INTRODUCTION
Research background
The outbreak of the COVID-19 pandemic has changed the global landscape Aside from the human toll, the epidemic has pushed the global economy into recession
The global economy experienced a significant downturn, with an estimated GDP decline of 3.9% from 2019 to 2020, and global trade plummeting by 8.5% in actual prices, marking the worst economic crisis since the Great Depression (Gopinath, 2020; OECD, 2021) Despite a recovery of 5.6% in 2021, the rebound remains uneven, compounded by ongoing risks of new outbreaks and shutdowns (OECD, 2021) Many businesses, particularly SMEs, face severe challenges due to prolonged shutdowns, decreased demand, and disruptions in value chains, leading to substantial financial and operational pressures (Hayward et al., 2021).
The Coronavirus pandemic has significantly impacted Vietnam's economy, leading to a GDP growth rate of just 2.91% in 2020, the lowest recorded from 2011 to 2020, according to the General Statistics Office This downward trend continued in 2021, with GDP falling to 2.58%, marking the lowest growth rate in the past 30 years.
In Vietnam, the business sector plays a crucial role in the economy, contributing over 60% to GDP and employing approximately 15 million people (Ministry of Planning and Investment, 2020) Enterprises are vital for exports; however, the COVID-19 pandemic has severely impacted domestic businesses In 2020, about 101,700 enterprises faced challenges, including temporary suspensions, shutdowns, and ongoing dissolution processes (General Statistics Office of Vietnam).
In the first 11 months of 2021, there was a significant increase in business suspensions, with 52,100 enterprises halting operations for a definite period, marking a 17.3% rise compared to the previous year Additionally, nearly 39,500 businesses ceased operations and awaited dissolution procedures, reflecting a 17.4% increase, while 14,900 enterprises completed their dissolution processes, which was a decrease of 3.7% On average, this translates to approximately 9,700 businesses exiting the market each month.
Despite the government's implementation of various measures and policies to support businesses during the COVID-19 pandemic, the effectiveness of these initiatives in enhancing firm performance remains uncertain This study seeks to evaluate the impact of the pandemic on business performance in Vietnam and to propose viable solutions to address the challenges posed by COVID-19.
Literature Review
The COVID-19 pandemic has significantly affected business performance, with research indicating a negative impact on listed companies (Shen et al., 2020; Song, Yeon and Lee, 2021; Jiang et al., 2021) Conversely, studies suggest that small companies have not experienced a noticeable decline in performance due to the pandemic (Gerald et al., 2020; Khatib & Nour, 2021; Alsamhi et al., 2022).
Numerous studies indicate that the COVID-19 pandemic has profoundly hindered business performance globally The ongoing challenges posed by the coronavirus have severely impacted various enterprises, including publicly listed companies Research by Shen et al (2020) highlights that the performance of listed companies in China has been adversely affected by the pandemic.
The COVID-19 pandemic has severely impacted various sectors, particularly tourism, food and drink, and transport, leading to a significant decline in investment size and total revenue among listed Chinese firms Research indicates that negative profitability, especially in the first quarter of 2020, highlights the detrimental effects on sales, operations, and production in industries most affected by the pandemic Additionally, a study by Song, Yeon, and Lee (2021) reveals that U.S restaurants with larger sizes, lower return on assets (ROA), higher cash flow, increased leverage, and greater internationalization demonstrate more resilience against supply decreases Furthermore, the study finds that stock returns in relation to the COVID-19 pandemic are not significantly influenced by factors such as dividends, franchises, institutional ownership, and management ownership.
Research by Jiang et al (2021) indicates that the COVID-19 pandemic has significantly impacted the Return on Assets (ROA) of global firms The study reveals that increased healthcare costs can mitigate the adverse effects of the pandemic Additionally, it highlights that companies located in countries with robust financial systems are less susceptible to these negative impacts.
Contrary to some beliefs, several studies indicate that the COVID-19 pandemic had a minimal impact on business performance, particularly for small and medium-sized enterprises with strategic agility in Anambra State, which demonstrated resilience by adapting their operations based on global trends (Gerald et al., 2020) Research by Khatib and Nour (2021) in Malaysia found no significant effects of the pandemic on various aspects of firm performance, including governance structure and financial metrics such as dividends and liquidity Similarly, a study by Alsamhi et al (2022) in India revealed that sectors like construction and food experienced no notable differences in net profit and earnings per share during the pandemic.
Research on firm performance in Vietnam during the COVID-19 pandemic is limited, but findings indicate significant challenges for businesses The pandemic has notably impacted customer access, cash flow, staffing, and supply chains (The World Bank & VCCI, 2020) Nguyen et al (2020) highlight that Northern Vietnamese firms are struggling with output, supply disruptions, financial issues, and unstable workforce conditions Furthermore, Vo and Tran (2021) report a marked decline in company performance and cash flow during this period In response to these challenges, businesses are increasing cash reserves and reducing leverage ratios to mitigate the pandemic's effects.
The performance of companies during the COVID-19 pandemic has emerged as a critical area of concern for researchers and policymakers However, previous studies exhibit several limitations, primarily focusing on developed nations like the United States and European countries, while neglecting developing nations such as Vietnam Additionally, these studies tend to concentrate on severely impacted industries without considering a multidisciplinary approach Furthermore, there is a notable scarcity of quantitative research, as most existing studies rely heavily on qualitative methods.
Contribution
This study contributes to the literature by examining the impact of the COVID-19 pandemic on corporate performance in Vietnam, a developing market reliant on its corporate sector It addresses a gap in research, as few studies have explored the pandemic's effects on economic and financial activities in developing countries (Qin et al., 2020) Additionally, this research adopts a multidisciplinary approach, overcoming previous limitations in assessment By utilizing a quantitative methodology, it provides a comprehensive analysis of the pandemic's influence on firms' economic and financial activities, supported by extensive and reliable data from numerous businesses.
Objective and Research question
The COVID-19 pandemic and its variants have created significant challenges for businesses over the past two years, highlighting the need for companies to enhance their adaptability to ever-changing circumstances This study aims to investigate the effects of the pandemic on publicly listed enterprises in Vietnam and to analyze how firm performance has been influenced during this period Based on the findings, the research will propose strategies for businesses to bolster their performance in the post-pandemic landscape To achieve these goals, the study will focus on specific research questions related to these themes.
The COVID-19 pandemic has significantly impacted firm performance in Vietnam, leading to challenges such as decreased revenue and disrupted operations To navigate these obstacles, both governments and businesses must implement strategic solutions, including financial support measures, digital transformation initiatives, and enhanced workforce training By focusing on these approaches, firms can improve their resilience and adaptability, paving the way for recovery and growth in a post-pandemic environment.
Research structure
Chapter 1 provides the background of research and literature review, along with contributions made based on the limitations of past researches Moreover, the objective and research question along with an explanation of the structure of the research paper also present in this chapter
Chapter 2 gives an overview of the impact of the COVID-19 pandemic on the performance of the firm It refers to the concept of firm performance and indicators which to evaluate the efficiency of the businesses In addition, there is a mention of the context of the COVID-
19 epidemic and its impact on the global economy in general and businesses in particular
Chapter 3 presents empirical evidence on the impact of the COVID-19 pandemic on companies in Vietnam In this chapter, a research model is made based on financial data of listed companies in Vietnam to examine the performance before and during the COVID-19 pandemic The findings and discussion declare detailed results of the research
Chapter 4 summarizes the results obtained, thereby recommendations are made for
Vietnamese businesses have faced significant challenges due to the COVID-19 pandemic, impacting their operations and growth The final chapter evaluates the extent to which the research objectives were met, discusses the limitations encountered during the study, and offers recommendations for future research directions.
OVERVIEW OF COVID-19 PANDEMIC AND ITS IMPACT ON
Firm performance
The success of businesses plays a crucial role in the development of countries, making effective operations in competitive environments essential for their survival and impact on economic, political, and social progress In contemporary academic literature, the term "firm performance" frequently appears as a key dependent variable in strategic management studies However, a lack of consensus exists among researchers regarding its conceptual definitions, leading to various interpretations of what constitutes firm performance.
Lebas and Euske (2010) assert that firm performance serves as a comprehensive economic indicator, showcasing how effectively an enterprise utilizes its physical and financial resources to maximize efficiency through various financial and non-financial factors Similarly, Ricardianto et al (2020) contend that an organization is deemed efficient when it effectively measures its performance by comparing outputs to inputs over a specific timeframe, which can lead to confusion between business objectives and operational performance.
According to Taouab and Issor, (2019), the performance of an enterprise is the inclusion of revenue productivity, profit, efficiency, growth and competitiveness Bartoli and Blatrix,
(2015) also argue that performance is expressed through evaluation, quality, efficiency and effectiveness These views want to assign a company's business performance to some specific aggregate indicator
Firm performance is essentially a measure of how effectively a company utilizes its resources to achieve its business objectives This metric plays a crucial role in evaluating economic development, as it assesses the success of achieving economic goals over specific periods.
Return on equity (ROE), return on asset (ROA) and gross profit margin (GPM) are financial metrics used in the financial literature to measure firm performance (Tan and Hamid, 2016)
Return on Equity (ROE) is a key indicator that evaluates a company's efficiency in utilizing equity, represented by the ratio of after-tax profit generated for each dollar of equity invested This metric, found on the income statement and linked to average equity on the balance sheet, aims to measure a company's capability to create shareholder value and maintain a sustainable competitive edge A business is deemed capital efficient when its ROE remains consistently high compared to the industry average.
Return on Equity (ROE) indicates a business's financial leverage but does not reflect its financial structure To provide a more comprehensive analysis, Return on Assets (ROA) serves as a complementary metric, measuring a company's performance through the ratio of profits to assets Specifically, ROA reveals the profit generated for every dollar invested, with higher and stable ROA values indicating effective and optimal resource utilization For accurate performance assessment, ROA should be compared with industry peers or averages.
Profit margin is a key performance indicator that reflects a company's efficiency in generating income from sales after deducting the cost of goods sold It measures the dollars earned for every dollar of sales and serves as a benchmark for comparing the financial performance and business models of companies within the same industry A higher profit margin indicates better cost control and operational effectiveness.
Firm performance is primarily indicated by business profitability, commonly measured through return on assets (ROA) and return on equity (ROE) These financial ratios provide insights into a company's financial health and highlight areas for enhancing performance management efficiency (Lesáková, 2007) While numerous factors influence firm performance, they can be broadly categorized into internal and external factors.
With respect to internal factors that may affect firm performance, there are some variables that are commonly used including used such as Firm size, Financial Capital, Asset turnover, Liquidity
Firm size refers to the scale of a company, which can be measured by total assets, total sales, or the number of employees (Doğan, 2013).
Firm size significantly influences firm performance, with larger enterprises generally enjoying advantages such as higher profits, better negotiation power, and enhanced bargaining capabilities with customers, suppliers, and distributors According to Hung, Vinh, and Thai (2021), these large firms excel in scientific and technological development, as well as in implementing effective business, marketing, and e-commerce strategies, supported by a workforce of highly qualified employees This enables them to generate sales and maintain stable growth (Ravenscraft and Scherer, 1987) Conversely, some studies indicate that smaller firms can outperform larger ones by leveraging their niche market advantages, despite the financial resources of larger enterprises (Banchuenvijit and Nguyen, 2012).
In 2012, it was noted that large enterprises benefit from significant financial resources, while small businesses excel in niche markets This unique advantage allows small enterprises to leverage their strengths for improved performance Additionally, research by Shepherd and Shepherd (2014) revealed that factors such as total assets, total sales, and employee count can negatively impact a firm's overall performance.
The capital structure decision significantly influences shareholder returns, risk, and the market value of a company The debt-to-equity ratio plays a crucial role in determining dividends and shareholder risk, ultimately affecting the company's cost of capital and market value (Banafa, Muturi, and Ngugi, 2015) While a high debt ratio can benefit both shareholders and managers, it may also lead to reduced company performance (Ngo and Vu, 2017) Financial leverage, a measure of the debt ratio, can increase resource costs, leading to decreased profits (Doğan, 2013) Evgeny (2015) identified that negative impacts arise from inefficient corporate control, challenges in debt acquisition, high growth potential, and elevated interest rates associated with debt financing Conversely, some studies indicate that leverage positively affects return on assets (ROA) and return on equity (ROE) Research by Robb and Robinson (2009) supports the notion that leveraging debt can enhance firm performance, as it can generate profits that exceed average interest expenses.
Asset turnover is a key efficiency indicator for enterprises, demonstrating how effectively they utilize their assets A higher asset turnover value signifies greater benefits derived from the same assets, indicating superior asset management Consequently, improved asset management correlates with enhanced solvency and earning capacity Research by Phan and Nguyen (2020) highlights a positive relationship between asset turnover and Return on Assets (ROA), emphasizing the importance of this metric in assessing financial performance.
Research indicates that a higher asset turnover ratio correlates with increased net profit, as companies effectively utilize their assets to boost revenue Irman and Purwati (2020) emphasize that improved asset turnover reflects greater efficiency in asset management, leading to a higher return on assets However, Jin et al (2021) highlight that the COVID-19 pandemic has adversely affected asset turnover, presenting challenges for businesses in maintaining their efficiency and profitability.
Effective liquidity management is crucial for businesses, as it enhances profitability and reduces bankruptcy risk However, excessively high liquidity can indicate an overabundance of assets, resulting in higher maintenance and opportunity costs, ultimately diminishing profits.
Research indicates varying relationships between liquidity and firm profitability Eljelly (2004) suggested a negative correlation, asserting that excess assets over liabilities may lead companies to overlook profitable investments (Waswa, Mukras, and Oima, 2018) Conversely, Khidmat and Rehman (2014) identified a positive link between liquidity ratios and return on assets (ROA), concluding that higher current and quick ratios reflect a company's strong cash position and ability to manage cash flow effectively Irman and Purwati (2020) further emphasized that an increase in the current ratio correlates with a rise in ROA, highlighting that a substantial current ratio indicates a firm's capability to meet short-term liabilities while effectively managing assets for profit generation.
(2019) showed that liquidity has a positive effect on ROE and a negligible negative impact on ROA because financial managers have met short-term thus having a positive impact on firm performance
In addition to internal factors, there are a number of external factors that affect firm performance including GDP growth, Inflation and Economic Crisis
Gross domestic product (GDP) is defined as the market value of finished goods or services produced by a country over a certain period of time (Samuelson and Nordhaus,
2010) GDP is a popular macroeconomic indicator in measuring an economy's output and economic activity, and the GDP growth rate reflects the state of the economy cycle (Francis,
Background of COVID-19 pandemic and its impact on the global economy
The COVID-19 pandemic, which began in early 2020, rapidly spread across the globe, resulting in millions of deaths As reported by the WHO in April 2020, the virus had infected over 1.4 million individuals and caused more than 85,000 fatalities in 212 countries and territories Throughout the pandemic, numerous SARS-CoV-2 variants emerged, with the latest concerning variant identified by WHO being Omicron, raising significant alarm (UNICEF, 2021).
As of early 2022, global COVID-19 cases exceeded 400 million, marking a rapid increase attributed to the Omicron variant, which surged from 300 million in just one month In contrast, it took over a year for the first 100 million cases to be recorded, and only seven months to reach 200 million The acceleration to 400 million occurred in just six months Additionally, the death toll from the pandemic has risen significantly, with over 6 million fatalities reported by early March 2022.
In response to the disease outbreak, numerous countries implemented immediate measures such as travel restrictions, quarantines, curfews, event cancellations, and school closures to curb its spread Many airlines ceased operations, halting both passenger and cargo transport, while borders were restricted or closed to limit infection (Nguyen et al., 2020) Globally, nations have focused on understanding the virus, developing effective vaccines, and enhancing efforts to control the pandemic.
Despite the ongoing rise in COVID-19 cases, the global situation is improving due to widespread adherence to full-dose vaccination in many countries As the pandemic enters its third year, nations like Thailand, Spain, and the US are exploring strategies to coexist with the SARS-CoV-2 virus, reclassifying COVID-19 as an endemic disease (Cam, 2022).
2.2.2 The impact of COVID-19 pandemic on global economy
The COVID-19 pandemic has led to significant health issues and fatalities while also causing unprecedented economic turmoil, reminiscent of the Great Depression It has resulted in the most severe contraction of GDP in recent history, with major economies projected to experience a GDP loss of at least 2.9% in 2020, later revised to a staggering 4.5% according to The World Bank.
In 2021, global growth surged to 5.6%; however, global GDP remained 3.2% below pre-pandemic forecasts Additionally, GDP per capita in numerous emerging markets and developing economies is expected to stay below the peak levels reached during the COVID-19 pandemic for an extended period, according to The World Bank (2021).
Deloitte (2020) identifies three primary ways COVID-19 has impacted the global economy: the direct effects on production, the disruption of supply chains and markets, and the repercussions on financial markets.
The COVID-19 pandemic has severely impacted global production, with China, a key player in the global production network and a leading exporter, experiencing a significant decline In February 2020, China's manufacturing Purchasing Manager's Index (PMI) plummeted to 37.5, marking the lowest level since 2004 and reflecting a 2% decrease in annual output due to the coronavirus outbreak This reduction in output has led to an estimated global economic loss of US$50 billion, predominantly affecting sectors such as machinery, automobiles, and communication equipment The European Union, the United States, Japan, South Korea, and Vietnam are among the economies most adversely impacted by this downturn (UNCTAD, 2020).
The COVID-19 crisis has significantly disrupted financial markets, particularly in Europe and the OECD, where economic growth slowed during late 2020 and early 2021 Signs of stress were evident in the U.S Treasury market in March 2020, impacting the corporate bond market and money market funds as well Despite these challenges, financial markets demonstrated a rapid recovery in February and March.
2020, while COVID-19 raged, the S&P 500 Index lost a third of its value, but in August
2020 it slowly rebounded and has been increasing ever since During February and March
In 2020, U.S corporate bond yields experienced a significant surge but swiftly rebounded to their pre-maturity averages Recent projections indicate that the pandemic's effect on global economic growth for 2020 will be less severe than earlier forecasts suggested, although the repercussions may persist, leading to slower growth in 2021.
2022 (Goldstein, Koijen and Mueller, 2021; Jackson et al., 2021)
The COVID-19 pandemic has severely impacted various sectors, particularly travel and tourism, which have nearly come to a halt This disruption has forced millions of suppliers and small businesses to shut down, leading to tens of millions of job losses worldwide.
In 2020, various sectors in European countries, including restaurants, banks, hotels, and airlines, faced imminent bankruptcy due to the COVID-19 pandemic, leading to a significant decline in the stock market and stagnation in foreign investment While some countries are gradually easing lockdown restrictions, the pandemic's aftermath has severely impacted livelihoods and poses challenges to the future growth of the global economy.
In the United States and the United Kingdom, the official coronavirus death rates rank among the highest globally, despite both nations benefiting from robust research infrastructures, extensive resources, and a wealth of scientists, engineers, and medical professionals.
Impact of COVID-19 pandemic on firm performance
Previous studies have shown that the COVID-19 pandemic can affect a company's operations through factors such as supply disruptions, cash flow, and human resources
The COVID-19 pandemic has significantly disrupted global supply chains, causing ongoing challenges in the movement of raw materials and finished goods (Magableh, 2021) In 2020, widespread lockdowns led to decreased consumer demand and economic activity, but as restrictions eased, demand surged However, supply chains continue to struggle with recovery due to labor shortages and a lack of essential components (Goel, Saunoris, and Goel, 2021) Various regions face unique supply chain issues; for instance, China has experienced manufacturing setbacks due to electricity shortages, while Brexit has intensified truck driver shortages in the UK Similarly, the U.S and Germany are grappling with trucker shortages, leading to significant port backlogs (Golwelkar).
The American Trucking Association predicts a labor shortage exceeding 80,000 workers by the end of 2021, potentially quadrupling by 2030, exacerbated by COVID-19 vaccination mandates from the US Occupational Safety and Health Administration for companies with over 100 employees This policy may lead to a loss of up to 37% of drivers due to retirements and shifts to smaller carriers or independent contracting, compounded by the closure of driver training schools and the Department of Motor Vehicles As a result, delivery delays and parts shortages have driven up prices across various industries, including significant shortages in semiconductors for automotive and electronics sectors, as well as wood, steel, and plastic in construction Although economies are beginning to recover with increased demand for raw materials following vaccination efforts, many businesses are still struggling to ramp up production due to challenges in rehiring laid-off workers and disruptions in supply chains, leading to reduced orders, output, and investment.
During the COVID-19 pandemic, cash flow emerged as the most critical challenge for businesses, exacerbated by issues such as late payments, delayed deliveries, and limited credit Companies often faced difficulties in managing operational costs, including salaries, loan interest, rent, and essential expenses like raw materials and utilities Even financially stable firms risked insolvency within three months under these conditions, leading to potential bankruptcy if cash flow issues persisted beyond six months To mitigate these challenges, businesses adopted strategies such as reducing staff, restructuring operations, and seeking loans, with an estimated cash flow deficit reaching £140 billion Despite these efforts, companies continued to bear the burden of employee salaries, property maintenance, and ongoing financial obligations like taxes and interest payments.
The COVID-19 pandemic has had a varied impact on human resources across different industries, with some experiencing significant sales declines and temporary closures, while others thrived Companies facing financial challenges have resorted to downskilling and limiting high-skill hiring to reduce costs, leading to widespread layoffs and job losses The reemployment prospects for those absent from their jobs for extended periods have diminished, complicating the situation for HRM practitioners who must provide support during these difficult times The uncertainty surrounding the pandemic's duration and its lasting effects on organizations adds to the challenge Major companies like Maersk and Shell have announced substantial layoffs as part of restructuring efforts Additionally, the shift to remote work has transformed organizational dynamics, with many employees working from home, although this is not feasible for all roles, particularly in manufacturing HRM practitioners are tasked with identifying which jobs can be performed remotely and which may require layoffs, while also addressing the potential negative effects on employees' mental health and workplace relationships.
THE IMPACT OF COVID-19 PANDEMIC ON FIRM
Current situation of Vietnamese economy during COVID-19 pandemic
The ongoing COVID-19 pandemic continues to significantly impact economies worldwide, particularly in major nations like the US, China, Japan, and the European Union In Vietnam, the General Statistics Office reported in 2021 that prolonged social distancing measures under Directive 16 severely hindered economic growth, resulting in the steepest decline in GDP since records began in the third quarter of 2021 (Ministry of Health Portal, 2022).
In the third quarter of 2021, GDP fell by 6.17% compared to the same period last year, with the agriculture, forestry, and fishery sector experiencing modest growth of 1.04%, the lowest in the past decade In contrast, the industry and construction sectors saw a decline of 5.02%, while the service sector decreased by 9.28%.
In 2021, the GDP growth experienced a significant decline, yet it still reached 1.42% over the same period last year While the service sector saw a decrease of 0.69%, the agriculture, forestry, and fishery sectors achieved positive growth rates of 2.74% and 3.57%, respectively However, these figures fell short of expectations.
According to the Asian Development Bank (2021), Vietnam's economic growth is anticipated to slow down due to the resurgence of the COVID-19 pandemic, which has disrupted labor resources, reduced industrial output, and affected agricultural value chains ADB's report (2022) indicates that Vietnam's economy only grew by 2.6% in 2021, falling short of the predicted 3.8% growth Although there was recovery in the first half of 2021 driven by increased trade, the economy faced a downturn in the second half as the fourth wave of the pandemic impacted businesses and the labor market Looking ahead, Vietnam's GDP is projected to rebound with a growth rate of 6.5% in 2022 and 6.7% in 2023 (Asian Development Bank, 2022).
Figure 3.1: Vietnam GDP Growth rate in the period from 2020 to 2023
In 2021, inflation was effectively managed, rising only by 1.84% compared to the previous year; however, inflationary pressures in 2022 are expected to be significant due to potential increases in production and consumption demand following the control of the COVID-19 pandemic (Ministry of Health Portal, 2022) The global rise in raw material prices, including petrol, coal, and transportation costs, is likely to impact production expenses and product pricing Consequently, the high cost of imported raw materials will contribute to increased prices of domestic consumer goods, further intensifying inflationary pressures The Asian Development Bank (2022) also predicts a rise in Vietnam's inflation rate.
GDP Growth rate (% per year)
Vietnam GDP Growth rate from 2020 to 2023
Figure 3.2: Vietnam GDP Inflation rate in the period from 2020 to 2023
The COVID-19 pandemic significantly impacted Vietnam's workforce, with over 1.7 million unemployed individuals of working age reported in the third quarter of 2021, marking an increase of 532.2 thousand from the previous quarter and 449.6 thousand from the same period in 2020 The ongoing complexities of the fourth COVID-19 wave and extended social distancing measures contributed to a sharp rise in unemployment, pushing the rate to 2.99%, which is 0.35 percentage points higher than the previous year Additionally, the total number of unemployed individuals in the first nine months of 2021 exceeded 1.3 million, reflecting an increase of 126.5 thousand compared to the same timeframe in 2020.
In the fourth quarter of 2021, as businesses in Vietnam began to reopen, there was a significant focus on local epidemic prevention measures This proactive approach allowed companies to effectively plan their production and business strategies while also addressing employment needs.
Inflation rate from 2020 to 2023 in Vietnam the epidemic, there will be a process of restructuring the workforce, which will lead to a wave of competition for labour recruitment between businesses
3.2 Current situation firm performance during COVID-19 pandemic in Vietnam
The COVID-19 pandemic has severely affected Vietnamese enterprises, particularly local private businesses and foreign direct investment (FDI) companies New firms operating for less than three years, along with micro and small-scale businesses, have experienced the most significant challenges Key industries such as textiles (97%), information and communication (96%), and manufacturing electrical equipment (96%) have faced substantial disruptions FDI businesses have also reported high negative impacts, especially in real estate (100%), information and communication (97%), and agriculture/fishery (95%) Geographically, the Central Coast districts saw 91% of private businesses adversely affected, while FDI firms in the Central Highlands faced a 94% impact rate Notably, provinces like Da Nang (98%), Kon Tum (95%), and Khanh Hoa (95%) recorded the highest percentages of severely impacted private enterprises (The World Bank, 2020).
The COVID-19 pandemic has significantly impacted businesses, with many reporting challenges related to consumer access (50%), cash flow (46%), labor (38%), and supply chain issues (33%), according to The World Bank (2020) Firms have experienced reduced orders, decreased output, and project delays, leading to halted operations and potential bankruptcy due to a sharp decline in demand Additionally, companies face high costs to mitigate the effects of the outbreak, while international professionals are unable to work in Vietnam, further complicating commercial activities abroad.
During the pandemic, 35% of private businesses and 22% of foreign direct investment (FDI) firms were compelled to lay off employees, with small and micro-sized private firms experiencing the highest rates at 36% and 35%, respectively In the FDI sector, 26% of medium-sized businesses and 32% of large enterprises also faced layoffs The technology and communication sectors, along with motor vehicle manufacturing and leather products processing, reported the highest percentages of layoffs among private businesses, while FDI firms primarily operate in information and communication, leather products production, and wood processing industries.
Private firms are facing significant layoffs, with an average of three employees let go nationwide, while some companies report an average of ten layoffs For foreign direct investment (FDI) businesses, the median layoffs are 4, with an average of 38 employees affected It is estimated that approximately 30% of a company's workforce may need to be laid off, with private firms averaging around 32% and FDI firms around 17% Notably, micro and small enterprises bear the highest percentage of layoffs, particularly small-scale private businesses, which have seen about 40% of their workforce laid off, compared to 22% for small-scale FDI firms (The World Bank).
The re-emergence of COVID-19 has led the Asian Development Bank to forecast a slower economic expansion for Vietnam, with GDP expected to grow by 3.8% in 2021 and 6.5% in 2022 (World Bank, 2020) The pandemic has disrupted labor resources, diminished industrial production, and impacted agricultural value chains While growth improved in the first half of 2021 due to increased trade flows, it declined in the latter half as the fourth wave of the pandemic affected businesses and the labor market Consequently, inflation is anticipated to be managed by the end of 2021 and into 2022.
COVID-19 has significantly affected various sectors of the economy, notably causing declines of 11.41% in the construction industry and 8.25% in mining Despite being a key driver of Vietnam's economic growth, the processing and manufacturing sector also experienced a contraction of 3.24% in the third quarter.
The service industry experienced a historic decline in the third quarter of 2021, with an overall drop of 9.28 percent due to prolonged social alienation Accommodation and food services plummeted by 54.8 percent, as 20 provinces and centrally-run cities enforced social distancing measures under Directive 16, affecting 63 percent of the sector nationwide Additionally, transportation and warehousing saw a decrease of 21.1 percent, while wholesale and retail sectors fell by nearly 20 percent (The World Bank, 2020).
Evaluate the impact of COVID-19 pandemic on firm performance in Vietnam
To assess the impact of the COVID-19 pandemic on business operations in Vietnam, the research follow the model below
Y it = β + β 1 Period it + β 2 SIZE it + β 3 LA it + β 4 AT it + β 5 CR it + β 6 OEA it + β 7 GDP it + β 8 YEAR it
+ β 9 INDUSTRY it + ε it (1) Where: a Dependent variables
Firm performance in year t is represented by Yit, utilizing key metrics such as Return on Assets (ROA) and Return on Equity (ROE) to gauge profitability across various industries during the COVID-19 pandemic This approach aligns with recommendations from Shen et al (2020) and Lesakova (2007), who advocate for financial health as a critical measure of a company's performance ROA and ROE serve as indicators of a firm's flexibility and its capability to effectively utilize assets to drive sales.
The variable "Period" serves as the primary explanatory factor in the model, illustrating the effects of the pre-pandemic and pandemic periods on company performance in year t This selection is supported by prior research, including a study by Devi, Warasniasih, and Masdiantini (2020), which examined the COVID-19 pandemic's impact on the financial performance of companies listed on the Indonesian stock exchange across two distinct periods: before and after the pandemic Similarly, Veselinova and Samonikov (2021) analyzed the performance of companies within the MBI10 Index, comparing data from 2019, prior to the pandemic, with subsequent performance during the pandemic.
In this model, Xit serves as the control variable, reflecting the primary changes in firm i's performance over time t We will examine both internal factors, such as liquidity (LA), asset turnover (AT), current ratio (CR), operating efficiency (OEA), and firm size (SIZE), as well as the external factor of GDP Incorporating these variables aims to enhance the model's accuracy in elucidating the effects of the dependent variables.
Research by Song, Yeon, and Lee (2021) and Shen et al (2020) reveals that the COVID-19 pandemic significantly influenced company SIZE, with larger firms possessing more cash being less adversely affected compared to smaller, cash-strapped companies Consequently, smaller firms are expected to perform less effectively during the pandemic, leading to a negative impact of SIZE on both Return on Assets (ROA) and Return on Equity (ROE).
LA, or Liabilities to Assets, assesses the proportion of a company's assets that are financed by its liabilities Research by Ge and Xu (2021) indicates that while LA negatively affects a firm's profitability, it positively influences productivity and market prices.
Shen et al., (2020) also shows the negative impact of the COVID-19 pandemic on LA
Therefore, LA is expected to have a negative impact on ROA and ROE
Asset Turnover (AT) measures a company's efficiency in utilizing its assets to generate revenue Research by Utami (2017) and Irman and Purwati (2020) suggests that the COVID-19 pandemic positively influenced AT, leading to expectations of favorable effects on Return on Assets (ROA) and Return on Equity (ROE).
The Current Ratio (CR) assesses a company's short-term liquidity, and research by Jin et al (2021) indicates that the COVID-19 pandemic adversely affected CR Consequently, this decline in CR is anticipated to negatively influence both Return on Assets (ROA) and Return on Equity (ROE).
The research team incorporated Operating Expenses to Assets (OEA) as a key variable to analyze the COVID-19 pandemic's effects on Return on Assets (ROA) and Return on Equity (ROE) OEA is a critical ratio that assesses how effectively a financial institution manages operating expenses relative to asset fluctuations, particularly in response to changing interest rates The pandemic is anticipated to diminish product consumption, leading to a decline in short-term assets due to reduced cash flow, while operating expenses continue to accrue to maintain organizational operations This scenario results in a heightened OEA, signaling poor organizational performance, and suggests a negative correlation between OEA and both ROA and ROE.
GDP is the growth rate of Gross Domestic Product that represents the quantity of goods produced within the territory In fact, Nguyen et al., (2020) pointed out that Vietnam's
In the second quarter of 2020, GDP growth fell by 2% due to supply disruptions and a sudden decline in demand caused by the COVID-19 pandemic Additionally, Indonesia's GDP recorded a mere 2.97% in Q1 2020, marking the lowest level since 2001 Consequently, this decline in GDP is anticipated to negatively affect both Return on Assets (ROA) and Return on Equity (ROE).
This research examines how revenue mechanisms and capital structure affect business performance during the COVID-19 pandemic To enhance the analysis, additional explanatory variables, REV*Period and DE*Period, are included in models (2) and (3), respectively.
Y it = β + β 1 REV it *Period it + β 2 REV it + β 3 Period it + β 4 SIZE it + β 5 LA it + β 6 AT it + β 7 CR it + β 8 OEA it + β 9 GDP it + β 10 YEAR it + β 11 NDUSTRY it + ε it (2)
Y it = β + β 1 DE it *Period it + β 2 DE it + β 3 Period it + β 4 SIZE it + β 5 LA it + β 6 AT it + β 7 CR it + β 8 OEA it + β 9 GDP it + β 10 YEAR it + β 11 NDUSTRY it + ε it (3)
This study analyzes the regression coefficients of REV*Period and DE*Period to assess the impact of the COVID-19 pandemic on company performance over time A positive coefficient indicates that the pandemic positively affects business, while a negative coefficient suggests the opposite This analysis parallels the investment activities of Vietnamese businesses on stock exchanges, where performance is typically influenced by revenue growth, investment capacity, and varying periods Generally, company performance is expected to be better in the pre-COVID-19 era due to limitations in product consumption, with exceptions for specific sectors such as healthcare.
Detail of variables used in this study are shown in Table 3.1
ROA ROA equals Net income divided by
ROE ROE equals Net income divided by
Period The period of time to check the company's performance before and after being impacted by the COVID-19 pandemic
REV REV measures natural base logarithm of total revenue
DE DE equals Total liabilities divided by
SIZE SIZE measures natural base logarithm of total assets
LA LA equals Total liability divided by Total assets
AT AT equals Net sales divided by Average total assets
CR CR equals Current Assets divided by
OEA OEA equals Operating expense divided by
GDP Real GDP: percentage of output adjusted for inflation or deflation
The table shows the variables used in the models
This study evaluates the impact of the COVID-19 pandemic on the performance of Vietnamese enterprises using panel data that combines cross-sectional and time-series information By integrating these data types, the analysis benefits from increased variability, reduced multicollinearity, enhanced degrees of freedom, and improved efficiency Panel data enables the detection and measurement of impacts that would be overlooked if only time-series or cross-sectional data were utilized The research employs three key techniques for processing panel data: the Pooled Ordinary Least Squares (OLS) model, the Fixed Effects Model (FEM), and the Random Effects Model (REM).
The Pooled OLS model analyzes panel data across the same time period, but its application can lead to inefficiencies and inconsistencies Previous research indicates that cross-unit effects tend to be significant due to the presence of repeated observations of the same cross-units over time (Podestà).
There may be non-independent trends over time due to the interdependence of observations and their characteristics Furthermore, the relationships between dependent and independent variables can vary significantly across different subsets of firms or time periods, highlighting the heterogeneity that exists both temporally and spatially (Hicks, 1994).
To address the limitations of traditional regression models, Fixed Effect Models (FEM) and Random Effect Models (REM) are employed The FEM accounts for specific factors unique to each enterprise by allowing variations in the y-intercept while maintaining constant slopes across different entities This approach highlights the differences in regression parameters among enterprises Conversely, the REM addresses temporal variations and other distinct issues faced by enterprises over time, providing a comprehensive analysis of the data.
CONCLUSION AND RECOMMENDATIONS
Conclusion
This study analyzes the effects of the COVID-19 pandemic on firm performance using a dataset of 131 companies listed on the Vietnamese stock exchange from Q1 2016 to Q3 2021 Employing Pooled OLS, FEM, and REM regression models, the research reveals that businesses faced significant losses in financial and human resources, along with disrupted supply chains during the pandemic The findings indicate that reduced revenue adversely impacts business performance, as lower revenue correlates with decreased profitability Furthermore, the study highlights that a reduction in debt can diminish business efficiency, as lower debt levels suggest decreased financial leverage.
The COVID-19 pandemic has severely impacted key sectors such as industry, real estate, construction, consumption, and services, leading to widespread restaurant and tourist area closures, frozen import and export activities, and significant job losses Public health measures, including patient isolation and social distancing, necessitated the shutdown of non-essential businesses Enterprises reliant on global supply chains faced immense challenges due to disruptions, resulting in decreased domestic and international demand, particularly affecting durable goods manufacturers and export-dependent companies The pandemic also led to financial shocks for businesses amid limited funding opportunities Although Vietnam implemented effective anti-epidemic measures, the country could not escape the economic repercussions experienced globally Consequently, COVID-19 has had a profound impact on Vietnamese companies, highlighting the need for policymakers to develop supportive measures and enabling businesses to leverage research findings for enhanced operational efficiency in the post-pandemic landscape.
Recommendations
The analysis highlights two crucial factors for mitigating the adverse effects of the COVID-19 pandemic on businesses in Vietnam: revenue growth and managing increased debt To improve firm performance in the post-pandemic era, it is essential for both the government and enterprises to implement strategic recommendations.
First of all, solutions for the government to support enterprises to improve performance are given below
In response to the challenges posed by the COVID-19 pandemic in 2020 and 2021, the Government of Vietnam introduced modest support packages for businesses and individuals To enhance assistance for those impacted by the pandemic, it is crucial for the government to consider implementing more robust measures in the near future.
To address the revenue decline faced by businesses during the pandemic, the government must urgently implement solutions that facilitate access to information channels for import and export, enabling companies to discover new markets for raw materials This includes supporting businesses in online trade promotion programs and enhancing connections through digital trade fairs and exhibitions Additionally, local governments should promote the consumption of agricultural products domestically while expanding exports to high-potential markets, thus reducing reliance on a single market and ensuring stable production Furthermore, strengthening market management is essential to maintain the balance of essential goods, with a focus on improving transportation logistics, simplifying procedures for rail, national, and inter-provincial road and waterway transport to ensure the stability of the goods supply chain.
To enhance corporate performance during the pandemic, the government should expedite public investment disbursement by fast-tracking project approvals and reallocating funds from delayed projects to those with better progress Additionally, it is crucial to implement measures that alleviate cash flow challenges, such as reducing input costs and providing interest rate compensation, aligning lending rates with the decreasing deposit rates of commercial banks Furthermore, instead of tax reductions, the government should offer cost-based support by allowing businesses in severely affected sectors to deduct labor costs exceeding actual payments, which would significantly improve their cash flow Lastly, Vietnam's State Banks must revise debt rescheduling policies to broaden support for businesses and establish financial assistance through the Small and Medium Enterprise Development Fund, enabling small and medium enterprises to access vital financial resources for recovery.
In addition to recommendations for the government, the study makes other several recommendations for enterprises to enhance performance
To enhance revenue post-COVID-19, enterprises must prioritize effective cost control measures by carefully evaluating and cutting unnecessary expenses to maintain sufficient capital for essential operations and employee salaries Additionally, restructuring loan proportions is crucial, allowing businesses to leverage government and bank financial support while ensuring a solid financial foundation for credibility, especially for small and medium enterprises Furthermore, accelerating the digitization process is essential for improving customer communication through digital channels, transforming operational methods, and fostering a technology-driven company culture Successful digital transformation requires selecting a reliable technology partner to support businesses in their renewal journey.
Limitations and future research
Despite efforts to conduct thorough research, several limitations were encountered Firstly, the small dataset resulted from the lack of publicly available indicators for many enterprises on S&P Global Market Intelligence, restricting the variety of observed factors Secondly, there is a scarcity of studies examining the COVID-19 pandemic's impact on Vietnamese businesses, leading to a limited literature review Additionally, the five-year data span restricts the use of more advanced measurement models like GMM Lastly, the study does not address the influence of significant macro factors, such as government support during the pandemic and global instability, including wars and rising commodity prices.
The authors acknowledge limitations in their study, which serve as a foundation for future research suggestions Future studies could broaden their scope by including neighboring countries or regions over extended periods Additionally, exploring factors such as inventory, accounts payable, accounts receivable, and fixed assets could enhance understanding There is also potential for further investigation into the effects of the COVID-19 pandemic, contributing to a more comprehensive literature review Employing advanced models like GMM could improve the measurement and evaluation of impacts Lastly, a closer examination of macroeconomic factors on firm performance is recommended for a more thorough assessment.
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