The effect of state-ownership and provincial competitiveness on firm performance: Case of Vietnam

THE EFFECT OF STATE-OWNERSHIP AND PROVINCIAL COMPETITIVENESS ON FIRM

PERFORMANCE: CASE OF VIETNAM

*

1

Nguyen Tran Thai Ha - Ho Ngoc Thuy**

ABSTRACT: This study investigates the relationship between state-ownership and ﬁrm performance as well

as the role of the provincial competitiveness in Vietnam by using a sample of 506 listed non-ﬁnancial ﬁrms

from 2008 to 2015. Using the two-step system GMM, the study compares the inﬂuence of state-ownership on

ﬁrm performance in low and high provincial competitiveness. Our ﬁndings indicate that state-ownership,

as well as provincial competitiveness, is positively related to ﬁrm performance. Moreover, extended results

show that the government should strongly privatise (reducing the level of state-ownership to under 25%) or

highly centralised (holding the level of state-ownership ≥ 75%) to enhance the ﬁrm performance, besides the

improving the provincial competitiveness. In addition, the characteristics of the ﬁrm such as size, debt ratio,

tangible asset level or growth are found to have statistically signiﬁcant connections to ﬁrm performance.

Our research implies that: (1) the government should continuously improve the provincial competitiveness,

(2) the government should strongly privatise commercial ﬁrm and hold high levels of state-ownership in

strategic enterprises.

Keywords: Firm performance, State-ownership, Provincial competitiveness, Vietnam

1. INTRODUCTION

Vietnam is a country which has a transforming economy with reform of institutional environment and

public governance, including the development of a market economic mechanism with the socialist-oriented

and multi-sector economy. In the past, the Vietnamese economy used to be a centrally planned economy

with the considerable inﬂuence of the state sector, especially state-owned enterprises (SOEs). SOEs, in a

socialist-oriented economy, has been received considerable favour of the state in the support ﬁnance as well

as policy because they are considered to have an important role in the economy. However, privatisation has

become a considerable phenomenon in Vietnam to promote economic growth and enhance social security.

Since the 1986 reform, the rate of state property among SOEs in Vietnam has signiﬁcantly declined. The

government has conducted a privatisation process to transform SOEs to joint-stocks enterprises with taking

part of foreign or private investors. In the 2011 – 2016 period, there are over 570 privatised enterprises

with VND 797,000 billion of ﬁrm value, in which the state capital is VND 214,000 billion. In 2017, 69

enterprises are privatised, with VND 161,000 billion of the chartered capital, in which the state-ownership

is VND 85,365 billion. According to General Statistics Ofﬁce reports, the number of SOEs continuously

1

2

decrease due to the government’s efforts to privatise SOEs . However, the state still plays a signiﬁcant role

* Finance and Accounting Faculty, Saigon University, 28 Nguyen Thong St., Ward 7, Dist. 3, Ho Chi Minh City,

Vietnam, Corresponding author. Tel.: +84 28 39321907, E-mail address: [email protected].

**

Finance and Accounting Faculty, Saigon University, 28 Nguyen Thong St., Ward 7, Dist. 3, Ho Chi Minh City, Vietnam

Source: General Statistics Ofﬁce of Vietnam reports.

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in many commercial ﬁrms as well as ﬁnancial institutions through the rate of state-ownership. Although

the proportion of state has reduced sharply in recent years, it has been considered to be high. Excluding the

ﬁrms in strategic industries such as electricity, water, defence, the government almost have shares in some

commercial or ﬁnancial ﬁrms. The main reason is that state-ownership often is considered as the “tactful”

tools for intervention and orientation of the government (Najid & Rahman, 2011; Kang & Kim, 2012; Ben-

Nasr et al., 2015). However, the efﬁciency of SOEs is still a topic which is argued in Vietnam’s context.

Firm performance is affected due to the unequal treatment of public ofﬁcials between the public sector

and non-public sector in the protection of property rights and allocation of resources (Song et al., 2016).

Criticism points that ﬁrm performance, with a high proportion of state-ownership, often relies on political

and ﬁnancial support of government to overcome their problems, and it is inequitable with others (Zhou

et al., 2016). However, it can not disclaim that the state role has a signiﬁcant meaning, particularly in

controlling and implementing social-economic objectives. In the world, studies relating to state-ownership

and ﬁrm performance has been not consistent. On the one hand, state-ownership is considered that it could

enhance ﬁrm performance (B. B. Jiang et al., 2008; Le & Chizema, 2011). According to “too-important-

to-fail” view, most investors believe that the state-relevant ﬁrms are received ﬁnancial and political aids

by state. Moreover, state-owned ﬁrms are often monitored strictly to control capital and ﬁrm’s efﬁciency.

Besides that, SOEs often have the “helping hand” through the interactive channel with government ofﬁcials

and receive ﬁnancial support and business opportunities.

On the other hand, many studies indicate state-ownership affect negatively on ﬁrm performance

(Shleifer, 1998; Qi et al., 2000; Abramov et al., 2017) and privatisation will enhance ﬁrm performance

and their market value (Megginson & Netter, 2001; Kang & Kim, 2012). Since the shareholder of SOEs is

public and the legal representative persons are generally appointed by the government, they often focus on

the objectives of politicians rather than maximise enterprise efﬁciency (Abramov et al., 2017). Furthermore,

the managers of SOEs believe that the accounting losses will be covered by governmental funds. This will

decrease the motivation of SOEs managers to ensure that ﬁrms are well managed. In diversity results, many

studies ﬁnd that the association of state-ownership and business efﬁciency are non-linear, such as U-shaped

relationship (G. Wei, 2007; Ben Rejeb Attia et al., 2018). It means that the ﬁrm performance will increase

when the government owns the low or high proportion in some extent.

In recent years, a new approach to explain different results is the inﬂuence of characteristics of the

economy and institutional environment, especially in transition economies (Ben-Nasr et al., 2015; Song et

al., 2016;An et al., 2016). It is considered to have a signiﬁcant impact on ﬁrm performance. The institutional

environment, which is known as particular rules or principles, could have an effect on ﬁrm’s operating and

it could improve or reduce their efﬁciency in the marketplace. Verrecchia (2001) suggests that transparency

and the quality of the disclosed ﬁnancial information are essential in reducing asymmetrical information,

while Biddle and Hilary (2006) considers that institutional environment will reduce the ﬁrm’s cost of equity

and improve the efﬁciency of investment decisions. Y. Jiang and Yan (2012) ﬁnd that the efﬁciency of ﬁrms

is higher in the higher the level of the institutional environment. In Vietnam, the Provincial Competitiveness

Index (PCI) has been published annually since 2005. It is the index of provinces and cities regarding the

quality of public governance and the building of business environment to the development of ﬁrms.

Thus, follow up on previous research, we focus on three main aspects of this study: (1) The impact

of state-ownership on ﬁrm performance (2) The effect of institutional environment, as provincial

competitiveness, on ﬁrm performance; (3) We check the robustness of our result by using quantile of the

state-ownership proportion in low or high provincial competitiveness. Our research uses ﬁnancial data of

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ﬁrms which are listed on the Vietnamese Stock Exchange, and we also exclude enterprises in ﬁnancial

industries. Our motivation is to clarify the role of state-ownership in commercial ﬁrm performance because

these studies in Vietnam are still few and limited. In Vietnam, Quang and Xin (2014) found a positive

relationship between state-ownership and ﬁrm performance (proxy by ROA and ROE), while Phung and

Mishra (2015) investigated there was a convex relationship between state-ownership and ﬁrm performance

(Tobin). However, relevant studies are still rare and inconclusive, without consideration about the role

of institutional environment. Moreover, Vietnam is transforming economic from the centrally planned

economy with state-related characteristics. Therefore, this study is expected to provide empirical evidence

for the association between state-ownership, institutional quality and ﬁrm performance. Following the

Introduction, the rest of the study is structuralised as follows: Section 2 reviews the prior literature and

empirical studies. Section 3 gives the hypotheses and research methodology. Section 4 illustrates the data

and discusses the results. Section 5 gives the conclusions and recommendations.

2. LITERATURE REVIEW

2.1. The association between state-ownership and ﬁrm performance

According to Arosa et al. (2010), there are three particular factors of ownership structure which prior

studies have often focused on ownership concentration, insider ownership, and owner identity. Ownership

structure and ﬁrm performance have been the intense discussion in the corporate ﬁnance literature. Berle

and Means (1932) which proves an inverse relation between dispersed shareholders and ﬁrm performance,

namely as agency theory. On the one hand, the dispersed shareholders are unable to exert any inﬂuence

on the ﬁrm managers who control the affairs of ﬁrm. On the other hand, managers cannot be motivated

to act in the best interest of owners because of holding a minimal share of ﬁrm’s proﬁt. Instead, they

pursue their objectives at the cost of owners’ wealth. Conversely, concentrate shareholders could inﬂuence

the management board and interfere with the decision-making process of managers. Ownership structure

is typically known as different groups of shareholders, such as state shareholders, private or foreign

shareholders.

The prior studies on the relationship between state-ownership and ﬁrm performance have been

inconsistency. In a negative association, Jia et al. (2005) conﬁrmes that ﬁrm performance is negatively

correlated with state-ownership of Chinese listed ﬁrms on the Hong Kong stock exchange. Xu and Wang

(1999) and Qi et al. (2000) suggest that there is an adversely related between state-ownership and ﬁrm

performance, as presented by ROA, ROE and MBR, for Chinese listed ﬁrms. The reasons are included the

separation between the government and managers who do not have the incentive to maximise value for

shareholders (Qi et al., 2000; Le & Chizema, 2011; Kang & Kim, 2012). Other reasons include political

interference, difﬁculties in administration and supervision, lacking necessary information and administration

skills and needed independence of state representatives who are appointed by the government through

political connections (Shleifer, 1998; and Bhatti & Sarwet, 2011). Moreover, state representatives try to

achieve social goals and short-term political objectives rather than maximising proﬁts (Abramov et al.,

2017). Drifﬁeld and Du (2007) ﬁnd that privatisation in China is essential for generating productivity

growth, promotes to cost-effectiveness and innovation.

In contrast view, there has been empirical evidence of the positive relationship of state-ownership and

ﬁrm performance (B. B. Jiang et al., 2008; Le & Chizema, 2011; Najid & Rahman, 2011). Estimating with

Chinese listed ﬁrms, Tian and Estrin (2008) ﬁnd that state-ownership has a positive association with return

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on asset (ROA), while Chen et al. (2006) also give empirical evidence to support a positive relationship with

return on sale (ROS). The reasons are cited that the government has many administrative tools to ensure

the performance of state-related ﬁrms (e.g. state audit ofﬁce or government inspectorate ministry), and they

will severely punish representatives who have wrong behaviours. Moreover, the government, as a strategic

shareholder, will support ﬁrms with ﬁnancial and political resources through a “helping hand” (Shleifer,

1998; Le & Chizema, 2011). Further, state-ownership is considered a strategic asset which could bring

advantages conditions (political, social, or competitive advantages that managers may be able to extract

from a state-owned relationship) for better ﬁrm performance (B. B. Jiang et al., 2008; Huang & Boateng,

2013). State-ownership also transmits a signal that these enterprises are supported by the government and

bring the belief that the government will help ﬁrms to run out of collapse (Najid & Rahman, 2011).

As the concern, in countries with restructuring such as China, the majority of empirical results often

support the hypothesis: high concentration of state-ownership would positively affect the ﬁrm performance

or ﬁrm value (B. B. Jiang et al., 2008; Tian & Estrin, 2008; Hess et al., 2010; Le & Chizema, 2011; Yu,

2013). Thereby, we suggest that the inﬂuence of state-ownership in Vietnam is similarly in China, where

the market is deﬁned as a socialist-oriented market with the crucial role of SOEs. Therefore, we support our

initial hypothesis as follows:

Hypothesis 1: state-ownership is positively related to ﬁrm performance.

2.3. The relationship between state-ownership, provincial competitiveness and ﬁrm performance

The empirical studies about state-ownership and ﬁrm performance or ﬁrm value have been intricate,

and they almost depend on agency theory. This theory assumes that state-ownership is separated from

state interference and market-oriented as well as political interaction (Green & Liu, 2005). These studies,

however, have to upon other aspects to describe the “unexpected” outcomes in the ﬁndings (Z. Wei et al.,

2005). Therefore, we consider that applying agency theory is not sufﬁcient in the analysis the relationship

between ownership and performance, especially in insufﬁcient market-oriented, like Vietnam or China; and

it is the main reason for the inconclusiveness.

Institutional environment, in recent years, has become a connecting factor. Organizations have reacted

to changes in the business environment, such as laws and regulations; and it is a way to respond to externally

coercive pressures (Aguilera & Jackson, 2003). Cohen et al. (1983) and Ho and Michaely (1988) show that

high quality of business environment would help to minimise problems about information asymmetry,

transaction costs and risks while improving market efﬁciency, asset allocation, and protecting property

rights. Thereby, the efﬁciency of the ﬁrm operation would be enhanced. This view was supported by Kang

and Kim (2012) who argued that a weak institutional environment and regulatory framework could lead to

a signiﬁcant dropping output, asset-stripping of insiders, rent-seeking, and delays the future reforms.

Moreover, previous studies have suggested that the impacts of ownership structure on the ﬁrm operation

are unclear, depending on characteristics of the economy and institution, especially in transition economies

(Ben-Nasr et al., 2015 and Song et al., 2016). For instance, in developed countries or emerging economies

such as Korea, New Zealand, U.S. or European countries, many studies show the results which prove that

the relationship between state-ownership and ﬁrm activities are inefﬁcient (Kim, 2011; Chan et al., 2016).

La Porta et al. (1999) ﬁnd that the enterprises there will have a more dispersed ownership structure when the

investor protection is stronger, and the efﬁciency of law enforcement is improved in a region or a country. H.

Jiang et al. (2018) ﬁnds that the ﬁrm performance is positive in countries with high institutional environments

by using ﬁnancial data from the Wharton Compustat Global database for the period 2001–2015.

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In Vietnam, to measure the quality of the institutional environment, the Provincial Competitiveness

Index (PCI) has been published annually since 2005 to measure the quality of public governance and the

building of business environment to the development of ﬁrms of provinces and cities. The overall PCI score

is calculated by a weighted sum of sub-indices, in which weights are determined by the importance of each

sub-index in assessing various aspects of public governance and development of the business environment

in each province. We support that ﬁrm performance will increase in a good institutional environment, where

transparency and accountability are highlighted. Thus, we support our second hypothesis as follows:

Hypothesis 2: The institutional quality will have a positive impact on ﬁrm performance.

3. Models and variables

To test our hypothesis, we use the following dynamic model:

Dependent variables:

Firm performance is generally measured by (i) Return on Assets – ROA and (ii) Return on Equity –

ROE of ﬁrm i in year t (Yu, 2013; Abramov et al., 2017; Ben Rejeb Attia et al., 2018).

Independent variables:

State-ownership is the proportion of shares owned by the state, including shares of state institutions (Yu,

2013;Abramov et al., 2017). The level of state-ownership is disclosed in Vietnamese listed ﬁrm’ﬁnancial reports.

Provincial competitiveness is the variable to measure the quality of the institutional environment. The

Provincial Competitiveness Index (PCI) has been conducted and announced by Chamber of Commerce

and Industry of Vietnam (VCCI) and the U.S. Agency for International Development (USAID)-funded

Vietnam Competitiveness Initiative (VNCI), managed by DAI, with a substantial contribution by VNCI

partner The Asia Foundation (TAF). We use PCI to estimate the effects of the quality of locally institutional

environment on ﬁrm performance, according to Malesky and Taussig (2008). In this studies, we use the PCI

of the province where the ﬁrms registered their business.

To avoid the bias problem in regression, we also add a set of other control variables to clarify the

correlation between ﬁrm performance and the independent variables. They are natural logarithm of the

ﬁrm’s total assets (SIZE), the difference of revenue between t and t – 1 (GROWTH), the ratio of Property,

Plant and Equipment and Total asset (PPE) and the level of using short-term debt in operating (DEBT).

These variables are used widely in previous studies (Hess et al., 2010; and Yu, 2013). All description and

statistic of variables are presented in Table 1.

4. METHODOLOGY AND DATA

4.1. Methodology

This study is approached by the dynamic panel data model. Panel data has been preferred because

it combines both time series and cross-sectional observations (Brooks, 2008). Our model in Equation (1)

illustrates the dynamic model with a lagged dependent variable, and they could because the endogenous

problem and their coefﬁcients may be severely biased. Moreover, the prior empirical study of Ben Rejeb

Attia et al. (2018) indicated that ﬁrm proﬁtability (ROAor ROE) and state-ownership might be endogenous.

Fixed-effect (FE) and random-effect (RE) models are not able to deal with the endogenous problems, and the

results may be biased. Therefore, we apply the two-step system GMM (Generalized Method of Moments)

estimation method. GMM can tackle endogeneity, heteroscedasticity, and serial correlation (Arellano &

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Bond, 1991). Moreover, the two-step system GMM is more effective than the one-step estimator due to

using a sub-optimal weighting matrix, but it generates the bias of uncorrected standard errors when the

number of instruments is extraordinary (Blundell et al., 2000).

Hansen or Sargan test of overidentifying restrictions is considered to ensure the robustness of GMM

estimation. However, in a two-step system GMM, Hansen test is more reliable than the Sargan test because

Sargan’s statistic is a particular case of the Hansen J test under the assumption of homoscedasticity. Thus, for

the robustness of GMM, the Sargan test statistic is inconsistent. The Arellano-Bond test for autocorrelation

has a null hypothesis of no autocorrelation and is applied to differenced error terms. The test for AR (1)

process in ﬁrst differences usually rejects the null hypothesis, whereas the test for AR (2) in ﬁrst differences

is more important because it will detect autocorrelation in the levels (Roodman, 2009).

4.2. Data and Descriptive Statistics

We use the panel data of 506 ﬁrms which are listed Vietnamese exchanges (Ho Chi Minh Stock Exchange

and Hanoi Stock Exchange) for 9 years from 2008 to 2015. Our sample does not include non-proﬁt and

ﬁnancial ﬁrms, and ﬁrms with insufﬁcient ﬁnancial data. After excluding, our sample is a set of ﬁnancial data

of 506 ﬁrms with 4,213 observations. The panel is unbalanced, with some ﬁrms having more observations

than others. However, twostep system GMM method is suitable for estimating unbalanced panel.

Table 1 shows the mean, standard deviation, minimum, median and maximum value of variables. For

the ﬁrm performance variable, the mean of the ROA and ROE are 6.92% and 13.20%, and their standard

deviation is 8.45% and 21.26%, respectively. It implies that there are signiﬁcant differences in ﬁrm

performance among Vietnamese ﬁrms. The mean of the overall weighted average PCI is 59.77% while the

max value and min value are 39.78 and 77.20, respectively. The STATE has the mean at 27.2% and standard

deviation at 23.90% in our sample.

Table 1: Deﬁnition and descriptive statistic of variables

Code

ROA

Deﬁnition

Net income / Total asset

Obs

Mean

Std. Dev.

Min

Max

0.784

0.982

4213

0.069

0.085

-0.646

ROE

SIZE

Net income / Equity capital

The natural logarithm of the ﬁrm’s total assets

4213

0.132

26.678

0.282

0.213

1.405

0.212

-7.836

21.370 31.906

0.000

-4.643

0.000

0.978

1.000

7.070

0.967

PPE

Property, Plant and Equipment / Total asset

Short-term debt / Total debt

4213

0.622

0.136

0.272

0.390

0.445

0.239

DEBT

GROWTH Revenue in this year /Revenue in last year

The proportion of the state fund on shareholder

STATE

fund at the end of the year

4213

59.768

4.390

39.780 77.200

PCI

The Provincial Competitiveness Index.

Table 2 shows the matrix of correlation among the variables. ROAand ROE have a positive association

with STATE, PCI at 1% signiﬁcance level, while SIZE, PPE and DEBT show a negative relationship with

ROA at 1% signiﬁcant level. We realise that SIZE and PPE have an adverse correlation with ROE, but they

are an insigniﬁcant statistic.

Table 2: The correlation matrix

ROA

ROE

1.00

STATE

PCI

SIZE

PPE

DEBT

GROWTH

ROA

ROE

STATE

PCI

1

0.69***

0.11***

0.08***

0.11*** 1.00

0.06*** 0.001

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SIZE

-0.07*** -0.02

-0.03* -0.02

-0.18*** -0.08*** -0.16*** 0.03*

0.18*** 0.20*** -0.05*** -0.10***

0.06*** 0.11***

1.00

PPE

0.11*** -0.11***

0.09*** 1.00

DEBT

GROWTH

0.04**

0.02

-0.28***

0.01

1.00

-0.04***

1.00

Notes: (*), (**), and (***) indicate signiﬁcance of 10%, 5%, and 1%, respectively.

5. RESULTS AND DISCUSSION

Table 3, Table 4 and Table 5 show the main results of GMM estimations. It can be seen that the

p-values of AR (2) test and the p-value of the Hansen test are insigniﬁcant statistics. It indicates that the

GMM method is appropriately used, and estimation results are robust, reliable and unbiased. Because of

lagged variable, the number of observation dropped from 4213 to 3707.

5.1. The eﬀect of state-ownership and provincial competitiveness on ﬁrm performance

To examine the role of state-ownership and provincial competitiveness on ﬁrm performance, we

estimate from the model (1) to (4), respectively. In model (1) and (2), we estimate the impact of STATE on

ﬁrm performance, represented by ROA and ROE. In model (3) and (4), we estimate the effects of provincial

competitiveness on ﬁrm performance.

Table 3: The relationship between state-ownership, provincial competitiveness and ﬁrm performance

ROA

ROE

(2)

ROE

(4)

Dependent variable

ROA (-1)

(1)

0.313***

(3)

0.330***

(7.59)

(8.08)

0.270***

0.289***

ROE (-1)

STATE

PCI

(8.24)

0.203**

(8.90)

0.222**

0.103***

(2.69)

0.121***

(2.10)

(3.17)

0.001**

(2.36)

0.004***

(2.47)

(3.07)

-0.036***

-0.092***

-0.035***

-0.089***

SIZE

(-5.11)

(-5.69)

(-5.07)

(-5.56)

-0.110***

-0.205***

-0.103***

-0.182***

PPE

(-4.09)

(-3.35)

(-3.98)

(-3.03)

-0.047***

-0.125***

-0.041***

-0.109***

DEBT

(-3.04)

(-3.64)

(-2.67)

(-3.20)

0.057***

0.131***

0.052***

0.116***

GROWTH

CONSTANT

(8.50)

1.003***

(8.10)

2.633***

(7.53)

0.898***

(7.14)

2.264***

(5.41)

0.000

0.440

0.658

314.22

(6.01)

0.058

0.278

0.709

340.02

(4.72)

0.000

0.556

0.640

329.71

(5.10)

0.059

0.279

0.803

365.84

AR (1) test

AR (2) test

Hansen test

Wald chi2

Prob > chi2

Obs

0.000

3707

0.000

3707

0.000

3707

0.000

3707

Notes: (*), (**), and (***) indicate signiﬁcance of 10%, 5%, and 1%, respectively.

z-statistic in ()

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The results are robust in all models. The ﬁrm performance, captured by ROA and ROE, is affected

signiﬁcantly by the lagged of them at 1% statistical signiﬁcance in 4 models. The results make sense that

tremendous extension of current ﬁrm performance is correlated with immense germination of preceding

ﬁrm efﬁciency.

Further, similarly to Xu and Wang (1999); B. B. Jiang et al. (2008); and Najid and Rahman (2011)

state-ownership (STATE) impacts positively on the ROA and ROE in 4 models at 1% level. It could be

explained that ownership concentration institution such as the government often gives the better monitor

and control in risk of ﬁrms to enhance their performance. Vo (2018) indicates that ﬁrms with higher state-

ownership tend to take less risk-taking activities in Vietnam. Besides that, other explanations could be

the investor’s conﬁdence in the government’s management (Najid & Rahman, 2011) or “helping hand”

hypothesis (Le & Chizema, 2011). Our ﬁndings further support the ﬁrst hypothesis: SOEs’proﬁtable ability

could be improved by state-ownership because these ﬁrms easily connect to ﬁnance and support of the

government.

Table 3 also gives more evidence about the relevance of the institutional environment, as presented

by provincial competitiveness. The PCI impact is a positive related at 1% signiﬁcant with ROA and ROE

in all models. Thus, it claims that the improvement of the provincial competitiveness will lead to increased

ﬁrm proﬁtability because it reduces informal cost, asymmetrical information (Verrecchia, 2001; Biddle &

Hilary, 2006).

5.2. The relationship between the level of state-ownership and ﬁrm performance under the quality of provincial

competitiveness

In this section, we examine the inﬂuence of the level of provincial competitiveness on a ﬁrm’s

performance. We use the average PCI value (50) and split our sample into two levels: (i) province which

has PCI index ≥ 50 is called high provincial competitiveness, and (ii) province which has PCI index <

50 is called low provincial competitiveness. In order to observe the inﬂuence of state-ownership on ﬁrm

performance at different levels, we quantitate the level of state-ownership into three levels: Low level

(STATE < 25%), Medium level (25% ≤ STATE < 75%), High level (75% ≤ STATE). Then, we check the

effect of state-ownership on ﬁrm performance with each state-ownership level under low or high provincial

competitiveness by using GMM regression. Our results are illustrated in Table 4 and Table 5.

Similarly, the results in Table 3, ﬁrm proﬁtability is strongly related with the lagged of a previous

performance at 1% level, and the coefﬁcients are conﬁdent in all models (see more at Table 4 and Table 5).

However, the impact of STATE is signiﬁcantly different in low or high PCI. Our results in Table 4 support

two hypothesis (i) state-ownership has a positive relationship with ﬁrm performance, and (ii) the high

provincial competitiveness will improve ﬁrm performance. In high provincial competitiveness, the STATE

has a positive impact on ﬁrm proﬁtability. It implies that the competitive environment has a certain impact

on market efﬁciency and resource allocation (Acemoglu & Robinson, 2008; Duncan, 2014; and Stefan et

al., 2014) and improve the ﬁrm performance. However, there are different impacts at the different level of

state-ownership. We only ﬁnd statistic evidence for the positive inﬂuence of state-ownership at low and

high level. It implies that the government should hold the level of share under 25% or over 75% of total

shares. Base on our ﬁndings, we explain that ﬁrm performance may enhance when SOEs are privatised,

continuously with prior studies (Kang & Kim, 2012; Le & Chizema, 2011; Yu, 2013) or the government

should concentratively control strategic ﬁrms to ensure ﬁrm efﬁciency as suggestions of Lehmann and

Weigand (2000) and Asad et al. (2013). It also implies that the relationship between state-ownership and

ﬁrm performance may be U-shape correlation.

HỘI THẢO KHOA HỌC QUỐC TẾ KHỞI NGHIỆP ĐỔI MỚI SÁNG TẠO QUỐC GIA

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Table 4: The association between the level of state-ownership and ﬁrm performance under high pro-

vincial competitiveness

High PCI

Provincial

competitiveness

State-ownership

(PCI ≥ 50)

Low level

(PCI ≥ 50)

Medium level

(PCI ≥ 50)

High level

quantitle

(STATE < 25%)

ROA

(25% ≤ STATE < 75%)

(75% ≤ STATE)

ROA

ROE

(6)

ROA

ROE

(10)

Dependent variable

(5)

(7)

(8)

(9)

0.368***

0.365***

ROA (-1)

ROE (-1)

STATE

(9.83)

(10.21)

(9.82)

0.278***

0.282***

0.275***

(8.49)

0.209**

(8.72)

-0.006

(8.31)

0.169*

0.094**

0.017

0.084**

(2.49)

(2.36)

(0.27)

(-0.04)

(2.05)

(1.77)

-0.031***

-0.092***

-0.034***

-0.095***

-0.032***

-0.093***

SIZE

(-4.25)

(-5.77)

(-5.13)

(-5.97)

(-4.38)

(-5.73)

-0.096***

-0.204***

-0.087***

-0.160***

-0.093***

-0.194***

PPE

(-3.74)

(-3.44)

(-3.78)

(-2.92)

(-3.54)

(-3.17)

-0.039**

-0.125***

-0.032**

-0.125***

-0.039**

-0.125***

DEBT

(-2.52)

(-3.65)

(-2.26)

(-3.75)

(-2.46)

(-3.60)

0.059***

0.131***

0.054***

0.120***

0.057***

0.129***

GROWTH

CONSTANT

(8.42)

0.888***

(8.11)

2.638***

(8.88)

0.993***

(8.18)

2.736***

(8.24)

0.919***

(7.91)

2.649***

(4.50)

0.000

0.364

0.687

395.03

(6.10)

0.057

0.269

0.737

344.17

(5.49)

0.000

0.408

0.265

448.18

(6.42)

0.060

0.266

0.586

361.23

(4.63)

0.000

0.386

0.660

392.42

(6.08)

0.058

0.270

0.691

328.01

AR (1) test

AR (2) test

Hansen test

Wald chi2

Prob > chi2

Obs

0.000

3707

0.000

3707

0.000

3707

0.000

3707

0.000

3707

0.000

3707

Notes: (*), (**), and (***) indicate signiﬁcance of 10%, 5%, and 1%, respectively.

z-statistic in ()

Meanwhile, the empirical results in Table 5 show that state-ownership is ineffective in the low provincial

competitiveness. We did not ﬁnd statistical evidence for the inﬂuence of STATE on ROA as well as ROE. It

can be explained that low provincial competitiveness makes more informal costs, asymmetric information and

corruption which can reduce ﬁrm efﬁciency. Moreover, the role of government in supervision and support will

be limited in the low institutional environment. As a result, the role of state-ownership will not be effective.

Table 5: The association between the level of state-ownership and ﬁrm performance under high pro-

vincial competitiveness

Low PCI

Provincial

competitiveness

State-ownership

(PCI < 50)

Low level

(PCI < 50)

Medium level

(PCI < 50)

High level

quantitle

(STATE < 25%)

ROA

(25% ≤ STATE < 75%)

(75% ≤ STATE)

ROE

(12)

ROA

ROE

ROA

ROE

Dependent variable

(11)

(13)

(14)

(15)

(16)

INTERNATIONAL CONFERENCE STARTUP AND INNOVATION NATION

443

0.367***

0.313***

(8.27)

0.367***

(10.15)

ROA (-1)

(10.16)

0.294***

0.220***

0.294***

ROE (-1)

(8.89)

-1.082

(6.45)

207.955

(8.88)

-1.069

-0.366

67.807

-0.358

STATE

SIZE

(-0.77)

-0.037***

(-0.90)

-0.096***

(0.38)

-0.041***

(0.62)

-0.107***

(-0.74)

-0.037***

(-0.91)

-0.096***

(-5.33)

(-6.05)

(-5.84)

(-6.58)

(-5.33)

(-6.05)

-0.091***

-0.169***

-0.100***

-0.193***

-0.091***

-0.169***

PPE

(-3.91)

(-3.06)

(-4.10)

(-3.35)

(-3.91)

(-3.05)

-0.030**

-0.121***

-0.033**

-0.122***

-0.030**

-0.122***

DEBT

(-2.17)

(-3.69)

(-2.28)

(-3.70)

(-2.17)

(-3.69)

0.055***

0.119***

0.053***

0.121***

0.055***

0.119***

GROWTH

CONSTANT

(8.94)

1.070***

(8.04)

2.767***

(8.85)

1.178***

(8.25)

3.053***

(8.94)

1.071***

(8.04)

2.766***

(5.68)

0.000

0.387

0.296

429.83

(6.50)

0.059

0.256

0.623

359.05

(6.17)

0.000

0.894

0.293

374.44

(7.03)

0.064

0.543

0.638

327.17

(5.68)

0.000

0.385

0.296

429.13

(6.50)

0.059

0.256

0.621

359.11

AR (1) test

AR (2) test

Hansen test

Wald chi2

Prob > chi2

Obs

0.000

3707

0.000

3707

0.000

3707

0.000

3707

0.000

3707

0.000

3707

Notes: (*), (**), and (***) indicate signiﬁcance of 10%, 5%, and 1%, respectively.

z-statistic in ()

The other empirical outcomes are robustness in Table 3, Table 4 and Table 5, and the coefﬁcients of control

variables are similar to matrix correlation in Table 2. GROWTH plays a positive role signiﬁcant for ROA and

ROE at 1% level in all models. It implies that the ﬁrm performance is considerable upon the growth of the ﬁrm’s

revenue. Meanwhile, DEBT has a negative link with a ﬁrm performance at 1% or 5% level, consistently with

prior studies. SIZE, as captured by the log of ﬁrm assets, is negatively related to the ﬁrm’s proﬁtability ratios,

similarly with the level of using non-current assets (PPE). The ﬁrms, which have a large total asset and a high

ratio of a tangible asset, may be more difﬁcult to restructure than smaller ones; and it will impact negatively on

the effectiveness of ﬁrm proﬁtability (Qi et al., 2000; Tian & Estrin, 2008; and Le & Chizema, 2011; )

6. CONCLUSION

This study estimates the impact of state-ownership on ﬁrm performance and the inﬂuence of provincial

competitiveness by using the data of the listed ﬁrms from 2007 to 2015 in Vietnam. With the two-step

system GMM method, the study ﬁnds that the state-ownership is positively related to ﬁrm performance,

as presented by ROA and ROE. The ﬁndings also show that ﬁrm performance will increases when the

provincial competitiveness is enhanced. In addition, empirical results suggest that the government should

strongly privatise (reducing the level of state-ownership to under 25%) or highly centralised (holding the

level of state-ownership > 75%) to enhance the ﬁrm performance, besides the improving the provincial

competitiveness. Besides that, the characteristics of the ﬁrm such as size, debt ratio, tangible asset level

or growth are found to have a statistically signiﬁcant connection to the ﬁrm performance. Our results

are robustness in all model with ROA as well as ROE. Our study has some policy implications: (1) the

government should continuously improve the provincial competitiveness, (2) the government should

strongly privatise commercial ﬁrm and hold high levels of state-ownership in strategic enterprises

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