactionsandactivitiestot r a n s f e r o w n e r s h i p f r o m S t a t e t o p r i v a t e s e c t o r a n d r e q u i r e d c a r e f u l methodsa n d t i m e ( S r i b o o n l u e , 2007).Zhang(2005)statedthatprivatizationwasaseriouseffortno tonlyto createanewcontractualrelationshipingovernmentbutalsotobuildapositivealternativetopublicp r o g r a m s D e v e l o p e d a s w e l l asd e v e l o p i n g c o u n t r i e s b o t h d e t e r m i n e d t h a t p r iv at i z ati o n programswouldmostlyenhancethefirmperformancetocontributeeconomicgr owthnotonlyforprivatefirmsbutalsoforcountry.Basedontheanalysisofdevelopinga n d ad vancedindustrialeconomiesabouttheprivatization,itwas foundthatprivatization i mprovedprofitefficiencyandincreasedeconomicgrowth(Al-Otaibi,2006).
State- ownedenterprises(SOEs),whichwereestablishedbycapitalofState,maintainits1 0 0 p e r c e n t o f S t a t e o w n e r s h i p Byp r i v a t i z a t i o n, S O E s w e r e d i v i d e d i n t o s h a r e s , w h i c h attached the rightsandresponsibilities forbusinessoperationsonthehands ofshareholders.T h i s m e a n t itwouldbenolongercontrolledcompletelybyGovernment.Theformationof ap a r t n e r s h i p betweenStateandprivatepartieswoulddependonthechoiceofprivatiza tion.Thep r i v a t i z a t i o n a l s o classifiedi n t o t w o o t h e r types:
(1)o u t s i d e r s ( i n c l u d i n g f o r e i g n investorsandlocalinvestors)throughinitialpublico fferings(IPOs),directsalesandstrategicalliances,a n d ( 2 ) i n s i d e r s ( i n c l u d i n g t h e S t a t e , m a n a g e r s , a n d e m p l o y e e s ) t h r o u g h l a b o r buyoutorvouchersales.
Themaindifferencebetweenthese twotypes was theparticipationo f theseshareholdersinbusinessoperationbeforeandafterprivatization(Phuong, 2012).
According to Wattanakul (2002), privatization can occur in two forms: partial, where the government retains some shares, and full, where the state completely divests its shares The complete privatization process, defined as 100% ownership by the private sector, is assessed based on the size and economic significance of State-Owned Enterprises (SOEs), particularly in strategic sectors like aviation and electricity In partial privatization, ownership structures are categorized into three groups: state-dominant ownership, equal private and government ownership, and private-dominant ownership However, achieving equal ownership is rare due to challenges in distributing governance power Consequently, partial privatized SOEs typically exhibit either state-dominant or private-dominant ownership, with state-dominant defined as holding more than 50% of shares, and private-dominant as private sector ownership exceeding 50%.
Objectives ofprivatization
ThepurposeofprivatizationisnotonlytoreducethenumberofSOEsandthelevelofSt at e ownershipinVietnam butalsotoimprovetheeconomicandfinancialperformanceofSOEsbyo wne rs hi p s h i f t s ( B o u b a k r i , C o s s e t & Guedhami,2 0 0 4 ) A c c o r d i n g t o C a s t a t e r ( 2 0 0 3 ) , privatization processhappenedonthepurpose ofincrease f i n a nc i a l andoperatingefficiencyofp rivatizedfirmstopublicwelfare.Privatization washopedtoresulttogreatb e n e f i t s f or a c o u n t r y ’ s e c o n o m ic s I m p r o v e m e n t i ne c o n o m y efficiency andq u a l i t y w a s c o n s i d e r e d a s a keyo b j e c t i v e o f p r i v a t i z a t i o n T h r o u g h i n c r e a s i n g c o m p e t i t i o n , i t w o u l d increaseoutput,decreaseprice,utilizeresources,createwell- functioningmarketsandfaire n v i r o n m e n t ininvestment.
Itmighti n c r e a s e t h e e f f i c i e n c y o f S O E s b e c a u s e o w n e r s h i p s t r u c t u r e w a s c h a n g e d , subsequentlytocreatethemotivationsforspecificentitiestoutilizeallofre sources.Itwasc o n s i d e r e d asafinancialsolutionbasedonprivatizationtoimproveownership structureandc l e a r l y determinetherightsandresponsibilitiesofeachentitycontributingtocompany.
Onthepurposeofmobilizingcapitalfromprivateinvestors,privatizationallowedindividu als,organization,orevenforeignersjoiningthebusinessactivitiesofformerSOEs.
State-Owned Enterprises (SOEs) can raise funds to increase charter capital, expand operations, update technology, purchase facilities, and develop available resources Privatization has enabled employees and managers to become shareholders, which is believed to enhance their commitment to the corporation based on their contributions (Thi, 2012) Furthermore, according to Adam (2007), privatization can help enterprises attract more investment, particularly foreign direct investment, which may facilitate technology transfer, management skill development, human resource enhancement, and access to international markets This is expected to significantly contribute to the development of corporate business operations.
Aboveall,thegovernmentattemptedtoacceleratetheprivatizationprocessforthepurposeo fbetterperforma ncethanformerSOEs.Severalstudiesfoundpositivefinancialresultsfromp r i v a t i z e d SOEs.Wattanak ul(2002)collectedsomeevidencestoprovethatprivatizationoff i r m s i n d e v e l o p i n g c o u n t r i e s c o n t r i b u t i n g toi n c r e a s e i n n e t incomeo n s a l e s a n d a s s e t s P r i va t e i n v e s t o r s w e r e e n c o u r a g e d t o s t r e n g t h e n f i r m e ff ic ien cy, i m p r o v e o r g a n i z a t i o n infirms.
PrivatizationinVietnam
Asmentionedabove,VietnamGovernmentiscarrying publicdebtaround61.3%ofGDPa t theendof2015,in whichSOEsistakingaccountofmorethanhalfofcountry’sbaddebt.S i n c e there weremanyinefficientSOEs,VietnamGovernment endeavored toaccelerate thep ri v a t i z at i o n forpastdecades.TheStatewoulddecidetomaintainthepercentageof
States h a r e Throughprivatization,governmentseitherwhollyorpartlysoldtheirinterestsinSOEst o do mesticorforeignprivatesectorinvestorsortoenterprises’employees/workersbypublic auctionorthroughstockmarket.ItwasamajorprocessforVietnameseeconomytransferringf r o m thecentra lizedtomarketbasedeconomy.
(2000),traditionaltheoriesarequiterationalindevelopedeconomies,wheretherehadefficientlegalsyst emandstronggovernancecontext.However,i n mostemergingeconomies,therewereimperfectlegal systemleadingtothelackofabilityt o protectrightsofminorityshareholdersanddebt- holdersinmanycircumstances(Sarkar&S a r k a r , 2005).Eventhough,ineconomieswithemergenceofr igidlegalregulations,lawwass t i l l ineffectivelyenforced.Therefore,thisstudyconsideredallt herationalesinVietnam’sw e a k corporategovernance.
Theprivatization p ro cess in Vietnam hasb e e n car ri ed ou t t h r o u g h t h e mainfoll owingmethods,whichincluded(1)saleofsmallSOEsthathadpoorperformance,
(3)privatizationofSOEs,and(4)establishingprivateentities(Thi,2012).Throught h e s e f o u r methodsa b o v e , i t w a s easilytos e e t h a t V i e t n a m hadb e e n p r o c e e d i n g t h e p r i v a t i z a t i o n slowlyandcarefullywhichwassuitablewiththecountry’s economicsthroughe a c h stage.
CPdatedJuly18 th ,2011ofVietnamGovernmento n thetransformationof100%SOEsintoJ ointStockCompanies,theobjectivesofprivatizationwasto mobilizethecapitaland seekforinvestmentfrombothinsideoroutsidep o t en t i al investors.Infact,privatizationofSOEsinViet namwasstillproceedingslowlyands t a b l y overt h e p a s t years.T h i s l e d t o p r o b l e m t h a t S O
E s c o u l d n o t de v e l o p as mucha s e x p e c t e d Inrecentyears,Vietnamshowedaveryhigh economicgrowth,whichmeantthep r iv at i zat io n progressdidnotbringseriousharmtot heeconomyofcountryinshortterm(Sjửholm,2006).However,inlongerterm,theremightleadto unpredictableconsequencesifV i e t n a m wouldnotputhardereffortonimplementationtoprivatizetheS OEscompletely.Atp r e se n t , S O E s h a s s t i l l b e e n h o l d i n g t h e d o m i n a n t r o l e i n V i e t n a m e s e e c o n o m y A t t h e beginningof“doimoi”programin1986,Vietnamhadover
10,000SOEs.AsTable1,thetotalVietnameseSOEs wereprivatizedis4,210firmsuntil2015,inwhichitdescribeda bloomingin periodmiddleof1998to 2006 with3,576 SOEsequitized. However,therewasa s l o w p r o g r e s s from2 0 0 7 u n t i l n o w A c c o r d i n g t o r e p o r t o n p r i v a t i z a t i o n o f S O E s o f DepartmentofCorporateFinance,MinistryofFinance(2 015),inperiod2007-
2010,thereonlyachieved30%ofprivatizationcomparedtotheplan.Theprivatizationprocessstill wass l o w downduetosomeobjectivefactors,whichwererelatedtocompanyevaluatio n,badd eb t , et c (Thi,2012).ThetotalnumberofprivatizedSOEsinperiod2011–2015wasonly 248.Inlatesttwoyears,thepurposenumberofSOEsbeingprivatizedin2014-
2015was432buttheactualSOEs wereproceededtobe privatizedwas 153,which only achieved35%comparedtotheplan.
2 Expandingt h e pilotstage(middleo f 1 9 9 6 - middleo f 1998)accordingt o followingDecreesNo.28/
CPdatedMay7 th ,1995andNo.25/CPdatedMarch26 th ,1997 ofthe Government.
CPd a t e d June29 th ,1 9 9 8 ; No.64/2002/ND-
CPd a t e d June19 th ,2002;andNo.109/2007/ND-CPdatedJune26 th ,2007.
QD-TTgdatedJuly17 th ,2012;DecreeNo.59/2011/ND-CPdatedJuly18 th ,2011
Afterproceedingprivatizationsince1996,toacceleratetheprocess,VietnamGovernmenthaschange dthemethodofprivatizationfromdirectsalestopublicofferingsaccordingtoDecree No.187/2004/ND-
CP.Atearlystagein2002,Governmentstillputthelimitationofs h a r e p e r c e n t a g e t h a t n o n - s t a t e o w n e r s c o u l d h o l d i n S O E s ( i n d i v i d u a l a n d e n t i t i e s w e r e a l lo w ed tobuyres pectively5%and10%).However,from2005tonow,privatizationIPOsa r e themostmethodap pliedinprocess,anditevenallowedforeignerinvestors toholdalimitedshareofprivatize dSOEsupto49%
(Thi,2012).ThisactionofGovernmentnotonlya t t r a c t e d formoreforeigninvestors’particip ationsandbutalsoincreasedthetotalmarketc a p i t a l i z a t i o n Atthistime,Vietnamesereg ulationsgaveforeigninvestortherighttoownupt o 4 9 % o f n o n - f i n a n c i a l e n t e r p r i s e s R e c e n t l y , V i e t n a m G o v e r n m e n t i s s u e d t h e D e c r e e 6 0.20 15 /N D-
CP datedJune26,2015,inwhichforeigninvestorsareallowedtosettheirownlimitsupto100%ofshare sinsomesectors Ingeneral,issuingDecree60.2015/ND-
CPwasc o n s i d e r e d asamajorstepofGovernmenttospeeduptheprivatizationprocess meansbyopeningupthemarketformoreforeigninvestors.Table2showedsomeprivatizedSOEswithf o r e i g n ownershipholdingaround49%ofshares,inwhichsomeofthesefirmsareoneofthebiggest compani esinsuchsector.
After two decades of persistent efforts, Vietnam achieved a significant milestone by successfully offloading shares and boosting its stock market in 2015 The Ministry of Finance reported that 96 State-Owned Enterprises (SOEs) with a total charter capital of $3.14 billion were organized for Initial Public Offerings (IPOs) on both the Ho Chi Minh Stock Exchange (HSX) and the Hanoi Stock Exchange (HNX), generating $2.29 billion for the State budget Recently, through the State Capital Investment Corporation (SCIC), the government prepared to sell its entire stake in ten major SOEs, including Vinamilk, the largest listed company in Vietnam, which is expected to contribute around $4 billion to the State budget These earnings would significantly aid the government in repaying its substantial public debt Additionally, the government's efforts to privatize Vietnam Airlines began in late 2014 and yielded successful results by late 2015, marking notable achievements in Vietnam's privatization program Despite these advancements, many SOEs still remain partially privatized, indicating ongoing progress in the country's privatization efforts.
According to AsSriboonlue (2007), the motivations for privatization differ across countries, with Vietnam facing two primary reasons for its urgency Firstly, State-Owned Enterprises (SOEs) have demonstrated poor performance despite controlling significant national resources, such as natural assets, capital, and labor The government lacks clear statistical data on SOEs, including their number, capital, and annual revenue, which complicates management and places a financial burden on taxpayers who are indirectly supporting these enterprises Secondly, while Vietnam's economic growth has been notable in recent years, it is often deemed unsustainable Consequently, privatization emerges as a viable strategy to address these challenges and enhance the efficiency of SOEs.
Despite the government's efforts to advance privatization, progress has been slow due to several factors Firstly, the existing State-Owned Enterprises (SOEs) are large, financially complex, and operate extensively, resembling economic groups and state corporations Secondly, the government still retains shares in many privatized companies, which hampers the involvement of other economic sectors and limits resource utilization, ultimately deterring potential strategic investors Lastly, many former SOEs that have undergone privatization continue to operate under outdated management systems and business practices, lacking transparency, which prevents any significant improvement in performance.
In general,Vietnam Government hasissuedmanypoliciestopush the privatization but itstill needsmorestrategic solution,createthebreakthroughtoattractboth insideandoutsider e so u r c e s intheprocessofgovernanceandenterprisedevelopment.
Effectsofownershipstructureonfirmperformance
EffectsofStateownershiponfirmperformance
Phunga n d M i s h r a ( 2 0 1 6 ) p r o v e d t h a t S t a t e o w n e r s h i p c o u l d b e c o n s i d e r e d a v a l i d characteristicinimprovingfirm efficiency.Theirstudyshowedsomead vantagesofS ta te o w n e r s h i p suchasaccesstoresourcesandpower.Forexample,Stat eownersmighthelpafirmt o mobilizec a p i t a l e a s i l y f r o m b a n k l o a n s s i n c e i t g o t t h e f a v o r s a n d p r i o r i t y f r o m g o v e r n m e n t FirmswithState- dominantownershipmayobtainspecialbenefitsfromStateo w n e r s h i p throughmonito ringmanagerssinceithavecloseconnectionthatthesefirmscang e t S t a t e ’ s h e l p i n s p e c i f i c c a s e s ( L e & B u c k , 2 0 1 1 ) I n a firmw i t h h i g h l e v e l o f S t a t e ownership,governmentputmoreeffortintoitsincetheyholdmajorityofshares.TheStatew i l l a lsoprovidemoreresources,greaterauthorityandfavorabletreatmentcomparedwithf i r m w i t h majorityofprivateshareholder.AsstudyofIwasakietal.
(2010),theystatedthatsomeregulationsandadministrative measuresmightsupportforS OEstodobetterperformancethanprivatesectorsinthesamemarket.Inwhich,firmswith State- dominanto w n e r s h i p wouldconfidentlyoperateandexpandmarketandattractmor ecustomersthanp r i v a t e ones.AccordingtoTranetal.
However,SOEscouldnotbefocusonmaximizingfirmperformancesincetheymayhavediff erent go als suchassocial orpolitical(Phung
&Mishra,2016).TheycollectedthatStateownership hadadverseimpactonfirmperformance becauseofthedifferentgoalsbetweenSt ate andtheowners,andthefirmsonlyhadbenefitfromth egovernmentsupportwheninah i g h concentrationofStateownership.Previously,Carlin andPham(2008)conductedther esear ch inVietnamandfoundthattherewasareductioni nprofitabilityofformerSOEs.C o n d u c t i n g thestudyinChina,SuandHe(2012)foundthatfirmper formancewasnegativelyr e l a t e d toStateownershipbutpositivelyrelatedtopublicandemployeeshareo wnership.
Effectsofprivateownershiponfirmperformance
A study conducted by Musallam (2015) in Malaysia found that state ownership negatively impacts corporate performance, while foreign ownership has a positive correlation with it Similarly, Na (2002) highlighted that foreign investors bring valuable management experience and advanced technologies, enhancing firm performance in emerging markets Sjöholm (2006) emphasized that outside investors significantly improve firm performance by providing better supervision and reducing the influence of internal investors, such as government stakeholders He also noted that in Eastern Europe, firms controlled by foreign shareholders tend to perform better than those managed by insiders Phuong (2012) observed that state-owned privatized firms in Vietnam often suffer due to politically influenced strategies, while dominant outsider and foreign ownership positively affects performance through improved monitoring Furthermore, Tran et al (2015) pointed out that privatization empowers managers to restructure organizations and recruit efficient employees, ultimately leading to better operational outcomes.
Infact,there areseveralfactors,whichcouldaffectfirmperformancesuch as economicconditions,industrialupgrade,capitalstructure,governmentmechanism,etc.butitsti llcanb e saidthatbuildinganappropriateownershipstructurefirstcanbringagoodmanagement structureforachievementofgoodperformance.
Effectsofcapitalstructureonfirmperformance
A firm's capital structure refers to the mix of its financial liabilities, which encompasses how a corporation organizes its assets through a combination of equity and debt (Adewale & Ajibola, 2013) This capital structure is a crucial factor influencing a firm's profitability and presents complex challenges in corporate finance It significantly impacts business revenue and determines the earnings available to shareholders (Nawaz & Naseem, 2011) Therefore, selecting an appropriate capital structure is essential for any business organization, with many effective structures being predominantly composed of debt.
Min,Wang,N i c h o l a s a n d D u o n g ( 2 0 1 4 ) s t a t e d t h a t S t a t e o w n e r s h i p wouldletSOEseasilyaccesstodebtbutthiscameuptotheadverseeffectonfirmperformance.Theyfoundthenegative andsignificantrelationbetweencapitalstructureandf i r m performanceamongVietnameseSOEs.Regardingcapitalstructure,itwasbelievedthat
(2014)collectivelyindicatedthereasonsleadingtothen e g a t i v e relationshipbetweencapitalstructure andfirmperformancewere thepossibilityofi n e f f i c i e n t investmentassociatedwithdebtandshareholderreactionstole verage,whilethep o s i t i v e relationshipcouldbefromthetrade- offbetweenagencycostofdebtandequity,andth elimitedliability effectofdebt.However,inthecontextofweakgovernanceandi n c o m p e t e n c y oflawenforce mentinVietnam,debtmechanismwasnoteffectiveinagencyproblem.S i n c e t h e c u r r e n t l a w hadn o r e g u l a t i o n o n i n s u r a n c e forb e n e f i t s o f creditors,managerscouldhavemorecha ncetoavoiddebtresponsibility,andtakeexaggeratedriskthati s inchargeofcreditors.Therefore,thelowerDebt toEquityratiowasmoredesirabletobetterf ir m performance.
Effectsoffirmsizeasmoderatingfirmperformance
Manypriorliteraturesstatedthatfirmsizewasanimportantpredictoroftheperformance.AccordingtoA bbasiandMalik(2015),theystudiedtherelationshipbetweenfirmsizeandperformanceandsho wedsomeevidencesprovedthatfirmsizewashavingsignificantimpacto n performance.Sincelargerfirm would havebetterchancesand incentives, suchascreditsf r o m financialinstitution,loanatcheaperrates,etc.,largerfirmsshowedbetterperform ancew h i l e s m a l l e r firmswerelesslikelytohaveabilitytocompetewiththelargerones.Fu- Mine t al.
(2014)alsostudiedthepositiverelationshipbetweenfirmsizeandfirmperformance,a n d c o n c l u d e d t h a t l a r g e r f i r m w i t h i n c r e a s e i n a s s e t s w o u l d l e a d t o i n c r e a s e i n f i r m performance.Moreover,largerfirmshadbettercapabilitiesandresourcessothat theywerel o w chancesofbankruptcy(Titman&Wessels,1988).Therefore,inthisstudy,firmsizewasu s e d ascontrolvariabletochecktheoperatingenvironmentofsuchenterprises.
Summaryofliteraturereviews
Insummary,integratingwithtrendofcountriesaroundtheworld,VietnamGovernmentr e a l i z e d theurgencyofpushinguptheprivatizationprogresstoimprovethecurrentnationaleconomy.Previo
22 usstudiesandrelatedpapersshowedtheimprovementofformerSOEsafterp r i v a t i z a t i o n , andtheef fectsofcapitalstructureandownershipstructureonfirmperformance ind i f f e r e n t ways.T h e r e f o r e , t h i s studyis c o n d u c t e d t o e x a m i n e t h e p r e v i o u s t h e o r e t i c a l studiesontherelationshipbetweenfirmperformanceandcapitalstructureandownershi pstructure.
ThestudywillfocusondimensionsoftheownershipstructureoflistedprivatizedSOEsinVietnam basedonstatisticaldatatoresearchfurthertheintrinsiceconomicrelationbetweenvariables,andtoprovidedeepl yadviceonimprovementofownershipstructureaswell.Sincethe purposeoftheprivatizationistoimprovefir mefficiency,thestudywillexaminewhethert h e o w n e r s h i p o f a d o m i n a n t s e c t o r c o u l d i n f l u e n c e f i r m v a l u e Dominants e c t o r r e f e r s o w n e r s h i p ofshareholdersholdingover 50%ofshares,inwhichprivate-dominantownershipandState- dominantownershipweretakenintoaccount.
Hypotheses
T h e r a t i o n a l e f o r e a c h hypothesisw a s thea g g r e g a t i o n o f D h a r w a d k a r e t a l ’ s argumentwithsomemodificationsuitablewiththestudyobjectives.Thefirsthypothesiswasd e v e l o p e d about theprediction ofadverseeffecton relationship between debtratioand firmperformance,whichwasoppositetotraditionaltheoryofdebtfinancing.
Hypothesis1:PrivatizedfirmswithhigherDebttoEquityratiowillhavel ower perfo rmance.
Secondandthirdhypothesiswere developedtoexaminetherelationshipbetwee nf i r m performanceanddo mi na nt ownership structures, w h i c h referredt oPrivate- dominant o w n e r s h i p ( P D O ) a n d S t a t e - d o m i n a n t o w n e r s h i p ( S D O ) Firmsa f t e r p r i v a t i z a t i o n w e r e e x p e c t e d t o c h a n g e t h e performanceb e t t e r , i n w h i c h t h e dominanto w n e r s h i p c o u l d t a k e c o n t r o l a n d a i m t o maximizep r o f i t g o a l s Asa r e s u l t , t h e studyp r o p o s e d t h e f o l l o w i n g h ypothesis:
Hypothesis2:Firmswithprivate- dominantownershipstructurewilldecreasethenegativeef fect ofdebttoequityratioonprivatizedSOE’sp erformance.
Hypothesis3:FirmswithState- dominantownershipstructurewilldecreasethenegativee f f e c t ofdebttoequityratioonprivatiz edSOE’sperformance.
Furthermore,todetectthemoderatingroleofdominantownershipstructure,thestudyalsoexaminethe hypothesis4andhypothesis5.Thedebttoequityratiowasassumedasthemainp r e d i c t o r w i t h n e g a t i v e e f f e c t o n f i r m p e r f o r m a n c e toc o n t i n u e t h e t e s t t o e x a m i n e t h e modera tingeffectofprivate-dominantownershipstructure(PDO)andState- dominanto w n e r s h i p (SDO)onrelationshipofdebtindicatorandfirmefficiency.Moderati ngrolesofthesedominantownershipstructureswereforecastedthatwouldpositivelyaffectt her e l a t i o n s h i p betweendebttoequityratioandperformanceofprivatizedfirms.
Hypothesis4 : P r i v a t e - d o m i n a n t o w n e r s h i p w i l l d e c r e a s e then e g a t i v e effecto f d e b t t o e q u i t y ratioonprivati zedSOE’sperformance.
Hypothesis5:State- dominantownershipwilldecreasethenegativeeffectofdebttoequityratioonprivatizedSOE’sperforma nce.
Researchmodels
TheconceptualmodelwasbasedontheexpectationsofchangingStateownershipstructureto enhancefirmperformanceofformerSOEsaswellas theadverseeffect ofdebtfinancingonfirmperformance(Figure5).
Thischapterdescribesthemethodologyusedinimplementingthestudy.Itwillexplainther e s e a r c h p r o c e s s a n d d a t a collectionmethod,and then follow the research design to conductt h e empiricala n a l y s i s N e x t i s t o u n f o l d t h e d a t a analysisa n d s t a t i s t i c a l models.T h e e x a m i n a t i o n iscarriedouttotesttheeffectsofcapitalstructureonfirmper formanceas wellastheeffectofownershipstructureonthisrelationship.
Researchprocess
This study utilized quantitative analysis and secondary data, focusing on a reliable dataset derived from published annual reports and audited financial statements of privatized state-owned enterprises (SOEs) listed on HSX and HNX from 2011 to 2015 Unlike other studies that rely on surveys or interviews, this research emphasizes the importance of a consistent data source, ensuring validity through trusted sources such as official websites and published journals The sample included 309 listed privatized firms, comprising 156 with private-dominant ownership (774 observations) and 153 with state-dominant ownership (747 observations) The findings aim to statistically demonstrate the impact of privatization on the performance of Vietnamese privatized firms.
Thestudywasconductedbythefollowingprogress.Firstly,researchproblemwasdefineda n d basedon thebackgroundtoseekforresearch objectivesandcontributionof thestudytopreviousst u d i e s F o l l o w i n g t h a t , s t u d y i n gs o m e r e l e v a n t l i t e r a t u r e r e v i e w w a s a p p l i e d t oh ar d en thetheoriesandpracticeforthehypotheses,whichweredev elopedlater.Nextstepw a s toapplysomepreliminarycalculationtobuildthedatasetforregression.T hedatapanelw a s runbyEviewssoftwareatthefirststepofdescriptiveanalysisandregressionan alysis,b e s i d e s otherstatisticsoftwareapplicationswouldbeappliedifnecessary.Figure7show eda n overallprocessofthisresearch.
Theoritical literature review Empirical literature revie w
Datacollection
Population
The study focuses on the performance of privatized State-Owned Enterprises (SOEs) in Vietnam, specifically targeting firms that were formerly SOEs before their privatization The research utilized data from two official stock markets in Vietnam: the Ho Chi Minh Stock Exchange (HSX) and the Hanoi Stock Exchange (HNX), both of which manage capital flow in accordance with Vietnamese Securities Law and Enterprise Law Firms listed on HSX since 2000 provided more comprehensive information than those listed on HNX, which began in 2005 Additionally, HNX published an index from the Unlisted Public Company Market (UPCOM), but this was not considered an official stock exchange Due to regulatory requirements, firms not meeting listing criteria opted for UPCOM rather than HSX or HNX, thus not being classified as officially listed companies Consequently, this study exclusively analyzed data from HSX and HNX, while also seeking information from the annual reports of the Department of Corporate Finance at the Ministry of Finance regarding the privatization of SOEs, culminating in data collected by the end of 2015.
695oftotallistedcompaniesinbothHSXandHNX,inwhich435companieswereformerSOEs weretakenf o r targetpopulationtocarryoutthenextsteps.
Furthermore,sincethepopulationmusthavetheequivalentcharacteristic,thefinan cialfirms,whichincludebanks,s e c u r i t i e s , a n d i n s u r a n c e s andd i v e r s i f i e d f i n a n c i a l s , h a v e separatedcorporatestructuresan drevenue,whichleadingtoabnormalindicators.Thereupon,thetargetpopulationmusteliminatefirm sfromfinancialsector.
Sample
The study aimed to control for non-random selection of privatized firms by adhering strictly to statistical procedures for valid data collection By the end of 2015, a total of 435 state-owned enterprises (SOEs) had been privatized and listed on both HSX and HNX Shareholder data was sourced from the published annual reports of these firms Following Wattanakul’s model of privatization (2002), firms with zero state shares were excluded from the analysis After removing 15 financial SOEs, 109 fully privatized SOEs, and 2 SOEs with equal state and private ownership, the final sample size consisted of 309 firms This sample was then categorized into two panels: 153 firms with state-dominant ownership (SDO) and 156 firms with private-dominant ownership (PDO) Since the sample spanned various industries, the findings cannot be interpreted as specific to any single industry Table 3 illustrates the sample size of the study.
Published annual report and yearly audited financial statements from 2011 to Privatized firms excluding full and equal privatization 2015
All listed firms on HNX and HSX Firms excluding listed in 2016 Firms excluding financials
Samplesize09 State-dominant Private-dominant companies ownershipfirms ownershipfirms
Datacollectionprocedure
The target population for this study was derived from the HSX and HNX stock exchange websites, focusing on firms listed in 2016 to ensure adequate data availability Financial sector firms were excluded from this population To meet the requirement of analyzing all listed privatized firms, a comprehensive review of the history of available firms was conducted, filtering out those that were former state-owned enterprises (SOEs) The study examined annual reports to determine ownership structures post-privatization, eliminating firms that were fully privatized (with 0% state shares) and those with equal privatization (where the state holds 50% of shares) The data primarily consisted of secondary information collected from published annual reports and audited financial statements from the five most recent years (2011 to 2015), with any missing data identified and removed.
Subsequently,thesefollowingd a t a fromfinancialstatementofselectedfirmswererecorded:Tot alassets,Totalliabilities,T o t a l equity,andNetincome.ThiscollectionwasconductedforcalculatingRet urnonAssets( R O A ) a n d D e b t t o Equity( D /
Dataanalysismethod
Regressionanalysis
Linearregressionanalysiswasperformedtoidentifyt h e relationshipbetweenfirmp r o f i t a b i l i t y andpredictorvariables:DebttoEquity.Thefollowingequationwasproposedtor u n theregression withonevariableaspredictor:
X:predictors(D/E,PDOorSDO), β 0 :aconstant(least-squaresestimateoftheintercept), β:termofcoefficient(least-squaresestimateofpopulation’scoefficientforX), e:aresidualterm.
Itcouldbaseonthecoefficienttermofthepredictorvariablestorealizethedirectionoftheeffectsonpredi ctedoutcomes.Ifthepredictorsdemonstratedacorrelationwithfirmperformanceatsignifica ntlevel(p- value≤0.05),thetestsformoderatingeffectsofPDOw o u l d becarriedoutinthenextstep.
Hierarchicalmultipleregression analysiswasemployedforthetestofmoderatingeffects( e g C o h e n & C o n h e n , 1 9 8 3 ) T h i s methoda d o p t s g r a d u a l l y procedures a s thef o l l o w i n g equations:
M:Moderators(PDOorSDO) β 0 :aconstant(least-squaresestimateoftheintercept) β 1 ,β 2 ,β 3 :termofcoefficient(least- squaresestimateofpopulation’scoefficientforX,Ma nd XM) e:aresidualterm.
Aftert h a t , t h e r e s u l t s f r o m b o t h s t e p s a r e compared.M i s s t a t i s t i c a l l y r e c o g n i z e d a s moderatorfortherelationshipbetweenXandYatsignificantlevel(p- value≤0.05),andp o s i t i v e l y a f f e c t w i t h t h e i m p r o v e m e n t o f R- squaredatt h e laststep.A d d i t i o n a l l y , t h e r e g r e s s i o n coefficientofthemoderator(β 3 )pr ovidesanestimateofthemoderatingeffectanditsdirection.
Variables
Dependent variables
Thed e p e n d e n t v a r i a b l e s r e p r e s e n t e d t h e measureso f f i r m p e r f o r m a n c e t h a t mayb e a f f e c t e d byownershipstructureand/ orcapitalstructure.Firmperformancewasusedinterchangeablywith“firmprofitability”.F i r m p e r f o r m a n c e m a y b e r e f l e c t e d bymarketg r o w t h orsales,Firmperformancewasthepredict edoutcome,whichwasmeasuredbasedonindicatorssuchasReturnsonEquity,ReturnonAssets,orRet urnsonSales.Accordingtothep u r p o s e o f thiss t u d y , R e t u r n o n A s s e t s ( R O A ) r a t i o w a s c h o s e n a s i n d i c a t o r o f f i r m profitability.AsAbbasiandMalik(2015)sai dROAwastakenintoaccountofassetsandh i gh l y importantforrevenuegeneration.
Profitability=ReturnonAssets(ROA)=Netincome/Assets
Independent variables
ThemainpredictoroffirmprofitabilitywasDebtto Equityratio(D/E).Vintilaand Duca( 2 0 1 3 )s t a t e d , “ Thed e b t t o e q u i t y ratioi s a k e y financialr a t i o a n d i n d i c a t e s t h e r e la t i v e p r o p o r t i o n offirm’sequityanddebtusedtofinanceassets”.Ford(1995)alsodem onstratedt h e significantroleofD/
Eindeterminingthefirmperformance.I t isusedtoexaminethehealth ofanentitybyme asuringtheriskofliquidation.Itwascalculatedbythefollowingformula:
D/E=Totalliabilities/TotalEquity Ins i m p l e l i n e a r r e g r e s s i o n a n a l y s i s , p r e d i c t o r s i n c l u d e d D e b t toe q u i t y r a t i o , P r i v a t e - dominantownership(PDO)andState- dominantownership(SDO),whichweremeasuredbythep e r c e n t a g e o f p r i v a t e s e c t o r ( f o r P D O f i r m s ) o r S t a t e ( f o r S D O firms)h o l d i n g o n o w n e r s h i p ’ s shares.
ThemoderatorsappliedinthisstudywerePDOandSDO.Thesequantitativefactorswereu s e d tospe cifytowhatextentprivate-dominantownershiporstate-dominantownershipexistinprivatizedSOEs.
Controlvariables
Additionalvariablewasaddedintheregressionequationincludingfirmsize.Inwhich ,f i r m size(SIZ),whichwasmeasuredbytotalassets,contributedtothedifferencesoffirm performance,aslargerfirmshavemoreopportunitiestoleveragethemarketpowerandeffecto n profitab ility (Adewale&Ajibola,2013) Th er ef or e, itwas consideredasan importantdetermi nantoffirm performance.Thepotentialeffectoffirm sizewascontrolledbyaccountingthenaturallogarithmofassets.
Summaryofmethodology
Insummary,thestudywasconductedwithsamplesizeof309listedprivatizedfirmsinb o t h HanoiStockExchangeandHoChiMinhStockExchange Datawereacquiredfrom p u b l i sh e d annualreports andyearlyauditedfinancial statementsinfiveyears(from2011to20 1 5 ) T h e e q u a t i o n s a p p l i e d t o t e s t t h e h y p o t h e s e s w i t h a d d i t i o n o f c o n t r o l v a r i a b l e a r e following:
X:predictors(D/E,PDOorSDO), β 0 :aconstant(least-squaresestimateoftheintercept), β 1 ,β 2 :termofcoefficient(least-squaresestimateofpopulation’scoefficientforX), e:aresidualterm.
M:Moderators(PDOorSDO) β 0 :aconstant(least-squaresestimateoftheintercept) β 1 ,β 2 ,β 3 ,β 4 : termofcoefficient (least-squaresestimateofpopulation’s coefficient for
Dependentvariable Firmperformance ReturnonAssets(ROA) ROA=Netincome/Assets
Predictor Debt to Equity ratio(D/E)
Controlvariables Firmsize Firmsize(SIZ) SIZ=logarithm(TotalAsset)
AfterapplicationofthestatisticaltechniquesbyusingEviewssoftwareandothertools,thes tu d y obtainst heresultofdescriptiveanalysisandregressionanalysis.Inwhich,regressionanalysist e s t s t h e i m p a c t o f c a p i t a l s t r u c t u r e a n d d o m i n a n t o w n e r s h i p s t r u c t u r e o n f i r m per formance,inadditionto,themoderatingeffectsofdominantownershipstructureonther e l a t i o n s h i p betweencapitalstructureandfirmperformancearealsocarriedout,asfollows:
Descriptive analysis
Descriptive analysis
Atfirst,thedescriptivestatisticsisconductedforanoverallofallfigures.Withthesamples i z e of309fir msinperiodoffiveyears2011-
2015andobservationof1,521(sincethereare2 1 missingdata),thedescriptivestatisticsforthed ataaredisplayedinTable5below.Thes t u d y alsofocusesontwosamplepanelsthatdifferind ominantownership:PDOpanelandS D O panel.
Onsampleof156PDOfirmswithobservationsof774,firmperformancemeasuredbyR e t u r n onassets(ROA)fluctuatesbetween -
0 2 7 0 and0.722withthe relativelystandardd e v i a t i o n of0.080.Thereis awidefluctuation offirmperformancebecausethe samplesizec o l l e c t e d firmsindifferentindustries(exceptfinancialsasmentionedinSection3.2).Debtt oequityratioshowsataverageof1.791,themaximumandminimumrespectively33.027and
0.008.Theamountofdebtvariesatmagnitudestandarddeviationof2.733.Besides,firms with private- dominantownership(PDO)structureholdinghigherpercentageofshareswithmeanof73.8%th anSDOfirmsdo(meanof58.14%).
Meanwhile,o n s a m p l e o f 1 5 3 S D O firmsw i t h o b s e r va t i o n s o f 7 4 7 , f i r m per fo rm a nc e s t r o n g l y fluctuatesbetween-
0.543and2.527withstandarddeviationof0.170.Theseindexesa r e muchhigherthanPDOfirmperform ance.Ontheotherhand,averageamountofdebtissmallerstandarddeviation(2.041)thanPDOfirm index,withfluctuationbetween0.044and
Lastly,meanoffirmsizeforbothPDOandSDOisrespectively11.55and11.81,whichisn e a r l y e q u a l I n 1 5 6 P D O firms,s m a l l a n d m e d i u m - s i z e d e n t e r p r i s e s ( S M E s ) a n d l a r g e enterprisearerespectively57firmsand99fir ms,whilethereare32SMEsand121largeenterprisesi n 1 5 3 S D O firms.I t i m p l i e s S t a t e h o l d i n g d o m i n a n t l y o w n e r s h i p i n l a r g e enterprisesisstillhigherthanprivates ectordoes.
Mean Maximum Minimum Std.Dev Observations
Mean Maximum Minimum Std.Dev Observations
Correlationanalysis
Thecorrelationanalysispreliminarilyindicateshowthecapitalstructureandowners hipstructureimpactonfirmperformance.AsTable7,debttoequityshowsaweakandnegativecorrelati onwithfirmperformance(rD/E-PDO -panel= -0.262 andrD/E-SDO -panel= -0.264),whichisconsistentwithhypothesis1.Inaddition,thehypothesis2andhypothesis3stat esthatthep r e s e n c e ofPDOandSDOwilldecreasethenegativeimpactbetweenfirmperformanc eandD /
E Theresult dem on st ra tes thatP D O showsaweakand negative correlationwithf irmperformance(r=-0.109)butpositivecorrelationwithD/E(r=0.087),whileSDOshowsa weakandpositivecorrelationwithfirmperformance(r=0.082)butnegativecorrelationwithD / E (r= - 0.009).Allthefindingsofco-efficientofcorrelation isshowingthatthereisweakcorrelationb e t w e e n v a r i a b l e s T h e w e a k r e l a t i o n s h i p s b e t w e e n t h e e x p l a n a t o r y v a r i a b l e s indicatethatthereisnoseriousproblemofmulticolinea rity,whichprovidesconfidenceforr eg r es sio n tests.
Regressionanalysis
Resultofrelationshipbetweencapitalstructureandfirmperformance
Thisanalysisisused fortesting the relationshipbetweencapital structure(representedbyd e b t toequityratio)andfirmperformance(representedbyReturno nassets).Theanalysisr u n s withcontrolvariableoffirmsize(representedbynaturallogarithmof totalassets) Ther e s u l t s demonstratesinTable8.Withthecoefficienttermof- 0.007(PDOpanel)and-0.022(SD O p a n e l ) , D /
Eratiowillhavelowerperformance.Ontheotherhand,whentakingintoaccountofcontrolvariableoffirm size,itisonlysignificantlyaffectedonfirmperformanceforSDOfirms(p- valueSDOpanel=0.0176)withcoefficienttermof-
0.023buthasnoprooftoconfirmtherelationshipw i t h firmperformanceforPDOfirms(p- valuePDOpanel=0.0751).Asaresult,hypothesis1isa c c ep t ed
Inconclusion,theresultprovestheadverseeffectofcapitalstructureonfirmperformanceinprivatizedSOE sinVietnam.Inotherwords,higherlevelofdebtmaymakelowerfirmperformance.InVietna mcontext,thiscanbeexplainedthatfirmsmaynotraisecapitalfroms t o c k marketduetopricedecli nes,hencetheyneedtoborrowmoneyfrombank,andthisl e a d s t o a p r o b l e m thatfirmsh a v e t o payanamounto f i n t e r e s t e x p e n s e M o r e o v e r , t h e sampledenterpriseswereformerS OEs,whichmeanstheyarenolongerreceivedpreferentialr a t e andbenefitsaswhentheywereSOEs.Manag ersneedtotakemorehigh- riskinvestmentst o h a v e c h a n c e i n h i g h r e t u r n s H o w e v e r , t h e i n e f f e c t i v e d e b t m e c h a n i s m m a y l e a d t o u n d esi r abl e results;inthiscase,shareholdersaretheoneswhosuf ferfromtheconsequences.
Variable Coefficient Prob Coefficient Prob
Resultofrelationshipbetweendominantownershipstructureandfirmperformance .37
e simplel i n e a r r e g r e s s i o n i s a p p l i e d f o r t e s t i n g t h e r e l a t i o n s h i p b e t w e e n d ominantownershipstructure(representedbyPDOandSDO)andfirmperformance( r e p r e s e n t e d byROA).Theanalysisrunswithcontrolvariableoffirmsizetotesthypothesis 2andhypothesis3.Specially,itwillrungraduallyonPDOpanelandSDOpanel.
0.0006,PDOisnegativelyinfluenceonfirmperformance.Thus,hypothesis2isrejected.Astot hecontrolvariable,thereisnoproofofr e l a t i o n s h i p betweenfirmsizeandfirmperformanceinPDOfirms(p-value=0.47>0.05).
Beingcontrasttothepurposeofprivatization,firmswithPDOunfortunatelybringsth en e g a t i v e impactonfirmvalue.Likewise,theresultalsorevealstheoppositeofotherpreviousstudies,wh ichconcludedthepositiveeffectsof privatesector,includingoutsideandforeignshareholders,onfirmperformanceofsomeprivatizedSO EsinVietnam.
Ontheotherhand,Table10showstheresultoffirmswithSDOhassignificantlyan dp o s i t i v e l y a f f e c t e d onfirmp e r f o r m a n c e (p- value=0.0007andcoefficient=0.0022).Meanwhile,controlvariableoffirmsizealsohassignifica ntimpactonperformanceinthisc a s e atp- value=0.000,butinanegativeeffectwithcoefficienttermof-
Therea r e somer e a s o n s m a y e x p l a i n whyS D O s t r u c t u r e h a s p o s i t i v e impacto n fi rmperformance.Firstly,asmentionedabove,mostofthesefirmsarelargeenterprises,togetherw i t h State- dominantlycontrol,whichnotonlyreceivepreferentialandbenefitsfromStatebuta l s o havebettercompetiti veabilitythanPDOfirmshave.Secondly,incontextofVietnam,firmswithmajorityofState’share sareunderstoodthattheyareguaranteedbyState,andgetmoreattractiveininvestmentthantheothers.
The findings from both PDO and SDO panel data indicate that ownership structure significantly impacts firm performance, albeit in different ways While SDO positively influences firm value, PDO has a negative effect In the Vietnamese context, the government prioritizes State-Owned Enterprises (SOEs) over private enterprises Moreover, privatized SOEs do not imply a complete withdrawal of state ownership, as a substantial portion of these firms, particularly large companies, still retain significant state involvement This situation undermines the creation of a fair investment environment, which is a primary goal of privatization, leading to a perception that state interests in the overall economy are declining.
ResultofthemoderatingeffectofdominantownershiponrelationshipofD/
E)andfirmperformance(hypothesis1),hypothesis4andhypothesis5arec o n d u c t e d torecognizethe moderatingroleofdominantownershiponrelationshipoffirmp r o f i t andcapitalstructure.The studyconcernstherelationshipoffirmperformanceandD/
Em a y b e a f f e c t e d byt h e levelo f p r i v a t e - d o m i n a n t o w n e r s h i p s t r u c t u r e ( P D O ) a n d S t a t e - dominanto w n e r s h i p s t r u c t u r e ( S D O ) T h e i n t e r a c t i o n t e r m w i l l i n d i c a t e t h e d i r e c t i o n ofc h a n g e inrelationshipbetweenD/EandROA.Theanalysisrequirestwo- stagehierarchicalregression analysis.
ThisregressionanalysisrunsonPDOpaneldata.Atfirst,thestudyexaminether e l a t i o n s h i p b e t w e e n f i r m pe rf or ma nc e a n d c a p i t a l s t r u c t u r e i s i n d e p e n d e n t f r o m private- dominantownership.Table11showstheresultsoffirststepintestingmoderatingvariableo n r elationshipbetweenindependentvariable(firmperformance,representedbyROA)andmainpr edictor(D/E).D/Eissignificantlyaffectedfirmperformance(p- value=0.0000)withc o e f f i c i e n t termof-
0.007,whichisindependentofPDO.Withthecoefficienttermof-0.0005a n d p - v a l u e = 0 0 0 7 7 , P D O s h o w s t h e n e g a t i v e a n d s i g n i f i c a n t o n f i r m p e r f o r m a n c e I n addition,firmsizedenotesstatisticalsignificanceonfirmperformanceatlevelof26%. R-squaredatthisresultdescribesthattheregressiontesthasexplanatorypowerextendto7.8%.
E andfirmperformancevariesinthepresenceofPDO(p- value=0.000 0.05).Therefore,thereisnoevidencetorefutehypothesis5.
Table14 Regression result moderating effect of State-dominant ownership onrelationshipofD/Eandfirmperformance
The study reveals that the moderating effect of Public Debt Ownership (PDO) mitigates the negative relationship between firm performance and the debt-to-equity ratio, while no such effect is found for State Debt Ownership (SDO) Although PDO negatively impacts firm performance, it can still alleviate the adverse effects of high debt levels The government’s preference for state ownership may help alleviate debt burdens in unprofitable enterprises in Vietnam, as specific legislation and policies favor state-owned firms over private ones State-owned enterprises often benefit from guaranteed low-interest foreign loans, providing a competitive advantage that private firms do not have In contrast, private investors prioritize profit maximization, leading them to minimize investment costs and debt levels, as their decisions directly influence their returns Both ownership types present unique advantages and disadvantages, but previous studies indicate that capital structure significantly impacts firm value, making a low debt level desirable for enhanced performance, regardless of ownership structure.
Conclusion
VietnameseSOEsareontheprocessofcompletedprivatizationandtransformationforah o p e f u l betterperformance.Comparedtootherstockmarkets,Vietnamesemarketisstillquites m a l l innumbero flistedfirms,butthenumberoffirmprivatizedandlistedinlastdecadesist r u l y impressive,whichshowstheG overnmentistryinglotofmassiveefforts.Forthepurposeo f bet te r performance, t h i s study brings empiricalevidencefrom current listedprivatized firms.Themainthemeofthestudyistoin vestigatetheeffectsofprivatizationofVietnameseS t a t e - o w n e d e n t e r p r i s e s ( S O E s ) o n t h e i r f i r m p e r f o r m a n c e byu s i n g p a n e l d a t a o f l i s t e d p r i v a t i z e d firmsinVietnaminperiodof2011-
H o c h i m i n h S t o c k E x c h a n g e a n d H a n o i S t o c k Exchange.T h e s t u d y q u e s t i o n e d t w o a r g u m e n t s , w h i c h a r e w h e t h e r c a p i t a l structureh a s impacto n firmp e r f o r m a n c e o f p r i v a t i z e d S O E s a n d w h e t h e r t h e d o m i n a n t o w n e r s h i p con tributestoinfluencetherelationshipbetweencapitalstructureandfirmperformanceofp r i v a t i z e d SOEs.
Empiricalr e s u l t s d e r i v e d f r o m r e g r e s s i o n analysisi n d i c a t e t h a t c a p i t a l s t r u c t u r e s i g n i f i c a n t l y andnegativelyaffectsonfirmperformanceconsideringthewholesample.SinceS t a t e isnolongerfully responsiblefordebtfinancing ofprivatizedfirms,theappropri atec a p i t a l structureshouldbebuiltforfirmefficiency.Theoutcomesalsoreliablyconfirmsthep o s i t i v e effectsofState-dominantownershipandnegativeeffectsofprivate- dominanto w n e r s h i p onfirmperformance.Thisresultimpliesthatprivatizationisnotreallyhelping int e r m ofimprovingperformanceofformerSOEsinVietnam.Theyarefacingtheneedfo rmorebeneficialpolicies,competitioninproduct,markets,etc.
Inadditionto,theempiricalresultonlyacceptsthehypothesisofthemoderatingroleofpri vate- dominant ownershipinprivatizedfirms.FirmswithPDOarefoundtobesignificantlya n d positivelyasso ciatedwiththeadverserelationshipofcapitalstructureandfirmperformance.Thehighco ncentration ofprivate ownership givethem thepowertoinfluencep o s i t i v e l y themanagement’sdecisioninbusinessoperation.Neverth eless,thestudydonot findtheevidencein provingtheimpactofSDOontherelationshipoffirmperformanceandc a p i t a l structure.
Implication
Firstly,forb e t t e r f i r m performance,o w n e r s h i p s h o u l d b u i l d i n g ana p p r o p r i a t e c a p i t a l structurebyhighlyfocusingonwiser investment.Whenthereiscomingupto decideinanyextr emely riskyinvestment,privateinvestorsshouldbecautiousbecause thismayleadtou n d e s i r a b l e consequencesaffectingshareholder’svalue.
Firms with State Development Objectives (SDOs) tend to be more profitable than those with Private Development Objectives (PDOs) due to the preferential treatment and benefits provided by the state to SDO firms While PDOs can help mitigate negative impacts of debt ratios on firm performance, the state must carefully consider the privatization process, including legal frameworks, investment mechanisms, and management processes As privatization progresses and foreign investors benefit from favorable policies, the government’s primary responsibility is to develop and implement fair public policies that ensure equitable business operations for all enterprises, particularly concerning loans and interest rates.
Futureresearch
Thestudyraises theconcernabout the moderatingvariablesas well ascontrolvariable inthetests.SincethetestdoesnotfindthemoderatingeffectsofSDOonrelationshipoffirmperfo rmanceandcapitalstructure,itisnecessaryt o acquiremorevariablesformorem e a n i n g f u l r egressionresults.Either,itmaybedone withthe different statistical technique,suchasdifferenceindifferencewithpre-privatizationandpost- privatizationforcomparison.T h e studyalsowanttorecommendthedifferentmeasurementoffirm performance,suchasR O E orprofitmargin,anddifferentmeasurementofcapitalstructuresuchasshort-termdebttototalassetsandlong-termdebttototalassets.
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APPENDIXA List ofprivatizedSOEs Table15Lis tofprivatizedSOEslistedonHochiminhStockExchange
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
No Stock code PrivatizedSOEs Listeddate State'ss h a r e s
APPENDIXB DataAnalysisResult Table17Des cri pt iv eanalysis(PDOpanel)
Table18Des cri pt iv eanalysis(SDOpanel)
Table19T e s tresultofre gr essi on analysisforrelationship betweencapital structur e andf i r m performance(PDOpanel)
Variable Coefficient Std.Error t-Statistic Prob
Table20T e s tresultofre gr essi on analysisforrelationship betweencapital structur e andf i r m performance(SDOpanel)
Variable Coefficient Std.Error t-Statistic Prob
Table21T e s tresultofregressionanalysisforrelationshipbetweenprivate- dominanto w n e r s h i p structureandfirmperformance(PDOpanel)
Variable Coefficient Std.Error t-Statistic Prob
Table22T e s tr e s u l t o f r e g r e s s i o n a n a l y s i s f o r r e l a t i o n s h i p b e t w e e n S t a t e - d o m i n a n t o wn ershi p structureandfirmperformance(SDOpanel)
Variable Coefficient Std.Error t-Statistic Prob
Table23T e s tresultofregressionanalysisformoderatingeffectofprivate- dominanto w n e r s h i p onrelationshipofcapitalstructureandfirmperformance(Step1)
Variable Coefficient Std.Error t-Statistic Prob
Table24T e s tresultofregressionanalysisformoderatingeffectofprivate- dominanto w n e r s h i p onrelationshipofcapitalstructureandfirmperformance(Step2)
Variable Coefficient Std.Error t-Statistic Prob
Table25T e s tresultofre gr essi on analysisformoderatingeffectofSt at e- d om in an t o w n e r s h i p onrelationshipofcapitalstructureandfirmperformance(step1)
Variable Coefficient Std.Error t-Statistic Prob