THE IMPACT OF EQUITIZATION ON FIRM PERFORMANCE: EVIDENCE FROM VIETNAMESE STATEOWNED ENTERPRISES

THE IMPACT OF EQUITIZATION ON FIRM PERFORMANCE: EVIDENCE FROM VIETNAMESE STATEOWNED ENTERPRISESTHE IMPACT OF EQUITIZATION ON FIRM PERFORMANCE: EVIDENCE FROM VIETNAMESE STATEOWNED ENTERPRISESTHE IMPACT OF EQUITIZATION ON FIRM PERFORMANCE: EVIDENCE FROM VIETNAMESE STATEOWNED ENTERPRISESTHE IMPACT OF EQUITIZATION ON FIRM PERFORMANCE: EVIDENCE FROM VIETNAMESE STATEOWNED ENTERPRISESTHE IMPACT OF EQUITIZATION ON FIRM PERFORMANCE: EVIDENCE FROM VIETNAMESE STATEOWNED ENTERPRISESTHE IMPACT OF EQUITIZATION ON FIRM PERFORMANCE: EVIDENCE FROM VIETNAMESE STATEOWNED ENTERPRISESTHE IMPACT OF EQUITIZATION ON FIRM PERFORMANCE: EVIDENCE FROM VIETNAMESE STATEOWNED ENTERPRISES

INTRODUCTION

Problem statements

According to the Vietnamese Steering Committee for Enterprise Renovation and Development (2021), the Vietnamese Government conducted equitization through three phases, and the first phase took place from 1992 to 2000

Equitization in Vietnam has spurred economic development but also presents significant limitations The government's incentive policies, such as tax benefits and land leases, create unfair competition and do not foster an efficient market, leading to information speculation that advantages investors in equitized enterprises Unlike many countries that privatize by selling state assets, Vietnam's approach retains state control over significant shares of equitized state-owned enterprises (SOEs), aiming to enhance operational efficiency and governance However, this strategy can hinder firm performance improvements across different industries Additionally, low asset valuations and a lack of transparency in SOEs result in state capital loss, as seen in cases where valuable properties are sold at undervalued prices Consequently, these challenges complicate efforts to enhance the performance of equitized enterprises.

Equitization in Vietnam has progressed slowly, resulting in stagnation and limited participation in enterprise innovation, which hinders performance improvement post-equitization (Loc, 2006; Tran et al., 2015) The new public management theory advocates for privatization to enhance operational efficiency compared to state-owned enterprises (SOEs), while efficient market theory posits that minimal state interference is essential for a robust capital market, as security prices should reflect all available information However, Vietnam's state control hampers transparency and information disclosure in the stock market, with few equitized SOEs listed (The World Bank, 2020) Disagreements within shareholders' councils, dominated by state representatives, further obstruct information transparency Consequently, the state's overwhelming influence over equitized enterprises contradicts economic theories, leading to low asset valuations, listing delays, and inadequate information disclosure The slow equitization process, characterized by gradual divestment, underscores the need for further research on IPO valuation and the effects of equitization on firm performance, particularly regarding tax incentives and state ownership divestment in Vietnam.

Research on privatization has garnered significant attention globally, yet empirical findings on its effects on firm performance remain inconsistent Many studies utilize performance metrics established by Megginson et al (1994), particularly in developed nations where pre-post comparison methods reveal that privatization often enhances firm performance (Brown et al., 2016; Dewenter and Malatesta, 2001) In these countries, the government retains some state-owned enterprises (SOEs) while transferring most assets to the private sector, facilitating the restructuring of ownership and operations to prioritize profit maximization Efforts to create efficient markets, as suggested by efficient market theory, allow privatized firms to access capital more easily Similarly, in Vietnam, empirical studies employing pre-post and with-without comparison methods indicate that equitization positively influences the performance of equitized SOEs (Loc et al.).

In 2006, research indicated that equitization could enhance firm performance; however, Pham (2017) argues that it may not yield positive outcomes This perspective aligns with empirical studies from China, which reveal that the privatization of state-owned enterprises (SOEs) often fails to improve their performance (Jiang et al.).

Empirical studies on the performance of equitized State-Owned Enterprises (SOEs) in both developed and developing countries yield inconsistent results due to varying research methods, performance measures, and contextual factors According to new public management and efficiency market theories, state interference in equitized SOEs does not foster an efficient market in Vietnam Additionally, there is a lack of research examining the impact of equitization on firm performance, particularly when comparing equitized and non-equitized SOEs in Vietnam Notably, studies by Tran et al (2015) and Loc and Tran (2016) failed to account for industry differences when selecting participating and non-participating firms, resulting in potentially biased comparisons.

Based on the above reasons, the author has chosen the topic “The impact of equitization on firm performance: Evidence from Vietnamese state-owned enterprises” for the doctoral dissertation.

Background of the research

Research on the impact of privatization on the performance of privatized state-owned enterprises (SOEs), particularly in comparison to non-privatized firms, is limited, with most studies focused in China Previous analyses in both developed and developing countries have primarily utilized pre-post comparison methods to evaluate privatization effects on firm performance, often neglecting non-participating firms This raises important questions about whether equitization can enhance the performance of equitized SOEs in Vietnam when compared to their non-participating counterparts.

Quantitative studies frequently employ the pre-post comparison method to evaluate changes in firm performance following privatization, contrasting it with the pre-privatization period This methodology was initially introduced by Megginson et al.

In their 1994 study, Megginson et al introduced a method to assess firm performance by calculating average values before and after privatization, employing t-Test and Mann-Whitney tests to analyze changes in mean and median performance metrics This framework has been widely adopted and adapted in subsequent research, focusing on seven key performance measures: (1) profitability indicators such as ROE, ROA, and ROS; (2) operating efficiency ratios like sales per employee and net income per employee; (3) capital investment metrics, including capital expenditures relative to sales and total assets; (4) output measured by nominal sales adjusted for the consumer price index; and (5) employment figures reflecting the total number of employees.

(6) leverage (total debt/total assets, long-term debt/equity); and, (7) payout (cash dividends/sales, cash dividends/net income)

Numerous studies have utilized the pre-post comparison method to examine the effects of privatization on firm performance, including Pham's (2017) research on privatized state-owned enterprises (SOEs) in Vietnam and Sakr's (2014) analysis of firm performance in Egypt This method has also been employed in various other countries, highlighting its widespread application in understanding the impacts of privatization.

Recent studies in China have utilized propensity score matching techniques (PSM) to evaluate the impact of privatization on firm performance, employing a with-without comparison method (Ho et al., 2011; Huang and Wang, 2011; Jiang et al., 2009).

Tran et al (2015) conducted a study on the impact of privatization on the performance of 309 privatized enterprises in Vietnam, utilizing pre-post comparison, with-without comparison methods, and regression analysis However, their approach faced limitations, as the consideration of firm size and establishment year in the propensity score matching (PSM) technique may introduce biases when comparing firms across different industries Other empirical studies, such as those by Liao et al (2014), O'Toole et al (2016), Ochieng and Ahmed (2014), and Wang and Shailer (2015), also employed regression methods Additionally, Sprenger (2014) analyzed a sample of 497 Russian firms, both privatized and non-privatized, surveyed between 1999 and 2000, without applying propensity score matching.

Previous studies primarily utilized the pre-post comparison method, neglecting the effects of privatization on participating state-owned enterprises (SOEs) in relation to non-participating ones Additionally, findings on privatization's impact on firm performance have varied across countries, influenced by factors such as evaluation methods, privatization approaches, policies, and the economic context of the privatized SOEs (Estrin and Pelletier, 2018; Iwasaki and Mizobata, 2018) This highlights the necessity for further research into equitization policies and their effects on firm performance in Vietnam, as empirical studies, particularly doctoral dissertations, on this topic remain scarce Notable works include Linh (2017), who examined the equitization progress of large-scale SOEs, and Hoa (2016), who reviewed policies for equitized state-owned enterprises in the textile sector However, Tien (2019) focused on identifying determinants of business income for equitized SOEs without assessing the overall impact of equitization on their performance.

Vietnam's equitization process aims to enhance the operational efficiency and governance of state-owned enterprises (SOEs) by restructuring and divesting state capital, while still retaining state control over key sectors Unlike other countries that fully privatize public assets, Vietnam's approach involves a gradual divestment strategy that prevents significant changes in ownership and operational performance post-equitization This unique model seeks to align SOEs with international standards while ensuring that the state maintains oversight in critical areas.

The new public management advocates for privatization programs that transfer public service responsibilities to the private sector to improve service quality Public choice theory supports the idea that individuals and organizations should independently make decisions to enhance efficiency However, in Vietnam, state representatives retain significant control over decision-making and voting rights in enterprises post-equitization, hindering transparency and information disclosure As a result, many equitized enterprises struggle to meet market listing requirements and contribute to an efficient capital market The efficient market theory posits that a firm's market value reflects complete information about its operations and market events, yet Vietnam faces challenges in establishing an efficient capital market due to the lack of listed equitized State-Owned Enterprises (SOEs) This raises the question of whether state representatives should maintain more than 50% ownership after equitization Research by Loc et al (2006) examines firm performance changes in Vietnam based on state ownership levels, specifically when the state holds more or less than 30% of shares.

According to the theory of competitive advantage, firms in different industries experience varying levels of competitive advantages, which significantly influence their performance Research indicates that privatized firms in highly competitive sectors outperform those in less competitive industries following privatization (Sheshinski and López-Calva, 2003) Most empirical studies have utilized pre-post comparison and regression methods to analyze the impact of privatization on firm performance across various industries, often overlooking non-equitized state-owned enterprises (SOEs) during the same period Recently, the Government issued Decision 22/2021/QD-TTg, which mandates 100% state ownership in 13 industries and over 50% in 14 others, reflecting a strategic shift in maintaining state control Despite these changes, there is a lack of empirical research identifying which industry groups see performance improvements post-equitization, highlighting the need for further studies to inform government decisions on state ownership in specific sectors.

Incentive policies play a crucial role in facilitating the privatization process in various countries by encouraging firms to engage in privatization programs However, the implementation of these government interventions can lead to unfair competition, disadvantaging other enterprises in the market (Estrin and Pelletier, 2018; Iwasaki and Mizobata).

The efficient market theory posits that firm value and security prices are accurately reflected in the market due to the complete dissemination of relevant information However, the implementation of preferential policies can significantly influence firm value, indicating that the market value of certain enterprises is contingent upon government interventions and policies.

In developed countries, as well as in Russia and China, preferential policies are often applied to all enterprises based on their investment sectors rather than being exclusive to privatized firms In contrast, Vietnam has implemented specific preferential tax and land rental policies for equitized enterprises, which warrant thorough evaluation and analysis Currently, there is a gap in research regarding the impact of tax incentives on the performance of equitized enterprises in Vietnam Furthermore, most empirical studies have not investigated how listed firms enhance their performance compared to unlisted firms post-equitization in the Vietnamese context.

Vietnamese managers establish their enterprise values prior to submitting equitization plans for approval by the equitization steering committee Equitized state-owned enterprises (SOEs) may engage auditing firms for accurate firm valuation and asset pricing; however, issues often arise regarding these valuations State representatives frequently set artificially low firm values, particularly for real estate, allowing state properties to be sold at reduced prices to private entities, which results in significant losses for the state Theories such as market feedback and efficient market theory suggest that this underpricing during privatization can be identified by the market and will be addressed once these firms are listed on the stock market.

Underpricing of state assets during equitization leads to significant losses for the state budget and fosters manipulation within the equitization process, hindering the development of an efficient market Tran et al (2015) found that Vietnamese IPOs are underpriced by 38% based on raw first-day returns and by 49% when considering market-adjusted abnormal returns However, their study does not adequately address the underpricing or undervaluation of equitized state-owned enterprises (SOEs) compared to private enterprises during initial public offerings (IPOs).

After summarizing the background of the study, the author finds out some gaps as follows:

Research objectives

This study investigates the effects of equitization on the performance of firms in Vietnam, comparing equitized state-owned enterprises (SOEs) with their non-equitized counterparts during the same periods It focuses on how average state ownership rates post-equitization and industry groups influence these performance changes, while also considering the role of tax incentives for equitized SOEs Additionally, the research explores performance variations between listed and unlisted firms following equitization, as well as the implications of underpricing in both the short and long term Based on the findings, the author offers recommendations for investors, SOEs, and the Vietnamese Government.

Based on research gaps and general research questions, this dissertation aims to: Identify whether equitization helps equitized SOEs improve firm performance than non-equitized SOEs in the same period

This dissertation analyzes the effects of equitization on the performance of state-owned enterprises (SOEs) with varying levels of average state ownership post-equitization, categorized into five groups: below 20%, 20% to 30%, 30% to 50%, 50% to 65%, and above 65%.

Examine the different impacts of equitization on firm performance of equitized SOEs according to different industry groups

This dissertation explores the effects of equitization on the performance of state-owned enterprises (SOEs) in Vietnam, focusing on those with and without tax incentives It also investigates the variations in performance changes between listed and unlisted firms following equitization.

Evaluate IPO underpricing of SOEs in the short run and long run when participating in the equitization program.

Research questions

How can equitization impact on firm performance of equitized SOEs when compared with non-equitized SOEs in the same period?

How does equitization impact on firm performance of equitized SOEs with different average state ownership rates after equitization (below 20%, 20% up to 30%, 30% up to 50%, 50% up to 65% and above 65%)?

How does equitization impact on firm performance of equitized SOEs according to different industry groups?

Equitization significantly influences the performance of state-owned enterprises (SOEs) in Vietnam, particularly in terms of firm performance with and without tax incentives Research indicates that listed firms tend to experience greater improvements in performance post-equitization compared to their unlisted counterparts This suggests that the transition to a more market-oriented structure through equitization, coupled with the potential benefits of being publicly listed, enhances operational efficiency and overall firm performance in the Vietnamese context.

Research object and research scope

This dissertation analyzes the typical characteristics of equitization in Vietnam and its effects on the performance of state-owned enterprises (SOEs) post-equitization The study specifically examines two key performance indicators: the change in Return on Assets (dROA) and the change in Total Assets Turnover (dTAS).

Content: This dissertation examines how equitization impacts on firm performance of equitized SOEs after equitization in Vietnam Also, this dissertation examines listing, underpricing and overpricing phenomenon of equitized SOEs

This research analyzes the equitization process of State-Owned Enterprises (SOEs) in Vietnam from 2006 to 2015, utilizing secondary data from the General Statistics Office of Vietnam (VGSO) covering firm performance from 2002 to 2019 By employing four-year equitization windows, the study assesses the impact of tax incentives on firm performance Additionally, it incorporates data from the Hanoi Stock Exchange (HNX) and the Hochiminh Stock Exchange (HOSE) to investigate short-term and long-term underpricing effects.

Research methodology and data

This research paper employs both qualitative and quantitative methodologies to investigate the effects of privatization and equitization on firm performance It utilizes qualitative research to summarize existing empirical studies and identifies relevant theories to develop a research model focused on the average treatment effect through Propensity Score Matching (PSM) Additionally, the dissertation implements a with-without comparison method to assess the impact of equitization on the performance of equitized State-Owned Enterprises (SOEs) in comparison to non-equitized SOEs during the same periods The Difference-in-Difference (DID) method is applied, which, unlike the pre-post comparison method, calculates performance changes by subtracting the outcomes to derive DID measures.

Khandker et al (2009) highlight the with-without comparison method as an effective approach for evaluating program effectiveness This technique utilizes propensity score matching, as developed by Rosenbaum and Rubin, to ensure accurate assessment of outcomes.

In 1983, researchers introduced a method that effectively eliminates selection bias by pairing participants with similar characteristics This approach has been recommended by Claessens and Djankov (2002) and Pohl et al (1997) for evaluating the impact of privatization on firm performance across European countries.

This study utilizes a with-without comparison method, focusing on four key variables: firm size, years of operation, industry, and equitization year, to establish a propensity score that highlights similarities between the treatment and control groups Additionally, it incorporates a robustness test to ensure result consistency, as outlined by Khandker et al (2009) The research employs direct nearest-neighbor matching (nnmatch) alongside five nearest-neighbor matchings (psmatch) to assess the average treatment effect on the treated (ATE), building on the methodologies proposed by Loc and Tran (2016) and Hung et al.

This dissertation utilizes the average treatment effect approach via Propensity Score Matching (PSM) to analyze the varying impacts of equitization on firm performance, categorized by average state ownership rates post-equitization The ownership rates are segmented into five distinct ranges: below 20%, between 20% and 30%, from 30% to 50%, from 50% to 65%, and above 65%.

For the third research objective: This dissertation adopts the average treatment effect approach through PSM to consider the different impacts of equitization on firm performance according to industry groups

This dissertation employs qualitative research methods to review existing studies and relevant theories on the effects of privatization and equitization on firm performance It aims to establish a regression model that assesses the influence of tax incentives and stock market listing on the performance changes of equitized state-owned enterprises (SOEs).

This dissertation aims to evaluate underpricing in firms by employing a t-Test to compare various underpricing measures against zero, assessing both short-term and long-term effects It utilizes four distinct underpricing metrics: raw first-day return (ARi %), market-adjusted abnormal return (MAARi %), average benchmark-adjusted return (ARt), and cumulative benchmark-adjusted long-run performance (CAR0,t).

The dissertation applies firm performance data of SOEs equitized from 2006 to

Between 2006 and 2015, the author analyzed data from the steering committee on enterprise innovation and development, identifying 295 equitized state-owned enterprises (SOEs) and 418 non-equitized SOEs that demonstrated sufficient firm performance information during this period.

This dissertation outlines a systematic approach to collecting and calculating firm performance measures Initially, the author identifies the number of equitized State-Owned Enterprises (SOEs) using the list provided by the Steering Committee of Enterprise Innovation and Development Subsequently, the author verifies the availability of sufficient firm performance information through survey data from the General Statistics Office of Vietnam Finally, the author processes this data to derive appropriate firm performance metrics.

New contribution

Many privatization theories overlook the advantages that privatized state-owned enterprises (SOEs) have over non-privatized firms Additionally, there is a lack of empirical research on how incentive policies from privatization programs influence the performance of privatized firms This dissertation reveals that equitization enhances profitability (dROA) for firms, yet does not significantly improve operating efficiency (dTAS) when compared to non-equitized enterprises during the same timeframes.

Deregulation has been a significant topic for decades, with various theories addressing the State's role, including the "invisible hand," "visible hand," mixed economy, public choice, and new public management Ongoing debates continue regarding State deregulation and its implications Research from this dissertation indicates that equitization enhances profitability for firms compared to non-participating firms (dROA) only when they are no longer under state control, as evidenced by an average state ownership rate of less than 50% four years post-equitization.

Empirical studies indicate that short-run underpricing and long-run overpricing occur in both developing and developed countries These studies often utilize signaling, market feedback, and efficient market theories to explain how pre-IPO profitability influences investor decisions in privatized firms, resulting in varying levels of pricing This dissertation aims to generalize existing theories related to short-run underpricing in Vietnam, incorporating market feedback theory, signaling theory, and divergence of opinion theory.

This dissertation proposes some recommendations for the Vietnamese Government, equitized SOEs, non-equitized SOEs and IPO investors

The Vietnamese Government has consistently promoted the equitization of State-Owned Enterprises (SOEs), yet the number of equitized SOEs has seen a decline since 2007 Many large-scale SOEs were not equitized during the initial stages due to complexities in asset and IPO pricing, ownership restructuring, and intricate procedures Despite annual reports from the Steering Committee for Renovation and Development of Vietnam on equitized SOEs, there is a lack of formal assessments comparing the performance of equitized SOEs to their non-equitized counterparts Furthermore, equitized SOEs that remain under state control post-equitization do not exhibit improved performance relative to non-equitized SOEs.

Research indicates that equitized state-owned enterprises (SOEs) demonstrate enhanced profitability (dROA) compared to their non-equitized counterparts during the same timeframe when engaging in equitization programs Additionally, delisting does not contribute to performance improvements for equitized SOEs.

In Vietnam, numerous unlisted firms emerge post-equitization, offering investors valuable insights for informed decision-making based on this dissertation's research findings Typically, investing in IPOs can yield initial returns due to short-term underpricing However, the potential for long-term overpricing suggests that investors should be cautious about holding IPO shares for extended periods.

The research framework

Source: proposed by the author

Structure of the dissertation

Except for the table of contents, appendices, this dissertation includes five chapters, and each chapter has a separate summary part

QUALITATIVE Model selection Hypothesis development

QUANTITATIVE t-Test; Average treatment effect through propensity score matching and

Difference-in-difference Ordinary least square method

Data collection, measurement, data analysis t-Test; Average treatment effect

This chapter outlines the key elements of the doctoral dissertation, encompassing the problem statements, study background, research objectives, and questions It also details the research object and scope, the methodology employed, and the novel contributions made by the study.

Chapter 2 Theories and empirical studies on equitization and firm performance This chapter contents include definitions of privatization/ equitization and firm performance, some relevant theories explaining the impact of privatization on firm performance, empirical evidence on the impact of privatization on firm performance and research gaps

Chapter 3 Methodology, data and research models

This chapter outlines the essential steps of the study, including hypothesis development and research models It also covers the estimation methods, data collection, and the description and measurement of firm performance Chapter 4 presents the research results.

This chapter analyzes the performance of equitized State-Owned Enterprises (SOEs) during the pre- and post-equitization periods in Vietnam It draws conclusions on the effects of equitization on firm performance, utilizing quantitative results and employing regression analysis and propensity score matching techniques Additionally, the chapter includes hypothesis testing to support its findings.

This chapter contents include conclusions and recommendations for equitized SOEs, non-equitized SOEs, investors and the Government.

THEORIES AND EMPIRICAL STUDIES ON EQUITIZATION

Definitions of privatization/ equitization and firm performance

2.1.1 Definitions of state-owned enterprises

State-owned enterprises (SOEs) are defined by the OECD (2017) as entities where the government holds significant control through majority ownership, with definitions varying by country based on government policies Lin et al (2020) categorize SOEs into competitive and strategic sectors, with the former allowed to compete with private firms with minimal government support Bernier et al (2020) describe SOEs as organizations that produce public services and can shift ownership from public to private sectors SOEs are crucial for regulating economies and contributing to national GDP (Peng et al., 2016) Theories regarding the state's role in the economy vary, with the "Invisible Hand" theory arguing against regulation, while the "Visible Hand" theory advocates for state intervention during economic downturns The mixed economy theory has gained popularity, addressing the limitations of both the invisible hand and Keynesian theories, suggesting that government regulation is essential for market efficiency Kornai (1992) and Peng (2000) provide a comparative analysis of SOEs and private firms, highlighting their distinct roles in the economy.

Table 2.1 Comparison between private firms and state-owned enterprises

Firm objectives Maximize profits for private owners/ shareholders Profit maximization is one of the firm objectives The important objective is to ensure employment and social wealth fare

Financing From private sources or shareholders

From the state by direct subsidies or budget Liquidity Firms have to declare when bankruptcy State representatives decide to support or not support when SOEs have bankruptcy

Management appointment Owners/ investors make management appointment State representatives make management appointment Ownership restructuring

Nationalization can be applied for private firms to be SOEs

Privatization/ equitization can be applied to transfer SOEs to private firms

Private firms and state-owned enterprises (SOEs) exhibit distinct characteristics, particularly in their objectives, financing, liquidity, management, and ownership structures While private firms focus on maximizing profits for their owners or shareholders, especially when publicly traded, SOEs prioritize employment and social welfare Funding for SOEs primarily comes from the state via direct subsidies, with government representatives determining support during financial crises, unlike private firms, which do not receive state assistance in such situations Additionally, private firms can transition to SOEs through nationalization, while SOEs can become private entities through privatization or equitization initiatives.

In Vietnam, State-Owned Enterprises (SOEs) are defined by the Law on Enterprises, which was updated in 2020 According to this new legislation, SOEs are entities where the government holds more than 50% of the charter capital and the majority of shares with voting rights, as outlined in Article 88 of the Law on Enterprises 2020.

State-Owned Enterprises (SOEs) are defined by government policies and serve as legal entities that engage in commercial activities on behalf of the government These entities can be wholly or partially government-owned and are utilized as tools for economic regulation Following the 2020 enterprise laws, Vietnam has seen a significant number of SOEs, as many have undergone partial equitization, with over 50% state ownership in numerous cases Consequently, the new enterprise legislation is poised to influence future equitization plans in Vietnam.

Large-scale privatizations initiated in West Germany in 1957 under Prime Minister Konrad Adenauer paved the way for similar efforts in the UK, where Prime Minister Margaret Thatcher implemented a privatization program in the early 1980s According to Megginson and Netter (2001), privatization involves transferring assets from state ownership to private ownership, a crucial process for states and state-owned enterprises (SOEs) as it enables the efficient reallocation of resources through private sector involvement.

“Privatization” concept comes from the new public management theory, public-choice theory, the neo-Austrian school, and property-rights theory (Gruening,

Privatization refers to a shift towards greater reliance on private institutions rather than government to meet societal needs It encompasses various methods such as contracting, franchising, vouchering, selling, and leasing government assets, as well as shedding services and deregulating These approaches enable markets to deliver goods and services to consumers effectively Public managers and decision-makers are tasked with the challenging decision of determining which public services should remain under government control and which can be successfully privatized.

Privatization refers to the transition from public to private sector involvement in providing goods and services, characterized by the state's withdrawal from certain responsibilities (Hirschman, 1982) It encompasses shifts in activities and rights from the public to private sector, aiming to enhance the efficiency of public service production (Starr, 2014) This process can manifest as reductions in state regulation and spending, facilitating the privatization of public goods and services There are two primary types of privatization: demand-driven, which arises from public interest in private sector participation in areas like education and healthcare, and policy-driven, where the government actively decides to transfer production rights to the private sector The interpretation and implementation of privatization policies can vary significantly across countries, influenced by their unique contexts and characteristics.

Privatization can enhance firm performance and boost state budgets, as noted by Schmidt (1996), but it may also diminish the influence of politicians over public enterprises Consequently, privatized firms often experience a decrease in state subsidies post-privatization Boycko (1996) highlights that politicians may leverage these subsidies to deter privatized state-owned enterprises (SOEs) from restructuring or engaging in further privatization, aiming to maintain their control and benefits Nevertheless, implementing a privatization program is essential for restructuring public firms and addressing their inefficiencies.

Privatization, as defined by Megginson et al (1994), involves the transfer of state ownership of assets and land to private entities, aiming to reduce government control over the economy The key objectives of privatization include generating revenue for the state, enhancing efficiency, and minimizing government interference in economic activities.

(4) promote wider share ownership, (5) provide the opportunity to introduce competition; (6) expose SOEs to market discipline and (7) develop the national capital market

Privatization is the process of transferring state ownership to private ownership, guided by government initiatives Many researchers and politicians acknowledge the advantages of privatization, advocating for a transition from the public to the private sector in the production of goods and services due to enhanced firm performance and economic benefits The government should maintain control over only essential public firms to regulate the economy, rather than interfering in most public enterprises Successful privatization initiatives in the United Kingdom, the United States, and various developing countries have demonstrated significant benefits for both companies and economies.

In Vietnam, "equitization" refers to the process of transforming state-owned enterprises (SOEs) into joint-stock companies, distinguishing it from "privatization" as the State retains significant ownership This approach allows the government to maintain control while fostering a market economy characterized by a multi-ownership structure aligned with socialist principles.

Sjửholm (2006) characterizes equitization similarly with privatization in Vietnam compared with other countries However, the author has used the words “modest” and

Equitization in Vietnam refers to the gradual transition of state-owned enterprises (SOEs) to the private sector, a process initiated in 1992 as part of the SOE reform program The Vietnamese government periodically releases lists of SOEs designated for equitization, analyzing the successes and challenges of the program every five years to refine policies While the term "privatization" is often used interchangeably with "equitization," particularly in China, both processes aim to enhance capital mobilization and improve firm performance while maintaining state oversight Unlike Western privatization, equitization allows the state to retain significant control, often holding dominant shares and exercising intervention, ensuring that the shift does not equate to a complete loss of public sector influence.

Equitization is a State policy to mobilize social resources for economic development and firm performance improvement (Loc and Tran, 2016) O’Toole et al

Equitization and privatization are fundamentally similar in their effects on operating efficiency in Vietnam, as both aim to enhance the performance of state-owned enterprises (SOEs) Specifically, equitization serves as a key method for reforming SOE ownership, focusing on restructuring these entities to improve their overall effectiveness.

Under a socialist framework, the Vietnamese government has implemented a gradual equitization policy, resulting in slow divestment and ongoing government intervention in many equitized state-owned enterprises (SOEs) While the government has embraced privatization theories within its equitization programs, it has approached the process cautiously to mitigate risks associated with losing state control over public firms.

Comparison between privatization and equitization

Table 2.2 shows a comparison between privatization and equitization and there are not many differences between privatization and equitization

Table 2.2 Comparison between privatization and equitization

Definition Privatization is known as transferring assets from state ownership to private ownership

The state only keeps some SOEs in key sectors to regulate the economy

Equitization does not entail the complete sale of state assets to the private sector; rather, the government often retains a majority stake in equitized state-owned enterprises (SOEs), allowing for a gradual divestment process.

Relevant theories

2.2.1.1 Invisible hand, visible hand and mixed economy theories

Researchers have made a great effort to propose theories to explain privatization's impact on SOEs' firm performance In 1776, Smith proposed the

The "invisible hand" economic theory posits that individuals, driven by the desire to maximize profits in a market economy, inadvertently contribute to the overall benefit of society As noted by Smith (1817), government intervention is unnecessary, as a country's wealth stems from business freedom rather than stringent regulations This concept significantly influenced the privatization movement in the nineteenth century, demonstrating that state-owned enterprises (SOEs) could be effectively managed by the private sector without governmental control Consequently, privatization gained popularity in many developed nations, reinforcing the idea that private enterprises thrive best without state interference.

From the 1930s to the twentieth century, capitalism evolved, necessitating state intervention for economic regulation, as proposed by the Keynesian school, which emphasized the government's role in stimulating public and private investment through substantial investment programs In 1977, Alfred DuPont Chandler introduced the "visible hand" theory in his book, illustrating how management's oversight replaced market forces in modern business His eight propositions explain the rise of modern enterprises, highlighting that management hierarchies can effectively coordinate multiple business units, leading to continued growth as managerial skills improve Chandler noted that once a managerial hierarchy is established, it becomes a source of power and stability The visible hand theory advocates for government involvement and managerial structures to foster business growth, asserting that state control is essential for the effective operation of state-owned enterprises (SOEs) This theory suggests that SOEs can thrive under government oversight, particularly when supply exceeds demand, thus discouraging privatization in favor of maintaining state control.

P.A Samuelson proposed the theory of mixed economy theory to overcome the limitations of the invisible hand theory and the Keynesian theory on the Government's role in a country's economy "Mixed economy" is the combined economy in which enterprises with private ownership and state ownership are affected by the market mechanism and the state regulation Privatization programs have spread worldwide, including developing countries and developed countries after 1987 The mixed economy theory can explain the privatization nature in China and Vietnam China conducted privatization programs to create a mixed economy to encourage the private sector but try to maintain state interference in some important privatized SOEs and central SOEs Privatization programs in Vietnam mainly learned from privatization experience in China to encourage private sector development while maintaining pure SOEs or state control in some essential equitized SOEs According to mixed economy theory, privatization is also necessary but the State should control or remain dominant shares in some cases to orientate the economy

Economists continue to debate the appropriate role of the State in regulating the economy, particularly regarding the privatization of State-Owned Enterprises (SOEs) A key question remains whether the Government should fully privatize all SOEs or retain certain essential enterprises Proponents of privatization argue that the State should focus on maintaining only vital economic entities to effectively manage the economy, advocating for this approach especially in developing nations In Vietnam, the government adopts a mixed economy model for economic development, leading to a gradual process of equitization that aims to create a balanced coexistence of public and private sectors while aligning with the principles of communism.

New Public Management (NPM) originates from public-choice theory, which was developed by Tullock and Buchanan in 1972 to elucidate individual motivations and the information available to them This theory posits that individuals act in accordance with their interests and preferences, providing insight into why a free individual would consent to specific political institutions and their resultant outcomes.

New Public Management (NPM) emerged in the United Kingdom during Prime Minister Margaret Thatcher's tenure and was also adopted by municipal governments in the United States in the late 1970s and early 1980s This innovative reform movement aimed to enhance the efficiency and effectiveness of public sector services (Savas, 2000).

According to Gruening (2001), researchers identify several key characteristics of New Public Management (NPM), including budget cuts, performance accountability, privatization, and strategic planning NPM emphasizes decentralization, competition, and performance measurement, while also advocating for improved financial management and the separation of politics from administration A notable example of NPM in action is the privatization program implemented in the United Kingdom under Prime Minister Margaret Thatcher, aimed at enhancing the performance of state-owned enterprises and fostering a market-driven economy.

Privatization, as highlighted by New Public Management (NPM), facilitates the restructuring of state-owned enterprises (SOEs) to enhance performance and service delivery to citizens While developed countries have largely completed their privatization efforts, many developing nations, including Vietnam, still grapple with unfinished programs Effective privatization necessitates a robust capacity within private entities to deliver public services, yet the private sector often finds the potential benefits insufficiently appealing Despite necessary adjustments to the NPM model in these contexts, the limited scale of privatization continues to yield minimal impact on national GDP.

The concept of an efficient market was first introduced by French mathematician Louis Bachelier and later developed by Eugene F Fama in his 1970 doctoral thesis, defining an efficient market as one where security prices reflect all available information This theory explains how security prices react to new business information and identifies three forms of market efficiency: weak-form, semi-strong form, and strong-form efficiency Weak-form efficiency posits that security prices incorporate all historical trading data, while semi-strong form efficiency includes all publicly available information, rendering technical analysis ineffective for investors Strong-form efficiency asserts that even non-public information is reflected in security prices, eliminating the possibility of earning excess returns through analysis The efficient market theory advocates for minimal government intervention, suggesting deregulation to maintain market efficiency However, in Vietnam, the majority of equitized state-owned enterprises (SOEs) do not trade on the stock market, complicating the establishment of an efficient capital market, as the government continues to control these entities post-equitization, hindering the realization of efficient market forms.

Behavioral finance theory has emerged as a significant advancement in understanding security price forecasting, challenging the traditional efficient market theory This theory highlights the influence of psychological factors on investor behavior within financial markets, providing a more comprehensive perspective on market dynamics.

Welfare economics, developed in the 1920s by English economist Arthur Cecil Pigou, focuses on the societal desirability of economic outcomes This branch of economic theory assesses when markets achieve efficiency in producing desired results The fundamental theorem posits that in a perfectly competitive economy, where producers and consumers accept prices, the allocation of resources will ultimately reach a Pareto efficient state under specific conditions.

The fundamental theorem of welfare economics has two key limitations: it applies only under conditions of perfect competition, which is often not present in reality, necessitating government intervention when market imperfections arise Additionally, the theorem is typically analyzed within a closed economy framework, but with globalization and international trade, economic efficiency must be viewed dynamically Thus, the government plays a crucial role in safeguarding national interests during international negotiations State intervention is essential for the effective allocation of resources between the public and private sectors, with privatization serving as a vital strategy to enhance Pareto efficiency Furthermore, the government can maintain certain state-owned enterprises in critical industries, such as energy and telecommunications, to help regulate the economy To manage the supply of labor and goods, governments implement various policies, including tax incentives, tax reductions, and the removal of trade barriers, alongside measures like benefit cuts and privatization (Laffer, 1981).

Gakhar and Phukon (2018) summarize empirical studies on privatization and firm performance, highlighting that while many studies show privatization enhances firm performance, its broader significance lies in fostering social welfare within economies.

The theory of Competitive Advantage, as articulated by Porter (1990), explores the dynamics of competition at both the industry and national levels, highlighting that competitive resources and advantages vary significantly across different industries and their segments Key factors influencing an industry's competitiveness include human resources, tangible assets, knowledge, finance, and architectural resources Consequently, businesses in varying competitive landscapes experience differing levels of competition, impacting their overall performance Sheshinski and López-Calva (2003) further emphasize that firms in highly competitive industries tend to achieve greater performance improvements and operational efficiency, particularly post-privatization, compared to those in less competitive sectors.

In summary, the theories of the invisible hand, visible hand, and mixed economy offer distinct perspectives on the effects of privatization on firm performance and the role of the State in the economy New Public Management (NPM) posits that privatization enables State-Owned Enterprises (SOEs) to restructure ownership and control mechanisms, enhancing performance and service delivery Efficient market theory also advocates for privatization, emphasizing its potential to boost firm performance by minimizing government intervention in the market Additionally, welfare economics highlights privatization as a crucial strategy for reallocating resources efficiently, aiming for a Pareto optimal outcome in the economy.

Empirical Evidence

2.3.1 The impact of privatization/equitization on firm performance of privatized/equitized state-owned enterprises compared with non-participating state-owned enterprises

2.3.1.1 Empirical studies examine the impact of privatization on firm performance changes

Empirical studies in developed countries predominantly utilize a pre-post comparison method to assess the effects of privatization on firm performance Dewenter and Malatesta (2001) analyzed 63 large enterprises from the Fortune 500 between 1981 and 1993, revealing significant increases in profitability alongside reductions in financial leverage and labor post-privatization Similarly, D'Souza et al (2005) reported comparable findings in developed nations However, Harper (2002) argues that privatization does not enhance the effectiveness of State-Owned Enterprises (SOEs) regarding profitability, productivity, or capital utilization in the Czech Republic In contrast, Rakhman (2018) found that partially privatized SOEs in Indonesia performed at least as well as private firms over 13 years, based on metrics like returns on assets (ROA) and cash flows from operations (CFO) Cuervo and Villalonga (2000) noted that public choice theory only accounts for average improvements in firm performance, failing to address variations between pre-and post-privatization measures Brown et al (2016) analyzed 70,000 firms across five East European economies, concluding that privatization boosts profitability, productivity, and growth by approximately 5–12% on average, though with significant variation across different countries and timeframes Furthermore, Arcas and Bachiller (2010) highlighted that smaller, non-regulated firms and those privatized via public offerings outperform larger, regulated firms privatized through private sales, while privatized Eastern European companies tend to be less profitable than their counterparts in other regions.

Privatization of state-owned enterprises (SOEs) in European countries has been shown to enhance performance, as evidenced by research from Mager and Jesswein (2010) Studies by Gong et al (2012) highlight that privatization can lead to significant efficiency gains, particularly in the management of airports and seaports in developing nations In China, the necessity of privatization is underscored by the superior performance of marketized SOEs compared to those under government control This trend indicates that partial privatization improves corporate governance and overall firm performance, as supported by multiple studies (Chenet al., 2008; Z Huang and Wang, 2011; Kang and Kim, 2012; Rousseau and Sheng, 2008; Wang, 2009).

Research by Aussenegg and Jelic (2007) on 166 companies from Poland, Hungary, and the Czech Republic indicates that privatized firms show no improvements in profitability, capital investments, efficiency, or output, alongside significant employment reductions and increased leverage Tatahi (2013) finds no correlation between ownership and firm size or performance in Bulgaria, suggesting ownership is a minor factor in corporate performance Alipour (2013) reveals that privatization negatively impacts the profitability of firms on the Tehran Stock Exchange Similarly, Hakro and Akram (2009) and Oqdeh et al (2011) assert that firm performance does not improve post-privatization In China, Wei et al (2003) observe increased production and sales efficiency but no significant profit growth after privatization, largely due to ongoing state ownership (Chen et al., 2006) While net sales rose post-privatization in China, attributed to economic growth (Dewenter and Malatesta, 2001; Huang and Song, 2005), Fan et al (2014) warn that government reluctance to relinquish control can adversely affect corporate governance and performance.

(2013) explain a political connection after privatization in China The research result shows a significant relationship between politics and privatization in China (Yu,

Arocena and Oliveros (2012) found no significant efficiency difference between privatized state-owned enterprises (SOEs) and private SOEs during the same period However, they noted a marked improvement in the efficiency of privatized SOEs post-privatization, while private firms in Spain showed no such enhancement Additionally, Amess and Roberts (2007) reported that state-owned corporations outperform non-privatized SOEs in productivity, with a significant increase in turnover per employee following privatization.

Research indicates varied outcomes of privatization on institutional performance Mckenzie and Keneley (2011) found that privatized institutions in Australia perform similarly to their private counterparts both before and after the transition In contrast, Jiang et al (2009) observed that privatization does not enhance the operational efficiency of state-owned enterprises (SOEs) compared to non-privatized firms during the same timeframe, with profitability and revenue slightly declining post-privatization However, Li et al (2015) utilized a without-without comparison method to assess the performance of 248 Chinese state-invested enterprises (SIPs) from 1999 to 2009, revealing that privatized SOEs can achieve improved profitability metrics, such as return on sales (ROS) and EBIT/Sales.

Appendix 1 summarizes empirical studies on the privatization impact on firm performance changes

Conclusions: Researchers have inconsistent conclusions about the impact of privatization on firm performance in different countries and industries

Since Megginson et al (1994) introduced the pre-post comparison method alongside seven firm performance measures, subsequent empirical studies have predominantly utilized quantitative research methodologies to analyze changes in mean values using t-Test and median changes through the Mann-Whitney U test Most research employs pre- and post-privatization timeframes, typically spanning two to three years prior and two to ten years following privatization, to assess variations in firm performance metrics The selection of these timelines is influenced by sample size and the specific context of each study.

Previous studies on privatization and firm performance have significant limitations, primarily due to their reliance on pre-post comparison methods without employing regression or with-without comparison approaches Notably, research by Megginson et al (1994) and Dewenter and Malatesta (2001) fails to develop models that directly assess the impact of privatization on the performance of privatized firms Additionally, Carlin and Pham (2009) only use the listing year as a baseline for comparison, neglecting a comprehensive analysis of firm performance relative to non-privatized state-owned enterprises (SOEs) or private enterprises during the same period This oversight limits the understanding of whether privatization enhances operational efficiency in privatized firms.

2.3.1.2 Empirical studies examine the equitization impact on firm performance of equitized state-owned enterprises

In Vietnam, the reform of state-owned enterprises (SOEs) involves both progress and challenges, as summarized by Dang et al (2021) One key aspect of this reform is equitization, which, according to Loc et al (2006), enhances firm performance by improving profitability and operating efficiency Additionally, equitized SOEs typically experience a reduction in leverage and labor Nguyen et al (2017) further highlight that equitization has opened up new opportunities for land and property development.

In 2013, it was highlighted that organizational integration plays a crucial role in enhancing the performance of equitized firms in Vietnam Research indicates that equitized firms with lower levels of state ownership tend to outperform those with higher state ownership This disparity in performance is largely attributed to the Vietnamese government's continued control over a significant portion of equitized state-owned enterprises (SOEs) post-equitization Furthermore, the process of equitization contributes to the growth of the private sector in Vietnam.

Research by Pham (2017) and Pham and Nguyen (2019) indicates that post-equitization, enterprises experience increased profitability (ROA, ROE) and real sales, but may suffer from decreased operating efficiency as managers focus on capital expansion While global and Vietnamese studies reveal inconsistencies in the performance of state-owned enterprises (SOEs) after equitization, property rights and agency theories generally support the notion that equitized SOEs enhance firm performance Additionally, Hoa (2016) highlights the equitization policies affecting Vietnamese state-owned enterprises in the textile sector, noting that incentive policies can encourage participation in equitization but may create an uneven playing field for non-equitized SOEs Large-scale SOEs often face challenges in asset valuation when entering equitization programs (Linh, 2017).

According to Loc and Tran (2016), equitized firms in Vietnam demonstrate a higher return on equity (ROE) compared to private firms, primarily due to their greater ability to leverage debt (Hung et al., 2017) Furthermore, these equitized firms show improved performance, particularly in profitability, following the process of equitization (Tran et al.).

Equitized State-Owned Enterprises (SOEs) in Vietnam have demonstrated notable enhancements in profitability, operational efficiency, and reduced employee numbers post-equitization (Nhan and Son, 2017) Additionally, research by Suu et al (2021) indicates that state ownership following equitization has a positive effect on profitability, as measured by Return on Assets (ROA).

Privatization in China often involves the State retaining shares in certain enterprises, a trend mirrored in Vietnam's equitization process, which closely resembles privatization in other countries Research indicates that equitization significantly enhances the performance of state-owned enterprises (SOEs) in Vietnam Methodologically, most studies have utilized pre-post comparison and regression techniques to assess the effects of equitization on firm performance, with limited research employing a with-without comparison method Notably, Loc and Tran (2016) and Nhan and Son (2017) have utilized a combination of Propensity Score Matching (PSM) and PSM-Difference in Differences (DID) techniques, contrasting with the predominant focus on pre-post comparison in earlier studies.

Previous research primarily relied on the pre-post comparison method established by Megginson et al (1994), focusing on changes in mean values through statistical tests like the t-Test and Mann-Whitney U test (Huang and Song, 2005; Huang and Wang, 2011) In contrast, studies by Loc and Tran (2016) and Nhan and Son (2017) employed the with-without comparison method, utilizing propensity score matching (PSM) techniques with firm size and establishment year as control variables However, the limited scope of these control variables may result in inaccurate comparisons between treatment and control groups Consequently, the variability in methodologies complicates the accurate assessment of empirical findings across studies, prompting the author to compile a comparative table summarizing these empirical research efforts.

Table 2.4 Comparision between empirical studies examining the impact of privatization on firm performances changes with and without considering non- participating firms

No Contents Without considering non- participating SOEs

There are different views on the impact of privatization on privatized enterprises' firm performance

Inconsistent results about the impact of privatization on firm performance

2 Research methodology Pre-post comparison method and regression method With-without comparison method and regression method

The changes in mean values with t-Test and Mann Whitney

U test for median changes or proportion of enterprises adopting changes

Statistical tests for regression models

Statistical tests for regression models Probit regression, t-Test and z-Test for average treatment effect

Empirical studies commonly utilize seven key performance measures to assess business effectiveness: (1) profitability indicators such as Return on Equity (ROE), Return on Assets (ROA), and Return on Sales (ROS); (2) operating efficiency metrics, including sales per employee and net income per employee; (3) capital investment ratios, like capital expenditures relative to sales and total assets; (4) output measurement through nominal sales adjusted for the consumer price index; and (5) employment statistics.

Research gaps

After summarizing empirical studies on the impact of privatization/equitization on firm performance, the author finds that there are five gaps as follows:

Many prior empirical studies have overlooked non-participating firms in their assessments of how privatization and equitization affect firm performance However, some research has addressed this gap by employing propensity score matching to include non-participating firms in their analyses (Claessens and Djankov, 2002; Loc and Tran, 2016; Nhan and Son).

The propensity score matching (PSM) technique requires careful consideration when comparing enterprises, as illustrated by a 2017 study that focused solely on companies of the same size and year of establishment This method is flawed because it overlooks the crucial differences between industries, which possess distinct competitive advantages that significantly influence firm performance Such limitations highlight a major drawback of PSM in prior empirical research.

Previous research has explored the impact of privatization on the performance of privatized enterprises, yet these studies exhibit notable limitations Notably, scholars such as Harper have identified specific shortcomings in the methodologies employed, highlighting the need for more comprehensive approaches to understand the true effects of privatization on firm performance.

Several studies, including Boubakri et al (2002, 2004) and D'Souza et al (2005), have utilized the pre-post comparison method to assess changes in firm performance measures following privatization, yet they fail to clarify the reasons behind the enhanced efficiency of privatized enterprises While Tran et al (2015) examine the impacts of privatization policy, their omission of the Propensity Score Matching (PSM) technique hinders the selection of a treatment group of equitized state-owned enterprises (SOEs) and a control group of non-equitized SOEs with similar characteristics Additionally, studies by Nhan and Son (2017), Hung et al (2017), and Loc and Tran (2016) primarily focus on SOEs from the first and second phases of equitization, neglecting the large-scale SOEs from the third phase in Vietnam This indicates a significant research gap in understanding the complete effects of privatization on SOEs.

Most studies on the impact of privatization and equitization on firm performance have utilized a pre-post comparison method However, there is a scarcity of research employing a with-without comparison approach Notably, Tran et al (2015) and Loc and Tran (2016) failed to account for the equitization years and industry differences when selecting participating and non-participating firms, resulting in biased comparisons.

According to public choice and new public management theories, state intervention in firms should be minimized to allow managers to make effective decisions, as efficient market theory suggests that government interference hampers capital market efficiency Despite this, the Vietnamese government maintains significant state ownership in equitized state-owned enterprises (SOEs) to exert control Unlike developed countries and Russia, both the Chinese and Vietnamese governments continue to interfere in the operations of privatized and equitized SOEs Therefore, empirical studies are needed to assess how deregulation through privatization and equitization can enhance firm performance Research in China indicates that reducing state ownership does not necessarily lead to improved performance in privatized firms, as the state still retains considerable ownership stakes (Wei et al., 2003; Chen et al., 2006; Huang and Song, 2005; Liao et al., 2014; Jiang et al., 2009).

Empirical studies indicate that reducing state ownership through equitization enhances firm performance in Vietnam (Loc et al., 2006; Loc and Tran, 2016) However, there is a lack of empirical evidence regarding whether the State should maintain control over equitized State-Owned Enterprises (SOEs) by holding more than 50% ownership or if it should transfer control to the private sector with less than 50% ownership Loc et al (2006) utilized a pre-post comparison method to analyze performance changes in equitized SOEs based on state ownership levels, specifically those with less than 30% and more than 30% ownership In Vietnam, the State retains decision-making authority when it holds at least 50% of shares in equitized SOEs, leading to the critical question of whether it should continue to hold more than 50% ownership post-equitization.

The theory of competitive advantage suggests that industry influences firm performance beyond just privatization or equitization Bachiller (2017) highlights that the effects of privatization on firm performance vary between developed and developing countries While many studies have utilized pre-post comparisons and regression methods to analyze these impacts across different industries, there is a lack of empirical research in Vietnam that examines the effects of equitization on firm performance within specific industry groups, particularly for non-equitized state-owned enterprises (SOEs) This dissertation aims to provide the Government with criteria for equitization selection based on industry classifications.

Many countries implement incentive policies, such as tax reforms, to regulate their economies; however, Vietnam's government has limited tax incentives to equitized state-owned enterprises (SOEs), creating an uneven competitive landscape for other businesses In contrast, Russia offers various incentives for privatized SOEs, including budgetary subsidies and trade protection, while China provides tax incentives to attract foreign investment in technology and environmentally friendly sectors Unlike Vietnam, there are no direct tax incentives for privatized firms in China From 2003 to March 2007, Vietnam's focus on tax incentives for equitized SOEs exemplifies a unique characteristic of its equitization process Despite this, previous research has largely overlooked the impact of tax incentives on the performance of equitized SOEs in Vietnam Given that many privatization theories advocate minimal government interference in firm operations, it is essential to evaluate the effects of tax incentive policies on the performance of these enterprises in the Vietnamese context.

Many empirical studies have overlooked the performance differences between listed and unlisted firms post-equitization in Vietnam Additionally, there is a lack of research addressing the reasons firms pursue listing on the official stock market after equitization and the factors contributing to investor disinterest in initial public offerings (IPOs).

Empirical studies indicate that firms often underprice their IPOs to attract investment and ensure successful offerings, a trend supported by signaling and market feedback theories, while market efficiency theory posits that all relevant information is reflected in security prices In Vietnam, equitized firms also exhibit this underpricing behavior, with Tran et al (2014) reporting a short-term underpricing phenomenon where average returns reached 38% and cumulative average abnormal returns reached 49% However, their research encompasses both private and state-owned enterprises, lacking a focused analysis on the underpricing of state-owned enterprises during equitization Additionally, Tran et al (2014) do not fully address the long-term IPO underpricing of equitized state-owned enterprises in Vietnam.

Previous studies have largely overlooked the underpricing of equitized state-owned enterprises (SOEs) in Vietnam during initial public offerings (IPOs) Notably, equitized SOEs often do not list immediately after equitization, and many do not list at all Consequently, the underpricing dynamics of these equitized SOEs may differ significantly from those of firms in other countries that do not experience such listing delays.

Summary of chapter 2

This chapter identifies key research gaps in the impact of equitization on firm performance, particularly when comparing equitized state-owned enterprises (SOEs) with non-equitized ones, and considering factors such as average state ownership and industry classifications Additionally, it highlights the need for analysis on the effects of tax and non-tax incentives on equitized firms in Vietnam There is a lack of empirical studies examining the performance differences between listed and unlisted firms post-equitization Furthermore, the phenomenon of underpricing in equitized SOEs during initial public offerings (IPOs) warrants attention To address these gaps, the dissertation proposes five hypotheses and models, detailed in Chapter 3.

METHODOLOGY, DATA AND RESEARCH MODELS

Hypothesis development

3.1.1 The impact of equitization on firm performance of equitized state-owned enterprises compared with non-equitized state-owned enterprises

3.1.1.1 The impact of equitization on profitability of equitized state-owned enterprises compared with non-equitized state-owned enterprises

After equitization, firms typically decrease state ownership while increasing private ownership, with equitization involving a more gradual divestment compared to privatization This distinction allows privatization theories to effectively analyze the impact of equitization on firm performance relative to non-equitized firms during the same timeframe According to new public management theory, privatization facilitates the restructuring of ownership and control mechanisms in state-owned enterprises (SOEs), leading to enhanced firm performance In contrast, non-equitized SOEs, which maintain higher levels of state ownership and intervention, are unable to achieve the same performance improvements as their equitized counterparts.

O'Toole et al (2016) examined investment efficiency differences between state-owned enterprises (SOEs) and private firms, finding no correlation between investment spending and marginal returns for SOEs across various sectors and sizes While privatized SOEs in China showed profit improvements post-privatization, research by Liao et al (2014) and Mckenzie and Keneley (2011) indicates that there is no significant difference in profit enhancement between SOEs and non-SOEs.

A study by Jiang et al (2009) reveals that privatization does not enhance the operational effectiveness of SIP SOEs in China when compared to non-SIP SOEs during the same periods In contrast, research by Arcas and Bachiller (2010) demonstrates that privatized firms in the European Union exhibit equal or greater efficiency than privately-owned firms, showing higher profitability in terms of Return on Assets (ROA), Return on Equity (ROE), and Return on Sales (ROS).

Claessens and Djankov (2002) analyze the advantages of privatization by comparing the performance of 6,354 privatized and state-owned enterprises in Eastern Europe from 1992 to 1995 Their findings reveal that privatized firms experience increased sales, enhanced labor productivity, and reduced job losses post-privatization Additionally, research by Loc and Tran (2016) indicates that Vietnamese equitized state-owned enterprises (SOEs) demonstrate higher profitability, measured by pre-tax profit to total assets and pre-tax profit to sales, during the equitization years of 2007, 2009, and 2010 Specifically, equitized SOEs achieve a 21.5% greater pre-tax profit to total assets ratio compared to their non-equitized counterparts in 2007.

2009, and 2010 in Vietnam Also, income before tax to sales of equitized SOEs is higher than that of non-equitized SOEs in Vietnam (6.8% for equitized enterprises in

Equitization has shown a significant positive effect on the profitability of state-owned enterprises (SOEs) in Vietnam, as evidenced by research from Loc and Tran (2016), which indicates improved performance compared to non-equitized SOEs Additionally, Tran et al (2015) found that privatized firms exhibit superior profitability metrics, such as Return on Assets (ROA) and Return on Equity (ROE), particularly among equitized SOEs in 2006 This dissertation diverges from Loc and Tran's study by focusing on profit after tax rather than profit before tax and incorporating the net income efficiency ratio The principles of welfare economics underscore the necessity of state intervention to ensure optimal resource allocation between the public and private sectors, highlighting the importance of privatization and equitization in transferring state assets to enhance resource distribution.

While many studies have focused on comparing the performance of privatized firms with private enterprises, there is a notable lack of research comparing privatized and non-privatized state-owned enterprises (SOEs) within the same timeframe Most existing literature indicates that privatized firms do not necessarily outperform their peers However, research conducted in Vietnam by Loc and Tran (2016) and Tran et al (2015) reveals that equitized firms experience significant improvements in profitability after equitization when compared to non-participating SOEs.

3.1.1.1 The impact of equitization on operating efficiency of equitized state- owned enterprises compared with non-equitized state-owned enterprises

Liao et al (2014) concluded that privatization does not enhance the operating efficiency of privatized state-owned enterprises (SOEs) when compared to private firms, as measured by accounts receivable turnover, expense-to-sales ratio, and asset turnover.

A study from 2012 indicates that there is no significant difference in efficiency between privatized state-owned enterprises (SOEs) and private firms prior to privatization However, post-privatization, the efficiency of privatized SOEs shows notable improvement, while private firms in Spain do not experience similar gains These findings challenge previous research suggesting that private firms generally outperform privatized SOEs Additionally, research on the Australian banking and insurance sectors reveals that privatized institutions maintain comparable operating efficiency—measured by expense-to-asset and cost-to-income ratios—when compared to private counterparts, both before and after privatization (Mckenzie and Keneley).

2011) Privatization is not a key to firm performance improvement after privatization in the Australian banking and insurance sector

Loc and Tran (2016) assess operating efficiency using total asset turnover and labor productivity as proxies Their findings reveal that equitized State-Owned Enterprises (SOEs) significantly enhance total asset turnover during the equitization years of 2007, 2008, and 2009, in contrast to non-equitized SOEs However, there is no conclusive evidence that equitization improves labor productivity for equitized SOEs compared to their non-equitized counterparts in Vietnam Additionally, the study examines the effects of equitization on firm performance based on factors such as firm size and post-equitization ownership structure, highlighting varying impacts on equitized SOEs relative to non-equitized SOEs based on these characteristics.

Research and empirical evidence suggest that equitized state-owned enterprises (SOEs) can enhance both profitability and operational efficiency Therefore, the hypothesis is proposed: H1 asserts that equitization contributes to improved performance in equitized SOEs when compared to their non-equitized counterparts.

3.1.2 The impact of equitization on firm performance of equitized state-owned enterprises compared with non-equitized state-owned enterprises by average state ownership rates after equitization

Equitization in Vietnam closely resembles the privatization process in China, as the Vietnamese Government has progressively implemented partial equitization Despite this shift, enterprises continue to maintain state ownership and remain predominantly controlled by the State Several empirical studies have analyzed the effects of equitization on the performance of state-owned enterprises (SOEs), focusing on the average level of state ownership.

Loc and Tran (2016) categorize equitized state-owned enterprises (SOEs) into two groups based on their post-equitization average state ownership: those with a high rate of state ownership and those with a low rate The first group consists of SOEs with a state ownership rate equal to or above the median, while the second group includes those with a rate below the median Notably, SOEs in the high state ownership group do not exhibit significant improvements in performance compared to non-equitized firms during the same timeframe In contrast, equitized SOEs with a low rate of state ownership demonstrate statistically significant enhancements in profitability, as measured by the income before tax to total assets ratio.

In Vietnam, the progress of divesting state capital from state-owned enterprises (SOEs) has been slow, which can negatively affect performance in the short term following equitization due to minimal changes in management and control mechanisms Research indicates that non-equitized SOEs exhibit higher operating efficiency, as measured by total asset turnover, compared to equitized firms with substantial state ownership Therefore, it is essential to evaluate the impact of equitization on the performance of equitized SOEs relative to their non-equitized counterparts, particularly considering the average state ownership rates post-equitization.

In China, the effects of privatization on firm performance vary significantly based on the average state ownership rate following privatization (Liao, 2014) Privatized firms exhibit differing levels of profitability improvements, measured by ROA and ROE, as well as operational efficiency, assessed through accounts receivable turnover, asset turnover, and inventory turnover, categorized into four groups of state ownership rates: zero, low, medium, and high Furthermore, research indicates that state-owned enterprises (SOEs) experience notably greater enhancements in performance post-reform compared to non-state-owned enterprises (non-SOEs).

H2: When considering non-equitized SOEs in the same period, equitization impacts firm performance dissimilarly according to average state ownership rates after equitization

This article investigates the equitization characteristics of gradualism in Vietnam, focusing on how equitization influences firm performance based on average state ownership rates post-equitization The analysis aims to determine the necessity of rapid divestment and the elimination of state control in equitized firms Additionally, it compares the performance of equitized state-owned enterprises with non-equitized counterparts across different industry groups.

Research models

The author's investigation into the research gap concerning underpricing in both the short and long run relies solely on the t-Test to assess mean differences from zero, indicating that no additional research model is required for this aspect of the study.

3.2.1 Research model to examine the impact of equitization on firm performance changes of equitized state-owned enterprises compared with non-equitized state- owned enterprises

This study employs a with-without comparison approach using propensity score matching techniques, as outlined in hypotheses H1, H2, and H3 It builds on the research by Tran et al (2015) to identify common support areas, which include firm size (measured by the natural logarithm of total real assets), the natural logarithm of the number of operating years, industry, and equitization year According to Megginson et al (1994), privatized enterprises experience an increase in real sales, and firms across different industries exhibit varying gains post-privatization Consequently, the characteristics and competitiveness of each industry play a crucial role in determining the performance of enterprises after privatization The author incorporates industry as a control variable in the regression model.

The equation Y𝑖 = β + β LNAGE + β LNASSET + β IND + β EQUIyear + 𝜀 represents a model analyzing the impact of various factors on the performance of state-owned enterprises (SOEs) In this model, LNAGEi denotes the natural logarithm of the operating years of the SOEs, while LNASSETi represents the natural logarithm of total assets during the equitization years The variable INDi serves as an industry dummy, and EQUIyeari is the dummy variable for the equitization year.

The author estimates the impact of the equitization program using a difference- in-difference matching estimator through the estimation model (2)

Using participant and control observation data from before and after the program intervention, a difference-in-difference (DID) matching estimator can be developed This estimator utilizes data from two privatization periods, t = (0,1), to compute the local linear DID estimator for the average difference in outcomes, Yit, between participants, i, and nonparticipants, j, within the common support.

Where NT is the number of participants i and (i, j) is the weight used to aggregate outcomes for the matched nonparticipants j

There are certain equitized SOEs groups according to hypotheses H2 and H3, the author applies the estimation model (3) and (4) for different groups of average state ownership and industry groups

Where NT is the number of equitized SOEs i and (i, j ) is the weight used to aggregate outcomes for the matched non-equitized SOEs j dROA = ROA − ROA dROA = ROA − ROA

This study evaluates the impact of tax incentives and public listing on the performance of firms, focusing on the number of equitized state-owned enterprises (SOEs) and the weighted outcomes of matched non-equitized SOEs The research model aims to analyze how these factors contribute to changes in firm performance, providing insights into the effectiveness of tax policies and market participation.

Hypothesis H4 posits that tax incentive policies directly influence changes in firm performance (dROA and dTAS) among equitized state-owned enterprises (SOEs) in Vietnam, highlighting performance disparities between listed and unlisted firms Unlike empirical studies in developed nations that often overlook listing status as a variable affecting privatized firms' performance, Vietnamese firms frequently experience significant delays in listing post-equitization (Tran et al., 2015) Research by Loc et al (2006) indicates that while listing status negatively affects profitability metrics such as net income before tax relative to assets, sales, and equity, it does not impact the operating efficiency of equitized SOEs Consequently, listed and unlisted firms in Vietnam exhibit distinct performance improvement trajectories.

Several factors influence the performance changes of equitized State-Owned Enterprises (SOEs) in Vietnam, including alterations in state ownership following equitization, shifts in employment levels, variations in leverage, the age of the firm, fluctuations in sales growth, the specific industry context, and the different phases of equitization.

State ownership change after equitization

The new public management theory suggests that privatization can enhance the performance of state-owned enterprises (SOEs) by boosting profitability and operational efficiency However, it emphasizes that these improvements in firm performance occur only when there is no state interference following the privatization process.

Privatization is linked to reduced state ownership and enhanced firm performance, as noted by Iwasaki and Mizobata (2018) Assessing the impact of privatization on firm performance necessitates consideration of ownership changes In Vietnam, a higher level of state ownership negatively affects the profitability of privatized state-owned enterprises (SOEs), according to Pham and Nguyen (2019) Additionally, ownership concentration correlates negatively with firm performance (Wang and Shailer, 2015) In China, Liao et al (2014) highlight that changes in state ownership positively influence firm performance, particularly in terms of operating revenue and profit.

Research by Zakaria et al (2014) highlights that the size of a firm significantly influences the profitability, measured by Return on Assets (ROA), of privatized State-Owned Enterprises (SOEs) Firm size is assessed through metrics such as total employees, total assets, and sales volume Rakhman (2018) further confirms that firm size serves as a crucial control variable, impacting both ROA and total asset turnover Additionally, a study in Vietnam by Tran et al (2015) indicates that changes in employment positively affect ROA and total asset turnover.

Rakhman (2018) indicates that financial leverage negatively affects the profitability (ROA) and operational efficiency (total asset turnover) of privatized state-owned enterprises (SOEs) and private firms Empirical studies consistently demonstrate that increased financial leverage among privatized SOEs correlates with diminished ROA and total asset turnover.

(2014) find that there is an inverse relationship between leverage and ROA

Firm age (the number of operating years until equitization)

The duration of operation prior to privatization significantly influences the performance of state-owned enterprises (SOEs) Specifically, a greater number of operating years correlates with improved profitability, as measured by return on assets (ROA), while negatively affecting operating efficiency, indicated by total asset turnover, for both privatized and non-privatized SOEs (Rakhman, 2018) Additionally, research by Tran et al (2015) highlights that the length of time a firm has been operational plays a crucial role in changes to ROA (dROA).

Sales growth plays a crucial role in enhancing both profitability and operational efficiency Research indicates that fluctuations in sales growth positively influence the performance of privatized state-owned enterprises (SOEs) According to Rakhman (2018), variations in sales growth directly affect key profitability metrics such as Return on Assets (ROA) and Return on Equity (ROE), as well as operational efficiency, measured by total asset turnover.

Listing, industry and equitization phases in Vietnam

The author examines the influence of privatization on the performance of state-owned enterprises (SOEs) in Vietnam, highlighting that this impact varies across different industry groups and equitization periods Research indicates that the years of equitization significantly affect firm performance (Loc et al., 2006) Additionally, Rakhman (2018) incorporates industry and privatization years as control variables, acknowledging their potential effects on the performance of privatized SOEs.

(2014) indicate that privatized firms tend to improve operating efficiency and profit differently according to industry groups and privatization years in China

The regression equation derived from H4 is expressed as dPerf = β + β dSTATE + β TAXAD + β dLNEMP + β dLEV + β LNAGE + β dGROWTH + β LIST + β IND + β PHASE + 𝜀 In this model, the dependent variables, dPerfi, represent changes in operating efficiency (dTASi) and profitability (dROAi).

Variable measurement

3.3.1 Variable description to examine the impact of equitization on firm performance changes of equitized state-owned enterprises compared with non- equitized state-owned enterprises

Since Megginson et al (1994) introduced seven key measures of firm performance to assess the effects of privatization on privatized enterprises, these metrics have been widely adopted in empirical research (Liao et al., 2014; Claessens and Djankov, 2002; Loc et al., 2006; Loc and Tran, 2016) The seven measures include profitability indicators such as ROE, ROA, and ROS; operating efficiency assessed through sales per employee and net income per employee; capital investment ratios like capital expenditures to sales and total assets; output measured by nominal sales adjusted for the consumer price index; total employment figures; leverage ratios including total debt to total assets and long-term debt to equity; and payout metrics such as cash dividends relative to sales and net income.

In general, previous studies by Huang and Song (2005), Bachiller (2012), Pham

In their research, Huang and Wang (2011) present differing findings; however, both studies share commonalities in their approach They predominantly utilize seven performance measures, as proposed by Megginson et al (1994), to assess changes in firm performance.

This study omits payout measures due to the fact that most equitized state-owned enterprises (SOEs) in Vietnam are not listed immediately after equitization, and it does not utilize capital investment measures because of data limitations The author focuses on Return on Assets (ROA) as the sole profitability variable for three main reasons: first, previous studies predominantly use ROA to assess the impact of privatization on firm performance, as shown in Appendix 2 Second, Rakhman (2018) also employs ROA and asset turnover to measure firm performance in relation to privatization Lastly, ROA effectively reflects the profitability of equitized SOEs in relation to their total assets, especially in the context of potential underpricing during equitization and the transfer of state assets to the private sector Therefore, ROA is deemed more appropriate than Return on Equity (ROE) for evaluating the profitability of equitized SOEs in Vietnam Additionally, due to data constraints and guidance from Rakhman (2018), this dissertation incorporates two firm performance measures.

The change in profitability, represented by the change in return on assets (dROA), is assessed over four-year equitization windows, calculated as the ratio of profit after tax to total assets.

The change in operating efficiency, denoted as dTAS, is assessed by examining the variation in total asset turnover over four-year equitization windows This total asset turnover ratio is calculated by dividing total sales by total assets, providing insight into a company's operational effectiveness.

Table 3.3 Variable summary and measurement for average treatment effect using propensity score matching

Profitability dROA i ROA change through four- year equitization windows;

Return on Assets (ROA) = Net Income / Total Assets

Operating efficiency dTAS i TAS change through four-year equitization windows Total Assets Turnover (TAS)

This research also uses the total assets turnover proposed by Huang and Song

(2005) This dissertation uses similar firm performance measures with previous studies to compare empirical results

The author analyzes firm performance by utilizing four-year equitization windows, drawing on the methodologies of Harper (2002), Pham (2017), Sakr (2014), Alipour (2013), and Loc and Tran (2016), who have employed various privatization windows of 2, 3, or 5 years.

This study analyzes the impact of tax incentive policies on the performance of equitized state-owned enterprises (SOEs) in Vietnam, using four-year equitization windows centered around the equitization year (Year 0) According to Decree 164/2003/ND-CP, equitized firms benefit from a complete corporate income tax deduction for the first two years post-equitization, followed by a 50% deduction for the subsequent two years Additionally, the Ministry of Finance's Circular 134/TT-BTC, issued after December 2007, provides further guidance on these policies The choice of four-year windows allows for a more nuanced understanding of equitization characteristics in Vietnam, which previous studies, such as those by Tran et al (2015) and Hung et al (2017), have overlooked.

The author analyzes the mean values of performance measures during the pre- and post-equitization periods For instance, when evaluating the profitability of firm i, the author employs Return on Assets (ROA) as a key performance metric, utilizing a specific formula for calculation.

ROA =(ROA ( ) + ROA ( ) + ROA ( ) + ROA ( ) )

ROA =(ROA ( ) + ROA ( ) + ROA ( ) + ROA ( ) )

The change in Return on Assets (ROA) for firm i during the four-year equitization period is calculated as dROA = ROA_after - ROA_before After determining the mean values of various firm performance metrics, the author employs the Difference-in-Differences (DID) method to assess changes in performance measures, including dROA and dTAS To evaluate the impact of equitization on these performance changes, the author utilizes several estimation techniques, including t-Tests for mean value changes, the average treatment effect via Propensity Score Matching (PSM), and multiple regression analysis.

In Vietnam, the classification of samples into subsamples based on average state ownership rates post-equitization is guided by relevant regulations, particularly Decision 22/2021/QD-TTg This decision categorizes state-owned enterprises (SOEs) into three main groups: those with 100% state ownership, those with ownership ranging from 65% to 100%, and those with 50% to 65% ownership For this dissertation, the author further refines the classification into five distinct groups: below 20%, 20% to 30%, 30% to 50%, 50% to 65%, and 65% to 100% Additionally, the study employs a 50% average state ownership rate to evaluate the necessity of state control over equitized SOEs.

The author classifies samples of state-owned enterprises (SOEs) into industry groups following equitization in Vietnam, utilizing relevant regulations such as Decision 10/2007/QD-TTg, issued on January 23, 2007, and Decree 75/ND-CP from October 27, 1993.

This research focuses on equitized enterprises from 2006 to 2015, which do not yet incorporate Decision 27/2018/QD-TTg for classifying State-Owned Enterprises (SOEs) According to Decision 22/2021/QD-TTg, the Government retains 100% state ownership in key sectors The study categorizes samples into three industry groups: agriculture, forestry and fishery; manufacturing and construction; and services This classification is primarily due to data limitations and aligns with the common framework established by Decision 10/2007/QD-TTg and Decree 75/ND-CP, which also classify firms into these three general industries.

In Vietnam, the classification of enterprises into large, medium, and small categories is based on the criteria established in Decree 56/2009/ND-CP, issued on June 30, 2009, and Decree 90/2001/ND-CP, issued on November 23, 2001.

The classification of average state ownership rates (STATEid) and industry groups (INDid) is utilized to segment samples into distinct subsamples Subsequently, the author employs dROAi and dTASi variables to address the initial three research gaps by analyzing the average treatment effect through propensity score matching.

3.3.2 Variable description to evaluate how tax incentives and listing affect firm performance changes

Previous empirical studies have predominantly utilized the regression method to evaluate the effects of privatization and various factors on profitability and operating efficiency However, essential variables such as employment, leverage, and sales have often been overlooked, despite their potential influence on these outcomes Typically, these variables are employed as control factors in analyses Notably, Rakhman (2018) focused solely on profitability (ROA) and operating efficiency (TAS) to assess firm performance through a regression framework In contrast, this study expands the scope by incorporating two distinct measures of firm performance as dependent variables in the regression analysis.

(2) Change in operating efficiency (dTASi)

These measures are calculated, as mentioned above

Data collection and description

This research employs a probability sampling method to select all state-owned enterprises (SOEs) that underwent equitization from 2006 to 2015, along with 418 non-equitized SOEs from the same timeframe, sourced from the Vietnam General Statistics Office (VGSO) The author then cross-references this data with information on equitized enterprises provided by the Steering Committee of Enterprise Innovation and Development, while removing any enterprises with incomplete data from the four years preceding and following equitization Additionally, approximately five outlier enterprises, identified by their significantly negative return on assets (ROA) and high total assets (TAS) values, are excluded from the study.

295 equitized SOEs from 2006 to 2015 and 418 non-equitized SOEs in the same period After identifying propensity scores, the author keeps 295 equitized SOEs from

From 2006 to 2015, the study analyzed a total of 414 non-equitized state-owned enterprises (SOEs) alongside equitized SOEs during their second and third equitization phases in Vietnam The selection criteria for data included: (1) focusing on equitized SOEs in the specified phases, (2) ensuring sufficient firm performance information was available for accurate variable measurement, and (3) including only those equitized SOEs that met these standards.

2006 to 2015 to ensure calculation of four-year equitization windows

The article focuses on equitized state-owned enterprises (SOEs) in Vietnam, specifically those involved in the second and third phases of equitization As reported by the Vietnamese Steering Committee for Enterprise Renovation and Development in 2021, the equitization process, initiated by the Vietnamese Government, unfolded in three distinct phases, with the first phase occurring from 1992 to 2000, during which 558 SOEs were equitized.

The second phase of equitization in Vietnam occurred from 2001 to 2010, followed by a third phase that continues to the present During these phases, most equitized state-owned enterprises (SOEs) were large-scale entities characterized by diverse branches and complex financial structures This paper aims to enhance the understanding of Vietnam's equitization process by comparing it with previous research findings.

Table 3.5 Summary of data source according to five research gaps

No Data source Summary of research gaps

1 Firm performance data are collected from

(295 equitized SOEs from 2006 to 2015 and

The impact of equitization on firm performance changes of equitized SOEs compared with non-equitized SOEs (1)

2 Firm performance data are collected from

(295 equitized SOEs from 2006 to 2015 and

The impact of equitization on firm performance changes of equitized SOEs compared with non-equitized SOEs by different average state ownership after equitization (2)

3 Firm performance data are collected from

(295 equitized SOEs from 2006 to 2015 and

The impact of equitization on firm performance changes of equitized SOEs compared with non-equitized SOEs according to industry groups (3)

4 Listing data are collected from HNX,

HOSE and SSC (The state securities commissions of Vietnam)

Firm performance data are collected from

The impact of tax incentive policy on firm performance changes

Firm improvement differences between listed and unlisted firms after equitization (4)

5 Stock prices, market index and IPO data are collected from HNX, HOSE and SSC (The state securities commissions of Vietnam)

This dissertation focuses on enterprises that underwent equitization between 2006 and 2015 for two primary reasons First, the sample includes medium and large-scale state-owned enterprises (SOEs) from the second and third phases of equitization in Vietnam, ensuring that the research findings offer significant practical contributions Second, selecting enterprises from this period allows for an analysis of firm performance extending to 2019, encompassing four years prior and four years post-equitization, with data from the General Statistics Office (GSO) available only until 2019 Additionally, the study utilizes data from the Hanoi Stock Exchange (HNX), Ho Chi Minh Stock Exchange (HOSE), and the State Securities Commission (SSC) of Vietnam, covering aspects such as listing, stock prices, market indices, and initial public offering (IPO) data, as detailed in Table 3.5.

To ensure effective data collection, the author follows a systematic approach Initially, they determine the number of equitized State-Owned Enterprises (SOEs) using the list provided by the Steering Committee of Enterprise Innovation and Development, focusing on firms that are going public for the first time, while excluding non-equitized SOEs that have not participated in equitization during the same timeframe Subsequently, the author verifies the data against survey information from the General Statistics Office of Vietnam to confirm the availability of adequate firm performance metrics Finally, the author refines the data from the General Statistics Office to derive appropriate measures of firm performance.

The dissertation adopts firm performance data from 2002 to 2019 to measure firm performance Data are in the form of repeated cross-section data with two

The analysis focuses on 'period' windows surrounding equitization, evaluating performance metrics by averaging data from four years prior to and following the event However, many countries face a shortage of authentic panel data, making it challenging to track specific individuals or firms over time.

The dissertation analyzes average values four years before and after equitization, minimizing the influence of outliers through a two-stage calculation process By excluding five enterprises with significant negative ROS and ROE values, the study ensures that outliers have a minimal impact on the overall results Data is sourced from HNX, HOSE, and the State Securities Commission of Vietnam, covering listings, stock prices, market indices, and IPO information.

After eliminating some SOEs with inadequate information, the initial data includes 295 equitized SOEs in 2006-2015 and 418 non-equitized SOEs in the same period

Table 3.6 Number of non-equitized and equitized state-owned enterprises

No of enterprises Frequency Percentage (%) Cumulative percentage (%) Before applying PSM

Based on the author's data analysis, four non-participating enterprises were excluded to meet the balancing property by applying criteria such as firm size, years of operation, equitization year, and industry to identify common support areas.

Non-equitized SOEs Equitized SOEs

According to the author's data analysis, the majority of state-owned enterprises (SOEs) were equitized in 2006, with 99 firms representing 33.56% of the total This was followed by 44 equitized SOEs in 2014, accounting for 14.92% These statistics indicate a significant trend in the equitization of enterprises, highlighting 2006 as a pivotal year for this process.

Between 2006 and 2015, the author analyzed a sample comprising 295 equitized state-owned enterprises (SOEs) and 414 non-equitized enterprises This selection focuses on comparing the performance and characteristics of these two groups during the specified period.

Table 3.8 Frequency statistics of equitized state-owned enterprises

Small and medium-sized SOEs 66 22.37 22.37

Average state ownership after equitization (STATEid)

Out of 295 equitized enterprises, only 112, or 37.97%, are listed on the stock market, according to data analysis As of August 31, 2019, the Ministry of Finance reported that 755 equitized state-owned enterprises (SOEs) remained unlisted or unregistered for trading The primary reason for this delay in listing is the inefficient operations of several enterprises Overall, the statistics indicate that a significant majority of equitized SOEs are not listed on the stock market.

Table 3.8 presents frequency statistics of equitized state-owned enterprises (SOEs) categorized by industry groups, firm size, listing status, tax incentives, and average state ownership post-equitization This classification allows for an analysis of equitization's impact on the performance of these firms across different segments The data indicates that the majority of equitized SOEs, totaling 154 enterprises (52.2%), are concentrated in the manufacturing and construction sectors, while the service sector follows with 128 equitized SOEs.

This study distinguishes itself from the research conducted by Tran et al (2015), Nhan and Son (2017), and Hung et al (2017) by focusing on equitized state-owned enterprises (SOEs) that were privatized during the second and third phases in Vietnam Notably, large-scale enterprises dominate this group, comprising 229 enterprises, which represents 77.63% of the total.

Table 3.9 Descriptive statistics of firm performance changes for equitized state-owned enterprises

Variable Obs ROApre ROApost TASpre TASpost

Mean Std Mean Std Mean Std Mean Std Firm size

Small and medium- sized SOEs 66 0.002 0.105 0.0189 0.041 0.002 1.834 1.687 2.109 Large scale SOEs 229 0.024 0.071 0.042 0.066 1.247 1.281 1.174 0.061 Listing status

With tax incentives 115 0.016 0.049 0.041 0.059 1.297 1.098 1.363 1.166 Industry groups

Agriculture, forestry and fishery 13 0.032 0.060 0.057 0.067 0.872 0.565 1.285 1.657 Manufacturing and construction

Service 128 0.034 0.090 0.040 0.068 1.869 2.402 1.562 1.826 Average state ownership after equitization