Reality, State - owned enterprises in the Northwest of Viet Nam tend to invest more in width, but the investment decisions of enterprise''s assets are not based on the profitability of capital or assets. The paper focuses on the factors that influence the investment decisions to assets of state-owned enterprises. The subjects in this study are from the provinces of the Northwest which are all similar in the level of regional economic development and technology manufacturing. Using data of state - owned enterprises in the Northwest from 2012 to 2015, apply linear regression techniques with the smallest minimum estimation model, but the data is aggregated as panel data, the authors find that assets investment decisions of state - owned enterprises in the Northwest depend on capital investment of state, sales and borrowing or appropriated capital in the business process.
FACTORS AFFECTING ASSET INVESTMENT DECISIONS OF STATE-OWNED ENTERPRISES IN THE NORTHWEST OF VIET NAM PhD Trinh Mai Van, trinhmaivan@gmail.com Department of Scientific Management, National Economics University (NEU), Hanoi, PhD Phan Hong Mai, Scholl of Finance and Banking, NEU MSc Dao Thi Van Anh, daovananh1987@gmail.com Department of Economics, Tay Bac University, Son La, Viet Nam Abstract: Reality, State - owned enterprises in the Northwest of Viet Nam tend to invest more in width, but the investment decisions of enterprise's assets are not based on the profitability of capital or assets The paper focuses on the factors that influence the investment decisions to assets of state-owned enterprises The subjects in this study are from the provinces of the Northwest which are all similar in the level of regional economic development and technology manufacturing Using data of state - owned enterprises in the Northwest from 2012 to 2015, apply linear regression techniques with the smallest minimum estimation model, but the data is aggregated as panel data, the authors find that assets investment decisions of state - owned enterprises in the Northwest depend on capital investment of state, sales and borrowing or appropriated capital in the business process Keywords: asset investment decision, influence factor, state-owned enterprises Introduction Asset acts as a labor resource in the business process They are considered as material and technical facilities which play an important role in production and business activities, as a condition for enterprises to increase labor productivity and develop the national economy On the micro perspective, machinery and equipment, manufacturing technology process are the factors determining the size and production capacity of enterprises On the macro perspective, physical and technical infrastructure will contribute to assessing the strength of the national economy (Karlsson et al., 2014) Exactly, it can be said that asset is very important for businesses In the recent years, the rate of state-owned enterprises in localities went bankrupt and dissolved is quite high, in Son La, Dien Bien, Lai Chau and Hoa Binh province, it is about 20% of the total state-owned enterprises in local This shows that business performance as well as their annual contribution to GDP is very low Besides, these enterprises are facing serious difficulties such as lack of capital to invest, renew long-term assets, low productivity, lack of experience in marketing, investment decisions making Among these difficulties, the lack of financial resources and experience in asset investment decisions are the most serious problems Investing in ineffective assets can have a big impact on profit and business results of enterprises In contrast, investing in 199 effective assets will help businesses pass difficulties and increase profits In fact, local SOEs are mostly small and medium size, which are difficult to get credits from commercial banks because the banks think that their profits are difficult to offset credit risk Accordingly, how to use capital and make assets investment decisions effectively becomes more important for businesses Many enterprises, especially state-owned enterprises in the Northwest region also invest in assets but their profit is low and assets are used ineffectively In particular, the long-term assets investment not meet the requirements of large-scale production, high quality, automation and modernization This is the reason why the production capacity of these enterprises is still low and business results is not high, expressed by the profitability coefficient of state-owned enterprises Northwest region in the period 2012 - 2014 only about 0.08 to 0.1 Therefore, clarify the factors that affect assets investment decisions, as well as clarify the relationship of these decisions with the business results of the enterprises is necessary in the current conditions This will really help managers in general and state-owned enterprises in the northwestern region in particular to perform the task of corporate finance effectively At the same time, it is the basis for the State issue suitable policies, support enterprises to invest long-term assets as desired, achieve the target * Overview of previous studies The search for factors affecting asset investment is quite limited and many arguments Previous studies (Jahera John et al., 1996); (Panda, Swati, 2012); (Lenka, 2014) mainly focus on identifying factors affecting capital structure which is an important resource for the development of enterprises There are many studies that selected investment decision is the object of study, but the authors focus only on the factors that affect the investment decisions based on the theory of individual investment behavior, instead of studying the investment decisions of the business For the asset of business which is a form of expression‘s capital, is considered in terms of: Improve effective use of assets (Brand Strategy, 2003), solutions for effective asset management (Moore Ron, 2006); asset depreciation method (O'Bannon Isaac, 2011) rather than factors affecting asset investment From different perspectives, there are many researchers who have studied the investment decisions of enterprises or general assets in enterprises However, so far researchers rarely choose asset investment as the main object of their research When previous studies investigated the process of investment decision making in general enterprise, they showed that investment decision is a process of many standards and many factors (Enoma and Mustapha, 2010) These factors include not only the economic and risk factors but also the political, social and government‘s regulations (Enoma and Mustapha, 2010) It means that there are many factors, both internal and external, that prevent the asset investment process, but they have not yet been fully and uniformly recognized Therefore, an in-depth study of the factors affecting assets investment decisions is 200 necessary to help managers make investment decisions correctly, it contributes to ensure long-term and sustainable development of enterprises * Factors affect on the assets investment decisions of the business There are many factors that influence the assets investment decisions of business, there are direct factors, but also there are indirect and linear factors that affect the investment decisions In addition, the nature and level of impact‘s factors are not the same There are some positive factors that help businesses make more investment decisions while some factors negatively impact However, the author focuses only on the following factors: - Sales growth: Eisner (1960) has shown that sale growth has the opposite effect on enterprise‘s investment decisions It means that enterprises have higher sale, the less investment In Vietnam, in 2008, Le Khuong Ninh et al indicated that the investments of non-state enterprises also depend on the growth of sale and profitability The larger the sales, the greater the demand for investment, and this is opposed to Eisner's theory (1960) - Equity/ Owner's equity: The study of Budina et al (2000) confirms that the investment of small enterprises is more influenced by the equity than the large enterprises When Budina et al (2000) argued that equity positively correlated to the investment decision of the enterprise, it means that the more equity enterprise has, the more enterprise invests But then, Gelos and Werner (2002) argued that equity negatively correlated In Vietnam, the regression model of Le Khuong Ninh et al (2008) showed that the investment of non-state enterprises in Kien Giang depends largely on equity or the rate of profit last year divided by fixed assets next year and it is entirely consistent with the theory, consistent with the study of Budina et al (2000) Meanwhile, the equity variable in the model of Le Bao Lam and Le Van Huong (2010) about investment decision of enterprises in Tien Giang province has a negative coefficient and statistical significance at level % is consistent with the result of Gelos and Werner (2002) - Debt payable: Le Khuong Ninh et al (2008) have been very successful in finding new factors when they research about the non-state sector in Kien Giang, these include: loans and ability to increase ground The authors argued that the loan is also a factor positive influencing the investment decisions of these enterprises - Profitability of equity (ROE): Profitability of equity (ROE) measures the profitability of each capital that invested by the owner As a result, the higher ROE is, the better the equity is used Le Bao Lam et al (2010) confirmed that ROE does not affect on investment decisions of enterprises in Tien Giang province - Ownership of enterprise: Besley (1995) suggested that the ownership of enterprise influenced the investment decisions of enterprises In Vietnam, Le Bao Lam et al (2010) also confirmed the positive 201 relationship of this factor with the investment decision of the enterprise However, the subjects of Besley (1995) or Le Bao Lam et al (2010) are non-state enterprises, of which a large number of these enterprises are private that are very dynamic, flexible and they rarely lose investment opportunities In comparison with other types of enterprises, private enterprises tend to invest more Therefore, the authors suggest that the results of these studies should be again for state-owned enterprises Method * Data set: According to the Business Law in 2014, SOEs are enterprises with 100% state capital With this classification, the article uses secondary information as the annual financial reports in the period 2012-2015 in the Northwest, Viet Nam There are 38 stateowned enterprises in Son La, Dien Bien, Lai Chau and Hoa Binh province of Northwest * Research Methods: Use panel data with the support of Stata software Especially, this study uses the least squares estimation model (OLS) but the data is synthesized as array for years and the factors which to be studied were mainly the endogenous factors in the enterprise, they were collected from the characteristics and results from the actual production and business activities of state-owned enterprises in the Northwest region * Variables of the model: The purpose of model is to detect factors that affect the asset investment decisions of the business The research model has the form of the equation as follows: Where: i = 1,2, , n and t = 2012, , 2015 Dependent variables and independent variables are described in the table Table Description of variables Variables Variable’s name TS Total assets Total asset value, calculated at the end of year, target No 270 on the balance sheet accounting dt Sales Total sales value in each year, target No 10 on the balance sheet accounting dtvcsh Equity Equity at the end of the year minus the beginning of the year dtnpt Debt payable Debt payable at the end of the year minus the beginning of the year dtroe Profitability equity Description of ROE of the next year minus the previous year, ROE measured by the quotient of net profit after tax and equity value loaihinhdn Type of business a dummy variable that equals one if the type of business is joint stock company (is classified according to Business Law in 2014), and zero otherwise Source: Research by the authors 202 Results 3.1 Descriptive statistics of variables In order to have a comprehensive understanding of factors on asset investment decisions, the general descriptive statistics of variables are shown in Table Table Descriptive statistics of variables Variable Obs Mean Std.Dev Min Max TS 152 72.1 72.1 1.77 887 dt 152 31.0 33.8 0.0024 183 dtnpt 114 1.28 18.5 -57.5 153 dtvcsh 114 13.3 61.5 -175 510 dtroe 114 -0.00037 0.138 -0.83 0.773 loaihinhdn 152 1.578947 0.4953601 Source: Research by the authors Most of the variables in the model have a high difference between the highest value and the lowest value The total asset variable represents the size of enterprises, with the smallest value was 1.77 billion VND and the largest value was 887 billion VND with an average value was 72.1 billion VND showing a big difference between samples The sale variable represents the sales of enterprises each year, the average value was 31 billion VND, the lowest value was 239 VND and the highest was 183 billion VND This variable represents the difference in sales between enterprises was quite large The Debt payable variable reflects the ability of enterprises to borrow loans, the smallest value of variable was negative (-) while the highest value was up to 153 billion VND, it means that some enterprises had paid old debts without additional mobilization and some businesses still borrowed large amounts of capital The equity variable shows the growth of equity over the years The difference between the highest value and the lowest value of the variable is also great, it shows that every year there were enterprises that increased equity but there were also enterprises that have reduced equity Equity decreased because business result was low, it made negative profit The Profitability of equity variable reflected the increase in profitability from equity, the lowest value was -0.83 and the highest was 0.77, it showed that the profitability of some enterprises increased at a high level But there were also businesses had low profitability The Type of business variable received only values of and 0, corresponding to two popular types of state-owned enterprises in the Northwest: joint-stock company and limited liability company 3.2 Correlation analysis This study uses correlation analysis to determine the correlation coefficients of the independent and dependent variables as well as the collinearity of the independent variables First, Pearson's correlation analysis is to examine the correlation‘s variable and to avoid the problem of collinearity As the results shown in table 3, the correlation coefficient matrix of the assets investment variables of state owned enterprises in the 203 Northwest is below 0.18 Correlation coefficients between variables are approaching to zero, it means that the independent variables in the model have no linear relationship with each other Table Correlation matrix dt dtvcsh dtno dtroe dt 1.0000 dtvcsh -0.1103 1.0000 dtno -0.0708 -0.1778 1.0000 dtroe 0.0540 -0.0114 0.0209 1.0000 loaihinhdn -0.1149 0.1829 -0.0493 0.0399 loaihinhdn 1.0000 Source: Research by the authors Moreover, this study conducts a test on the VIFs (variance inflation factors) to examine the linearity of the independent variables, the results shown in table The test results indicate that the VIF values for all the independent variables in this model are below 1.08 These coefficients are all around 1.01 to 1.08, indicating there is no collinearity problem Table Variance inflation factors Variable VIF 1/VIF dtvcsh 1.08 0.926857 loaihinhdn 1.05 0.956872 dtnpt 1.04 0.958877 dt 1.03 0.968710 dtroe 1.01 0.994163 Mean VIF 1.04 Source: Research by the authors 3.3 Empirical results Estimated results of the model are shown in the table According to F value testing, the regression model is statistically significant at 1% This means that the explanatory variables in the model affect on the variability of the dependent variable The independent variables in this model can explain 50.8% of variation in the dependent variable The remaining variation of the dependent variable can be explained by other factors that the authors not or no research Table shows that the significance level of P-value (sig.) of Equity and Debts payable variables are less than 1% and Sale variable is less than 5% Therefore, we conclude that these variables are significant in the model The remaining variables: Profitability and Type of business are not statistically significant That means that the 204 Equity, Debts payable and Sale are factors that influence the assets investment decisions of the enterprises Specifically: Sale variable: It has a positive coefficient and a statistical significance is 10% This result contradicts Eisner's study (1960), but it is similar to Le Khuong Ninh‘s study (2008) in Vietnam It means that the higher the sales of enterprises are, the more assets enterprises invest to expand the size Table Estimated results of the model Variables Coefficients Sales 0.6490652** (0.2803755) Equity 1.625756*** (0.162144) Debts payable 2.159756 *** (0.5301604) Profitability 4.84e+09 (6.95e+10) Type of business 1.29e+10 (1.98e+10) Intercept 1.50e+10 (3.44e+10) Standard errors are given in parentheses Dependent variable: Total assets Observations: 152 R = 50,8% *p < 10% **p < 5% F(5, 108) = ***p < 1% 22.30*** Source: Research by the authors Equity variable: It has a positive coefficient and is statistically significant at 1%, this result is perfectly consistent with the theory It is also consistent with result of Budina et al (2000) that the higher the equity is, the more investment in assets business has This result is consistent with the actual situation of state-owned enterprises in the Northwest, because these enterprises use state capital to invest, so the size of capital is not high and the ability to borrow is low, the demand for investment to expand the size of production and business mainly depends on the equity Debts payable variable: The regression coefficient of this variable is positive and is very large at 2.16 This shows that the impact of the loan amount and the debt on the investment of the business is very large It is consistent with the result of research by Le Khuong Ninh et al (2010), which means that the higher the debt is, the more investment in assets the state-owned enterprises in the Northwest have 205 Research results show that the Debts payable and Equity are the factors influencing the investment decisions of enterprises From this it can be seen that the demand for investing to expand the size of state-owned enterprise in the Northwest is very large, showing that whenever there is an opportunity to increase sale, equity or debt, these firms tend to invest more assets This is perfectly suitable with actual situation in these areas, which are state-owned enterprises with small and medium sizes, so whenever they have the opportunity to increase the capital, they tend to invest in assets However, the results of research can also confirm that businesses are focused on developing more width Variables have no meaning in the model: Type of business and Profitability are factors that have a low or no affection on the assets investment decisions of the firms State-owned enterprises in the Northwest are joint-stock companies and one-member limited liability companies The results show that whether they are joint stock companies or limited companies, the type of business does not affect the investment decisions of these firms In addition, the profitability in general and the profitability of equity in particular does not have much affection on the assets investment decisions of the business because most of these businesses have low business performance, it makes indicator reflect the profitability is not high, so it does not affect the assets investment decisions of enterprises Thus, we can assume that the asset investment decision of state-owned enterprises does not depend on the type of enterprise and profitability of equity, but it depends on the amount of capital invested by the state, sales and loans or the capital that the enterprise is occupied in the business process Conclusions and recommendations With a set of data on state-owned enterprises in the Northwest from 2012 to 2015, we used the regression model and were found that there were statistically significant variables influence the assets investment decisions of these enterprises All of variables: Sale , Equity and Debts payable have the same relationship with assets investment decisions of enterprises Apart from the three variables that are statistically significant and affect on the assets investment decision of the firms, other factors such as the Type of business and Profitability are not statistically significant, so there are little or no affection on the assets investment decisions of enterprises Based on the findings of the study, in order to improve the business performance of state-owned enterprises, to contribute to socio-economic development in the Northwest, the authors recommend some solutions as follows: * For businesses: + The results showed that the demand for asset investment of enterprises is very large while the capital is still limited In order to mobilize capital for investment, enterprises need to be more active, actively approach and actively seek capital from different channels of capital mobilization, avoid depending on or waiting on state capital for investment 206 + The results also showed that state-owned enterprises in the Northwest of Viet Nam are focusing more on development in width, thus it is nescesary to raising capital to meet the need for asset investment However, in order to enterprises develop sustainably in the future, enterprises should also pay attention to develop in depth + For investment in assets, especially long-term assets, which are used for a long time, time to recover capital for a long time, so investment decision in long-term assets should be depend on profitability of these assets * For local government: + Create a transparent, flexible business environment and support enterprises in public services to help businesses save transaction costs and create opportunities for enterprises to invest in depth + It is necessary to carry out regular surveys to collect comments, to capture the situation of production and business as well as the difficulties that enterprises are encountering So that, there are grounds and orientation to build policies to support enterprises on time + From the research results, we can be seen that the investment demand of enterprises in the Northwest are very large, showing that whenever there is opportunity to increase sale or equity and debt, enterprises to tend to invest in more assets Therefore, the assistance about investment capital for enterprises needs to be considered However, in order to avoid inefficient investment, it is necessary to further assess the effectiveness of their capital use + The results show that the past time, the credit system and local banks have met the capital demand for business operations However, in order to businesses increase their capital, it is necessary to further improve the performance of the credit system The purpose is to help businesses reach deeper loans with reasonable costs and simple loan procedures References Abel and Eberly (1994), A Unified Model of Investment Under Uncertainly, American Economic Review Alzharani Abdullah Mohammed, Che-Ahmad Ayoib, Aljaaidi Khaled Salmen, (2012), Factors associated with firm 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The Open-Access, OpenAssessment E-Journal, vol.8: 1-21 208 ... object of study, but the authors focus only on the factors that affect the investment decisions based on the theory of individual investment behavior, instead of studying the investment decisions of. .. are many factors that influence the assets investment decisions of business, there are direct factors, but also there are indirect and linear factors that affect the investment decisions In addition,... 10 on the balance sheet accounting dtvcsh Equity Equity at the end of the year minus the beginning of the year dtnpt Debt payable Debt payable at the end of the year minus the beginning of the