Firms’ investment – cash flow relationship in the context of state ownership and banking system reform in vietnam

MINISTRY OF EDUCATION AND TRAINING OF VIETNAM UNIVERSITY OF ECONOMICS HO CHI MINH CITY [Company name] [Document title] TU THI KIM THOA [Document subtitle] Firms’ Investment – Cash Flow Relationship In The Context Of State Ownership And Banking System Reform In Vietnam DOCTORAL THESIS Ho Chi Minh City, June 2020 ii MINISTRY OF EDUCATION AND TRAINING OF VIETNAM UNIVERSITY OF ECONOMICS HO CHI MINH CITY TU THI KIM THOA Firms’ Investment – Cash Flow Relationship In The Context Of State Ownership And Banking System Reform In Vietnam DOCTORAL THESIS Specialization: Finance and Banking Code: 9340201 Supervisors: VU VIET QUANG, Ph.D NGUYEN THI UYEN UYEN, Ph.D Kim Thoa Tu Thi [Date] Ho Chi Minh City, 2020 STATEMENT OF AUTHORSHIP I hereby declare that this submission is my own work and except where due reference is made; this thesis contains no material previously published or written by another person(s) This thesis does not contain material extracted in whole or in part from a thesis or report presented for another degree or diploma at University of Economics Ho Chi Minh City or any other education institution Tu Thi Kim Thoa June 2020 ACKNOWLEDGEMENTS First and foremost, I would like to express deepest gratitude to my supervisors, Dr Vu Viet Quang and Dr Nguyen Thi Uyen Uyen, for their continual guidance and mentorship, invaluable support, remarkable patience, useful feedback, and spiritual encouragement during the completion of my thesis My thesis can not be completed without their supervisions, which provided me with much precious advice to expedite my thesis completion I would like to thank the University of Economics Ho Chi Minh City for its generous financial support of my PhD studies I also wish to thank all the colleagues at the UEH School of Finance, School of UEH Graduates and others for their great and continuing encouragement and full support during my PhD candidature My gratitude also goes to my colleagues at UEH who have constantly given a great help, support and encouragements to me not only during but also before the completion of my thesis Finally and most importantly, I would like to thank my friends and family for their unconditional love, immense, constant and endless support and encouragements during my life I would have been unable to finish the thesis without their supports and encouragement And I also wish to dedicate this thesis to my late mother who is always in my heart v TABLE OF CONTENTS ABBREVIATIONS i LIST OF TABLES ii LIST OF FIGURES v ABSTRACT vi CHAPTER 1: INTRODUCTION 1.1 Thesis motivations 1.2 Thesis objectives 1.3 Firm’s investment – cash flow relationship in the context of state ownership in Vietnam 1.3.1 Objectives and hypotheses 1.3.2 Data 1.3.3 Methodology 1.3.4 Empirical findings 1.3.5 Contributions 1.4 Firm’s investment – cash flow relation in the context of banking system reform in Vietnam 1.4.1 Objectives and hypotheses 1.4.2 Data 1.4.3 Methodology 1.4.5 Contributions 10 1.5 Thesis structure 10 CHAPTER 2: OVERVIEW ON VIETNAM’S ECONOMIC REFORMS 11 2.1 Overview on Vietnam’s economy 12 2.2 Overview on equitization of state owned enterprises of Vietnam .20 2.3 Overview on Vietnam’s banking system reform 24 2.4 Chapter summary 29 vi CHAPTER 3: FINANCIAL CONSTRAINTS AND INVESTMENT: A THEORETICAL FRAMEWORK AND LITERATURE REVIEW .31 3.1 Theories of investment 33 3.1.1 The Modigliani-Miller Theorem (MM) 34 3.1.2 Neo-classical model 34 3.1.3 Sales accelerator model 35 3.1.4 Tobin’s Q model 36 3.1.5 The Euler model 38 3.2 Financial constraints and investment: a literature review 39 3.2.1 Financial constraint and investment 39 3.2.2 State Ownership and Investment–Cash Flow Relations 48 3.2.3 Banking system reform and investment – cash flow relation .50 3.2.4 Financial leverage, growth opportunity and investment relation 51 3.3 Chapter summary 53 CHAPTER 4: FIRM’S INVESTMENT – CASH FLOW RELATIONSHIP IN THE CONTEXT OF STATE OWNERSHIP IN VIETNAM 54 4.1 The study introduction 55 4.2 Literature review and hypothesis development 57 4.2.1 Relation between investment and cash flow 57 4.2.2 State Ownership and Investment–Cash Flow Relations 60 4.2.3 State Ownership and Investment–Leverage Relation 62 4.3 Research design 63 4.3.1 Testing Investment–Cash Flow Relation 63 4.3.2 Testing the Impact of State Ownership on Investment–Cash Flow Relations 66 4.3.3 Testing the Impact of State Ownership on Investment–Leverage Relations 67 4.3.4 Data 67 4.4 Empirical results 68 vii 4.4.1 Descriptive Statistics 68 4.4.2 Empirical Results 70 4.4.3 Robustness Check 83 4.5 Conclusion 92 4.6 Chapter summary 93 CHAPTER 5: FIRM’S INVESTMENT – CASH FLOW RELATIONSHIP UNDER THE CONTEXT OF BANKING SYSTEM REFORM IN VIETNAM .94 5.1 The Stuty Introduction 95 5.2 Literature review 98 5.2.1 Investment – cash flow relation 98 5.2.2 Effect of banking system reform on investment – cash flow relation.100 5.3 Research methodology 101 5.3.1 Hypothesis development and model specification 101 5.3.2 Data 106 5.4 Empirical results 107 5.4.1 Descriptive statistic 107 5.4.2 Correlations 109 5.4.3 Regression results 111 5.4.4 Robustness check 129 5.5 Study conclusion 130 5.6 Chapter summary 131 CHAPTER 6: CONCLUSION 133 6.1 Introduction 133 6.2 Firm’s investment – cash flow relationship in the context of state ownership in Vietnam 133 6.2.1 Research findings 133 6.2.2 Research contributions, implications and policy recommendations 134 6.2.3 Research limitations and future research directions 136 vii i 6.3 Firm’s investment – cash flow relationship in the context of banking system reform in Vietnam 137 6.3.1 Research findings 137 6.3.2 Research contributions , implications and policy recommendations 138 6.3.3 Research limitations and future research directions 140 LIST OF AUTHOR’S PUBLICATIONS 141 REFERENCES 142 APPENDIX 148 ix ABBREVIATIONS Agribank Vietnam Bank for Agriculture and Rural Development ASEAN Association of Southest Asian Nations ATFA ASEAN Free Trade Agreement BIDV Bank for Investment and Development of Vietnam CPI Comsumer Price Index FDI Foreign direct investment GDP Gross Domestic Products HCMC Ho Chi Minh City HNX Hanoi Stock Exchange HOSE Ho Chi Minh City Stock Exchange JSCB Joint-stock commercial bank JVB Joint – venture bank MM Modigliany and Miller Theorem SBV State Bank of Vietnam SOCB State-owned commercial bank SOE State owned enterprise US United States of America VCB Bank for Foreign Trade of Vietnam Vietinbank Vietnam Industrial and Commercial Banks WTO World Trade Organization LIST OF TABLES Table 2.1 Main economic indicators of Vietnam, 1986 – 2018 19 Table 2.2 Stages of SOE equitization in Vietnam (1992 – 2018) 21 Table 2.3 Credit institutions of Vietnam, 2010 - 2017 26 Table 2.4 Foreign banks’ branches in Vietnam 27 Table 3.1 Summary of Financial Constraint Proxies 47 Table 4.1 Sample structure 68 Table 4.2 Variable descriptive statistic 69 Table 4.3 Differences between non state-owned and state-owned 70 enterprises Table 4.4 Analysis of relation between investment and cash flow 73 Table 4.5 Impact of state ownership on investment – cash flow 76 relation Table 4.6 Impact of state ownership on relation between investment 78 and cash flow under different growth opportunities Table 4.7 Impact of state ownership on the investment and leverage 81 relations Table 4.8 Impact of state ownership on the relations between investment - leverage under different growth opportunities 82 Linear relationship between investment and cash flows (1) IK CFK L.SG 0.0209*** (14.80) -0.00204 (-0.31) (2) IK -0.00921 (-1.59) 0.120*** (4.21) (3) IK 0.0224*** (17.38) -0.00266 (-0.40) LEV 0.0335 (1.13) -0.0167 (-0.33) 0.0481 (1.45) SIZE -0.0132*** (-2.62) -0.0112 (-1.27) -0.0159*** (-2.80) AGE 0.00284 (1.05) 0.000888 (0.21) BETA -0.0430*** (-3.33) _cons 0.426*** (5.90) 0.427*** (4.11) 0.458*** (5.22) N R-sq 2734 773 1961 t statistics in parentheses * p F = 0.0000 xtreg IK CFK CFKSQR l.SaleGrowth LEV SIZE AGE BETA,fe Fixed-effects (within) regression Group variable: X_ID Number of obs Number of groups = = 2481 641 R-sq: Obs per group: = avg = max = 3.9 within = 0.0132 between = 0.0002 overall = 0.0076 corr(u_i, Xb) F(7,1833) Prob > F = -0.0472 Std Err t P>|t| = = 3.51 0.0010 [95% Conf Interval] IK Coef CFK CFKSQR 0063911 0000497 0035055 0000344 1.82 1.45 0.068 0.148 -.0004841 -.0000177 0132662 0001171 SaleGrowth L1 .0007476 0014871 0.50 0.615 -.0021689 0036642 LEV -.0295671 0777154 -0.38 0.704 -.1819871 1228529 SIZE AGE 0056091 -.0244476 0116821 0060138 0.48 -4.07 0.631 0.000 -.0173025 -.0362423 0285207 -.0126529 BETA _cons -.026626 2011257 0271851 1472434 -0.98 1.37 0.327 0.172 -.0799431 -.0876567 0266911 4899081 sigma_u sigma_e rho 42364878 64205246 30332155 F test that all u_i=0: (fraction of variance due to u_i) F(640, 1833) = 1.30 Prob > F = 0.0000 xttest3 Modified Wald test for groupwise heteroskedasticity in fixed effect regression model H0: sigma(i)^2 = sigma^2 for all i chi2 (641) = Prob>chi2 = 7.5e+09 0.0000 Testing investment – cash flow relationship xtgls IK CFKPOS CFKNEG l.SaleGrowth LEV SIZE AGE BETA i.X_ID i.T_ID, p(h) Cross-sectional time-series FGLS regression Coefficients: Panels: Correlation: generalized least squares heteroskedastic no autocorrelation Estimated covariances Estimated autocorrelations = = 641 Number of obs Number of groups = = 2481 641 Estimated coefficients = 639 Obs per group: = avg = 3.870515 max = = = 6753.82 0.0000 Interval] Wald chi2(638) Prob > chi2 IK Coef P>|z| [95% Conf CFKPOS CFKNEG 0157487 -.0049034 Std Err .0027344 0033463 5.76 -1.47 z 0.000 0.143 0103894 -.011462 0211079 0016552 SaleGrowth L1 .0006839 0001478 4.63 0.000 0003943 0009735 LEV -.0625214 0083003 -7.53 0.000 -.0787897 -.046253 SIZE AGE BETA 0172359 0012561 -.0380689 0013755 0009879 00255 12.53 1.27 -14.93 0.000 0.204 0.000 0145399 -.0006802 -.0430668 0199319 0031924 -.0330709 -.3295833 -.3487145 1005061 1096718 -3.28 -3.18 0.001 0.001 -.5265716 -.5636673 -.132595 -.1337616 -.2880367 -.171073 -.1859982 1093619 0989869 1269743 -2.63 -1.73 -1.46 0.008 0.084 0.143 -.5023821 -.3650837 -.4348632 -.0736913 0229377 0628667 X_ID esttab a b c d e f, star(* 0.1 ** 0.05 *** 0.01) (1) IK CFK L.SaleGrowth 0.00358** (2.54) 0.000706*** (4.56) (2) IK (3) IK 0.00429*** (3.17) 0.0512*** (9.66) 0.000695*** (4.49) SIZE 0.0186*** (13.24) 0.0186*** (13.40) LEV -0.0508*** (-6.06) -0.0541*** (-6.39) AGE 0.00124 (1.24) BETA -0.0403*** (-15.43) CFKSQR _cons N 0.000582 (0.59) -0.0392*** (-15.80) -0.00274 (-0.76) 0.00110 (0.37) -0.00127 (-0.70) 0.00366*** (2.67) 0.00430*** (2.95) 0.0495*** (4.91) 0.0272*** (8.22) 0.0277*** (7.36) -0.00538*** (-5.03) -0.00487*** (-4.54) -0.111*** (-13.93) -0.0532*** (-3.37) -0.0278*** (-7.30) -0.0241*** (-6.26) 0.0000298** (2.46) -0.00361*** (-12.48) 0.0000126 (0.65) 0.268*** (2.79) 0.268*** (2.79) 0.358*** (3.73) 0.264*** (3.00) 0.439*** (5.06) 0.434*** (4.98) 2481 2481 697 697 1784 1784 (1) IK (2) IK (3) IK 0.0157*** (5.76) 0.0614*** (9.31) 0.0110*** (3.66) CFKNEG -0.00490 (-1.47) L.SaleGrowth 0.000684*** (4.63) SIZE 0.0172*** (12.53) LEV -0.0625*** (-7.53) AGE 0.00126 (1.27) N -0.00205 (-0.81) -0.00108 (-0.61) 0.00333** (2.02) 0.0672*** (6.81) esttab g h i , star(* 0.1 ** 0.05 *** 0.01) _cons -0.0124*** (-4.42) 0.00162* (1.76) (6) IK -0.513*** (-16.75) BETA 0.163*** (13.50) (5) IK -0.548*** (-15.67) t statistics in parentheses * p