Firms’ investment – cash flow relationship in the context of state ownership and banking system reform in vietnam

MINISTRY OF EDUCATION AND TRAINING OF VIETNAM UNIVERSITY OF ECONOMICS HO CHI MINH CITY [Company name] [Document title] TU THI KIM THOA [Document subtitle] Firms’ Investment – Cash Flow Relationship In The Context Of State Ownership And Banking System Reform In Vietnam DOCTORAL THESIS Kim Thoa TuHo ThiChi Minh City, August 2020 [Date] i MINISTRY OF EDUCATION AND TRAINING OF VIETNAM UNIVERSITY OF ECONOMICS HO CHI MINH CITY TU THI KIM THOA Firms’ Investment – Cash Flow Relationship In The Context Of State Ownership And Banking System Reform In Vietnam DOCTORAL THESIS Specialization: Finance and Banking Code: 9340201 Supervisors: VU VIET QUANG, Ph.D NGUYEN THI UYEN UYEN, Ph.D Kim Thoa Tu Thi [Date] Ho Chi Minh City, August 2020 ii STATEMENT OF AUTHORSHIP I hereby declare that this submission is my own work and except where due reference is made; this thesis contains no material previously published or written by another person(s) This thesis does not contain material extracted in whole or in part from a thesis or report presented for another degree or diploma at University of Economics Ho Chi Minh City or any other education institution Tu Thi Kim Thoa August 2020 iii ACKNOWLEDGEMENTS First and foremost, I would like to express deepest gratitude to my supervisors, Dr Vu Viet Quang and Dr Nguyen Thi Uyen Uyen, for their continual guidance and mentorship, invaluable support, remarkable patience, useful feedback, and spiritual encouragement during the completion of my thesis My thesis cannot be completed without their supervisions, which provided me with much precious advice to expedite my thesis completion I would like to thank the University of Economics Ho Chi Minh City for its generous financial support of my PhD studies I also wish to thank all the colleagues at the UEH School of Finance, School of UEH Graduates and others for their great and continuing encouragement and full support during my PhD candidature My gratitude also goes to my colleagues at UEH who have constantly given a great help, support and encouragements to me not only during but also before the completion of my thesis Finally and most importantly, I would like to thank my friends and family for their unconditional love, immense, constant and endless support and encouragements during my life I would have been unable to finish the thesis without their supports and encouragement And I also wish to dedicate this thesis to my late mother who is always in my heart i TABLE OF CONTENTS ABBREVIATIONS i LIST OF TABLES ii LIST OF FIGURES v ABSTRACT vi CHAPTER 1: INTRODUCTION 1.1 Thesis motivations 1.2 Thesis objectives 1.3 Firm’s investment – cash flow relationship in the context of state ownership in Vietnam 1.3.1 Objectives and hypotheses 1.3.2 Data 1.3.3 Methodology 1.3.4 Empirical findings 1.3.5 Contributions 1.4 Firm’s investment – cash flow relation in the context of banking system reform in Vietnam 1.4.1 Objectives and hypotheses 1.4.2 Data 1.4.3 Methodology 1.4.5 Contributions 10 1.5 Thesis structure 10 CHAPTER 2: OVERVIEW ON VIETNAM’S ECONOMIC REFORMS 11 2.1 Overview on Vietnam’s economy 12 2.2 Overview on equitization of state owned enterprises of Vietnam 15 2.3 Overview on Vietnam’s banking system reform 20 2.4 Chapter summary 25 ii CHAPTER 3: FINANCIAL CONSTRAINTS AND INVESTMENT: A THEORETICAL FRAMEWORK AND LITERATURE REVIEW 27 3.1 Theories of investment 29 3.1.1 The Modigliani-Miller Theorem (MM) 30 3.1.2 Neo-classical model 30 3.1.3 Sales accelerator model 31 3.1.4 Tobin’s Q model 32 3.1.5 The Euler model 34 3.2 Financial constraints and investment: a literature review 35 3.2.1 Financial constraint and investment 35 3.2.2 State Ownership and Investment–Cash Flow Relations 44 3.2.3 Banking system reform and investment – cash flow relation 46 3.2.4 Financial leverage, growth opportunity and investment relation 48 3.3 Chapter summary 49 CHAPTER 4: FIRM’S INVESTMENT – CASH FLOW RELATIONSHIP IN THE CONTEXT OF STATE OWNERSHIP IN VIETNAM 51 4.1 The study introduction 52 4.2 Literature review and hypothesis development 54 4.2.1 Relation between investment and cash flow 54 4.2.2 State Ownership and Investment–Cash Flow Relations 57 4.2.3 State Ownership and Investment–Leverage Relation 59 4.3 Research design 60 4.3.1 Testing Investment–Cash Flow Relation 60 4.3.2 Testing the Impact of State Ownership on Investment–Cash Flow Relations 63 4.3.3 Testing the Impact of State Ownership on Investment–Leverage Relations 64 4.3.4 Data 64 4.4 Empirical results 65 iii 4.4.1 Descriptive Statistics 65 4.4.2 Empirical Results 67 4.4.3 Robustness Check 80 4.5 Conclusion 90 4.6 Chapter summary 91 CHAPTER 5: FIRM’S INVESTMENT – CASH FLOW RELATIONSHIP UNDER THE CONTEXT OF BANKING SYSTEM REFORM IN VIETNAM 92 5.1 The Stuty Introduction 93 5.2 Literature review 96 5.2.1 Investment – cash flow relation 96 5.2.2 Effect of banking system reform on investment – cash flow relation 98 5.3 Research methodology 99 5.3.1 Hypothesis development and model specification 99 5.3.2 Data 104 5.4 Empirical results 105 5.4.1 Descriptive statistic 105 5.4.2 Correlations 107 5.4.3 Regression results 109 5.4.4 Robustness check 127 5.5 Study conclusion 128 5.6 Chapter summary 129 CHAPTER 6: CONCLUSION 131 6.1 Introduction 131 6.2 Firm’s investment – cash flow relationship in the context of state ownership in Vietnam 131 6.2.1 Research findings 131 6.2.2 Research contributions, implications and policy recommendations 132 6.2.3 Research limitations and future research directions 134 iv 6.3 Firm’s investment – cash flow relationship in the context of banking system reform in Vietnam 135 6.3.1 Research findings 135 6.3.2 Research contributions , implications and policy recommendations 136 6.3.3 Research limitations and future research directions 138 LIST OF AUTHOR’S PUBLICATIONS 140 REFERENCES 141 APPENDIX 147 i ABBREVIATIONS Agribank Vietnam Bank for Agriculture and Rural Development ASEAN Association of Southeast Asian Nations ATFA ASEAN Free Trade Agreement BIDV Bank for Investment and Development of Vietnam CPI Consumer Price Index FDI Foreign direct investment GDP Gross Domestic Products HCMC Ho Chi Minh City HNX Hanoi Stock Exchange HOSE Ho Chi Minh City Stock Exchange JSCB Joint-stock commercial bank JVB Joint – venture bank MM Modigliani and Miller Theorem SBV State Bank of Vietnam SOCB State-owned commercial bank SOE State owned enterprise US United States of America VCB Bank for Foreign Trade of Vietnam Vietinbank Vietnam Industrial and Commercial Banks WTO World Trade Organization ii LIST OF TABLES Table 2.1 Stages of SOE equitization in Vietnam (1992 – 2018) 17 Table 2.2 Credit institutions of Vietnam, 2010 - 2017 22 Table 2.3 List of foreign banks’ branches in Vietnam 23 Table 3.1 Summary of Financial Constraint Proxies 43 Table 4.1 Sample structure 65 Table 4.2 Variable descriptive statistic 66 Table 4.3 Differences between non state-owned and state-owned 67 enterprises Table 4.4 Analysis of relation between investment and cash flow 70 Table 4.5 Impact of state ownership on investment – cash flow 73 relation Table 4.6 Impact of state ownership on relation between investment 75 and cash flow under different growth opportunities Table 4.7 Impact of state ownership on the investment and leverage 78 relations Table 4.8 Impact of state ownership on the relations between investment - leverage under different growth opportunities 79 ... summarize the two essays: firm’s investment – cash flow relation under the context of state ownership in Vietnam and firm’s investment – cash flow relation under the context of banking system reform in. .. relation in the context of banking system reform in Vietnam 1.4.1 Objectives and hypotheses The study examines the effect of banking system reform on investment- cash flow relation in a context of a...i MINISTRY OF EDUCATION AND TRAINING OF VIETNAM UNIVERSITY OF ECONOMICS HO CHI MINH CITY TU THI KIM THOA Firms’ Investment – Cash Flow Relationship In The Context Of State Ownership And Banking