the impacts of ownership structure on profitability of firms listed in vietnam

32 Table 5-5: Impacts of capital and ownership structure on business performance ..... 33 Table 5-6: Impacts of business performance and ownership structure on capital structure .... i T

INTRODUCTION

Background of the study

The selection of capital sources and ownership for financing operations is a primary consideration for companies, since these selections have a significant impact on the market value of the firm, as shown by the average cost of capital (Arnold, 2013) The determination of whether equity capital or loan capital should be used, as well as the identification of the most suitable collaborator to optimize the company owner's profit, are crucial considerations This is in line with Arnold's (2013) assertion that the primary objective of every firm is to maximize the profits of its owners

The existing literature on corporate partnerships in organizations encompasses a wide range of ideas, including M&M (Modigliani & Miller, 1958; 1963), agency theory (Jensen & Meckling, 1976), collaborator trade-off theory (Myers, 1984), and pecking order theory (Myers, 1984), among others Each theoretical framework presents a distinct viewpoint about the influence of ownership, although these ideas mostly fail to definitively establish the actual effect of ownership on corporate profitability The industry under consideration is subject to differing perspectives and opposing opinions, as shown in the works of Abdullah and Tursoy (2019), Dalci (2018), and

Le and Phan (2017) Hence, more investigation and empirical evidence are required to establish the influence of ownership on corporate profitability

Additionally, it has been shown via empirical research conducted by Dalci (2018) that there are variations in the association between ownership and the financial gains of businesses Several research have shown a favorable relationship between capital structure and business earnings (Bistrova, Lace, & Peleckiene, 2011; Chang et al., 2019) Empirical research have shown evidence supporting the unfavorable relationship between ownership and business earnings (Abor, 2005; Leon, 2013; Mouna et al., 2017) The variability shown in empirical study findings demonstrates that the influence of ownership on profitability exhibits rapid and intricate fluctuations throughout specific time periods Furthermore, the aforementioned research mostly concentrate on the unidirectional association between ownership and profits, neglecting to evaluate the reciprocal nature of this interaction (Margaritis et al., 2010; Dalci, 2018) Indeed, the profitability of a corporation also influences the selection of corporate partners, and the precise nature of this influence remains a topic of considerable scholarly discussion (Margaritis et al., 2010) Consequently, investigating the correlation between profitability and corporate ownership is a subject of interest The juxtaposition of these two elements has substantial theoretical and practical implications In contrast, there has been a growing focus in recent empirical research on the non-linear association, sometimes referred to as the u- shaped impact, between ownership and business profitability (Margaritis et al., 2010;

Le et al., 2017; Dalci, 2018; Yang et al., 2010) The findings of these research indicate that collaborative efforts have a positive impact on business profits up to a specific threshold However, once the loan ratio of the firm exceeds a particular level, there is a subsequent decline in earnings Nevertheless, the variations in findings across these studies necessitate the need for more study on the u-shaped correlation between collaboration and corporate profitability in various market contexts and across extended timeframes (Margaritis et al., 2010; Le et al., 2017; Dalci, 2018)

According to the World Bank (2021), Vietnam is categorized as a frontier market and is seen to possess considerable prospects for future growth This is precisely why doing research on the influence of ownership may assist businesses and government agencies in decision-making and collaborator management, particularly in the case of publicly traded companies The existing literature on the correlation between collaborative efforts and corporate profitability in Vietnam exhibits a considerable range of studies (Le et al., 2017; Nguyen & Ramachandran, 2006; Nguyen, 2020; Nguyen & Nguyen, 2020) The existing body of research on this topic presents divergent findings, indicating that the association between ownership and financial gains is contingent upon several variables, necessitating more comprehensive investigation

This study makes significant contributions to both theoretical and practical domains (i) This study aims to reevaluate the influence of agency theory on the correlation between ownership and corporate profits in Vietnam

(ii) The objective of this research is to investigate the reciprocal association between ownership and enterprise profits in order to gain a deeper understanding of their interdependence and subsequently determine the optimal capital structure

(iii) The purpose of this study is to ascertain both the linear and non-linear connection between ownership and corporate profits, thereby reinforcing the findings related to the agency theory's impact on this relationship (iv) By integrating and examining the effects of ownership structure on shareholders and business profits, this study seeks to elucidate the disparities in shareholders and profits among businesses with varying levels of domestic ownership, foreign ownership, and home country ownership

(v) This study aims to analyze the correlation between ownership and company profitability by examining data including all enterprises listed on the two main stock markets in Vietnam during a certain timeframe The duration of the observation period exceeds that of earlier investigations Hence, the outcomes of empirical investigations provide the most evident depiction of the correlation between these two variables

To answer the above questions, the thesis "The Impacts of Ownership Structure on

Business Performance of Publicly Listed Companies in Hochiminh Stock Exchange" has been selected for analysis, evaluation and empirical research, as a basis for making recommendations for corporate governance and capital structure policy.

Research objectives

• Measuring the influence of ownership structure on financial leverage of companies listed on the Ho Chi Minh City stock exchange

• Compare the level of leverage used in enterprises with and without state capital;

• Enterprises with different ownership structures will make different decisions about financial leverage

From the research results, the author proposes a number of recommendations for businesses and entities related to the impact of ownership structure on the company's financial leverage decision

• Question 1: The ownership structure of listed businesses in the Vietnamese market has an inverse relationship with profits

• Question 2: There exists a reverse cause and effect in the linear relationship between capital structure and corporate profits

• Question 3: Ownership structure has an impact on the capital structure and profits of listed enterprises in Vietnam.

Significant of the study

In Vietnam, the equitization process has been undertaken since 1992, wherein shares of state-owned corporations are sold to both local and international investors This initiative has played a significant role in altering the ownership structure of these enterprises The use of water-related strategies is intended to enhance operational efficiency Consequently, the incorporation of private entities into the ownership framework of state-owned enterprises has had a significant influence on the advancement of Vietnam's economy The 3rd Plenum of the 11th Central Committee reached the decision in October 2011 to implement an economic restructuring plan through 2020 This plan primarily emphasizes investment restructuring in three key areas The proposed measures include the reorganization of the financial market, specifically targeting the reform of the commercial banking system and financial institutions Additionally, there is a plan to restructure state-owned firms, with a particular emphasis on economic groupings and state-owned corporations The ownership structure of organizations has garnered considerable attention from investors due to the varying approaches to company operations associated with various ownership arrangements According to the findings of Dewenter and Malatesta (2001), private enterprises exhibit a higher valuation compared to state- owned companies This disparity in valuation may be attributed to private companies' ability to generate more profits while using less debt and labor The production process refers to the sequence of activities and operations involved in the creation of goods or services Hence, it can be inferred that companies with a significant amount of State ownership tend to exhibit lower levels of operational efficiency and a relatively greater debt ratio compared to enterprises characterized by a substantial proportion of private ownership The impact of private ownership or state ownership on financing choices is contingent upon the prevailing capital structure of the majority Numerous constraints persist Limited study has been conducted on this particular topic within the Vietnamese market Furthermore, as stated by Vo Xuan Vinh (2014), there exists a positive correlation between the percentage of organizational ownership structures inside firms and their levels of operational efficiency and value Companies that possess high debt ratios are likely to exhibit reduced levels of operational efficiency; whereas Companies that possess significant investment prospects tend to exhibit greater levels of operational efficiency There exists a positive correlation between a company's revenue and its operating efficiency, wherein companies with larger revenue tend to exhibit greater levels of operational efficiency

Vietnam, as an emerging economy, has a significant prevalence of State-invested firms; nonetheless, there exists a dearth of empirical studies pertaining to the impact of State ownership on leverage choices The subject of discussion is water The debt ratio is a crucial determinant In the context of company operations, three crucial determinations may be identified: the investment choice, the capital decision, and the profit distribution decision The determinations of these choices are contingent upon the financial sources of the firm, which may be categorized into two fundamental types: internal funding sources and external funding sources When a corporation opts for external financing via debt, it often incurs lesser costs compared to financing through equity capital, hence eliminating the need to distribute capital contributions among shareholders However, caution must be used when using leverage since it has the potential to significantly amplify corporate earnings, but also has the risk of inflicting substantial harm if the appropriate degree of leverage is not ascertained.

Scope of the research

Because financial companies with high leverage ratios will affect the research results, the author excluded financial companies from the survey and data collection Thus, the subjects surveyed in this topic are companies that are not financial sector companies listed on the Ho Chi Minh City stock exchange

Scope of topic content: Research the impact of ownership structure on the performance of companies listed on the Ho Chi Minh City Stock Exchange

Spatial scope: Research topic on non-financial companies listed on the Ho Chi Minh City stock exchange

Time scope: The topic focuses on research and data collection during the period from 2016-2020.

Structure of the thesis

The subsequent parts of the article will offer the following contents: Part 2 provides a theoretical examination of the relationship between ownership and company earnings, leading to the formulation of a research topic Section 3 outlines the research methodology, including the data gathering techniques and research model used Section 4 provides a comprehensive analysis and discussion on the correlation between ownership and earnings Finally, Section 5 finishes the study and offers recommendations based on the findings.

THEORETICAL BACKGROUND

Definition of ownership structure

Joint stock corporations possess a fundamental attribute wherein the share capital is possessed by diverse shareholders, therefore constituting the ownership framework of the company Research on the influence of ownership structure on corporate performance is an imperative area of study Consequently, the performance of a company can be influenced in various ways by different forms of ownership, and this relationship is further shaped by the institutional context specific to each nation The study of ownership structure in developing nations, particularly those with state involvement in ownership such as Eastern European countries, China, and Vietnam, exhibits distinct attributes State ownership in these countries frequently exhibits a notable prevalence subsequent to the transition from a centralized economy, thereby exemplifying state intervention in the economic operations of firms The findings from empirical study on the influence of state ownership on company performance vary significantly across different research samples Specifically, favorable benefits have been observed in the Russian market, while adverse or ambiguous impacts have been identified in the Chinese market Conversely, the influence of state ownership in Vietnam has been found to be opposite in nature Moreover, foreign ownership is regarded as a type of ownership that serves as a counterbalance to state ownership

In nations where the government seeks to exert control over the economy, the impacts of state ownership and foreign ownership frequently exhibit contrasting outcomes When the government aims to decrease the rate of state ownership, it often concurrently implements policies that facilitate foreign investment, resulting in an increase in the rate of foreign ownership The influence of foreign ownership on corporate performance yields contrasting outcomes in comparison to the influence of state ownership on corporate performance

This study contributes to the existing body of empirical research on the relationship between ownership structure and business performance by examining this relationship within a specific country, taking into account the varied outcomes observed across other countries In contrast to the research conducted by Le Duc

Hoang in 2015, the present analysis utilizes a sample of all companies that are listed on two prominent Vietnamese stock exchanges The obtained experimental findings exhibit congruence with prior research conducted on lower sample sizes within the context of Vietnam There exists an inverse relationship between the extent of state ownership and the performance levels exhibited by listed companies Conversely, there exists a positive correlation between the extent of foreign ownership and the level of performance exhibited by the publicly traded company

Jensen and Meckling (1976) were among the pioneering scholars who introduced the concept of ownership structure It is referred to as the relative proportion of claims held by insiders (management) and outsiders (investors without direct involvement in management) The authors assert that it is inappropriate to conflate ownership structure with capital structure, the latter referring to the financial composition of a company, encompassing the proportions of bonds, equity, warrants, and other such instruments According to Cole, Ang, and Wuh Lin (2000), the ownership structure of small enterprises exhibits significant variability The extent of managerial ownership spans from zero to one hundred percent According to the findings of Helwege, Pirinsky, and Stulz (2007), it is observed that a significant proportion of initial public offering (IPO) enterprises see a decline in managerial ownership, reducing it to approximately 20% within a decade The aforementioned numerical value likewise decreases as organizations undergo expansion and increase in size According to Demsetz and Villalonga (2001), the ownership structure can be understood as a result of an endogenous process that involves maximizing outcomes This process encompasses more than simply addressing the issue of shirking or putting insufficient effort to contribute to income generation Furthermore, it is in accordance with Cho's (1997) assertion that the determination of ownership structure should be endogenous According to Demsetz and Villalonga (2001), the decision of privately held company owners to issue an Initial Public Offering (IPO) entails a deliberate alteration of the firm's ownership structure, potentially resulting in a greater diffusion of ownership As previously mentioned, the propensity for diffusion aids in the expansion and financial advancement of the organization (Stulz, 2005) Demsetz and Lehn (1985) provide an explanation of the ownership structure of a corporation, which is decided based on the objective of maximizing firm value through optimal size There exists a positive correlation between the size of a corporation and its available resources, which in turn tends to result in a higher market value As the firm experiences growth, it is able to achieve cost reductions through the utilization of scale effects The act of shirking, which refers to the deliberate exertion of insufficient effort to contribute to revenue generation, as well as the agency costs associated with diffusive ownership, are ultimately of lesser significance compared to the objective of maximizing wealth for shareholders The ownership structure is contingent upon the potential for control According to Demsetz and Lehn (1985), the latter refers to the potential increase in wealth that can be attained by a firm's shareholders through improved monitoring of managerial performance Effective monitoring of professional managers leads to improved decision-making aligned with the objective of maximizing shareholder wealth.

Agency theory

Historically, families were known to operate enterprises in a private capacity According to Lauterbach and Vaninsky (1999), the shareholders of the company were limited to a small, tightly knit group Ensuring alignment between the interests of shareholders and management was a straightforward endeavor, given that managers were either shareholders themselves, or had familial or personal connections to shareholders According to Lauterbach and Vaninsky (1999), there has been a noticeable trend of corporations experiencing significant growth in size and an increase in the number of shareholders they have Additionally, it is asserted that enterprises under family management have the poorest performance among all Operating organizations that are managed by professionals are considered to be the most optimal The individuals in question do not possess ownership of the organization; rather, they are employed by the corporation and are referred to as

"agents" within the framework of agency cost theory In this idea, the individuals who possess ownership rights, namely the shareholders, are referred to as "principals" One challenge faced by organizations is to the inherent selfishness of human nature, since individuals are driven to enhance their own well-being According to Morck (2000),

An organization serves as the central point where contractual agreements, both explicit and implicit, are established between the owners of production resources and the customers The study conducted by Fama and Jensen in 1983 Contracts delineate the entitlements, regulations, remuneration, and benchmarks for performance of individual actors inside the organizational framework One effective approach to mitigating agency costs is aligning the agent's personal welfare with the performance outcomes of the organization, so enabling the agent to experience positive or negative consequences Principals have the capacity to establish a coherent set of attainable objectives and subsequently evaluate the agent's performance at the conclusion of a designated timeframe to determine the extent of mission accomplishment As an illustration, the agent may receive a financial incentive in the form of a bonus for successfully attaining a greater market value According to Jensen and Meckling (1976), agency costs encompass three components: 1) monitoring expenses incurred by the principal, 2) bonding expenses undertaken by the agent, and 3) residual loss, which represents the monetary value of the decline in welfare experienced by the principle as a result of the agent's actions

In order to assess agency costs, it is necessary to establish a baseline of zero agency costs In the scenario where a firm is wholly owned by an individual owner-manager, agency costs are absent When departing from the baseline of zero agency costs, there is a rise in costs, which are referred to as agency costs According to Cole, Ang, and Wuh Lin (2000), the computation of this metric poses significant challenges for publicly listed companies These difficulties arise from factors such as financial limitations, regulatory requirements for the minimum number of shareholders, and other related constraints The authors contend that privately held small firms might be utilized as a means to quantify and examine agency costs

In their study, Cole, Ang, and Wuh Lin (2000) conducted research on a sample of

1708 small enterprises and discovered empirical data that substantiates several hypotheses regarding agency costs The researchers discovered that there is a considerable increase in agency costs when a corporation is managed by an outsider rather than an insider This finding aligns with the fundamental principles of the agency cost theory, which posits that such costs are expected to be greater under outsider management The presence of an external manager, who lacks direct involvement in the firm's management, poses challenges in effectively monitoring their work This necessitates incurring monitoring fees to ensure that the manager is doing their duties appropriately According to Cole, Ang, and Wuh Lin (2000), there exists an inverse relationship between the ownership share of a manager and agency expenses As previously elucidated, when a manager perceives alterations inside the organization that directly impact their own well-being, their logical response is to exercise caution while considering a high-risk course of action, hence reducing the requisite expenditure on monitoring The increase in agency costs is positively correlated with the presence of non-manager shareholders When a significant portion of shares is owned by individuals who do not hold management positions, it becomes evident that managers are unable to retain ownership of these shares Consequently, this situation aligns with the first point previously mentioned

In this study, Cole, Ang, and Wuh Lin (2000) employed a distinct approach in assessing agency costs compared to the methodology proposed by Jensen and Meckling (1976) Additionally, they utilized two alternative metrics for these costs According to Cole, Ang, and Wuh Lin (2000), direct agency costs can be defined as the monetary charges incurred by a corporation with a specific ownership and management structure, compared to a hypothetical firm with no agency costs These costs serve as a proxy for the reduction in revenue resulting from inefficient asset usage The latter phenomenon can arise from suboptimal investment choices, such as engaging in shirking behavior or putting insufficient effort to contribute to revenue generation These actions can lead to a decline in firm performance and subsequently lower corporation valuation (Demsetz and Lehn, 1985) According to Leland and Pyle (1977), it is advisable for managers to possess a significant proportion of company stock This practice serves the purpose of reducing agency expenses and also serves as a signal to the market that the company is profitable Furthermore, it conveys the managers' confidence in the company, even in situations when they possess exclusive information It is advisable for him to effectively communicate to the market why retaining ownership of the company surpasses its associated expenses.

Resource dependence theory

According to the resource dependence theory, ownership is posited as a means of establishing authority that may be leveraged to either support or challenge management, contingent upon the degree of concentration and utilization (Pfeffer & Slanick, 1979) Additionally, Fazlzadeh, Hendi, and Mahboubi (2011) asserted that the ownership structure of a corporation has a significant impact on its performance and offers valuable insights to policy makers seeking to improve the corporate governance system In a substantial number of developed nations, there exists a notable dispersion of ownership structure In contrast, in developing nations where the legal system is insufficient in protecting the interests of investors, there is a tendency towards concentrated ownership structures (Ehikioya, 2009) Therefore, the primary objective of this study is to investigate the relationship between ownership structure and firm performance

The resource dependence hypothesis advocates for the establishment of partnerships with external resources due to their ability to offer the company access to diverse sources and varied experiences This collaboration aims to enhance the company's efforts in maximizing shareholder rights and benefiting all stakeholders involved in the organization The primary emphasis lies in the integration of all seized assets, consolidating them to optimize the utilization of both the acquired resources and the associated experience This approach subsequently facilitates the attainment of the company's beneficiaries' objectives Hence, the substantial concentration of ownership among board members does not contribute to the enhancement of corporate performance (Pfeffer, 1972) In light of the above discourse, it can be posited that there exists an inverse association between managerial ownership and corporate performance Numerous academics in industrialized nations have substantiated the correlation between managerial ownership and business success within the realm of logic A negative correlation has been seen between them Conversely, this section also underscores the presence of empirical data in developing nations Numerous academics in developing nations have conducted studies to examine the correlation between managerial ownership and business performance, revealing a significant negative relationship between these two variables.

Managerial Ownership and Firm Performance

The relationship between ownership structure and business performance has garnered considerable attention in the financial literature (Jiang, 2004; Karaca & Ekşi, 2012) One of the distinguishing characteristics of modern corporations is the division between ownership and control (Uwuigbe & Olusanmi, 2012) The fact that ownership structure is a means of reducing the exposure of asymmetric information between insiders and outsiders inside capital markets is evident in the given case (Wahla et al., 2012) In a similar vein, Fama and Jensen (1983) as well as Jensen and Meckling (1976) have demonstrated that the dispersion of ownership has a notable impact on the efficacy of enterprises' profit-maximization objective, as the division of control allows corporate managers to invest effort in pursuit of their personal interests Furthermore, Demsetz (1983) posited that the ownership structure of a corporation is an inherent characteristic that serves to optimize both its profitability and overall value

According to Jensen (2000), it is argued that managers and shareholders should share a common goal of enhancing corporate value In a similar vein, the ownership structure can be classified into two main categories: widely held enterprises and firms with controlling owners or concentrated ownership The former group refers to firms whose owners do not own significant control rights (Haslindar & Fazilah, 2011) From an alternative standpoint, the resource dependence theory posits that ownership represents a form of authority that may be leveraged to either support or challenge management, depending on the degree of concentration and utilization (Pfeffer & Slanick, 1979) Moreover, Fazlzadeh, Hendi, and Mahboubi (2011) asserted that the ownership structure of a corporation has a significant impact on its performance and offers valuable insights to policy makers seeking to improve the corporate governance system In a considerable number of developed nations, there exists a notable degree of dispersion in ownership structure In contrast, it has been observed that in developing nations with a deficient legal framework that fails to adequately protect the interests of investors, there tends to be a concentrated ownership structure (Ehikioya, 2009)

2.4.1 Government Ownership and Firm Performance

The extent of government ownership in a firm can be quantified by calculating the proportion of shares held by the government The findings of the study indicate that the selection of appropriate governance structures by owners and managers is crucial for ensuring the alignment of their interests

According to the agency theory, the problem of information asymmetry in relation to the firm's value can potentially be addressed by government ownership This is because the ownership of shares by the state can serve to align the interests of owners and managers, as suggested by Jensen and Meckling (1979) In general, the government possesses the capacity to get information from many sources and enjoys accessible access to a range of financing organizations and non-state enterprises (Eng

& Mak, 2003) Furthermore, the primary objective of the government is closely tied to the overall welfare of the nation Nevertheless, as argued by Mak and Li (2001), governmental involvement in investment monitoring within the GLS context is expected to be limited The implementation of robust governance by government- linked corporations (GLCs) may face obstacles due to variables such as diminished accountability for financial performance, facilitated access to finance, limited exposure to market mechanisms for corporate control, and reduced monitoring by shareholders The examination of the relationship between government ownership and corporate performance has garnered increasing attention from researchers, both in theoretical and empirical contexts Nevertheless, the outcome remains inconclusive

From an alternative standpoint, according to resource dependence theory, outsourcing facilitates access to established sources of diverse and specialized expertise, leading to a decrease in capital costs Additionally, it serves as an effective means of controlling several variables to facilitate the establishment of a conducive and efficient working environment According to Pfeffer (1972), this phenomenon contributes to enhancing the overall functioning of the organization Therefore, the present study anticipates that the government serves as a crucial outsourcing mechanism that is both effective and efficient in enhancing the operational performance of firms The relationship between government ownership and corporate performance is expected to have a positive correlation, as suggested by both agency theory and resource dependence theory Nevertheless, there exists a dearth of empirical studies that have investigated the correlation between government involvement and corporate performance A favorable correlation was observed in the industrialized nations In contrast, there is less empirical data that suggests a detrimental correlation between government ownership and corporate performance Several studies have found that there is no statistically significant association between government ownership and corporate performance

2.4.2 Foreign Ownership and Firm Performance

The relationship between foreign ownership and bank profitability is influenced by multiple factors (Al Manaseer et al., 2012) One such factor is the capital infusion from foreign investors, which helps reduce the financial burden associated with bank restructuring (Tang, Zoli & Klytchnikova, 2000) Furthermore, it has been suggested by Bonin et al (2005) that foreign banks have the potential to provide valuable insights in risk management and exhibit a more advanced corporate governance culture, hence leading to enhanced efficiency within the banking sector Furthermore, the existence of international banks intensifies competition and incentivizes domestic banks to reduce expenses and improve operational effectiveness (Claessens & Fan, 2002) Additionally, the presence of a substantial proportion of the firm's shares being held by foreign owners may serve as a signal of the faith placed by these shareholders in the company This trust might potentially lead to a greater value of the company (NazliAnum, 2010) The opening of national economies to international trade and investment has a significant impact on corporate governance standards in these economies (Kim & Yoon, 2007).The incorporation of foreign financial institutions into emerging economies is linked to implications in two dimensions Firstly, due to their private ownership and management, foreign financial institutions exhibit stronger motivations to oversee management practices, thereby ensuring enhanced investment returns in comparison to public financial institutions Furthermore, the institutions possess advanced monitoring tools in comparison to their local counterparts in developing economies

As often indicated in this study, the agency thesis is founded upon the connection between owners and managers The division between managers and owners within modern organizations provides the framework for the functioning of agency theory Contemporary corporations are commonly distinguished by their ownership structure, which is characterized by widespread dispersion of ownership and the absence of managerial involvement by shareholders Jensen and Meckling (1976) proposed that the business might be conceptualized as a network of contractual agreements, both explicit and implicit, including several parties or stakeholders such as shareholders, bondholders, employees, and even the broader society Previous empirical research have not adequately supported this variable However, the present study posits that foreign ownership serves as a contributing factor in aligning the relationships between owners and managers, while simultaneously mitigating the agency cost that exists between them

According to Pfeffer (1972) and Pfeffer and Salancik (1978), foreign sources serve as an outsourcing mechanism that aids in the financing of a company's capital, as per the resource dependence theory Furthermore, the presence of foreign investors is a crucial determinant in facilitating the separation between owners and shareholders, as well as enhancing the company's ability to exert greater influence over management during the decision-making process Additionally, it offers well- established foreign experience that facilitates a comprehensive understanding of foreign assets Ultimately, the presence of foreign ownership contributes to the enhancement of organizations' performance The current paper presents a comprehensive analysis of many global studies that have examined the correlation between foreign ownership and business performance in both developed and developing nations Ultimately, a favorable correlation was discovered The present study initiates a comprehensive examination of the existing studies conducted in developed nations In contrast, several scholars have conducted analyses on the correlation between foreign presence and company performance in industrialized nations, although their findings indicate a lack of association between the two variables.

LITERATURE REVIEW

How ownership structure affects firms’ operation

At present, numerous independent studies exist that focus on indicators utilized for the assessment of corporate performance In their study, Santos and Brito (2012) put up a framework for assessing corporate success that encompasses seven distinct categories of variables These categories include profit, market price, growth, staff satisfaction, customer satisfaction, and efficiency The three key factors that are often considered in various contexts are the economy, the environment, and social efficiency In this research, the author employs an indicator to assess market efficiency, namely Tobin's Q index (TBQ) This index is utilized due to its ability to capture the market value of stocks and effectively reflect the market's evaluation of efficiency The operational activities of the enterprises that are listed According to Reem Heakal, economies of scale can be described as the phenomenon wherein a business experiences a reduction in average cost per unit of product when it increases its production of a specific products or service In other words, the business attains economies of scale Consequently, sizable corporations possessing cash and market dominance may exhibit superior operational efficiency compared to smaller firms During the initial phases, researchers conducted investigations to analyze the relationship between the magnitude of a company and its level of profitability The empirical findings from study indicate that regardless of the seven groups of indicators used to assess efficiency, three distinct relationships emerge: a negative correlation between scale and efficiency, a negative association between size and efficiency The presence of a positive correlation or lack thereof between the variables is contingent upon the specific temporal or spatial context of the investigation

Gürsoy and Aydoğan (2002) propose that ownership structure can be classified into two categories: concentrated ownership and mixed ownership, based on specific criteria Concentrated ownership refers to a situation when a small group of shareholders holds a significant proportion of shares in a company, so exerting a substantial influence over its operations and decision-making processes This concentration of ownership entails a higher level of exposure to risks and monitoring expenses for these shareholders Mixed ownership refers to the presence of diverse ownership ratios that are associated with specific shareholder characteristics, including the foreign ownership ratio, private ownership ratio, and state ownership ratio The aforementioned research conducted by Kiruri and Olkalou (2013), as well as Kim, Rasiah, and Tasnim (2012), discuss various types of ownership Several studies have examined the relationship between ownership structure and business performance Bilyk (2009), Aydin et al (2007), Douma et al (2006), Gurbuz and Aybars (2010), Aitken and Harrison (1999), and Konings (2001) have all contributed to this body of research These studies have found that the correlation between ownership structure and business success can vary, depending on factors such as the specific market conditions and the influence of ownership.

Impacts of Ownership structure to financial performance

In nations where there is significant state engagement in economic activity, the presence of state ownership exhibits certain features It is observed that such state ownership tends to have a detrimental effect on corporate performance, particularly when the capital representative is involved Individuals who make contributions to the company do not possess the status of shareholders within the company Agency theory and agency costs emerge due to the presence of dispersed shareholders who are represented by persons These representative shareholders may not always operate in the best interest of efficiency and the overall well-being of the organization, resulting in conflicts between ownership and management The presence of high government rank has been found to have a detrimental effect on corporate performance

In contrast, foreign ownership refers to the act of possessing or controlling assets by private investors from foreign countries The presence of foreign investors holding equity capital in domestic companies has been observed to positively impact company performance, as their active involvement and heightened sense of responsibility in company operations contribute to improvements The company's performance is enhanced by the cash infusion from overseas stockholders, hence yielding benefits

A high financial leverage ratio indicates that the firm has a propensity to acquire greater levels of debt Consequently, the company becomes more susceptible to the influence and oversight of creditors, thereby enhancing its overall operational efficiency and profitability ratio There is a possibility of a rise in the company's return on assets (ROA) Nonetheless, the correlation between the two variables is contingent upon the degree of information transparency exhibited by nations, as well as the specific characteristics of borrowing endeavors undertaken by corporations within these nations In developed markets, borrowing activities mostly involve direct borrowing from the financial market by issuing debt instruments A mature market is characterized by enhanced information openness and increased ease in monitoring the operations of a company's creditors The utilization of the secondary market for debt trading facilitates the ongoing evaluation of debt quality by both the company and its creditors, enabling prompt modifications to business operations and the company's overall performance

The company is also superior in accordance with the given context In the case of these countries, it is postulated that there exists a positive correlation between financial leverage and overall business performance In contrast, in nations whose borrowing operations predominantly stem from loans obtained from commercial banks (Vietnam serves as an illustrative case), loan approval may not be contingent upon the bank's own performance The capital obtained through loans might experience growth in organizations with suboptimal operating efficiency, as it is influenced by various other factors in addition to the company's performance Furthermore, the lack of comprehensive oversight over the post-lending operations of commercial banks in these nations further enhances the likelihood that businesses may not prioritize the proper and efficient utilization of loans, thereby neglecting the intended purpose of the loan Hence, in the context of developing nations such as Vietnam, it is hypothesized that firms exhibiting elevated levels of debt may potentially indicate inefficiency inside these organizations.

Impacts of Ownership structure on operating efficiency

In a theoretical sense, the ownership structure inside a company is a reflection of the comprehensive connection between the rights and duties associated with the owner's capital contribution Consequently, this structure plays a pivotal role in shaping various interactions within the realm of production and commerce This study examines the distribution relationships of items, together with the economic rewards associated with production and business activities Numerous research conducted worldwide have examined the influence of ownership structure on stock market values, encompassing a diverse range of perspectives In their study, Ezazi et al (2011) conducted an analysis to examine the influence of various dimensions of ownership structure, including individual shareholders versus institutional shareholders, internal shareholders versus external shareholders, as well as concentrated ownership versus dispersion of ownership, on the stock prices of companies listed on the Tehran stock exchange The findings suggest that the dominant shareholder exerts a greater influence on stock prices, while companies with a higher number of shares owned by individual owners exhibit somewhat diminished impact This observation holds true, considering the other variables at play The other factors do not exhibit any correlation with stock prices

In a study conducted by Alzeaideen and AL-Rawash (2014), a research model was developed to assess the stock prices of 51 firms in Jordan for the period spanning from 2005 to 2009 Two empirical models employed in this study are the small average approach, often known as ordinary least squares (OLS), and the least feasible generalized average, also referred to as seemingly unrelated regression (SUR) The findings indicate that there is an absence of a statistically significant correlation between individual shareholders and institutional shareholders in respect to stock price variations This implies that these two factors do not exert a substantial influence on stock prices Numerous studies have been conducted globally on this subject matter; nevertheless, in the context of Vietnam, research in this area remains relatively nascent, with a limited number of experts exploring it

In a study conducted by Le Tan Phuoc (2017), the author examined the relationship between ownership structure and the performance of listed firms The study utilized data from listed enterprises in Vietnam during the period of 2009-2016 Regards to the matter at hand, the author employed the descriptive statistics approach to evaluate quantitative data, focusing on a dependent variable that measures business performance The findings indicate that enterprises with higher levels of institutional ownership have a significant influence on both value and operational efficiency The Board of Directors is a significant determinant of a business's stock market price, exerting substantial impact in terms of organizational structure and magnitude According to Morey et al (2008), the implementation of a robust board structure inside a corporation can effectively mitigate conflicts of interest that may arise between directors and shareholders This is achieved by ensuring a balanced flow of information among all relevant parties involved In a study conducted by Rouf (2011), as well as by Amarijit and Neil Mathur (2011), it was determined that firms ought to limit the number of members on their Board of Directors The researchers found that an increase in the number of board members resulted in a loss in corporate value, which in turn had a negative impact on stock market prices It is anticipated that there would be a decline in the value of corporate bonds

Furthermore, the presence of state ownership has an impact on stock market values The study conducted by Ben, Nasr, and Cosset (2014) reveals that a significant correlation exists between high levels of state ownership and a diminished level of transparency within the corporate information ecosystem This phenomenon poses challenges in gathering particular information pertaining to individual companies The study conducted by Nguyen Thi Minh Hue et al (2016) examined the impact of State ownership on the stock prices of companies listed on the Vietnamese stock market The findings of the research indicate that State ownership has a beneficial influence on stock prices

Additionally, the influence of the company's primary shareholder on the price of the stock market has been examined Two empirical studies conducted by Brockman and Yan (2009) and Dang Tung Lam (2016) have demonstrated that the presence of significant shareholders in a firm contributes to enhancing corporate governance practices and augmenting the quality of information released to the public Consequently, this phenomenon exerts a favorable influence on stock prices within the market

The enterprise scale variable is among the factors that exert an influence on the price of the stock market According to a study conducted by Sharif et al (2015), there is evidence to suggest that the size of a corporation has a beneficial influence on stock prices This implies that enterprises possessing substantial financial capacity, significant competitiveness, and a strong market standing will readily attract substantial cash from investors through stock prices Greetings or Hello

One notable aspect pertains to the diverse perspectives around the influence of the financial leverage index on stock market prices, with particular emphasis on three distinct viewpoints According to Salenejad and Brave's (2010) research findings on the influence of financial indicators on food sector firms, one perspective posits that the financial leverage ratio has a minimal impact The second perspective highlights the favorable impact of financial ratios on stock prices, as seen by the findings of Mohammad Reza Kohansal's (2013) research This effect is attributed to the financial leverage within the industry The food industry exerts a substantial impact on stock market pricing The third perspective posits that financial ratios exert a detrimental influence on stock prices Miser's (1977) study highlights the positive correlation between corporate value and lower levels of financial debt Furthermore, it is widely acknowledged by numerous studies that return on total assets (ROA) exerts a significant influence on stock prices The profitability ratio provides insight into the efficiency with which a company's assets generate profit, allowing individuals to ascertain the amount of profit yielded per dollar of assets A positive correlation exists between the return on assets (ROA) and the efficiency with which a corporation utilizes its assets The study conducted by Idawati and Wahyudi (2015) reveals that there exists a positive correlation between Return on Assets (ROA) and stock prices Furthermore, the research findings indicate that ROA has a substantial impact on stock prices

Furthermore, the establishment year of a business is a significant determinant of its stock price A company that has been in operation for an extended period, equipped with an efficient operational framework, innovative business strategies, and a comprehensive understanding of the market, is more likely to offer high-profit products that effectively cater to customer satisfaction Consumers that possess a strong affinity towards a brand have the potential to establish a favorable image for the brand within the market, thereby leaving a lasting positive impact on potential investors.

Empirical lessons

Prior research conducted in frontier markets has examined the correlation between ownership and firm profitability However, the findings of these studies have shown considerable heterogeneity

In Leon's (2013) study, an examination is conducted on the correlation between the independent variable Ownership, which is denoted as the ratio of total debt capital to total common equity (D/E), and the dependent variables of return on equity (ROE) and return on assets (ROA) for publicly traded businesses in Sri Lanka This research used the Pearson correlation analysis technique and the Ordinary Least Squares (OLS) model to examine the association between ownership and profitability The findings of the research indicate that enterprises characterized by a substantial debt capital ratio in their affiliated entities are likely to have unfavorable business outcomes Mule and Mukas (2015) saw same findings in their study of enterprises operating in Kenya In contrast to the study conducted by Leon (2013), Mule et al (2015) included additional control factors into their research model, such as the concentration of equity capital and tangible assets The present research utilizes Pearson correlation analysis and multivariate analytic techniques to demonstrate that collaboration has a detrimental effect on firm earnings, as shown by two indicators: return on assets (ROA) and Tobin's Q coefficient (Tobin's Q) In their research on the correlation between ownership and company profits, Margaritis et al (2010) also addressed the influence of stock concentration and ownership structure on profitability The findings derived from the ordinary least squares (OLS) regression model indicate a negative relationship between stock concentration and financial leverage in enterprises Additionally, this research also addressed the influence of ownership structure on profitability, however the experimental findings did not attain statistical significance Research findings support the notion that enterprises exhibiting substantial profitability often exhibit a propensity for using significant levels of loan capital within their corporate alliances (Margaritis et al., 2010)

While previous authors mostly used the debt-to-total-assets ratio as a representation of financial leverage, Shubita and colleagues (2012) conducted a study to examine the impact of different types of debt on firm profitability The author employs three indicators reflecting the financial leverage of a firm, including the total debt to total assets ratio (D/A), the long-term debt to total assets ratio (LTD/TA), and the short- term debt to total assets ratio (STD/TA) In their study, Shubita and ctg (2012) used the ordinary least squares (OLS) regression model to analyze the impact of corporate social responsibility (CSR) on firm profitability, as represented by return on equity (ROE) The research findings indicate that in Jordan, there is a negative relationship between the debt-to-equity ratio of firms and their profitability Vatavu (2015) subsequently further developed this model by including other control variables, including tangible assets, business risk, and liquidity In this study, three regression methods were used, including ordinary least squares (OLS) regression, fixed effects model, and random effects model According to Vatavu (2015), it was concluded that the total debt and short-term debt of listed companies in Romania have a negative impact on the operational performance of businesses, while the long-term debt does not have sufficient information to draw a conclusion

Certain writers argue that each index that represents ownership should be treated as an independent variable In their study, Mouna and ctg (2017) used two indicators, namely D/A and D/E, to examine the influence of employee-related variables on firm profitability, as measured by ROE and ROA In addition to the independent factors, the author incorporates control variables such as the firm size and industry The findings of the ordinary least squares (OLS) regression analysis indicate that the variables representing the debt-to-assets ratio (D/A) and the debt-to-equity ratio (D/E) have a statistically significant negative effect on the profitability of publicly traded enterprises in Morocco In their study, Davis and colleagues (2018) included two additional indices, namely STD/TA and LTD/TA, to incorporate the enterprise's partners into the existing model In their study, Davis and colleagues (2018) use the Fixed Effect regression model to assess the influence of ownership on firm profitability The findings of the research indicate that there exists an inverse relationship between the profitability of firms in Nigeria and the ratios of debt to assets (D/A) and long-term debt to total assets (LTD/TA) Conversely, the ratio of short-term debt to total assets (STD/TA) has a favorable impact on profitability

In addition to conventional linear regression models, some researchers have examined the non-linear association between ownership and business earnings, specifically focusing on a u-shaped link This perspective is substantiated by the works of Le and ctg (2017) as well as Nguyen (2020) In their study, Le and ctg (2017) used the square of the indices D/A, STD/TA, and LTD/TA as independent variables in the linear regression models Regression analysis involves the use of three distinct models, namely Ordinary Least Squares (OLS), Fixed Effects, and Random Effects, in order to conduct the study The findings of the study provide confirmation that a non-linear association between ownership and profits is seen just when the independent variables are D/A and STD/TA, with the requirement that the independent variable must be ROE In contrast, Nguyen (2020) use the total debt to total assets ratio as the only indicator for representing ownership The findings derived from the ordinary least squares (OLS) regression analysis indicate the presence of a u-shaped connection across all models, wherein the dependent variables, namely return on equity (ROE) and return on assets (ROA), are included Research examining the correlation between ownership and firm earnings in the Vietnamese market has shown a wide range of findings The existing body of research indicates that collaborative efforts have been shown to have a detrimental effect on corporate profitability, as demonstrated by studies conducted by Le et al (2017), Nguyen (2020), Nguyen et al (2020), and Nguyen et al (2006) Nevertheless, it is worth noting that there exist notable disparities in the duration of observation periods among various research In most cases, these observation periods tend to be rather brief and are primarily focused on the cohort of enterprises that are publicly listed on the Ho Chi Minh City Stock Exchange The selection of listed firms does not provide a comprehensive representation of the overall trend in the Vietnamese market, therefore making it difficult to draw a definitive conclusion In addition to the empirical investigations conducted by Le and colleagues (2017) and Nguyen (2020), the majority of extant research mostly use the assumption of a linear association between ownership and company earnings.

METHODOLOGY

Hypothesis development

Based on the aforementioned study, it can be inferred that collaboration tends to have a detrimental influence on the profitability of firms in the majority of frontier market nations In other words, an increase in the use of borrowed capital by businesses is likely to result in a reduction of their profits The term "enterprise" refers to a business organization or venture that is typically characterized by its

Hypothesis 1: There is an unfavorable correlation between the presence of ownership and the profitability of listed firms in the Vietnamese market

This study aligns with the findings of earlier researchers, like Margaritis et al (2007), Margaritis et al (2010), and Dalci (2018), in suggesting a potential reversal of cause and effect in the link between the aforementioned parameters

Hypothesis 2: A reverse causation may be seen in the linear association between ownership and company profitability

Several studies have shown that the kind of corporate ownership has a discernible influence on the association between ownership and firm earnings (Margaritis et al., 2007; 2010) This article aims to further investigate and enhance the comprehension of the impact of ownership structure not only on financial gains but also on the stakeholders of the organization

Hypothesis 3: The ownership structure of listed firms in Vietnam has influence on the shareholders and profitability

Several empirical research have shown evidence of a u-shaped link between collaboration and company earnings Notable examples include the studies conducted by Margaritis et al (2010), Le et al (2017), Dalci (2018), and Yang et al (2010) Nevertheless, the extent of study conducted in the Vietnamese market remains rather constrained, leading to divergent findings Consequently, there is a pressing need to do more investigations including a bigger sample size and an extended temporal scope

Hypothesis 4: The association between enterprise ownership and profitability exhibits a non-linear U-shaped pattern.

Model

This study explores the relationship between ownership and profits of listed companies in Vietnam Based on the theories and empirical studies of Margaritis et al (2007, 2010), Le et al (2017) and Dalci (2018), the author builds a research model as follows: Linear relationship between Ownership and business profits:

• Profit: represents the business's profit including three basic indicators PBIT, ROE and ROA In which PBIT, ROE and ROA are respectively profit before interest and tax, return on common equity and return on total assets

• CAP: represents the enterprise's ownership, including two basic indicators D/E and D/A In which, D/E and D/A are respectively the ratio of total debt to total shareholder equity and the ratio of total debt to total assets of the enterprise

In addition, the study also uses control variables including business size (size), tangible assets (tang), development speed (growth), ownership structure of the business including state, foreign ownership and domestic ownership

• Size is the size of the enterprise calculated by the logarithm of total assets (Dang et al., 2017)

• Tang is the ratio of tangible assets to total assets of the enterprise (Margaritis et al., 2007; 2010; Phillips et al., 2007)

• Growth is the growth rate of a business expressed by sales growth rate (Margaritis et al., 2010)

• Enterprise ownership structure is the percentage of common equity holdings in enterprises by three main groups of entities as follows: state ownership, foreign and domestic ownership.

Data

In order to gain insights into the correlation between collaborative efforts and financial gains of publicly traded firms in the Vietnamese market, this research endeavor has undertaken the collection of data from a total of 587 listed businesses The data has been sourced from both the Hanoi Stock Exchange and the Ho Chi Minh Stock Exchange, which are the two primary stock exchanges operating in Vietnam The present study focuses on the Ho Chi Minh City Stock Exchange throughout the period spanning from 2010 to 2022 The dataset include all publicly traded corporations, excluding financial institutions, due to two primary rationales: (i) Financial institutions constitute a distinct category of enterprises primarily engaged in providing financial services The circulation and distribution of currency to investment projects that have the potential to generate profits is facilitated by a system (Casu, Girardone, & Molyneux, 2006) Additionally, financial institutions exhibit distinct ownership in comparison to non-financial organizations, particularly in terms of their high debt capital ratio (Abdullah et al., 2019).

Methodology

This research employs multiple linear regression analysis on panel data to ascertain the correlation between ownership and corporate earnings OLS, fixed effects, random effects, and generalized method of moments (GMM) models are often used regression models for panel data analysis (Le et al., 2017) According to Hsiao (2003), the ordinary least squares (OLS) model is considered as the optimal linear unbiased estimation model However, the application of this model is contingent upon several stringent assumptions that are challenging to ensure in empirical investigations Consequently, it may fail to accurately capture the underlying nature of the relationship, as noted by Le et al (2017) and Abdullah et al (2019) The use of Fixed effect and Random effect models has been identified as a potential solution to address the limitations of the Ordinary Least Squares (OLS) model, as suggested by Le et al (2017) and Abdullah et al (2019) According to Hsiao (2003), the Fixed Effect model considers the effects of individual differences as constant variables across time, while the Random Effect model treats these factors as varying randomly over time According to Islam and Khandaker (2015), the aforementioned two models have the capability to mitigate the impact of serial correlation on the study model However, the use of these two models does not completely mitigate the issue of endogenous variables, which is one of the potential factors that might result in imprecise regression outcomes (Le et al., 2017) The resolution of this issue will be achieved by the use of the Gaussian Mixture Model (GMM) framework in the examination, as proposed by Le et al (2017) Hence, this research endeavor will use the aforementioned four regression models to ascertain the correlation between ownership and corporation earnings.

ANALYTICAL RESULTS AND DISCUSSION

Descriptive statistics

The variables in the study model are described by the author based on the data obtained, and the corresponding findings are shown in Table 1 Based on the data shown in Table 1, it can be seen that the mean PBIT (Profit before Interest and Taxes) for publicly listed companies in Vietnam is at 196.8 billion Vietnamese Dong per year Nevertheless, there exists a significant disparity in PBIT ticket values among various firms, as seen by a standard variation of around 914.9 billion VND Among these figures, the highest value amounts to 17,991 billion Vietnamese Dong (VND), while the lowest value stands at -2,375 trillion VND This phenomenon demonstrates a significant disparity in profitability between specific business groups and publicly traded companies with high market capitalization The ROE index now stands at 33.12%, with a standard deviation of around 56.3% This signifies a comparatively elevated rate of return in relation to the original capital investment The consistency of asset utilization efficiency among listed enterprises in Vietnam is shown by a low relative standard deviation of 17.3% and an annual return on total assets (ROA) of 8%

Table 5-1: Descriptive statistics of dependent variables

Variable Nbr Obs Mean Median Std dev Minimum Maximum

Contemporary enterprises operating in Vietnam have a propensity for using a substantial level of borrowed capital inside their corporate alliances The ratio of debt to equity, denoted as D/E at 281.7%, indicates that equity constitutes a relatively little proportion of the overall capital structure of the organization Moreover, it is noteworthy that the debt-to-assets (D/A) ratio of these enterprises is at 49.91%, indicating that the aggregate debt of Vietnamese firms accounts for about 50% of their total assets The variable indicating the proportion of fixed assets to total assets in Vietnamese listed businesses suggests a tendency towards lower utilization of fixed expenses In relation to the growth rate, Vietnamese enterprises are now experiencing an annual average revenue growth rate of 84% However, it is important to note that this figure remains very low when compared to other market segments

Table 5-2: Descriptive statistics of Independent variables

Variable Nbr Obs Mean Median Std dev Minimum Maximum

Upon examining the corporate ownership structure in Vietnam, it is evident that listed firms are mostly owned by domestic organizations and people, accounting for around 76.4% of ownership State ownership is the second highest component, accounting for around 15.2% of ownership rate In conclusion, the proportion of ownership held by foreign persons and organizations is on average just below 8% This observation indicates that the involvement of foreign organizations and people in the management and control of Vietnamese firms remains relatively restricted

Table 5-3: Descriptive statistics of control variables

Variable Nbr Obs Mean Median Std dev Minimum Maximum state 5854 0.1525 0.1426 0.2371 0.0000 1.0000 foreign 5854 0.0797 0.8002 0.1329 0.0000 1.0000 domestic 5854 0.7626 0.7532 0.2588 0.0000 1.0000

In respect to the degree of correlation between variables within the study model, it is seen from Table 4 that the majority of variables exhibit a generally weak level of connection This is shown by the fact that the correlation coefficients for all variables fall below the threshold of ±0.5 Put differently, the presence of multicollinearity in the model is reduced (Hair et al., 1995)

PBIT ROE ROA D/E D/A size tang growth state foreign domestic PBIT 1.0000

D/A -0.4510 -0.4802 -0.2219 -0.3628 1.0000 size 0.3627 0.3933 -0.1669 -0.2190 0.4927 1.0000 tang -0.2722 0.1091 -0.1734 0.4929 -0.4768 0.1974 1.0000 growth 0.2395 0.2534 0.1000 -0.2406 -0.0360 -0.3859 -0.4292 1.0000 state -0.4007 -0.1717 -0.3283 0.2850 -0.0805 0.0642 -0.3857 0.1401 1.0000 foreign 0.2938 -0.3549 0.2764 -0.4907 0.1883 -0.1813 0.2625 0.1397 0.2814 1.0000 domestic -0.1087 -0.0095 -0.1090 -0.1487 0.0337 0.1847 -0.1569 -0.0573 -0.3257 -0.1028 1.0000

Regression results

Firstly, with regards to the correlation between ownership and corporate profits, the findings presented in Table 4-5 demonstrate a negative association between the debt- to-total assets ratio and corporate profits across all three profit measures The D/A ratio demonstrates that a mere 1% rise in the debt ratio results in a significant reduction of 30% in PBIT, 23.9% in ROE, and 12.1% in ROA This negative association is statistically significant at the 1% and 5% significance levels The margin shows a much elevated degree of confidence However, when ownership are denoted by D/E, the regression outcomes demonstrate a varied association in the presence of both positive and inverse situations, albeit the models do not exhibit statistical significance Hence, the current evidence is insufficient to establish a definitive relationship between the presence of ownership, as shown by the D/E index, and the financial gains of enterprises

Table 5-5: Impacts of capital and ownership structure on business performance

Note: *, **, and *** are significant at 10%, 5%, and 1% level

Furthermore, the regression analysis provides evidence supporting a causal reversal in the association between ownership and company earnings Organizations that exhibit elevated levels of Profit Before Interest and Taxes (PBIT) and Return on Assets (ROA) tend to have a propensity for using lower amounts of loan capital in their Capital Structure (as seen in Table 4-6) Notably, the ROA metric effectively captures and reflects this observed pattern According to the D/A index, the influence of PBIT is minimal, approaching zero However, a rise of 1% in ROA leads to a corresponding reduction of around 9.1% in the use of loan capital by firms In a manner similar to the D/E index, it can be shown that a 1% rise in PBIT is associated with a little fall in D/E ratio Conversely, a 1% increase in ROA is found to result in a substantial reduction of 24.7% in the D/E ratio Nevertheless, there is a distinct pattern seen in the relationship between Return on Equity (ROE) and two financial ratios, namely Debt-to-Equity (D/E) and Debt-to-Assets (D/A) Specifically, when

ROE experiences a 1% rise, D/E tends to exhibit a corresponding increase of 19.6%, while D/A shows a concurrent increase of 8.3% Therefore, the use of borrowed capital has a tendency to provide advantages for shareholders in terms of enhancing return on equity However, it has an overall adverse effect on both profit before interest and taxes (PBIT) and return on assets (ROA)

Table 5-6: Impacts of business performance and ownership structure on capital structure

Note: *, **, and *** are significant at 10%, 5%, and 1% level

Thirdly, with respect to the influence of ownership structure on company earnings, the findings from research studies provide a varied range of opinions The influence of firm ownership structure on return on equity (ROE) is shown to be statistically significant at a 1% significance level, indicating a strong positive association between these two variables According to Table 5, there is a positive relationship between a rise in state ownership and an increase in return on equity (ROE) by 11.1% Similarly, an increase in foreign ownership is associated with a higher ROE of 15.4% The statistically significant association in the ROA index is seen solely in the case of state ownership and foreign ownership The return on equity (ROE) will see a respective rise of 6.6% and 9.2% if there is a 1% increase in state ownership and foreign ownership The PBIT (Profit before Interest and Tax) index is unaffected by this element Moreover, it is observed that companies with a significant amount of foreign stock tend to rely more on borrowed capital, as shown by the negative correlation between this ownership structure and the ratios of debt to equity (D/E) and debt to assets (D/A), as seen in Table 4-6

Table 5-7: The u-shaped relationship of ownership and corporate profits with

Note: *, **, and *** are significant at 10%, 5%, and 1% level

Furthermore, it is important to note that there is really a u-shaped connection present in the correlation between ownership and company profitability The findings of this study exhibit resemblance to the research conducted by Le et al (2017) and Nguyen (2020) Nevertheless, it is evident that this study distinctly identifies a u-shaped association The study conducted by Le et al (2017) revealed a link under certain situations However, the present analysis demonstrates the presence of a u-shaped association in a majority of research models, particularly when taking into account ownership including D/A Table 4-7 presents the correlation coefficients of D/E and D/E_sqr in both models, revealing that ROE and ROA exhibit inverse relationships, indicating the presence of a u-shaped pattern

Table 5-8: The u-shaped relationship of ownership and corporate profits with

Note: *, **, and *** are significant at 10%, 5%, and 1% level

Likewise, it can be shown from Table 4-8 that a u-shaped correlation is evident across all three measures, namely PBIT, ROE, and ROA The three indicators, namely PBIT, ROE, and ROA, exhibit a correlation coefficient of D/A and D/A_sqr that has the same sign, indicating a consistent shifting trend across all three variables Initially, there is a general downward trend seen in all three indices However, after these indexes hit their maximum degree of decline, they subsequently experience a comeback.

Discussion

The negative correlation between capital structure and corporate profits can be elucidated through the lens of agency theory, which posits the presence of two primary categories of conflicts: conflicts between current shareholders and external shareholders, and conflicts between shareholders and enterprise creditors The use of financial leverage has the potential to mitigate the adverse consequences associated with agency theory due to the imposition of debt obligations on management, hence inducing pressure to fulfill interest and principal repayment obligations (Jensen, 1986) Nevertheless, the use of loans that constitute a significant component of a corporation's capital structure exposes the organization to heightened risk and exacerbates potential disputes with creditors (Jensen, 1986) Hence, Jensen (1986) proposed that the most favorable capital structure for a company is the one in which the expense associated with borrowed capital is equivalent to the earnings derived from using this particular type of capital Nevertheless, it is worth noting that in Vietnam, the disparity in advantages enjoyed by the board of directors and shareholders is rather modest This may be attributed to the fact that a significant majority, around 98.7%, of organizations in Vietnam fall under the category of small and medium-sized enterprises (JICA, 2019) Hence, the advantages derived from using borrowed capital as a means to mitigate agency costs are insufficient to counterbalance the expenses and risks associated with its use

There exists a positive correlation between the fixed assets variable and the financial leverage variable, indicating that organizations with a greater proportion of collateral assets tend to exhibit a larger financial leverage ratio The aforementioned assertion has been substantiated by the research conducted by Qigui Liu et al (2011), while it stands in opposition to the findings of Do Xuan Quang and Wu Zhong Xin (2013) According to the study conducted by Do Xuan Quang and Wu Zhong Xin (2013), it is evident that the variable representing tangible assets (TANG) has a negative influence on the variables TDA and SDA, with statistical significance levels of 5% and 1% respectively Nevertheless, the TANG variable does not exhibit statistical significance in relation to the LDA variable This statement elucidates the objective truth pertaining to the attributes of long-term debt in Vietnam, whereby the loans used in the capital structure of Vietnamese firms mostly consist of short-term debt Based on the author's study findings, it can be concluded that fixed assets have a significant beneficial impact on financial leverage, as shown by a significance level of 1% This aligns with the current scenario: throughout the process of loan evaluation, financial institutions often prioritize the examination of enterprises' fixed assets Enterprises with substantial, permanent infrastructure tend to get heightened attention There are many benefits associated with the acquisition of loans The implicit assurance of a firm's capacity to fulfill its financial obligations in the event of insolvency is provided by the presence of fixed assets inside the business

Based on the findings of Liu et al (2011), it is suggested that the degree of state ownership (STATE) is likely to exert a positive influence on financial leverage However, the author's analysis reveals that joint stock commercial banks with state ownership exhibit a significant negative impact on the financial leverage ratio, as evidenced by a 1% level of significance The study findings of the author align with those of Qigui Liu and his colleagues The source cited is from the year 2011 The presence of State ownership is expected to have a favorable influence on the level of financial leverage There exists a positive correlation between the State ownership ratio and the debt usage ratio The findings of Liu et al (2011) indicate that State ownership has a favorable influence on business leverage Additionally, the author contends that State-owned firms possess a propensity to use their advantageous position, hence facilitating easier borrowing compared to non-state enterprises The findings of this study align with the research conducted by Vy et al (2015), which demonstrates a positive relationship between the state ownership ratio and leverage Consequently, the study suggests that State-owned enterprises may encounter reduced bankruptcy risks due to the backing provided by the State This support enables these enterprises to enhance their leverage ratio while also restricting the involvement of numerous shareholders There is a subset of individuals who continue to exhibit a preference for using debt as a financial instrument

The variable representing growth has a statistically significant positive effect on financial leverage across all three regression models, at a significance level of 1% The regression analysis reveals a positive relationship between the growth rates of enterprises and their debt ratios This observation aligns with the principles of the capital structure trade-off theory and agency costs, since it suggests that as a firm's assets expand, it is likely to provide favorable business outcomes and afterwards enable the company to take on a substantial amount of debt Hence, an accelerated growth in the total assets of a firm indicates a propensity for an expansion in its size, thereby facilitating the company's access to capital and resulting in a rise in the financial leverage ratio From an economic standpoint, the evidence presented is not only theoretically sound but also supported by empirical findings from the research conducted by Do Xuan Quang and Wu Zhong Xin (2013) Their study examined the influence of ownership structure and capital structure on the financial performance of firms in Vietnam

The variable of size has a statistically significant positive influence on the financial leverage of enterprises, as determined by a significance level of 1% This implies that when the company's size expands, its use of financial leverage also grows The findings of this study align with the research conducted by Do Xuan Quang and Wu Zhong Xin (2013) in their examination of firms listed on the Ho Chi Minh City stock market, as well as the study conducted by Qigui Liu, Gary Tian, and Xiaoming Wang (2011) in their analysis of non-financial enterprises in China The findings of this research suggest that larger organizations are likely to have more ease in obtaining money compared to smaller companies This advantage is particularly apparent when it comes to accessing long-term sources of financing According to a study conducted by Do Xuan Quang and Wu Zhong Xin in 2013,

The ownership structure of a business is indicative of the extent to which various economic sectors are involved in the firm, including governmental ownership, foreign ownership, and private ownership The findings of this study contradict the findings of Majumdar et al (2010), which suggested that there is an inverse relationship between the state ownership ratio of firms and their profitability In the context of Vietnam, it can be seen that a higher proportion of state ownership tends to have a favorable influence on business profitability This phenomenon may be elucidated by examining the managerial capabilities of owners who represent state capital, as well as the preferential policy measures that are in place for these firms Moreover, enterprises characterized by a significant proportion of foreign capital ownership have superior return on assets (ROA) and return on equity (ROE) These enterprises possess the benefit of being able to use contemporary management frameworks and get cutting-edge scientific and technological advancements from international sources This facilitates the enhancement of tactics, production, profitability, and company efficiency for these enterprises In contrast to the aforementioned two modes of ownership, the influence of ownership by domestic entities and persons seems to be characterized by a greater degree of unpredictability in situations when there are both positive and negative associations This observation substantiates the existence of a substantial disparity in the operational efficacy and corporate governance practices inside this collective entity

The link between ownership and company profits exhibits a U-shaped pattern, which may be attributed to the interplay between expenditures associated with loan capital use and its impact on business operations The use of borrowed money incurs expenses and imposes financial obligations on enterprises, hence exerting a detrimental impact on their profitability Nevertheless, the imposition of interest and debt obligations serves as a catalyst for the efficient use of resources, particularly the capital, within a commercial context A higher rate of asset rotation enhances capital efficiency and yields greater advantages for organizations The existence of a U- shaped link between ownership and earnings necessitates that firms strive to strike a delicate equilibrium between these two variables The optimum capital structure for a firm is determined by identifying the point at which the total value generated from the use of loan capital is both positive and maximized.

CONCLUSION

Conclusion

This research demonstrates a negative correlation between capital structure and company profits, indicating that an increase in the debt capital ratio within the capital structure leads to a decrease in the profitability of the firm Furthermore, there exists a phenomenon of cause and effect reversal in the association between capital structure and firm earnings This demonstrates a strong correlation between capital structure and profitability The ownership structure of a firm exerts influence on both the profitability and overall performance of the business Businesses that have a significant degree of state ownership and foreign ownership often demonstrate superior profitability and overall company success The findings of this research diverge from those reported by Majumdar et al (2010) and Margaritis et al (2010) There is a subsequent increase in corporate profits as the level of loan capital continues to rise To a certain degree, it is anticipated that there will be a resurgence in earnings.

Implication

According to the findings of this study, it is important for publicly traded firms to establish suitable rules on the use of loan capital in order to effectively support their production and commercial operations The inverse link between capital structure and corporate profitability suggests that organizations should choose for a harmonious loan ratio in order to maintain a balance between expenses and earnings derived from using financial leverage Furthermore, loans serve as a catalyst for corporate management boards to optimize the use of financial resources in order to enhance production and commercial operations This observation provides more evidence regarding the significance of loan capital within an organization's capital structure However, it is crucial to note that the specific ratio of loan capital may vary based on variables such as the financial capabilities of the business, industry characteristics, and the economic situation The prevailing attributes of small and medium firms (SMEs) suggest that the extent of conflict elements inside and outside these enterprises is presently limited In the future, as firms continue to grow and attract investments from many sources, the concern over conflicts of interest will become more pronounced Hence, using a strategy of significant financial leverage may be seen a suitable approach for resolving this issue

This research has effectively addressed all the originally posed inquiries; nonetheless, it is not exempt from the following constraints: (i) Numerous firms were excluded from the sample due to insufficient maximum observation counts The result drawn in this study is likely to properly represent the overall market trend due to the extensive time period of at least eight years analyzed However, it is important to note that the model presented by the author does not account for many other factors that also influence the primary dependent variables Therefore, more research is necessary to complement and enhance the suggested model The author acknowledges that the study has several limitations; yet, these shortcomings also serve as potential avenues for further research.

Recommendation

The findings of this study examining the influence of ownership structure on the financial leverage of firms listed on the HOSE stock market indicate that ownership structure characteristics, such as state ownership, have a significant effect The financial leverage of the firm is considerably impacted Moreover, in order to ascertain the suitable financial leverage ratio for any organization, it is essential to consider the following factors:

The present inquiry pertains to the distinctive attributes of each corporation, including their size, collateral, profit, and development rate

• Larger-scale corporations have the capacity to use a greater degree of financial leverage ratio in comparison to smaller-scale enterprises

• Companies that generate substantial profits often have a tendency to use minimal levels of debt, as they emphasize using their own resources rather than relying on external borrowing from financial institutions

• In the case of rapidly expanding enterprises, a greater debt ratio may be deemed acceptable

The ownership structure of any corporation encompasses several characteristics, including the ownership ratio of state or foreign investors

The empirical findings indicate that the presence of state ownership has a favorable impact on the financial leverage of publicly traded firms Hence, in order to enhance operational efficiency, expand output, and improve capital accessibility, it is imperative for enterprises to undertake ownership restructuring, particularly those with state control, with the aim of reducing the proportion of state ownership This measure has the potential to enhance the operational efficiency of publicly traded corporations, therefore facilitating their ability to enhance their financial capabilities via external borrowing Consequently, facilitating the advancement of economic growth

The evaluation of operational capacity has significant importance in making capital financing choices for a firm, since it involves considering the fundamental components included in the financial statements of any organization This research delves into the influence of ownership structure on financial leverage, aiming to provide capital sponsors and banks with valuable insights for making informed loan choices pertaining to enterprises Therefore, besides from taking into account collateral assets, profitability, and firm size, banks and sponsors have the ability to make loan choices based on variables related to state ownership The consideration of state ownership in business finance choices has gained significant importance in recent years The inclusion of state ownership as a factor enables banks to access a greater pool of reference material pertaining to the operational status and profitability of state-owned enterprises in comparison to their non-state counterparts

Vietnam's legal system is based on a civil law framework, although its economy is distinguished by a significant degree of state ownership In nations that adhere to civil law systems, the presence of state ownership in firms serves as a conduit for political involvement, so diverting attention away from the primary objective of generating company profit In recent years, state-owned enterprises have garnered attention due to their poor commercial performance, including significant financial losses The efficacy has not reached the anticipated outcomes The formation of state-owned firms, particularly economic groupings and state-owned corporations, is mostly driven by administrative choices rather than economic, technological, or other relevant considerations In accordance with the established economic principles governing the market In recent years, the Vietnamese government has implemented policies aimed at fostering the growth of the institutional environment and diminishing state intrusion As part of these efforts, the government has developed measures to incentivize the equitization of state-owned firms In the context of international integration, it is essential to diversify the funding sources of local enterprises in order to enhance their financial and operational capabilities.

Further direction for future studies

In addition to examining the correlation between state ownership and financial leverage, it would be valuable to explore the association between foreign ownership, domestic individual ownership, and financial leverage, provided that such investigation is grounded in a robust theoretical framework and supported by statistically significant empirical evidence This study has the potential to enhance the examination of macroeconomic factors that influence a firm's financial leverage by including more independent variables into the model, such as variables related to GDP, market interest rate risk, and other relevant studies Future study pertaining to the correlation between ownership structure and financial leverage has the potential to assist organizations in making informed choices about their capital structure, taking into account the specific features of their ownership structure By conducting research using a sufficiently big data set and a substantial number of observations inside the sample, over an extended duration, the obtained research findings will possess a higher degree of comprehensiveness and representativeness, including the complete population of Vietnamese firms Simultaneously, there is potential for research expansion in developed nations within the same area as Vietnam

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