Ownership Structure and Firm Performance: Evidence From Vietnamese Listed Firms

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OWNERSHIP STRUCTURE AND FIRM PERFORMANCE:

EVIDENCE FROM VIETNAMESE LISTED FIRMS
DUC NAM PHUNG
University of Economics Ho Chi Minh City
ANIL V. MISHRA
Western Sydney University
We examine the effect of ownership structure on firm performance, for firms listed on Vietnamese stock
exchanges, using 2744 firm-year observations over the period from 2007 to 2012. We find a non-linear
relationship between ownership structure and firm performance. State ownership has a convex relationship
with firm performance. This paper finds that firm performance increases beyond 28.67 percent level of state
ownership. Foreign ownership has a concave relationship with firm performance. We find that firm performance increases with an increase of foreign ownership up to a level of 43 percent and then decreases. Policy
makers should encourage foreign ownership and widely dispersed state ownership in firms, which can help
improve firm performance.
I.
Introduction
In the past, Vietnam was a centrally planned economy; however, in 1986, important economic
reforms known as Doi Moi took place whereby Vietnam adopted a market economy. Following this,
privatisation of state-owned enterprises, also called equitisation in Vietnam, was proposed in 1991
and launched in 1992. The privatisation process helped change the ownership structure of stateowned firms by selling a portion of their shares to public investors, both local and foreign, with the
objective of improving their performance. This move implies that private and foreign ownership
have played a significant role in improving the economy of Vietnam. Mishra (2011) contended that
the privatisation of thousands of small and medium state-owned firms over the period 19902000
resulted in an increase in the number of corporations. The total number of firms was 42 288 in the
year 2000, which increased to 346 777 in the year 2012 (Vietnam General Statistics Office, 2010a,
2014). Together with the transition of the economy, there are various types of firms in Vietnam,
including state-owned firms, private firms, collective name companies, limited liability companies,
joint-stock companies (corporations), and foreign-invested companies (Vietnam General Statistics
Office, 2010a). The contribution of both state ownership and foreign ownership is more than half of
the total gross domestic product of Vietnam in the years 2000, 2006, and 2012 (Vietnam General
Statistics Office, 2006, 2010b, 2014). Thus state ownership and foreign ownership play an important role in the Vietnamese economy.
doi: 10.1111/1467-8454.12056
Correspondence: Anil V. Mishra, School of Business, Western Sydney University, Penrith, NSW 2751.
a.mishra@uws.edu.au.
2015 Flinders University and University of Adelaide and Wiley Publishing Asia Pty Ltd.
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The literature on ownership and firm value in the Vietnamese context is very scarce. There are no
papers that systematically investigate the relationship between foreign ownership and firm performance in the Vietnamese context. The impact of foreign ownership on firm performance is
unexplored in Vietnamese listed firms. This is the first study that systematically examines the
impact of foreign and state ownership on firm value in the Vietnamese context. By using the system
generalised method of moments (GMM) approach, empirical results indicate that state ownership
has a convex relationship with firm performance. We find that firm performance increases beyond
28.67 percent of the level of state ownership. Furthermore, foreign ownership is found to have an
inverted U-shaped relationship with firm performance. Firm performance increases with an
increase of foreign ownership up to a level of 43 percent and then decreases.
This paper is organised as follows. Section II provides a literature review on the impact of
ownership on firm performance. Section III proposes hypotheses on the relationship between
ownership and firm performance. Section IV describes the methodology, data, and variables.
Section V provides an overview of foreign ownership in Vietnamese firms. Section VI provides
summary statistics and correlation of variables. Section VII discusses the results. Finally, Section
VIII concludes.
II.
L i t e r at u r e R e v i e w
The following sub-sections focus on the literature related to ownership structure (state and
foreign) and firm value.
a) State ownership and firm performance

State ownership may impact on a firms performance if there is misalignment of the goals of the
state with other shareowners. The goal of ordinary shareholders is to maximise wealth. State
ownership, however, may have different goals social (i.e. to increase employment) or political (i.e.
to prevent penetration by foreign investors and protect domestic producers). Such goals do not align
with the goal of firm value maximisation. Capobianco and Christiansen (2011) stated that the
adverse impact of state ownership on firm performance is because state ownership has different
goals to those of other owners. It is also argued that state ownership suffers from high agency cost,
often from poor corporate governance (Shleifer, 1998), and thus, that state ownership has a negative
effect on firm performance.
Thomsen and Pedersens (2000) investigation into the effect of ownership structure on firm
performance finds that government ownership has a negative impact on firm performance (measured by the market-to-book value of equity and return on assets). Gunasekarage et al. (2007) used
a sample of 1034 listed firms in China from 2000 to 2004 and showed a negative influence of state
ownership on firm performance.1
Apart from its negative impact deriving from agency problems, state ownership can be considered a worthy feature in enhancing firm performance. Firth et al. (2008) found that state ownership
helps a firm to raise capital easily from bank loans. Connections with the state may help firms cope
Alfaraih et al. (2012) and Megginson et al. (1994) found a negative relationship between state ownership and
firm performance.
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with bureaucratic requirements and obtain favours from government. Le and Buck (2011) indicated
that firms may obtain benefits from state ownership through monitoring managers or private
blockholders.2
Some studies found non-linear effects of state ownership on firm performance. Wei and Varela
(2003) pointed out a U-shaped relationship between state ownership and firm performance in
Chinese privatised firms in 1994, 1995, and 1996. Ng et al. (2009) investigated Chinese privatised
companies over the period 19962003 and found a convex connection between state ownership and
firm performance. This implies that firms with substantial state ownership benefit from the support
of the state or political connections. Hess et al. (2010) also indicated a convex relationship between
state ownership and firm performance in Chinese listed firms, and argued that a high level of state
ownership improves performance because the government puts more effort into these firms. Yu
(2013) employed panel data of Chinese listed firms from 2003 to 2010 to investigate the relationship
between state ownership and firm performance. She too found that state ownership has a U-shaped
relationship with firm performance, and that while state ownership initially has a negative effect, it
may enhance performance when it is concentrated, as a high concentration of state ownership
helps firms benefit from governmental support and political connections. She also indicated that
government policy related to state ownership is a positive link between state ownership and firm
performance.
There is some research on the relationship between state ownership and firm performance in the
Vietnamese context. Carlin and Pham (2008) used the data of 21 listed firms in the Ho Chi Minh
Stock Exchange. They found that there is a decrease in profitability of firms that were previously
state-owned companies. Do and Wu (2014) analysed the data of 134 non-financial listed companies
on the Ho Chi Minh Stock Exchange over the period 2009 and 2012 and found a positive
relationship between state ownership and firm performance (proxy by return on assets and return on
equity).
b) Foreign ownership and firm performance

Some studies show a positive relationship between foreign ownership and firm performance.
Ongore (2011) investigated the effect of different types of ownership on firm performance in Kenya
and contended that while state ownership has a negative impact on firm performance, foreign
ownership has a significant, positive impact. He argued that foreign investors help improve management systems and provide access to massive resources. Pervan et al. (2012) examined the
association between corporate ownership and firm performance in Croatia and found that listed
firms controlled by foreign investors perform better than domestic firms. Wellalage and Locke
(2012) used panel data from Sri Lankan listed companies to investigate the impact of ownership
structure on firm financial performance and similarly found that foreign ownership has a positive
impact on firm performance.
Khanna and Palepu (1999) investigated the effect of family ownership, domestic institutional
ownership, and foreign institutional ownership on firm performance. Using data from Indian firms
from 1990, 1993, and 1994, they found that while foreign institutional ownership positively affects
firm performance, domestic institutional ownership has a negative effect. They stated that foreign
institutional ownership is a good monitor in a developing market but domestic institutional ownership is not. Oxelheim and Randy (2003) examined the impact of foreign board membership on
firm performance in Norway and Sweden and showed that this relationship is positive. They found
2
In Chinese context, Sun et al. (2002) and Le and Chizema (2011) found a positive relationship between state
ownership and firm performance.
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that firms with foreign (AngloAmerican) board membership have better corporate governance,
which may enhance firm value, and that enhanced firm performance brought about by foreign
ownership can be observed not only in emerging markets but also in developed markets.
Based on a multi-theoretical perspective (agency, resource-based, and institutional theories),
Douma et al. (2006) studied the data of 1005 Indian firms from 1999 to 2000 and stated that foreign
ownership (separated into institutional and corporate ownership) has a positive effect on corporate
performance in India because foreign shareholders can play a monitoring role in internal governance. This finding is consistent with that of Khanna and Palepu (1999). Huang and Shiu (2009)
similarly found that the level of foreign ownership in Taiwanese firms has a positive impact on firm
performance because foreign investors act as monitors.
Koo and Maeng (2006) conducted a study on Korean manufacturing firms from 1992 to 2002 and
asserted that foreign ownership impacts negatively on cash flow sensitivity. This implies that foreign
ownership may help a firm overcome financial constraints and increase ease of access to external
financing, therefore increasing its investments and perhaps leading to higher performance. Kimura
and Kiyota (2007) indicated that in Japan, too, foreign-owned firms perform better than domesticowned firms. They pointed out that foreign ownership brings advanced firm-specific assets and
improves firm performance.
Ghahroudi (2011) examined 3500 foreign subsidiaries in Japan and found that foreign ownership
has a positive link with transfer of knowledge in the subsidiaries with high numbers of foreign
managers and employees. Nakano and Nguyen (2012) investigated the effect of foreign ownership
on firm performance in the electronics industry in Japan from 1998 to 2011 and stressed that foreign
ownership is significantly associated with firm value. They stated that the monitoring role of foreign
ownership helps alleviate suboptimal decisions by managers.
Kolasa et al. (2010) examined the effect of global financial crisis on firms in Poland and found
that foreign-owned firms may deal effectively with a downturn when crisis occurs because they can
overcome difficulties in demand and credit constraints. However, in another study on listed firms in
the Romanian Bucharest Stock Exchange, Mihai (2012) stated that the positive impact of foreign
ownership on firm performance is dissipated in periods of crisis.
Some studies reveal a non-linear relationship between foreign ownership and firm performance.
Gurbuz and Aybars (2010) looked at Turkish data from 2005 to 2007 and found that foreign
ownership has an inverted U-shaped relationship with firm performance; this means that an increase
in foreign ownership initially increases firm performance, but after the inflection point, the relationship becomes negative. Azzam et al. (2013) utilised panel data from 8185 Egyptian firms from
2006 to 2010 and found that foreign ownership enhances firm performance up to a certain level and
then its effect decreases. A non-linear relationship between foreign ownership and firm performance is also found in a study by Greenaway et al. (2012). They investigated the relationship
between foreign ownership and firm performance in 21 582 unlisted Chinese firms from 2000 to
2005, and found that when foreign ownership increases to 4761 percent, firm performance
increases; but if foreign ownership continues to increase, firm performance slumps. They also
pointed out that foreign owners from Hong Kong, Macao, and Taiwan impact the most on firm
performance in China.
Choi et al. (2012) showed empirical evidence of the inverted U-shaped relationship between
foreign ownership and firm performance in Korean listed firms over the period 2004 and 2007. They
argued that foreign ownership helps increase firm performance by activating independent monitoring, but performance drops if the foreign contingent becomes concentrated enough to control the
board.
There are as yet no papers that systematically investigate the relationship between foreign
ownership and firm performance in Vietnamese listed firms. Nor are state ownership and foreign
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ownership, both important factors of firms in Vietnam, systematically investigated. This study fills
this gap in the literature on ownership and firm value.
III.
H y p o t h e s e s o n t h e R e l at i o n s h i p b e t w e e n O w n e r s h i p
Structure and Firm Performance

The literature review above reveals mixed evidence of the impact of state ownership on firm
performance. It can be argued that state ownership has a non-linear impact on firm performance.
The firm performance model for state ownership is
y = + 1 x + 2 x 2
(1)
where y denotes firm performance and x denotes state ownership.

As state ownership increases, it has an entrenchment effect on firm performance because it tends
to be politically driven rather than market driven (Gunasekarage et al., 2007; Wu et al., 2012).
Shleifer and Vishny (1994) stated that politicians desire firms with state ownership to increase their
levels of labour because they can obtain political benefits from the surplus of employment. Boycko
et al. (1996) also contended that politicians prefer over-employment since they can achieve votes
from the many employees in state-owned firms. Andres (2008) argued that the state representatives
in firms can act for their own benefit and not for the states. Borisova et al. (2012) argued that in
countries with a civil law system, state ownership acts as a channel for political intervention. It is
observed that Vietnam has a civil law system3 and the economy is characterised by high state
ownership; therefore, it may be hypothesised that an increase in state ownership will reduce firm
performance (1 < 0).
State ownership, however, may have a positive impact on firm performance as it has several
advantages, such as access to resources and power, not available to other types of ownership
(Borisova et al., 2012). For example, state owners may raise funds easily, can influence the regulations imposed on firms, and have informational advantages. Firms with high levels of state
ownership may obtain support from the government and derive benefits from their political connections,4 which help improve performance (Yu, 2013). Ang and Ding (2006) found that
government-linked companies have higher value and better corporate governance than other companies in Singapore. This implies that state ownership in listed firms may be influential in emerging
markets.
Yu (2013) showed that state ownership has a U-shaped relationship with firm performance. When
state ownership is high, bureaucrats put more effort into firms in which they have large holdings. At
high state shareholding levels, the state provides more resources and greater authority compared
with small investors under a dispersed ownership structure. Tian and Estrin (2008) found a
U-shaped relationship between state ownership and firm performance. A government-dominated
shareholding structure may be more effective than a dispersed shareholding structure in reducing
managerial agency costs in situations when legal enforcement is weak. Government may give
3
https://www.cia.gov/library/publications/the-world-factbook/fields/2100.html.
Cooper et al. (2010) showed evidence that US firms with political connections (through corporate contributions to politicians) have significant positive effect on future stock returns. Su and Fung (2013) reported a
positive link between political connections and firm performance in Chinese firms.
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preferential treatment, including explicit bias when the government is regulator, preferential loans
when the government is creditor, large orders for products when the government is a consumer, and
discounted sales of production when the government is a producer. Wei and Varela (2003) stated
that better performance after the inflection point may reflect governments retention of substantial
ownership in better firms to protect its monetary interests.
In the context of Vietnam, the government considers state ownership to be a major force driving
the economy.5 It is observed that Vietnamese firms with a high level of state ownership have
political connections; thus, it can be argued that firms may exploit the advantages of having high
state ownership to improve performance. State ownership can enhance firm performance when it is
concentrated (2 > 0).
When 1 < 0 and 2 > 0, it is expected that state ownership will erode firm performance up to a
breakpoint, and after this will enhance it. The breakpoint is calculated by taking the derivative of y
with respect to x and letting the result equal zero:
dy
= 1 + 2 2 x = 0
dx
x* =
1
2 2
(2)
(3)
Because x represents state ownership, x cannot take negative values. This implies that 1 < 0,
2 > 0, and x* is a minimum.
In order to illustrate the impact of state ownership on firm performance as argued above, the
following hypothesis is tested:
Hypothesis 1: State ownership has a U-shaped relationship with the performance of listed
firms in Vietnam.

According to the literature review (Section IIa), foreign ownership has a potential nonlinear
impact on firm performance. A model for the relationship between foreign ownership and firm
performance can be described as
y = + 1z + 2 z 2
(4)
where y denotes firm performance and z denotes foreign ownership.

As foreign ownership increases, foreign investors become large shareholders. Shleifer and
Vishny (1986) argued that as large ownership increases, the chance that a takeover may happen can
put pressure on managers because they can be replaced by a team of large shareholders. In addition,
when foreign (or any) shareholders hold a significant stock proportion of a firm, they monitor
managers and neutralise agency problems in order to protect their benefits (Kim, 2011). As foreign
ownership increases, firms can tap into better resources (such as access to finance or technology and
experience) from foreign investors (Huang & Shiu, 2009; Romalis, 2011) in order to improve
performance; thus, it is expected that foreign ownership that plays monitoring role may increase
firm performance (1 > 0).
However, the monitoring effect of foreign ownership can be absorbed by the initiative effect
when it is concentrated (Burkart et al., 1997). In this situation, large shareholders may reduce the
5
Constitution of Vietnam 1992, 2013 (Vietnam National Assembly, 1992, 2013).
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initiative of managers in decision processes and this can neutralise the control effect. Hence, large
shareholders have an effective control (monitoring) effect ex post, but produce an initiative (expropriation) effect ex ante. Shleifer and Vishny (1997) stated that large shareholders interests may not
coincide with those of other stakeholders in a firm. Through their control rights, large shareholders
can distribute the firms wealth in ways that most benefit them (e.g. paying special dividends).
When foreign ownership is more concentrated and becomes large, this group of investors gains
managerial power (i.e. replaces the current firms managers with new ones) and controls a large
proportion of voting rights against the firms assets. At this stage, they may have interests that do
not align with other shareholders, leading to conflict between large and minority shareholders,
which may impair firm performance (Gibson, 2003). Therefore, it is hypothesised that concentrated
foreign ownership may impair firm performance (2 < 0).
With two expectations for the impact of foreign ownership on firm performance, the firm
performance model has a maximum of z (or inflection point):
dy
= 1 + 2 2 z = 0
dz
z* =
1
2 2
(5)
(6)
Since foreign ownership must not be negative (z 0), this implies that 1 > 0, 2 < 0.
As Vietnam is an emerging market with an ineffective corporate governance system, foreign
ownership can play a monitoring role in governance and provide advanced skills and resources,
which may lead to an increase in a firms value. This positive effect may disappear when foreign
ownership accounts for a large proportion of the ownership; therefore, the following hypothesis is
proposed:
Hypothesis 2: Foreign ownership has an inverted U-shaped relationship with the performance
of listed firms in Vietnam.
I V.
R e s e a r c h M e t h o d o l o g y, D a t a , a n d Va r i a b l e s
a) Model specification
The following empirical model specification will be used to test the hypotheses about the effect
of state ownership and foreign ownership on firm performance:
FPit = + 1OWN it + 2 X it + it
(7)
it = v i + u it
(8)
where FPit is the firm performance of firm i at time t, OWNit is the ownership structure (state or
foreign) of firm i at time t, Xits are the control variables of firm i at time t, and it is the error term
that includes time invariant effect vi and random error term uit.
The model examines the impact of ownership structure on firm performance. With the panel data,
a fixed effect model is often used for controlling unobserved heterogeneity (Baltagi, 2005);
however, this technique cannot be employed if there is an endogenous variable in the model (De
Miguel et al., 2003). Previous studies of the relationship between ownership and firm value indicate
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that ownership structure is an endogenous variable (Thomsen & Pedersen, 2000; Demsetz &
Villalonga, 2001). Therefore, the instrumental variable estimation can be used to alleviate the
endogeneity problem caused by the ownership variable. However, it is difficult to find appropriate
instrumental variables (Nakano & Nguyen, 2012; Guo, 2015) that fulfil the requirements of a valid
instrumental variable, including no correlation with the error term and correlation with the endogenous variable (Baser, 2009). As firm performance may be dynamic in nature, the fixed effect
approach produces biased and inconsistent estimates (Wooldridge, 2013). The within transformation of fixed effect approach will eliminate the time invariant effect vi, but the transformed lagged
dependent variable6 is correlated with the transformed error term ( ui ,t ui ) and yi,t1 is correlated
with ui,t1 (Baltagi, 2005); this leads to the conclusion that the within transformation estimator is
inconsistent (Bond, 2002). Therefore, in order to avoid endogeneity problems, the GMM for panel
data analysis is used. Upon including lag variable of firm performance as an independent variable,
the model is as follows:
FPit = + FPi ,t 1 + 1OWN it + 2 X it + it
(9)
it = v i + u it
(10)
E ( v i ) = E ( u it ) = E ( v i u it ) = 0
(11)
where FPit is the firm performance of firm i at time t, FPi,t1 is the firm performance of firm i at time
t1, OWNit is the ownership structure of firm i at time t, Xits are the control variables of firm i at time
t, and it is the error term that includes time invariant effect vi and random error term uit.
Anderson and Hsiao (1982) suggested first differences, since the ordinary least square method
and fixed effect or random effect methods are not appropriate for dynamic panel data (Wooldridge,
2013). By taking first differences, the time invariant effect of individuals is removed and an
instrumental variables estimation can be applied. Instrumental variables for the lagged dependent
variable can be built from the second and third lag of the dependent variable (yi,t2 and yi,t3, or yi,t2
and yi,t3). These instrumental variables correlate highly with the lagged dependent variable but do
not correlate with error disturbance (Roodman, 2009).
Arellano and Bond (1991) indicated that while the estimation of Anderson and Hsiao (1982) is
consistent, it does not account for potential orthogonality conditions. They proposed differencing
transform and GMM to deal with dynamic panel data; their model is called difference GMM. In this
approach, the model is defined as a system of equations and uses lagged values of endogenous and
exogenous variables as instrumental variables. The model, however, presents a weakness in that
lagged levels are sometimes poor instruments for the first differenced variables, which could be
biased for finite sample. Arellano and Bover (1995) and Blundell and Bonds (1998) therefore
proposed an augmented version using a system of two equations, including a level equation and a
differencing transform equation. This ArellanoBover/BlundellBond model is called the system
GMM, and it combines moment conditions of both difference and level equations, which can make
estimation more efficient. This method requires the assumption that first differences of instrumental
variables for level variables are not correlated with unobserved individual effects, which means that
the difference of predetermined variables can be used as instruments for level equations. The system
GMM model introduces more instruments and therefore may increase efficiency (Roodman, 2009).
This study employs this approach to examine the relationship between ownership structure and firm
performance.
T
( yi ,t 1 yi ,1 ) where yi ,1 =
t =2
yi ,t 1
.
T 1
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In order to make the system GMM model perform well, serial correlation in differenced residuals
must be tested. The ArellanoBond test for autocorrelation is used to identify autocorrelation of the
differenced errors (i.e. E(ui,tui,t2) = 0). The null hypothesis of this test is that there is no
autocorrelation. The results should return a rejection of the null hypothesis for the first-order serial
correlation in the first differenced errors and an acceptance for the second-order serial correlation
in the first differenced errors. In addition, the Sargan or Hansen test of overidentifying restrictions
is performed to test the null hypothesis that instruments are exogenous, meaning there is no
correlation between the instruments and the disturbances.
This study employs versions of the model below to test the hypotheses of the relationship
between ownership structure (state and foreign) and firm performance:
FPit = + FPi ,t 1 + 1OWN it + 1OWN it 2 + 3X it + it
(12)
where FPit is the firm performance of firm i at time t, FPi,t1 is the firm performance of firm i at time
t1, OWNit is the ownership structure of firm i at time t, OWNit2 is the square of ownership, Xits are
the control variables of firm i at time t and are explained in the next section, and it is the error term.
Following the proposed hypotheses, it is expected that 1 should be negative for state ownership and
positive for foreign ownership, and 2 should be positive for state ownership and negative for
foreign ownership.
b) Data
This study uses a commercial database of all listed firms in the Ho Chi Minh and Hanoi Stock
Exchanges, provided by Tai Viet Corporation (Vietstock), a leading financial information service
provider in Vietnam. The data span the period from 2007 to 2012. The year 2007 was chosen as the
beginning of the analysis period because of the availability of data. In line with previous studies
(Lemmon & Lins, 2003; Bae et al., 2012; Lien & Li, 2013; Yu, 2013; Farooqi et al., 2014), this
study does not include data on financial firms (banks, securities companies, and insurance companies) because these firms are completely different from non-financial firms (Lin & Shiu, 2003), and
some variables may not be comparable between financial and other firms (Liljeblom & Lflund,
2005). For example, Vietnamese non-financial firms are monitored by enterprise law, while financial firms are monitored by credit institutions law. Banks in Vietnam are also monitored by the State
Bank of Vietnam (central bank). Regulations impose a limit on banks capital investment in other
firms. For instance, the capital of a bank invested in a firm cannot exceed 11 percent of the charter
capital of the firm, and the total capital invested by a bank cannot exceed 40 percent of the charter
capital and reserves of that bank (this figure was 30 percent in 2000 and raised to 40 percent in
2005).
The database covers 644 firms (201 firms in 2007, 281 (2008), 403 (2009), 580 (2010), 635
(2011), and 644 (2012)) listed on the Ho Chi Minh and Hanoi Stock Exchanges by the end of
December 2012. The final data have 2744 firm-year observations. These firms are classified into 15
sectors7 and 43 industries.8 The data include financial information at the end of the year from
7
Sectors are: Accommodation and Food Services; Administrative and Support and Waste Management and
Remediation Services; Agriculture Production; Arts, Entertainment, and Recreation; Construction and Real
Estate; Educational Services; Finance and Insurance; Information and Technology; Manufacturing; Mining,
Quarrying, and Oil and Gas extraction; Other Services; Professional, Scientific, and Technical Services;
Transportation and Warehousing; Utilities; Wholesale Trade and Retail Trade.
8
Industries are: Administrative and Support Services; Animal Production; Apparel Leather and Allied
Products; Architectural, Engineering, Specialised Design Services and Related Services; Arts, Entertainment,
and Recreation; Chemical Pharmaceutical; Construction; Construction and Real Estate; Crop Production;
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MARCH
financial reports, including income statements, balance sheets, explanations for the financial statement, and annual reports. In addition, market information such as market price and trading volume
is collected from the stock exchanges. State ownership and foreign ownership data of the listed
firms are available from both exchanges.
c) Variables
This section describes measures of the dependent variable (firm performance) and independent
variables (ownership and other control variables) that are used to investigate the relationship
between state and foreign ownership and firm performance.
Firm performance describes the efficiency of a firms operations. Tobins Q is a popular measure
of firm performance in empirical studies in corporate finance (Lang & Stulz, 1994; Berger & Ofek,
1995; Fukui & Ushijima, 2007; Lin & Su, 2008; Dey & Banerjee, 2011). Tobins Q is defined as the
ratio between the market value and replacement value of assets (Brainard & Tobin, 1968; Tobin,
1969; Perfect & Wiles, 1994; Choi et al., 2012). Some studies use book value of assets instead of
replacement value of assets as the denominator in the formula of Tobins Q (Villalonga, 2004;
Villalonga & Amit, 2006). Tobins Q is considered a forward-looking measure for firm performance
as it can capture the market value of a firms assets (Dezs & Ross, 2012); thus, this study uses
Tobins Q as the firm performance measure. The following formulas present the calculation of firm
performance measures:
Tobins Q =
Shares market price Number of outstanding shares + Book value of debt

Book value of total assets
(13)
Tobins Q =
Shares market price Number of outstanding shares + Book value of debt

Replacement value of assets
(14)
In the second formula of Tobins Q, replacement value of assets is calculated as in the studies of
De Miguel et al. (2004) and De Miguel and Pindado (2001). The replacement value of a firms
assets (K) is defined as
K = KF + KI + ( BA BF BI )
(15)
where KF is the replacement value of tangible assets, KI is the replacement value of inventories, BA
is the book value of the firms total assets, BF is the book value of tangible assets, and BI is the book
value of inventories.
KF = KFt 1 (1 + a ) (1 + b ) + I
(16)
Educational Services; Electric Power Generation, Transmission and Distribution; Electrical Equipment and
Telecommunications; Financial Services and Related Activities; Food BeverageTobacco; Furniture and
Related Products; Hotel and Accommodation; Machinery Transportation Equipment; Management, Scientific,
Technical Consulting; Metal Nonmetallic Mineral Fabricated; Mining (except Oil and Gas); Natural Gas
Distribution; Other Products; Other Services; Paper Manufacturing; Petroleum and Coal Products; Plastics and
Rubber; Publishing Industries; Real Estate; Repair and Maintenance; Retail Trade; Scenic and Sightseeing
Transportation; Scientific Research and Other Related Services; Support Activities for Agriculture and Forestry;
Support Activities for Mining; Support Activities for Transportation; Telecommunications; Transit and Ground
Passenger Transportation; Truck Transportation; Warehousing and Storage; Water Transportation; Water,
Sewage and Other Systems; Wholesale Trade; Wood Products.
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where a is the ratio of depreciation over the book value of tangible assets, b is the annual growth of
capital good prices (these data are collected from the Vietnam yearbooks of statistics), KFt1 is the
lagged value of the replacement value of tangible assets, KF0 = BF0, and I is the investment, which
is defined as the change in book value of tangible assets plus depreciation.
KI = BI 2Pt ( Pt + Pt 1 )
(17)
where P is the wholesale price (obtained from Vietnam yearbooks of statistics).

Ownership structure relates to shares of stock held by specific owners of firms. Ownership
structure is mostly measured by the percentage of specific ownership in a firm (Wei & Varela,
2003; De Miguel et al., 2004; Ang & Ding, 2006; Villalonga & Amit, 2006; Singal & Singal,
2011; Borisova et al., 2012) or dummy variable (Thomsen & Pedersen, 2000; Ang & Ding, 2006;
Singal & Singal, 2011; Do & Wu, 2014). This study focuses on state ownership and foreign
ownership. State ownership, a firms shares held by the state, accounts for about 46 percent of
equity in privatised firms (Sjholm, 2006). Foreign ownership is a firms shares held by foreign
investors:
State ownership =
Foreign ownership =
Shares market price Number of shares held by the state

Market value of equity
Shares market price Number of shares held by foreign investors

Market value of equity
(18)
(19)
Control variables that represent firm attributes are employed to investigate the effect of state
ownership and foreign ownership on firm performance. The control variables are firm size, capital
intensity, profitability, investment, and research and development (R&D) intensity, in accordance
with Himmelberg et al. (1999). This study also employs additional control variables, including
leverage, liquidity, firm age, dividend payout, and beta, in accordance with previous studies.
Size has a mixed effect on firm performance. Large firms tend to have lower growth opportunities, leading to lower performance (Konijn et al., 2011). When firms become larger, managers may
not direct the firms efficiently (Himmelberg et al., 1999) and the level of transparency may
decrease; this means that the cost of monitoring may increase in large enterprises. Large firms may
have the advantage of economies of scale, or of market power, which help them improve firm
performance (Pervan & Viic, 2012; Dogan, 2013); therefore, firm size may have a non-linear effect
on firm performance. This study uses the natural log of sales and the square of log of sales as firm
size, in accordance with Himmelberg et al. (1999).
Capital intensity illustrates the characteristic of the industry in which the firm operates and shows
the proportion of fixed assets in total assets. It is measured by the ratio of tangible assets (or fixed
assets) over total assets (or total sales) (Demsetz & Villalonga, 2001; Konijn et al., 2011). It is
argued that firms with intensive capital are likely to suffer lower agency problems (Konijn et al.,
2011). Previous studies find a negative relationship between capital intensity and firm performance
(Demsetz & Villalonga, 2001; Gurbuz & Aybars, 2010; Konijn et al., 2011). In the spirit of
Himmelberg et al. (1999), this study uses the ratio of the replacement value of a firms assets to
sales as its capital intensity, and the square of this ratio to allow for curvilinearity of capital
intensity.
Profitability shows a firms capacity to generate profit. It is seen that firms with high profitability
are high performing, and previous studies find a positive relationship between profitability and firm
performance (Gurbuz & Aybars, 2010; Margaritis & Psillaki, 2010; Phung & Le, 2013). This study
defines profitability as the ratio of operating income over sales (Chen & Ho, 2000).
74
MARCH
Investment represents the level of investment activities of firms. Investment has a positive
relationship with firm performance, as an increase in capital expenditure means growth opportunities (Konijn et al., 2011). Cho (1998) examined the simultaneous relationship between insider
ownership, investment and firm value, and stated that investment positively affects firm performance. Davies et al. (2005) also found a positive link between investment and firm performance.
Investment is measured by capital expenditure (Cho, 1998), or capital expenditure divided
by total sales (Berger & Ofek, 1995; Konijn et al., 2011). In this study, the ratio of capital
expenditure over the replacement value of assets is used to proxy for investment (Himmelberg et al.,
1999).
R&D intensity indicates the level of spending on research and development (investing in technology, for example), which may improve firm performance. R&D intensity shows a firms capacity
to utilise technological knowledge (Chen & Yu, 2012) and presents growth opportunities for the
firm (Chen & Ho, 2000). In a study of foreign ownership and firm value, Ferris and Park (2005)
demonstrated a positive effect of R&D intensity on firm value, as do Villalonga and Amit (2006)
in a separate study. In this study, R&D intensity is the ratio of R&D expenditure to the replacement
value of assets (Himmelberg et al., 1999).
Firm leverage is the debt ratio of a firm. The effect of leverage on firm performance is mixed.
Some studies indicate a positive relationship, while others reveal a negative or a non-linear
relationship (Margaritis & Psillaki, 2010). Firm leverage has a positive impact on firm performance
because of the benefit of a tax shield (Miller & Modigliani, 1963). Jensen (1986) argued that an
increase in firm leverage can mitigate agency problems and help improve firm performance. While
Davies et al. (2005) showed a positive effect of leverage on firm performance, there are studies
showing a negative effect of firm leverage on firm performance (Demsetz & Villalonga, 2001;
Andres, 2008; Gurbuz & Aybars, 2010). This study uses firm leverage as the ratio of total debt over
the market value of equity.
Liquidity refers to the ability of firms to cover short-term debt payments. Liquidity lessens cash
flow uncertainty and makes internal funds available, helping firms avoid the high cost of external
funding (Martnez-Sola et al., 2013). Generally, firms with high liquidity perform well and continue
their good performance (Cho, 1998); therefore, liquidity is expected to have a positive relationship
with firm performance. Liquidity is calculated as the ratio of cash and cash equivalents over total
assets (Thomsen & Pedersen, 2000).
Firm age indicates how long a firm has existed in the market. Firms with a long history
accumulate experience and this may help them increase performance (Gurbuz & Aybars, 2010).
Andres (2008), studying the effect of family ownership on firm performance, found that firm age
can have a negative effect in these cases due to the entrenchment effect of family managers in the
firms. In this study, firm age is measured by the number of years since the firm registered as a
corporation (Choi et al., 2012).
Dividend payout is the dividend payment ratio of the firm. This ratio indicates how much of a
firms earnings are paid to shareholders. High dividend payout means the firm retains less for
reinvestment and vice versa. An increase in dividend payouts may imply an expectation of high
profitability in the future. There is empirical evidence of a positive link between dividend payout
and firm performance (Akhigbe & Madura, 1996; Gurbuz & Aybars, 2010; Salawu et al., 2012).
This study uses dividend per share over earnings per share as the proxy for dividend payout
(Thomsen & Pedersen, 2000; Gurbuz & Aybars, 2010).
Beta is the systematic risk measure of stock, which indicates a relationship between risk and
return. Beta indicates how a firms stock price moves relative to market stock price. In this study,
beta is the coefficient of the stock market return in a regression model of stock return on stock
market return.
2016
VIETNAMESE FIRMS
V.
75
F o r e i g n O w n e r s h i p i n Vi e t n a m e s e F i r m s : A n O v e r v i e w
Foreign ownership in the Vietnam stock market at the end of 2012 is illustrated in Table I. The
table shows number of listed firms and total market capitalisation of listed firms across 43 industries. In column (1), Construction has the largest number of listed firms (120) on the stock market,
followed by Metal Nonmetallic Mineral Fabricated (65) and Real Estate (58). In column (2), in
terms of market capitalisation, Food Beverage Tobacco has the largest market capitalisation
value (150 000 billion Vietnam dongs), followed by Real Estate (94 000 billion dongs), Natural Gas
Distribution (76 000 billion dongs), and others. Column (3) presents the percentage of market
capitalisation of listed firms in industry relative to total market capitalisation of all listed firms in
industries. In column (4), Real Estate has foreign ownership in 27 firms, followed by Construction
(26 firms) and Food Beverage Tobacco (24 firms). Column (5) shows the percentage of firms
that have foreign ownership within industry. In column (6), Food Beverage Tobacco has the
highest value of market capitalisation of firms with foreign ownership (140 000 billion Vietnam
dongs), followed by Real Estate (85 000 billion dongs) and Natural Gas Distribution (76 000 billion
dongs). Column (7) illustrates the percentage of market capitalisation of firms with foreign ownership relative to market capitalisation of the industry. Overall, it can be observed that Food
Beverage Tobacco and Real Estate are the two industries that have gained most attention from
foreign investors. The last row of the table indicates that while the number of firms with foreign
ownership is only 37.27 percent, the market capitalisation of these firms is about 88 percent of the
total of all firms. This means that foreign ownership plays a significant role in the ownership
structure of listed firms in Vietnam.9
The characteristics of foreign owners in the listed firms with highest foreign ownership are shown
in Table II. Taya (Vietnam) Electric Wire and Cable JSC, in Electrical Equipment & Telecommunications, has the highest foreign ownership at 80 percent.10 The two last columns in the table list
the names and types of foreign shareholders; the majority are institutions. There are 48 foreign
institutional investors and only 10 foreign individual investors. The table also reveals that many
foreign institutional shareholders in listed firms are investment funds.
VI.
S u m m a r y S tat i s t i c s a n d C o r r e l at i o n M at r i x
This section provides a summary of statistics and the correlation matrix for firm performance,
state ownership, foreign ownership, and various control variables of listed firms in Vietnam.
The summary statistics of variables used in this study over the period 20072012 are presented
in Table III. The mean value of Tobins Q of listed firms in Vietnam is 1.083, which demonstrates
9
State ownership plays a significant role in ownership structure of listed firms in Vietnam. In 2012, Construction is the industry that has the largest number of firms with state ownership (78), followed by Metal
Nonmetallic Mineral Fabricated (37) and Wholesale Trade (27). Natural Gas Distribution has the largest
market capitalisation (75 000 billion of Vietnam dongs), followed by Food Beverage Tobacco (58 000 billion
of Vietnam dongs) and Chemical Pharmaceutical (19 000 billion of Vietnam dongs). The percentage of firms
with state ownership as compared to total number of listed firms is 61.18 percent. This reveals a fact that state
ownership widely appears in the stock market, compared to foreign ownership of 37.27 percent (Table I, column
(5)). The market capitalisation value of firms with state ownership only accounts for 50 percent, compared to 88
percent of foreign ownership (Table I, column (7)). State ownership in Vietnam by each industry for 2012 is
available from the authors upon request.
10
This number is higher than the limit of foreign ownership (49 percent; Prime Minister of Vietnam, 2009)
because it accounts for the founding shareholders ownership: the limit applies to tradable stock solely.
378.61
57.60
1 800.00
520.70
765.87
25 000.00
24 000.00
410.53
7 600.00
22.10
10 000.00
4 700.00
6 500.00
150 000.00
1 000.00
770.19
431.73
8.20
21 000.00
14 000.00
76 000.00
2
21
120
8
7
1
16
19
4
51
7
5
9
1
65
31
8
(billion VND)
(2)
0.94
1.30
30.00
0.20
0.15
0.09
0.00
4.20
2.80
15.20
0.15
5.00
4.80
0.08
1.52
0.00
2.00
0.08
0.01
0.36
0.10
(in %)
(3)
MCAP of firms
4
1
8
7
(1)
Number of firms
Foreign ownership in Vietnam, by industry (2012)
Administrative and Support Services

Animal Production
Apparel Leather and Allied Products
Architectural, Engineering, Specialised Design
Services and Related Services
Arts, Entertainment, and Recreation
Chemical Pharmaceutical
Construction
Construction and Real Estate
Crop Production
Educational Services
Electric Power Generation, Transmission and
Distribution
Electrical Equipment & Telecommunications
Financial services and Related Activities
Food Beverage Tobacco
Furniture and Related Products
Hotel and Accommodation
Machinery Transportation Equipment
Management, Scientific, Technical Consulting
Metal Nonmetallic Mineral Fabricated
Mining (except Oil and Gas)
Natural Gas Distribution
Industry
Table I
6
3
24
2
2
3
0
21
14
6
2
15
26
1
6
0
5
1
1
6
2
(number)
(4)
31.58
75.00
47.06
28.57
40.00
33.33
0.00
32.31
45.16
75.00
100.00
71.43
21.67
12.50
85.71
0.00
31.25
25.00
100.00
75.00
28.57
(in %)
(5)
Firms with foreign ownership
1 200.00
6 400.00
140 000.00
222.56
438.99
122.03
0.00
15 000.00
12 000.00
76 000.00
765.87
24 000.00
17 000.00
0.00
7 300.00
0.00
6 700.00
231.00
57.60
1 600.00
219.57
(billion VND)
(6)
25.53
98.46
93.33
22.26
57.00
28.27
0.00
71.43
85.71
100.00
100.00
96.00
70.83
0.00
96.05
0.00
67.00
61.01
100.00
88.89
42.17
(in %)
(7)
MCAP of firms with foreign ownership
76
MARCH
4
1
17
2
19
18
58
1
19
1
1
1
4
12
13
7
6
1
17
2
44
1
644
2 900.00
107.00
1 200.00
1 000.00
8 300.00
612.64
94 000.00
199.50
3 100.00
271.43
111.29
116.69
12 000.00
3 100.00
2 000.00
1 300.00
273.42
558.39
5 000.00
289.20
17 000.00
70.78
500 000.00
0.58
0.02
0.24
0.20
1.66
0.12
18.80
0.04
0.62
0.05
0.02
0.02
2.40
0.62
0.40
0.26
0.05
0.11
1.00
0.06
3.40
0.01
100.00
2
1
4
0
7
7
27
1
4
1
1
1
4
5
6
2
1
1
5
1
13
0
240
50.00
100.00
23.53
0.00
36.84
38.89
46.55
100.00
21.05
100.00
100.00
100.00
100.00
41.67
46.15
28.57
16.67
100.00
29.41
50.00
29.55
0.00
37.27
2 500.00
107.00
610.26
0.00
5 800.00
251.71
85 000.00
199.50
924.65
271.43
111.29
116.69
12 000.00
2 300.00
1 500.00
789.60
95.71
558.39
2 500.00
146.20
14 000.00
0.00
440 000.00
86.21
100.00
50.86
0.00
69.88
41.09
90.43
100.00
29.83
100.00
100.00
100.00
100.00
74.19
75.00
60.74
35.00
100.00
50.00
50.55
82.35
0.00
88.00
Notes: The table presents foreign ownership in Vietnam by industry at the end of 2012. Column (1) shows the number of listed firms within industry. Column (2) indicates
the total market capitalisation (MCAP) of listed firms, in billions of Vietnam dongs (VND). Column (3) shows the percentage of market capitalisation of industry
relative to total market capitalisation of all industries. Column (4) presents the number of firm with foreign ownership (firms that have foreign ownership greater
or equal 5%). Column (5) illustrates the percentage of foreign firms relative to the number of firms in industry. Column (6) shows the market capitalisation of firms
with foreign ownership by industry. Column (7) presents the percentage of market capitalisation of foreign firms relative to market capitalisation of industry.
Other Products
Other Services
Paper Manufacturing
Petroleum and Coal Products
Plastics and Rubber
Publishing Industries
Real Estate
Repair and Maintenance
Retail Trade
Scenic and Sightseeing Transportation
Scientific Research and Other Related Services
Support Activities for Agriculture and Forestry
Support Activities for Mining
Support Activities for Transportation
Telecommunications
Transit and Ground Passenger Transportation
Truck Transportation
Warehousing and Storage
Water Transportation
Water, Sewage and Other Systems
Wholesale Trade
Wood Products
All
2016
VIETNAMESE FIRMS
77
E-Land Asia Holding PTE.LTD (43.22)

Lin Mei Kuang (19.82)
Lm Quy Chuong (23.35)
VOF INVESTMENT LIMITED (43)
43.89
43.22
43.17
Natural Gas Distribution
Apparel Leather and Allied

Products
Wholesale Trade
Metal Nonmetallic Mineral

Fabricated
Traphaco Joint Stock Company
Vinaconex Advance Compound Stone

JSC
Mirae Joint Stock Company
Insurance Carriers and

Related Activities
Products
PVI Holdings
33.58
Blackhorse Enhanced VN (18.76)

UBS AG London Branch (16.53)
The Blachhorese Emerging Enterprises Master
Fund (5.23)
Lotte Confectionery Co. Ltd (38.6)
Mekong Enterprise Fund (20.7)
Mekong Enterprise Fund II (9)
Nguye n Van Vu Luong (6.5)
HDI-Gerling Versicherung AG (25)
Funderburk Lighthouse Limited (10.75)
Mirae Fiber Tech Co. Ltd (14.54)
Shin Young Sik (20.35)
Vietnam Azalea Fund Limited (24.99)
Vietnam Holding Limited (9.64)
Red River Holding Limited (18.46)
Beira Limited (15.12)
Institution
Institution
Institution
Individual
Institution
Institution
Institution
Individual
Institution
Institution
Institution
Institution
Institution
Institution
Institution
Individual
Individual
Institution
Institution
Institution
34.63
34.89
35.75
38.6
36.2
40.52
Hotel and Accomodation

Electrical Equipment &
Telecommunications
43
Real Estate
Bibica Corporation
Ngo Han Joint Stock Company
Quoc Cuong Gia Lai Joint Stock

Company
Sai Gon Hotel Corporation
48.69
ENN Energy (43.89)
45.94
Individual
Institution
Individual
Individual
Institution
Nguye n Chnh Ngha (6.71)

Kai Chieh International Investment Ltd (52.49)
Yung Cam Meng (23.85)
David Cam Hao Ong (24.84)
CFR International Spa (45.94)
59.2
Domesco Medical Import Export Joint

Stock Corporation
PetroVietnam Gas City Investment and
Development JSC
Thanh Cong Textile Garment Investment
Trading JSC
Vinh Khanh Cable Plastic Corporation
Sieu Thanh Joint Stock Corporation
Institution
Rich International L.L.C (76.03)
76.03
78
Institution
Institution
Institution
Type of
shareholder
Taya Electric Wire & Cable Co., Ltd (60)

Great Chine Electric Wire & Cable Co., Ltd (20)
CHYIH INVESTMENT Co., Ltd (78)
Foreign shareholders name

(ownership in %)
80
Overall foreign
ownership (%)
Electrical Equipment &

Telecommunications
Fabricated
Fabricated
Arts, Entertainment, and
Recreation
Retail Trade
Industry
Taya (Vietnam) Electric Wire And Cable

JSC
Chang Yih Ceramic Joint Stock
Company
Tung Kuang Industrial Joint Stock
Company
Royal International Corporation
Company name
Table II Listed firms with highest foreign ownership in Vietnam
78
MARCH

Products
Real Estate
Everpia Vietnam JSC
24.92
24.87
24.45
Mining (except Oil and Gas)

Wholesale Trade
Imexpharm Corporation
Red River Holding (11.72)

VietNam Equity Holding (5.2)
Fraser Investment Holdings Pte. Ltd (7.53)
Franklin Templeton Investment Funds Templeton
Frontier Markets Fund (9.8)
KWE Beteiligungen AG (7.32)
Balestrand Limited (6.97)
Lotus Mekong River Equity Fund (24.92)

Vietnam Property Holding (24.87)
Institution
Institution
Institution
Institution
Institution
Institution
Institution
Institution
Institution
Institution
Individual
Institution
Institution
Institution
Institution
Institution
Individual
Institution
Institution
Institution
Institution
Institution
Institution
Individual
Institution
Institution
Institution
Institution
Institution
VIETNAMESE FIRMS
Note: The table illustrates the list of companies that have the highest foreign ownership on Vietnam stock market in 2012.
24.09
25.56
Truong Long Auto & Technology Joint

Stock Company
Vinam Joint Stock Company
Construction & Materials Trading Joint
Stock Company
Dabaco Group
25.8
27.5
28.28
29
Transit and Ground

Passenger Transportation
Wholesale Trade
VietNam Sun Copporation
NBB Investment Corporation
Plastics and Rubber
Saigon Plastic Packaging JSC
29.13
Franklin Templeton Investment Funds Templeton

Frontier Markets Fund (8.73)
The Nawaplastic Industries (Saraburi) Co., Ltd.
(20.4)
VietNam Holding Ltd. (13)
VietNam Equity Holding (16)
Lee Jae Eun (15.98)
Beria Limited DWS Viet Nam (14.44)
Vietnam Property Holding (13.06)
Vietnam Investment Fund (VIF) (12.49)
Yasunori Yoshida (25.56)
29.75
Binh Minh Plastic Joint-Stock Company
30
Water, Sewage and Other

Systems
Plastics and Rubber
29.2

The Nawaplastic Industries Co., Ltd (22.67)
Union Time Enterprise Limited (29.2)
31.06
Wholesale Trade

Fabricated
Plastics and Rubber
VOF investment Limited (30)
31.83
Construction
Willem Stuive (7.48)

Maybank Kim Eng Securities Pte.Ltd (12.15)
America LLCc (12.87)
Kustocem Pte. Ltd. (24.72)
Indochina Holdings Group Limited (7.11)
DI Asian Industrial Fund, L.P. (31.06)
Cotec Construction Joint Stock

Company
Viet Nhat Medical Instrument Joint
Stock Company
Thu Duc Water Supply Joint Stock
Company
Tien Phong Plastic Joint Stock
Company
Taicera Enterprise Company
32.5
Telecommunications
Van Lang Technology Development &

Investment JSC
2016
79
80
MARCH
Table III Summary statistics

Variable
TOB
TOBK
STATE
STATE2
FOREIGN
FOREIGN2
SIZE
SIZE2
CAPINT
CAPINT2
PROF
INV
RD
LEV
LIQ
AGE
DIVPAY
BETA
Observations
Mean
Standard deviation
Minimum
Maximum
2744
2738
2742
2742
2743
2743
2742
2742
2734
2734
2742
2740
2740
2751
2746
2776
2724
2759
1.083
1.041
0.250
0.118
0.076
0.020
26.515
704.826
1.762
6.030
0.096
0.043
0.010
2.425
0.088
6.325
0.455
0.775
0.414
0.408
0.237
0.141
0.119
0.050
1.341
71.088
1.707
12.229
0.096
0.067
0.015
2.808
0.088
2.959
0.334
0.357
0.599
0.564
0.000
0.000
0.000
0.000
24.056
578.674
0.364
0.135
0.055
0.018
0.003
0.104
0.004
0.000
0.000
0.204
2.257
2.208
0.782
0.611
0.490
0.240
28.936
837.283
7.067
49.941
0.345
0.236
0.054
10.463
0.319
19.000
1.056
1.307
Notes: The table reports summary statistics of variables over the period from 2007 to 2012 for Vietnamese
listed firms. TOB is Tobins Q, measured as the ratio of total market value of firm divided by book
value of total assets. TOBK is Tobins Q calculated as the ratio of total market value of firm over
replacement value of assets. STATE is state ownership that is stock held by government. STATE2 is
the square of state ownership. FOREIGN is foreign ownership and equals stock held by foreign
investors. FOREIGN2 is the square of foreign ownership. SIZE is firm size, calculated as the natural
log of sales. SIZE2 is the square of firm size. CAPINT is capital intensity measured as the ratio of
replacement value of assets to sales. CAPINT2 is the square of capital intensity. PROF is firm
profitability, measured as the ratio of operating income over sales. INV is firm investment, computed
by the ratio of capital expenditure over replacement value of assets. RD is R&D intensity which is
the ratio of R&D expenditure over replacement value of assets. LEV is firm leverage, measured by the
ratio of total debt over market value of equity. LIQ is liquidity, measured as the ratio of cash and
cash equivalent to total assets. AGE is firm age, the natural log of number of year since firm registered
as corporation. DIVPAY is dividend payout, the ratio of dividends paid to earnings. BETA is the
firms beta.
a fairly high evaluation of the listed firms. This figure is greater than 1, implying that the market
value of a firm is more valuable than its replacement cost. This Tobins Q is relatively lower than
the Tobins Q values of 2.10 in the USA (Coles et al., 2012), 2.71 in Japan (Ferris & Park, 2005)
and 1.59 in China (Yu, 2013). The standard deviation of Tobins Q of listed firms in Vietnam is
0.414, lower than the value of 2.043 in the USA (Coles et al., 2012), and 0.834 in China (Yu, 2013).
The value of Tobins Q, which is calculated using the replacement value of assets, is relatively
smaller than the previous ones to account for the price index in the calculation of this ratio. The
average value of Tobins Q calculated on the basis of replacement value of assets is 1.041 and the
standard deviation is 0.408.
Of Vietnamese listed firms, state ownership accounts on average for 25 percent of the total. In
comparison, state ownership in European countries is only 8.38 percent (Hautz et al., 2013), and in
China is much higher at 30.42 percent (Gunasekarage et al., 2007), 36 percent (Le & Buck, 2011),
35.8 percent (Li et al., 2012), and 24.5 percent (Yu, 2013). Vietnamese foreign ownership accounts
for only 7.6 percent of the total, similar to 6.8 percent foreign ownership in China (Choi et al.,
2013); ownership in India is higher at 20.97 percent (Ramaswamy & Li, 2001).
The average firm size (natural log of sales) is 26.515, with a standard deviation of 1.341. The
average value of capital intensity (measured by replacement value over sales) is 1.762 and the
2016
VIETNAMESE FIRMS
81
standard deviation is 1.707. Profitability, which measures the ratio of operating income to sales, is
low, with an average value of 9.6 percent and a standard deviation of 0.096. The investment variable
shows a mean value of 0.043 and a standard deviation of 0.067. This average value indicates a low
level of investment in listed firms on Vietnams stock markets. The average value of R&D intensity
is 0.01, which implies that the listed firms have a low level of investment in research and
development.
The average value of leverage is 2.425. This implies that there is over 50 percent of debt as
compared to total assets in Vietnamese listed firms. This value is higher than those of China (43.1
percent; Li et al., 2012) and Korea (42 percent; Choi et al., 2012). The mean value of liquidity is
0.088. Low liquidity means that Vietnamese listed firms do not have a high capacity to fulfil debt
payments. The average firm age of Vietnamese listed firms is 6.325, which indicates that most listed
firms are young. This is obvious because the Ho Chi Minh stock market was established in 2000 and
the Hanoi stock market came five years later, and most listed companies registered as corporations
after that. The average dividend payout ratio of Vietnamese listed firms is 45.5 percent, higher than
Korean firms (25.73 percent; Choi et al., 2012). The average value of beta of the listed firms on the
stock market is 0.775.
The correlation matrix is illustrated in Table IV. Firm performance (TOB and TOBK) is positively
correlated with state ownership (STATE) and foreign ownership (FOREIGN). Firm performance is
positively correlated with firm size (SIZE), profitability (PROF), investment (INV), R&D intensity
(RD), liquidity (LIQ), dividend payout ratio (DIVPAY) and beta (BETA), and negatively correlated
with capital intensity (CAPINT), firms leverage (LEV), and firm age (AGE).
VII.
E m p i r i c a l R e s u lt s a n d D i s c u s s i o n

The results of various versions of the model in equation (12) depicting a non-linear relationship
between state ownership and firm performance are presented in Table V. This study employs the
system GMM econometric estimation technique.
State ownership variable is negative and significant with an average value of 0.86. The state
ownership squared variable is positive and significant with an average value of 1.5, and the
inflection point is approximately 28.67 percent. This implies that firm performance increases
beyond a 28.67 percent level of state ownership.
Figure 1 illustrates a convex relationship between firm performance and state ownership, indicating the entrenchment and aligning effects of state ownership in accordance with Ding et al.
(2007). They argued that when state ownership increases, managers of firms are likely to manage
earnings, but when state ownership reaches a substantial level, earnings management begins a
downward trend. This is because the goals of state owners such as responding to the political
agenda of the government, especially under a civil law system (Borisova et al., 2012) are different
from those of other shareholders (Gunasekarage et al., 2007). It is also possible that people
representing state ownership may act for their own benefit (Andres, 2008). In either case, state
ownership impairs firm performance. However, when state ownership becomes more concentrated,
the firms performance may improve because its strong political connection with the state helps it
obtain favours or subsidies from the government (Le & Buck, 2011; Yu, 2013). Wei et al. (2005)
showed that the relationship between state ownership and Tobins Q is significantly convex. They
found that above 35.7 percent of state ownership, firm performance increases. Tian and Estrin
1.00
0.99
0.08
0.19
0.08
0.06
0.34
0.08
0.31
0.35
0.20
0.24
0.09
0.01
TOB
1.00
0.07
0.18
0.07
0.06
0.33
0.04
0.32
0.35
0.21
0.22
0.09
0.00
TOBK
1.00
0.12
0.11
0.15
0.04
0.07
0.20
0.04
0.11
0.16
0.13
0.05
STATE
Correlation matrix of variables
1.00
0.30
0.04
0.20
0.05
0.16
0.20
0.09
0.13
0.02
0.03
FOR
1.00
0.31
0.01
0.11
0.01
0.17
0.03
0.06
0.05
0.21
SIZE
1.00
0.23
0.12
0.17
0.07
0.21
0.00
0.14
0.19
CAPINT
1.00
0.06
0.22
0.23
0.09
0.07
0.11
0.01
PROF
1.00
0.06
0.06
0.06
0.09
0.03
0.02
INV
1.00
0.27
0.22
0.04
0.02
0.06
RD
1.00
0.32
0.02
0.20
0.04
LEV
1.00
0.04
0.16
0.12
LIQ
1.00
0.03
0.12
AGE
1.00
0.03
DIVPAY
1.00
BETA
Notes: The table reports correlation coefficient of variables over the period from 2007 to 2012 of Vietnamese listed firms. TOB is Tobins Q, proxy for firm performance,
measured by total market value of firm divided by book value of total assets. TOBK is Tobins Q calculated by using replacement value, measured as the ratio of
total market value of firm over replacement value of assets. STATE is state ownership that is stock held by the government. FOREIGN is foreign ownership and
equals stock held by foreign investors. SIZE is firm size, calculated by the natural log of sales. CAPINT is capital intensity measured as the ratio of replacement
value of assets to sales. PROF is firm profitability, measured as the ratio of operating income over sales. INV is firm investment, computed by ratio of capital
expenditure over replacement value of assets. RD is R&D intensity, which is the ratio of R&D expenditure over replacement value of assets. LEV is firm leverage,
measured by the ratio of total debt over market value of equity. LIQ is liquidity, the ratio of cash and cash equivalent to total assets. AGE is firm age, the natural
log of number of year since firm registered as corporation. DIVPAY is dividend payout, the ratio of dividends paid to earnings. BETA is the firms beta.
TOB
TOBK
STATE
FOREIGN
SIZE
CAPINT
PROF
INV
RD
LEV
LIQ
AGE
DIVPAY
BETA
Table IV
82
MARCH
DIVPAY
AGE
LIQ
LEV
RD
INV
PROF
CAPINT2
CAPINT
SIZE2
SIZE
STATE2
STATE
TOBt1
Table V
(2)
TOB
0.667***
(0.000)
0.856***
(0.009)
1.506***
(0.007)
0.035
(0.856)
0.001
(0.832)
0.054***
(0.001)
0.005**
(0.033)
0.487***
(0.000)
0.184**
(0.044)
0.662
(0.345)
(1)
TOB
0.650***
(0.000)
0.818**
(0.016)
1.425**
(0.012)
0.067
(0.716)
0.001
(0.688)
0.051***
(0.002)
0.005**
(0.044)
0.477***
(0.000)
0.184**
(0.041)
0.669***
(0.000)
0.828**
(0.010)
1.445***
(0.009)
0.057
(0.765)
0.001
(0.745)
0.056***
(0.001)
0.005**
(0.027)
0.502***
(0.000)
0.182**
(0.045)
0.618
(0.376)
0.002
(0.321)
(3)
TOB
System GMM results of firm performance on state ownership
0.667***
(0.000)
0.898***
(0.006)
1.528***
(0.006)
0.042
(0.825)
0.001
(0.804)
0.053***
(0.001)
0.005**
(0.036)
0.491***
(0.000)
0.152*
(0.099)
0.665
(0.340)
0.004*
(0.068)
0.196**
(0.023)
(4)
TOB
0.682***
(0.000)
0.870***
(0.007)
1.539***
(0.006)
0.073
(0.696)
0.001
(0.677)
0.054***
(0.001)
0.005**
(0.029)
0.488***
(0.000)
0.158*
(0.091)
0.774
(0.264)
0.005**
(0.025)
0.182**
(0.035)
0.007***
(0.007)
(5)
TOB
0.685***
(0.000)
0.907***
(0.008)
1.592***
(0.007)
0.082
(0.667)
0.002
(0.651)
0.055***
(0.002)
0.005**
(0.037)
0.493***
(0.000)
0.157*
(0.094)
0.747
(0.287)
0.005**
(0.023)
0.183**
(0.036)
0.007***
(0.008)
0.001
(0.938)
(6)
TOB
0.678***
(0.000)
0.878**
(0.010)
1.539***
(0.009)
0.093
(0.624)
0.002
(0.595)
0.048***
(0.009)
0.004*
(0.070)
0.479***
(0.000)
0.169*
(0.074)
0.747
(0.279)
0.005**
(0.027)
0.170**
(0.047)
0.007**
(0.010)
0.000
(0.992)
(7)
TOB
2016
VIETNAMESE FIRMS
83
Continued
1.168
(0.630)
Yes
2069
1110.647
0.000
6.305
0.000
0.965
0.335
41.472
0.122
38.335
0.204
(1)
TOB
0.756
(0.767)
Yes
2069
1108.981
0.000
6.172
0.000
0.979
0.328
40.751
0.166
38.052
0.250
(2)
TOB
1.045
(0.677)
Yes
2069
1239.463
0.000
6.235
0.000
0.933
0.351
40.939
0.192
38.957
0.257
(3)
TOB
0.832
(0.740)
Yes
2069
1283.050
0.000
6.253
0.000
0.949
0.343
40.395
0.244
38.229
0.325
(4)
TOB
1.171
(0.637)
Yes
2069
1315.851
0.000
6.349
0.000
0.921
0.357
40.263
0.249
39.782
0.266
(5)
TOB
0.711
(0.784)
Yes
2047
1303.186
0.000
6.259
0.000
0.883
0.377
40.053
0.295
38.667
0.350
(6)
TOB
0.036
(0.115)
1.409
(0.573)
Yes
2043
1325.750
0.000
6.416
0.000
0.976
0.329
42.212
0.256
39.827
0.345
(7)
TOB
Notes: The table presents the results of system GMM of panel data (20072012). All results are robust to heteroskedasticity. Tobins Q (TOB), proxy for firm performance,
is a dependent variable and is measured by total market value of firm divided by book value of total assets. STATE is state ownership and equals the percentage
of stock held by government. STATE2 is the square of state ownership. SIZE is firm size, calculated by the natural log of sales. SIZE2 is the square of firm size.
CAPINT is capital intensity measuring by the ratio of replacement value of assets to sales. CAPINT2 is the square of capital intensity. PROF is firm profitability,
equals operating income over sales. INV is firm investment, computed by the ratio of capital expenditure over replacement value of assets. RD is R&D intensity,
which is the ratio of R&D expenditure over replacement value of assets. LEV is firm leverage, measured by the ratio of total debt over market value of equity. LIQ
is liquidity, the ratio of cash and cash equivalent to total assets. AGE is firm age, the natural log of number of year since firm registered as corporation. DIVPAY
is dividend payout, the ratio of dividends paid to earnings. BETA is the firms beta. p-value in parentheses. *, **, and *** represent significance at 10%, 5% and
1% levels, respectively.
Hansen test
Sargan test
AR2
AR1
Year controlled
Observations
Wald chi-squared
Constant
BETA
Table V
84
MARCH
2016
85
VIETNAMESE FIRMS
1.05
Firm performance
1.00
0.95
0.90
0.85
0
0.1
0.2
0.3
0.4
0.5
0.6
State ownership
Figure 1. Impact of state ownership on firm performance
(2008) found a U-shaped relationship between state ownership and firm performance. When
government becomes a large shareholder holding more than 25 percent of a companys stock, the
incremental effect of additional shareholdings is positive. Wei and Varela (2003) and Yu (2013)
found a convex relationship of Tobins Q with state ownership. This is consistent with the case of
Vietnam, and the government often announces that state ownership is a dominant and key economic
player in the market.11 Therefore, when state ownership is substantial in firms, it is easier for firms
to achieve support from the government.
Table V indicates that firm size and firm size squared variables are insignificant. This implies that
firm size may not affect firm performance in the presence of state ownership. The capital intensity
variable has a negative and significant association with firm performance, which implies that an
increase in a firms intangible assets may help improve performance. This is consistent with Do and
Wu (2014). The squared value of capital intensity variable is positive and significant, implying that
a substantial level of tangible assets increases firm performance. The profitability variable is both
positive and significant, in accordance with Ng et al. (2009) and Himmelberg et al. (1999). Highly
profitable firms create more income and thus improve firm performance. The investment variable is
negative and significant, which indicates that overinvestment caused by conflict between managers
and shareholders may damage firm performance (Morgado & Pindado, 2003). Previous studies have
argued that research and development intensity improves firm performance (Ferris & Park, 2005),
and here the research and development variable is negative but insignificant, in accordance with
Chen and Ho (2000). The leverage variable is positive and significant except in column (3), where
it is insignificant. Do and Wu (2014), Le and Chizema (2011) and Yu (2013) found a negative
relationship between leverage and firm performance, while Wei and Varela (2003) found a positive
impact. The result implies that firms use leverage to reduce agency cost and then improve firm
performance. The liquidity variable is positive and significant. Firms with high liquidity enhance
11
Vietnam National Assembly (1992, 2013).
86
MARCH
firm performance (Martnez-Sola et al., 2013). The significant positive liquidity variable indicates
that high liquidity helps firms fulfil debt agreements and improve their creditability in the market.
Firm age has a positive and significant effect on performance, which is consistent with the findings
of Claessens et al. (2002) and Gurbuz and Aybars (2010), and implies that long-established firms
with state ownership may have acquired political connections and developed a good reputation, both
of which help to increase performance. Dividend payout does not play a role in explaining the
relationship between state ownership and firm performance as the results are not significant, in
accordance with Andres (2008). Beta variable is negative and insignificant, in accordance with
Lemmon and Lins (2003).
The ArellanoBond test results for autocorrelation in the first difference of residuals at the first
and second order are illustrated in Table V. They indicate no second-order serial correlation in the
models. Similarly the results of the Sargan and Hansen test for overidentification reveal no correlation between instruments and the error term; thus, the model for state ownership is appropriately
identified.

The empirical results of the system GMM estimation of the relationship between foreign ownership and firm performance are provided in Table VI. Column (1) presents the baseline model with
size, size squared, capital intensity, capital intensity squared, profitability, and investment as control
variables. Columns (2), (3), (4), (5), (6), and (7) present the extended model with more control
variables, including R&D intensity, firm leverage, liquidity, firm age, dividend payout, and beta. All
empirical models include year dummies to control for the year effect.
The foreign ownership variable is positive with an average value of 0.93. This implies that an
increase of ownership by 1 percent may help listed firms to increase Tobins Q to around 0.93
percent. The squared foreign ownership variable is negative and insignificant. The positive effect of
foreign ownership on firm performance is consistent and is in accordance with Choi et al. (2012),
Greenaway et al. (2012), and Nakano and Nguyen (2012). Foreign ownership activates the monitoring role and impacts on firm performance by aligning firm managers behaviours with the wealth
maximisation goals of shareholders. Foreign ownership in listed firms offers benefits from managerial skills and experience from foreign investors, especially foreign institutional investors.
Foreign ownership may aid firms in gaining access to capital markets and to advanced technologies.
When foreign ownership increases, foreign investors have incentives to monitor the managers and
force them to align their goals with the shareholders goals; however, when it exceeds a certain level,
foreign investors have an entrenchment effect that impairs performance because they can expropriate other, smaller shareholders (Ferris & Park, 2005; Ghahroudi, 2011). With average values of
coefficients of foreign and foreign squared, the inflection point appears at 43 percent; firm performance increases with an increase of foreign ownership up to this level. When foreign ownership
goes beyond 43 percent, performance decreases (see Figure 2).
Our results are in accordance with Ferris and Park (2005) who found a significant curvilinear
relation between Japanese firm value and the percentage of equity held by foreign investors. Firm
value rises until foreign ownership reaches approximately 44 percent, and then it begins to decline.
They stated that their finding is consistent with the view by Stulz (1988) that top managers (mostly
foreigners) might not pursue value maximisation at very high concentrated foreign ownership
levels.12
12
Our results are also in accordance with Smith et al. (1997) who found that on the margin; a percentage point
increase in foreign ownership is associated with about a 3.9 percent increase in value-added. However, there is
also evidence of diminishing marginal productivity gains for foreign ownership.
DIVPAY
AGE
LIQ
LEV
RD
INV
PROF
CAPINT2
CAPINT
SIZE2
SIZE
(2)
TOB
0.469***
(0.000)
0.910*
(0.056)
1.109
(0.304)
0.304
(0.132)
0.006
(0.129)
0.053***
(0.001)
0.005**
(0.042)
0.613***
(0.000)
0.148*
(0.085)
0.489
(0.441)
(1)
TOB
0.459***
(0.000)
0.884*
(0.064)
1.061
(0.326)
0.320
(0.102)
0.006*
(0.098)
0.051***
(0.002)
0.005*
(0.050)
0.603***
(0.000)
0.150*
(0.079)
0.478***
(0.000)
0.915*
(0.054)
1.088
(0.310)
0.341*
(0.087)
0.006*
(0.088)
0.059***
(0.000)
0.005**
(0.020)
0.639***
(0.000)
0.145*
(0.090)
0.391
(0.538)
0.006**
(0.037)
(3)
TOB
System GMM results of firm performance on foreign ownership
FOREIGN2
FOREIGN
TOBt1
Table VI
0.465***
(0.000)
0.891*
(0.059)
1.030
(0.333)
0.337*
(0.091)
0.006*
(0.091)
0.055***
(0.001)
0.005**
(0.028)
0.638***
(0.000)
0.116
(0.178)
0.462
(0.458)
0.007***
(0.009)
0.198**
(0.016)
(4)
TOB
0.451***
(0.000)
0.968*
(0.054)
1.151
(0.298)
0.320
(0.108)
0.006
(0.110)
0.055***
(0.001)
0.005**
(0.031)
0.639***
(0.000)
0.113
(0.187)
0.442
(0.479)
0.007**
(0.014)
0.201**
(0.015)
0.003
(0.342)
(5)
TOB
0.453***
(0.000)
0.992**
(0.047)
1.131
(0.315)
0.326
(0.110)
0.006
(0.113)
0.054***
(0.001)
0.005**
(0.048)
0.635***
(0.000)
0.114
(0.186)
0.449
(0.476)
0.007**
(0.015)
0.197**
(0.021)
0.003
(0.302)
0.008
(0.648)
(6)
TOB
0.435***
(0.000)
1.002**
(0.046)
1.134
(0.315)
0.339*
(0.098)
0.006*
(0.097)
0.047***
(0.008)
0.004*
(0.090)
0.624***
(0.000)
0.130
(0.136)
0.406
(0.517)
0.006**
(0.025)
0.183**
(0.029)
0.004
(0.261)
0.007
(0.721)
(7)
TOB
2016
VIETNAMESE FIRMS
87
Continued
4.651*
(0.077)
Yes
2069
815.901
0.000
5.027
0.000
1.400
0.162
34.747
0.213
35.187
0.198
(1)
TOB
4.446
(0.101)
Yes
2069
857.577
0.000
4.878
0.000
1.408
0.159
34.760
0.251
35.359
0.230
(2)
TOB
4.961*
(0.064)
Yes
2069
1015.392
0.000
4.929
0.000
1.233
0.218
36.766
0.219
35.966
0.247
(3)
TOB
4.882*
(0.068)
Yes
2069
1042.800
0.000
4.844
0.000
1.294
0.196
34.946
0.330
34.352
0.356
(4)
TOB
4.710*
(0.078)
Yes
2069
1115.857
0.000
4.685
0.000
1.333
0.182
34.926
0.331
34.813
0.336
(5)
TOB
4.402
(0.116)
Yes
2047
1145.035
0.000
4.703
0.000
1.311
0.190
35.159
0.366
36.911
0.293
(6)
TOB
0.042*
(0.054)
4.950*
(0.071)
Yes
2043
1122.402
0.000
4.722
0.000
1.408
0.159
39.158
0.249
37.882
0.297
(7)
TOB
is a dependent variable and measured by total market value of firm divided by book value of total assets. FOREIGN is foreign ownership and equals the stock held
by foreign investors. FOREIGN2 is the square of foreign ownership. SIZE is firm size, calculated by the natural log of sales. SIZE2 is the square of firm size.
CAPINT is capital intensity measuring by the ratio of replacement value of assets to sales. CAPINT2 is the square of capital intensity. PROF is firm profitability,
equals operating income over sales. INV is firm investment, computed by the ratio of capital expenditure over replacement value of assets. RD is R&D intensity,
which is the ratio of R&D expenditure over replacement value of assets. LEV is firm leverage, measured by the ratio of total debt over market value of equity. LIQ
is liquidity, the ratio of cash and cash equivalent to total assets. AGE is firm age, the natural log of number of year since firm registered as corporation. DIVPAY
is dividend payout, the ratio of dividends paid to earnings. BETA is the firms beta. p-value in parentheses. *, **, and *** represent significance at 10%, 5%, and
1% levels, respectively.
Hansen test
Sargan test
AR2
AR1
Year controlled
Observations
Wald chi-squared
Constant
BETA
Table VI
88
MARCH
2016
89
VIETNAMESE FIRMS
4.95
Firm performance
4.90
4.85
4.80
4.75
4.70
0
0.1
0.2
0.3
0.4
0.5
0.6
Foreign ownership
Figure 2. Impact of foreign ownership on firm performance
Firm size has a negative sign of coefficient (statistically significant in some models and insignificant in others) in accordance with other studies (Himmelberg et al., 1999; De Miguel et al., 2004;
Ferris & Park, 2005). Large firms tend to have agency problems and information asymmetry that may
impair firm performance (De Miguel et al., 2003). In accordance with Himmelberg et al. (1999), the
square of firm size shows a positive link with firm performance; this may be because when firms
become bigger, they can take advantage of economies of scale or market power. Capital intensity has
a significantly negative effect on firm performance, but the square of capital intensity has a
significantly positive effect. This implies that although a low level of tangible assets is not related to
firm performance (Nakano & Nguyen, 2012), a high level may improve it. Profitability increases firm
performance, as indicated by the significant positive coefficient. This result is in accordance with
Himmelberg et al. (1999). Firms with high profitability create more earnings and therefore enhance
firm value. The investment variable is negatively correlated with firm performance: Nakano and
Nguyen (2012) stated that overinvestment destroys firm performance. While foreign ownership
encourages R&D, which positively affects firm performance (Huang & Shiu, 2009), the R&D
intensity variable is negative and insignificant. Nakano and Nguyen (2012) also found no evidence of
negative impact of R&D investment on firm value in a dynamic panel model. Firm leverage is positive
and significant in accordance with Choi et al. (2012). Firms debt can be used to mitigate the agency
problem between managers and shareholders and then increase firm performance (Margaritis &
Psillaki, 2010). The liquidity variable is positive and significant. Firms with high liquidity may have
the ability to adapt easily to cash shortages, and this may improve performance. The firm age variable
is negative and insignificant. The dividend payout variable is insignificant, along the lines of Choi
et al. (2012). The beta variable is negative and significant, implying that foreign investors in Vietnam
may prefer a low risk. The ArellanoBond test results for the serial correlation of differenced
residuals indicates no second-order autocorrelation. The Sargan and Hansen test results for
overidentification reveal that the model for foreign ownership is appropriately identified.
The empirical results of the system GMM estimation of the relationship between state ownership,
foreign ownership, firm performance, and other control variables are illustrated in Table VII. State
LIQ
LEV
RD
INV
PROF
CAPINT2
CAPINT
SIZE2
SIZE
FOREIGN2
FOREIGN
STATE2
STATE
TOBt1
0.490***
(0.000)
0.927**
(0.014)
1.801***
(0.005)
1.026**
(0.046)
1.693
(0.173)
0.132
(0.523)
0.002
(0.547)
0.063***
(0.000)
0.006**
(0.019)
0.550***
(0.000)
0.141
(0.101)
(1)
TOB
0.494***
(0.000)
0.985***
(0.007)
1.891***
(0.003)
1.065**
(0.043)
1.775
(0.162)
0.118
(0.578)
0.002
(0.607)
0.066***
(0.000)
0.006**
(0.013)
0.569***
(0.000)
0.139
(0.108)
0.541
(0.419)
(2)
TOB
0.513***
(0.000)
0.826**
(0.020)
1.621***
(0.008)
1.090**
(0.034)
1.713
(0.163)
0.156
(0.442)
0.003
(0.478)
0.070***
(0.000)
0.006***
(0.008)
0.574***
(0.000)
0.143*
(0.100)
0.569
(0.393)
0.005**
(0.023)
(3)
TOB
Table VII System GMM results of firm performance on state and foreign ownership
0.496***
(0.000)
0.958***
(0.009)
1.797***
(0.004)
1.053**
(0.040)
1.642
(0.180)
0.154
(0.454)
0.003
(0.488)
0.066***
(0.000)
0.006**
(0.010)
0.580***
(0.000)
0.110
(0.210)
0.527
(0.428)
0.007***
(0.003)
0.208**
(0.016)
(4)
TOB
0.497***
(0.000)
0.900**
(0.016)
1.706***
(0.008)
1.016*
(0.051)
1.524
(0.211)
0.185
(0.364)
0.003
(0.393)
0.066***
(0.000)
0.006**
(0.010)
0.583***
(0.000)
0.109
(0.214)
0.550
(0.407)
0.007***
(0.001)
0.203**
(0.018)
(5)
TOB
0.492***
(0.000)
1.011**
(0.013)
1.905***
(0.007)
1.134**
(0.046)
1.634
(0.219)
0.212
(0.326)
0.004
(0.364)
0.055**
(0.014)
0.005
(0.101)
0.525***
(0.001)
0.100
(0.260)
0.368
(0.591)
0.009**
(0.011)
0.166
(0.119)
(6)
TOB
0.507***
(0.000)
0.990**
(0.015)
1.882***
(0.008)
1.146**
(0.046)
1.643
(0.217)
0.201
(0.358)
0.003
(0.411)
0.062***
(0.009)
0.005*
(0.075)
0.524***
(0.001)
0.095
(0.294)
0.441
(0.528)
0.009**
(0.012)
0.161
(0.134)
(7)
TOB
90
MARCH
2.143
(0.446)
Yes
2062
1204.231
0.000
5.828
0.000
1.342
0.180
41.647
0.118
34.146
0.365
2.302
(0.399)
Yes
2062
1208.694
0.000
5.944
0.000
1.313
0.189
40.678
0.114
34.380
0.309
2062
1325.100
0.000
5.836
0.000
1.168
0.243
41.258
0.153
35.550
0.349
2.644
(0.326)
Yes
2062
1355.342
0.000
5.755
0.000
1.212
0.225
40.771
0.166
34.666
0.388
2.611
(0.339)
Yes
2062
1396.974
0.000
5.738
0.000
1.199
0.230
42.850
0.117
35.731
0.341
2.983
(0.271)
Yes
0.003
(0.320)
2047
1298.693
0.000
5.535
0.000
1.368
0.171
41.330
0.102
34.796
0.292
2.919
(0.315)
Yes
0.003
(0.396)
0.118
(0.402)
2043
1329.845
0.000
5.421
0.000
1.248
0.212
39.923
0.131
33.571
0.344
0.003
(0.382)
0.118
(0.399)
0.042
(0.478)
3.222
(0.266)
Yes
is a dependent variable and is measured by total market value of firm divided by book value of total assets. STATE is state ownership and equals the percentage
of stock held by government. STATE2 is the square of state ownership. FOREIGN is foreign ownership and equals the stock held by foreign investors. FOREIGN2
is the square of foreign ownership. SIZE is firm size, calculated by the natural log of sales. SIZE2 is the square of firm size. CAPINT is capital intensity measuring
by the ratio of replacement value of assets to sales. CAPINT2 is the square of capital intensity. PROF is firm profitability, equals operating income over sales. INV
is firm investment, computed by the ratio of capital expenditure over replacement value of assets. RD is R&D intensity, which is the ratio of R&D expenditure over
replacement value of assets. LEV is firm leverage, measured by the ratio of total debt over market value of equity. LIQ is liquidity, the ratio of cash and cash
equivalent to total assets. AGE is firm age, the natural log of number of year since firm registered as corporation. DIVPAY is dividend payout, the ratio of dividends
paid to earnings. BETA is the firms beta. p-value in parentheses. *, **, and *** represent significance at 10%, 5%, and 1% levels, respectively.
Hansen test
Sargan test
AR2
Year
controlled
Observations
Wald
chi-squared
AR1
Constant
BETA
DIVPAY
AGE
2016
VIETNAMESE FIRMS
91
92
MARCH
ownership variable is negative and significant. The state ownership squared variable is positive and
significant. The relationship between state ownership and firm performance is convex in accordance
with the results shown in Table V. Foreign ownership variable is positive and significant. The
squared foreign ownership variable is negative and insignificant. The relationship between foreign
ownership and firm performance is convex in accordance with the results shown in Table VI.
This study uses an alternative measure for firm performance as a robustness check. The alternative measure of Tobins Q is calculated by using replacement value, as per equation (14). We find
that the coefficients of state and state squared variables are consistent with the results shown in
Table V, reconfirming that state ownership has a convex relationship with firm performance. The
signs of the other control variables in the models are similar to those in Table V. We study the impact
of foreign ownership on firm performance using an alternative measure of firm performance as per
equation (14). The effect of foreign ownership on firm performance is positive and significant along
the lines of that shown in Table VI. Foreign ownership has a concave impact on firm performance
that is akin to the results in Table VI. Other control variables show similar results to those of the
models in Table VI. We also study impact of state and foreign ownership together on firm performance, using an alternative measure of firm performance as per equation (14). Our results are
similar to those presented in Table VII.
VIII.
Conclusion
This paper investigates the impact of ownership structure (state ownership and foreign ownership) on firm performance by using the panel data of listed firms in Vietnam from 2007 to 2012.
Basing its case on agency theory, this study argues that state ownership impedes firm performance
up to a certain level but improves firm performance subsequently. Foreign ownership is argued to
help firms increase performance beyond an inflection point. Empirical results derived from the
system GMM approach indicate that state ownership has a convex relationship with firm performance, but foreign ownership is found to have an inverted U-shaped relationship.
The convex relationship between state ownership and firm performance is consistent with other
studies (Wei & Varela, 2003; Ng et al., 2009; Yu, 2013). The results indicate that at first, state
ownership, which is aligned with social or political goals, does not contribute to the maximisation
of firm value. When state ownership increases, the state increases its influence to managers and
forces them to act for social or political goals. This effect is in accordance with Shleifer and Vishny
(1994) and Boycko et al. (1996) and explains the inefficiency of firms influenced by politicians.
However, this entrenchment effect is more than offset by the benefits of political connection or
support from the government when state ownership is at a substantial level. A high concentration of
state ownership may have better corporate governance because state shareholders have enough
incentives to monitor firms managers (Tian & Estrin, 2008); indeed, when state ownership is at
high level, firm managers are often appointed by the state and so have a relationship with officials
such as tax officers. Such connections allow them to deal with obstacles in the business environment
more easily than other firms. In addition, firms with high state ownership are likely to have ready
access to bank loans, especially from state-owned banks, which helps improve firm performance.
Foreign ownership has a concave relationship with firm performance, similar to the relationship
between large ownership or ownership concentration and firm performance revealed in the study by
Burkart et al. (1997). Both incentive (monitoring) and entrenchment (expropriation) effects
(Claessens et al., 2002; De Miguel et al., 2003) come into play. Foreign owners have incentives to
monitor managers (to prevent suboptimal behaviours) or other controlling shareholders (i.e. state
2016
VIETNAMESE FIRMS
93
owners) to alleviate agency cost, and encourage corporate risk-taking (Nguyen, 2012; Boubakri
et al., 2013) that may enhance firm performance. An increase in foreign ownership often leads to
benefits from the import of advanced managerial skills or technologies, again improving firm
performance. However, when foreign ownership becomes concentrated its goals may diverge from
those of ordinary shareholders. Foreign owners may use their power to force managers to act for
their benefit, to the detriment of minority shareowners.
The results from this study imply that policy makers in emerging markets like Vietnam, where
shareholder protection system is weak, should focus on corporate governance mechanisms in order
to protect minority shareholders from expropriation by state ownership or highly concentrated
foreign ownership. Policy makers should revise laws to prevent harmful behaviours of state or
foreign blockholders in firms, which may lead to the destruction of firm value. The effect of state
ownership on firm performance implies that the reform of state-owned enterprises to privatisation
in Vietnam should continue in order to reduce the negative effect of state ownership on firm
performance.
Although the results indicate that high concentrations of state ownership have a positive impact
on firm performance, this does not imply that the government should hold a large percentage of
stock in firms. Its positive impact is a function of the political connections it brings and is not due
to improvements in efficiency. If the state continues to support firms through high state ownership,
this will eventually raise issues related to corporate governance.
The empirical results of the impact of state ownership and foreign ownership on firm performance imply that policy makers should encourage foreign ownership and widely dispersed state
ownership in firms, which may improve firm performance. However, when increasing the maximum
percentage of foreign ownership permitted in listed companies, policy makers should tread carefully because the results of this study indicate that a level of foreign ownership beyond 43 percent
may reduce firm performance.
Investors who believe that firms with state ownership may be able to exploit their political
connections should consider their investments carefully; the advantages of political connections
occur only when state ownership is highly concentrated. Firms with foreign ownership may be more
appropriate choices because these may have access to advanced technologies or managerial skills
that improve firm performance.
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Ownership Structure and Firm Performance: Evidence From Vietnamese Listed Firms

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OWNERSHIP STRUCTURE AND FIRM PERFORMANCE:

AUSTRALIAN ECONOMIC PAPERS

a) State ownership and firm performance

b) Foreign ownership and firm performance

AUSTRALIAN ECONOMIC PAPERS

a) State ownership and firm performance

where y denotes firm performance and x denotes state ownership.

AUSTRALIAN ECONOMIC PAPERS

b) Foreign ownership and firm performance

where y denotes firm performance and z denotes foreign ownership.

Constitution of Vietnam 1992, 2013 (Vietnam National Assembly, 1992, 2013).

AUSTRALIAN ECONOMIC PAPERS

FPit = + FPi ,t 1 + 1OWN it + 2 X it + it

FPit = + FPi ,t 1 + 1OWN it + 1OWN it 2 + 3X it + it

AUSTRALIAN ECONOMIC PAPERS

Shares market price Number of outstanding shares + Book value of debt

Shares market price Number of outstanding shares + Book value of debt

where P is the wholesale price (obtained from Vietnam yearbooks of statistics).

Shares market price Number of shares held by the state

Shares market price Number of shares held by foreign investors

AUSTRALIAN ECONOMIC PAPERS

Foreign ownership in Vietnam, by industry (2012)

Administrative and Support Services

Firms with foreign ownership

MCAP of firms with foreign ownership

E-Land Asia Holding PTE.LTD (43.22)

Natural Gas Distribution

Apparel Leather and Allied

Metal Nonmetallic Mineral

Traphaco Joint Stock Company

Vinaconex Advance Compound Stone

Mirae Joint Stock Company

Insurance Carriers and

Blackhorse Enhanced VN (18.76)

AUSTRALIAN ECONOMIC PAPERS

Hotel and Accomodation

Food Beverage Tobacco

Quoc Cuong Gia Lai Joint Stock

ENN Energy (43.89)

Nguye n Chnh Ngha (6.71)

Domesco Medical Import Export Joint

Sieu Thanh Joint Stock Corporation

Rich International L.L.C (76.03)

Taya Electric Wire & Cable Co., Ltd (60)

Foreign shareholders name

Electrical Equipment &

Taya (Vietnam) Electric Wire And Cable

Table II Listed firms with highest foreign ownership in Vietnam

Apparel Leather and Allied

Everpia Vietnam JSC

Mining (except Oil and Gas)

Food Beverage Tobacco

Red River Holding (11.72)

Lotus Mekong River Equity Fund (24.92)

Truong Long Auto & Technology Joint

Transit and Ground

VietNam Sun Copporation

NBB Investment Corporation

Plastics and Rubber

Saigon Plastic Packaging JSC

Franklin Templeton Investment Funds Templeton

Binh Minh Plastic Joint-Stock Company