(Luận văn) the influence of state ownership, leverage, and investment on firm performance, a panel analysis for vietnamese listed firms in the period 2010 2015

UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM ERASMUS UNVERSITY ROTTERDAM INSTITUTE OF SOCIAL STUDIES THE NETHERLANDS t to ng VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS hi ep w n lo ad y th ju THE INFLUENCE OF STATE OWNERSHIP, yi pl LEVERAGE AND INVESTMENT ON FIRM’S ua al n PERFORMANCE: A PANEL ANALYSIS FOR n va ll fu VIETNAMESE LISTED FIRMS IN THE PERIOD m oi 2010-2015 at nh z z k jm NGUYEN PHUONG MAI ht vb BY om l.c gm MASTER OF ARTS IN DEVELOPMENT ECONOMICS an Lu n va ey t re HO CHI MINH CITY, November 2016 UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS t to ng VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS hi ep w n lo ad ju y th The influence of state ownership, leverage and yi investment on firm performance: A panel analysis pl n ua al on Vietnamese listed firm in the period 2010 - 2015 n va fu ll A thesis submitted in partial fulfilment of the requirements for the degree of m oi MASTER OF ARTS IN DEVELOPMENT ECONOMICS at nh z z k jm NGUYEN PHUONG MAI ht vb By om PROF., DR NGUYEN TRONG HOAI l.c gm Academic Supervisor: an Lu n va ey t re HO CHI MINH CITY, November 2016 ACKNOWLEDGEMENT t to I would first like to thank my thesis supervisor Prof Dr Nguyen Trong Hoai of the ng Vietnam – The Netherlands Programme (VNP) at Ho Chi Minh City University of Economics hi ep He consistently allowed this paper to be my own work, but steered me in the right the direction whenever he thought I needed it w I would like to express my gratitude to the VNP officers who were involved in my thesis n lo process by updating thesis schedule and providing good condition for my research process ad Without their passionate participation, the thesis process could not have been successfully ju y th conducted yi Finally, thanks are also due to my classmates for providing me with unfailing support and pl ua al continuous encouragement throughout my years of study and through the process of researching and writing this thesis This accomplishment would not have been possible without them Thank n n va you ll fu oi m Nguyen Phuong Mai at nh Ho Chi Minh City, November 2016 z z k jm ht vb om l.c gm an Lu n va ey t re Page i ABSTRACT This thesis uses data of non – financial listed firm in Hochiminh Stock Exchange in the period from 2010 – 2015 and econometric method, three – stage least square, to t to solve the simultaneous correlation of state ownership, firm performance, leverage and ng hi investment and try to found real relationship among them The study found non –linear ep with U-shape impact of state ownership concentration on firm performance Specially, w the result of this study also found the negative effect of both leverage and investment on n lo firm performance In additional, this study demonstrate non-linear effect of state ad ownership on leverage, U-shape effects on long – term leverage with, invert U- shape y th effect on short-term The result also supports the hypothesis about two – way effect of ju yi leverage and investment While investment affect positively to leverage, in invert side, pl increasing level of debt in firm may tend to decrease level of firm investment n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page ii TABLE OF CONTENT ACKNOWLEDGEMENT i ABSTRACT ii t to TABLE OF CONTENT iii ng LIST OF FIGURES AND TABLES v hi CHAPTER ep 1.1 INTRODUCTION Problem statement 1.3 Research question 1.4 Research scope n Research objective w 1.2 lo ad 1.5 The thesis structure y th CHAPTER ju Framework of Corporate Governance yi 2.1 LITERATURE REVIEW Corporate governance and its impact on the firm 2.1.2 Background of corporate governance of listed firms in Vietnam ua al The theoretical literature n 2.2 pl 2.1.1 Theory of Principal – Agency problem 2.2.2 Stewardship theory 11 2.2.3 Capital structure theories 11 n ll fu m Empirical studies 14 oi 2.3 va 2.2.1 Empirical evidence of state ownership effect on firm performance 14 2.3.2 Empirical evidence of state ownership effect on firm leverage 15 2.3.3 Empirical evidence of the linkage among leverage, investment and firm performance 17 at nh 2.3.1 z z ht vb 2.4 Hypothesis construction and the conceptual framework 18 jm The effect of state ownership, leverage and investment on firm performance 19 2.4.2 The correlation between state ownership and leverage 20 2.4.3 The correlation of leverage and investment 20 2.4.4 Conceptual framework 22 k 2.4.1 om l.c gm CHAPTER : RESEARCH METHODOLOGY 23 an Lu 3.2 Variables 23 3.3 Research Methodology 26 3.3.2 Three Stage Least Square Method 28 CHAPTER 4.1 THE EMPIRICAL RESULT 29 Data descriptions 29 4.1.1 Descriptive statistics 29 4.1.2 Correlation between variables 35 Page iii ey System of simultaneous equations 26 t re 3.3.1 n Data sources 23 va 3.1 4.2 The result of three stage least square regression 37 4.2.1 These factors which affect to firm performance 37 4.2.2 State ownership affect to leverage 43 4.2.3 The correlation between leverage and investment 44 t to 4.3 Chapter remark 45 ng hi CHAPTER CONCLUSIONS AND POLICY IMPLICATION 46 ep Conclusion 46 5.2 Policy implications 47 5.3 The limitation and further research 48 5.1 w n lo Reference 50 ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page iv LIST OF FIGURES AND TABLES Table 2-1 Summary of theories 13 Figure 2-1 Conceptual Framework 22 t to Table 4-1 Ownership structure, Firm performance, Leverage and Investment 30 ng Table 4-2 State ownership concentration, leverage, investment and firm performance divided hi ep by years and industries 33 Table 4-3 Comparing between SO = and SO=1 34 w Table 4-4 Correlation coefficients between variables 36 n lo Table 4-5 Three – Stage Least Square Regression using ROA as Firm performance 40 ad Table 4-6 Three – Stage Least Square Regression using Tobin’ Q as Firm performance 41 y th Table 4-7 Three – Stage Least Square Regression using Z-score as Firm performance 42 ju yi Table 5-1 Summary of results 47 pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page v t to CHAPTER INTRODUCTION ng 1.1 Problem statement hi ep The economic reforms known as DOIMOI in 1986 helped Vietnam’s Economy have a high jump whereby it was converted from a centrally planned w n economy to a market economy In this reform, the equitization process of state lo ad owned firms in Vietnam was proposed in 1991 and was launched in 1992 State sold y th a part of their shares in firms to public investors with the focus to improve their ju performance As a result, these firms’ ownership structure is a mixture of many yi pl components as state, institutions, foreign, individual… al n ua The role of state ownership in firm’s financial performance has been the n va interesting subject of ongoing debate between economic researchers Though there fu are many studies which conduct to the impact of ownership on firm performance, ll lack of in-depth researches have been conducted to Vietnamese context (Le, 2015; m oi Phung & Mishra, 2016) It originates from the reason that Vietnamese economy is nh at not really similar to other economies because Vietnam is in group of developing z countries with transforming economy Most previous researches in Vietnamese z ht vb context have investigate the effect of state ownership structure on firm performance, jm however number of researches which find the correlation of state ownership and k financial decisions as leverage and investment is minority There is limited empirical gm l.c evidence on the effect of state ownership on level of debt and level of investment in Vietnamese firms although the role state ownership is important in transforming om economy as Vietnam Therefore, to investigate the impact of state ownership and an Lu firm financial decisions on firm performance is main purpose of this thesis n va Some previous studies have examined the correlation of ownership and firm’s state ownership, leverage, investment, firm performance and other corporate governance factors It is difficult to evaluate separately the impact of state ownership which has simultaneous correlation with other factors For evidence, if the impact Page ey interpret their simultaneous relation, especially the endogenous problem among t re financial characteristics However, the limitation of empirical evidence can fully of state ownership on firm performance is positive, it may be caused by the fact that in the case of favorable business environment, firm with higher level concentration t to of state ownership approach to bank credit easier tend to expand scale of production ng process and create more benefits Since, researches may see erroneous result of hi ep studies because of endogeneity problem This limitation is my motivation for this research As a result, in order to solve the problem statement mentioned above, this w thesis will concentrate to analyze the impact of state ownership, leverage and n lo investment on firm performance and test the hypothesis about two-way correlation ad between leverage and investment y th ju 1.2 Research objective yi pl The objective of this thesis is to analyze the impact of state ownership, al n ua together with investment, leverage level and corporate governance on the firm n va performance There are two main objective, as following: oi m performance ll fu - Testing the causal relation between state ownership concentration and firm at nh - Analyzing the potential impact of state ownership concentration together with leverage and investment on firm performance z z - Analyzing the potential two – way impact of leverage and investment k jm ht vb 1.3 Research question l.c gm In order to resolve the above objectives, I have reflected two research questions: (i) Does state ownership concentration, leverage and investment affect to firm n va (iii) How does the two – way effect of leverage and investment? an Lu (ii) How does state ownership concentration influence effect on leverage? om performance? This thesis uses data collected from audited financial statement and annual reports of 269/307 listed firms in Hochiminh Stock Exchange (HOSE) in the period 2010-2015 The dropped firms cover firms violated the securities regulations, Page ey t re 1.4 Research scope merged, lacked data and financial firms Financial firms include banks, securities firms and insurance firms are not covered in this thesis Finally, the database cover t to 1614 observations of 269 firms in years ng 1.5 The thesis structure hi ep After the first chapter, the thesis will continue with the other four chapters which can briefly be presented as follows: w n lo - Chapter is the presentation of the theoretical and empirical evidences ad related to the relationship of state ownership concentration, firm performance and y th ju other firm characteristic Conceptual framework is also illustrated in this chapter yi pl - Chapter presents the research methodology in which the formulation ua al model, data measurement and formulation hypothesis Furthermore, econometric n technique will be introduced va n - Chapter contains the simple statistics and regression analyses and fu ll discusses the results with the arguments from the reviewed literature m oi - Chapter is the formulation of the generation finding and discussion The nh at implications are proposed for the policy purposes Discussions of limitation and the z potential improvement for future studies are included z k jm ht vb om l.c gm an Lu n va ey t re Page 4.2.3 The correlation between leverage and investment This section tests the two-way effect of leverage and investment by using t to equation (3) and (4) The above hypothesis considers that investment affect positive ng to leverage but at invert side, leverage is expected to reduce level of investment in hi ep firms The effect of leverage on investment w Column (3), (7), (11) of table 4.5, 4.6, 4.7 demonstrate the impact of leverage n lo on capital expenditure – a proxy of investment While column (3) shows the effect ad of total leverage, column (7) & (11) demonstrate the influence of long-term and y th ju short-term leverage respectively yi The result of regression shows that short-term leverage affect negatively to pl ua al investment All of tables demonstrate negative coefficient of short-term leverage in the equation of investment (model 3) significant at 1% level which implied that the n n va firms with high level of short-term debt seems tend to underinvestment ll fu On the contrary, the effect of long-term debt on investment is positive Still oi m significant at 1% level, the regression of model (3) which uses long-term leverage nh as a proxy of leverage show positive coefficient It implies that firms with higher at level of long-term debt have more investment projects than others with lower level z z long-term debt In general, firms usually use long-term debt as a financing resource vb is positive k jm ht of investment project As a result, the relationship of long-term debt and investment gm The regression of model (3) which use total leverage as proxies of leverage l.c show an similar result with result of short-term leverage one Table 4.5 and 4.6 show om the positive coefficient of total leverage significant at 1% level when result of table an Lu 4.7 is positive but insignificant This result is consistent to the research of Aivazian, Ge & Qiu (2005) which investigate the impact of leverage on investment in listed n va Canada firms and support explain of Myer (1977) about agency problem of ey t re bondholder and shareholder The effect of investment on leverage The result of regressions of model (4) – leverage equation – are presented at column (4), (8), (12) of table 4.5, 4.6, 4.7 The result is significant in table 4.5 but insignificant in table 4.6 and 4.7 Page 44 The regressions showed in table 4.5 encourage the hypothesis about the positive effect of investment on leverage The coefficient of investment in the t to regression of total, long-term and short-term leverage significant at 1% level This ng result supports pecking order theory and implies that when firms act investment hi ep project, their priority is using internal cash flow As a result, internal cash flow of firms will reduce sharply In order to supplement the finance resource, firms will w increase debt, both long-term and short –term n lo 4.3 Chapter remark ad y th This chapter uses three – stage least square to investigate the simultaneous ju correlation among state ownership, firm performance, leverage and investment yi pl Consistence with the research of Le (2015), the study found non –linear with U- al ua shape impact of state ownership concentration on firm performance Specially, the n result of this study also found the negative effect of both leverage and investment va n on firm performance In additional, this study also demonstrate non-linear effect of ll fu state ownership on leverage but while it affects to long – term leverage with U- m oi shape, the impact of it on short-term is invert U- shape The result also encourage at nh the hypothesis about two – way effect of leverage and investment While investment z affect positively to leverage, in invert side, increasing level of debt in firm may tend z k jm ht vb to decrease level of firm investment om l.c gm an Lu n va ey t re Page 45 CHAPTER CONCLUSIONS AND POLICY IMPLICATION t to ng hi Based on the empirical finding accomplished from previous chapter, this ep chapter give a summary of conclusions and draw some policy implications Furthermore, the chapter also shows this thesis’s limitations and further research on w n the topic in the future lo ad 5.1 Conclusion y th ju Using 1614 observation from 269 listed firms in Hochiminh Stock Exchange yi (HOSE) in the period 2010-2015, this thesis is accompanied to study these following pl ua al gap in the context of Vietnam First, the effect of state ownership on ROA/ Tobin’ Q /Z-score which are proxies of firm performance Second, the correlation between n n va state ownership and financial decisions such as leverage and investment Third, the ll fu two-way effect between leverage and investment In addition, a newly econometric oi m technique, three – stage least square, is applied to resolve endogeneity problem at investment nh among variables: state ownership concentration, firm performance, leverage and z z The table 5.1 demonstrates result of testing these hypothesis which vb anticipated at previous chapter The finding supported the hypothesis which ht k jm expected about U-shape relationship between state ownership and firm performance gm In additional, it also encourage hypothesis 3, 5, which related to the negative effect l.c of debt on firm performance and the two-way impact of debt and investment om However, the result of regressions just encourage partially to the hypothesis When an Lu the finding supports the non – linear correlation of state ownership and leverage, it does not confirm the invert U-shape relation Finally, the study does not support the n ey t re because the regressions show the negative effect of firm investment on firm va hypothesis predicted that firm investment affect positively to firm performance performance Page 46 Table 5-1 Summary of results Hypothesis Empirical result t to H1: Whether there exist a U-shaped relationship between Supported state ownership and performance of Vietnamese listed firms ng hi ep No supported H3: The effect of debt on performance is negative Supported H2: Firm investment affect positively to firm performance w H4a: The relationship of state ownership and leverage is non Supported - linear H4b: The relationship of state ownership and leverage is No supported inverted U-shape n lo ad ju y th H5: Leverage affect negatively to investment Supported yi pl H6: Investment affect positively to leverage Supported n ua al n va 5.2 Policy implications ll fu The empirical research has given some finding in the correlation among state oi m ownership concentration, firm performance and financial decisions Based on the at policy makers nh research result, some policy implications are recommended for the firms and the z z First, the result of this study presents the strong effect of highly concentrated vb jm ht ownership on firm performance in Vietnamese emerging market where system of shareholder protection is inefficiency As a result, policy maker should improve k gm corporate governance mechanisms and revise law to support other minority l.c ownership avoid the harmful behavior of blockholders in firms Furthermore, though om the finding of research encouraged the hypothesis about the U-shape and an Lu demonstrate positive influence of state ownership concentration on firm performance, it does not mean that state should continuous high level of holding Seconds, observation from this research shows the relationship among state ownership, investment and firm performance While state ownership concentration Page 47 ey performance, the problem related to corporate governance may eventually raise t re Therefore, if state maintain high level of concentration in firms to support firm n performance is due to political connection rather than improvements in efficiency va share in firms The positive effect of state ownership concentration on firm affect positively to level of investment in firms, the influence of investment on firm performance is negative (rejected hypothesis2) It can be suggested that investment t to project seems not efficient Therefore, firms should be careful in the decisions of ng new investment projects that can squander financial resource and increase pressure hi ep of debt (hypothesis is supported) Firms may deliberate about feasibility, efficiency and cost of project before decide the financial resource of project w Finally, the research result encourage the hypothesis which expected the n lo negative correlation between leverage and firm performance This is a strong ad evidence show the inefficiency of using debt in Vietnamese firms In reality, long – y th ju term leverage affect positively to firm performance while the relationship of it and yi short-term leverage is negative As a result, the effect of total debt on firm pl ua al performance is negative due to the main debt resource of Vietnamese firms comes from short-term debt In order to resolve this problem, Vietnamese firms should find n n va the methods to transfer leverage from short – term to long – term ll fu 5.3 The limitation and further research m oi Though some various contributions have been considered, some limitations z explored in-deeply at nh are still contained in this thesis unavoidably and other related problems can also be z First, the period of this study’s data is relatively short, only six year from vb jm ht 2010 to 2015, which may affect to the significance of examining Furthermore, k because of these obstacles relating to collecting firm’s financial information due to gm the inefficiency of law to force all firm to provide correctly reports, there is a lack l.c of some values in the data Consequently, the result of research may face to the bias om In additional, the tight monetary policy of State Bank may distort to ability to access an Lu the credit resource tend to affect to leverage and investment of firms Second, a weak point of this study may be testing only listed firm In reality, Page 48 ey firms with financial indicators under standards t re ownership concentration on firm performance and financial decision, especially on n a result, it may be argued that this research cannot assess fully the influence of state va firms which listed in Stock Exchange have get standards of financial indicators As Based on the limitation analysis, further research can go ahead with large data which can cover both listed and unlisted firm in longer time period Furthermore, it t to can be increased the significant of research’s result when further researches can ng 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firms’, The British Accounting Review, vol 38, no 3, pp 239–25 t to ng hi ep w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page 55 Appendix Appendix ttest ROA, by(SO) t to ng hi ep Two-sample t test with equal variances -Group | Obs Mean Std Err Std Dev [95% Conf Interval] -+ -0 | 765 0540031 002977 0823406 048159 0598472 | 815 0787541 0034125 0974204 0720558 0854524 -+ -combined | 1,580 0667702 0022956 0912481 0622675 0712729 -+ -diff | -.024751 0045525 -.0336806 -.0158214 -diff = mean(0) - mean(1) t = -5.4368 Ho: diff = degrees of freedom = 1578 w n lo ad y th Ha: diff != Pr(|T| > |t|) = 0.0000 ju Ha: diff < Pr(T < t) = 0.0000 Ha: diff > Pr(T > t) = 1.0000 yi pl ua al ttest Q, by(SO) n Two-sample t test with equal variances -Group | Obs Mean Std Err Std Dev [95% Conf Interval] -+ -0 | 696 1.032287 0184184 4859108 9961249 1.06845 | 788 1.119226 0249525 7004489 1.070245 1.168208 -+ -combined | 1,484 1.078452 0158519 6106572 1.047357 1.109546 -+ -diff | -.0869392 0316952 -.1491115 -.024767 -diff = mean(0) - mean(1) t = -2.7430 Ho: diff = degrees of freedom = 1482 n va ll fu oi m at nh z Ha: diff > Pr(T > t) = 0.9969 ht vb Ha: diff != Pr(|T| > |t|) = 0.0062 z Ha: diff < Pr(T < t) = 0.0031 k jm ttest Z, by(SO) om l.c gm Two-sample t test with equal variances -Group | Obs Mean Std Err Std Dev [95% Conf Interval] -+ -0 | 676 20.01903 4.467577 116.157 11.24701 28.79105 | 777 17.65093 1.32353 36.89302 15.05281 20.24905 -+ -combined | 1,453 18.75268 2.195085 83.67275 14.4468 23.05855 -+ -diff | 2.3681 4.401891 -6.266651 11.00285 -diff = mean(0) - mean(1) t = 0.5380 Ho: diff = degrees of freedom = 1451 an Lu Page 56 ey t re Ha: diff > Pr(T > t) = 0.2953 n Ha: diff != Pr(|T| > |t|) = 0.5907 va Ha: diff < Pr(T < t) = 0.7047 ttest DA, by(SO) t to ng hi ep Two-sample t test with equal variances -Group | Obs Mean Std Err Std Dev [95% Conf Interval] -+ -0 | 765 4826039 0075856 2098074 4677128 497495 | 815 4793225 0075423 2153194 4645178 4941272 -+ -combined | 1,580 4809113 0053487 2126076 4704199 4914026 -+ -diff | 0032814 0107059 -.0177178 0242807 -diff = mean(0) - mean(1) t = 0.3065 Ho: diff = degrees of freedom = 1578 w n lo ad Ha: diff != Pr(|T| > |t|) = 0.7593 Ha: diff > Pr(T > t) = 0.3796 ju y th Ha: diff < Pr(T < t) = 0.6204 yi ttest LDA, by(SO) pl n ua al Two-sample t test with equal variances -Group | Obs Mean Std Err Std Dev [95% Conf Interval] -+ -0 | 765 1064144 0047497 1313703 0970904 1157385 | 815 1260014 0056347 1608599 1149412 1370616 -+ -combined | 1,580 1165178 0037133 1475998 1092343 1238013 -+ -diff | -.0195869 0074163 -.0341337 -.0050402 -diff = mean(0) - mean(1) t = -2.6411 Ho: diff = degrees of freedom = 1578 n va ll fu oi m at nh Ha: diff != Pr(|T| > |t|) = 0.0083 Ha: diff > Pr(T > t) = 0.9958 z Ha: diff < Pr(T < t) = 0.0042 z ht vb ttest SDA, by(SO) k jm Two-sample t test with equal variances -Group | Obs Mean Std Err Std Dev [95% Conf Interval] -+ -0 | 765 3761895 0071639 1981426 3621263 3902527 | 815 3533211 0073197 2089643 3389534 3676888 -+ -combined | 1,580 3643935 0051335 2040526 3543243 3744627 -+ -diff | 0228684 0102593 0027451 0429916 -diff = mean(0) - mean(1) t = 2.2290 Ho: diff = degrees of freedom = 1578 om l.c gm an Lu Ha: diff > Pr(T > t) = 0.0130 n Ha: diff != Pr(|T| > |t|) = 0.0260 va Ha: diff < Pr(T < t) = 0.9870 Two-sample t test with equal variances -Group | Obs Mean Std Err Std Dev [95% Conf Interval] -+ -0 | 651 0517564 0027819 0709784 0462938 0572189 | 706 0582285 0028714 0762947 052591 063866 -+ Page 57 ey t re ttest CAPEX, by(SO) t to combined | 1,357 0551236 0020044 0738359 0511916 0590556 -+ -diff | -.0064721 0040097 -.0143379 0013937 -diff = mean(0) - mean(1) t = -1.6141 Ho: diff = degrees of freedom = 1355 ng Ha: diff < Pr(T < t) = 0.0534 Ha: diff != Pr(|T| > |t|) = 0.1067 Ha: diff > Pr(T > t) = 0.9466 hi ep w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re Page 58