Luận án tiến sĩ Quản trị kinh doanh: Impact of Residual State Ownership on Privatised Firm Performance: Evidence from Vietnamese Listed Firms

VIET NAM NATIONAL UNIVERSITY HO CHI MINH CITY INTERNATIONAL UNIVERSITY Impact of Residual State Ownership on Privatised Firm Performance: Evidence from Vietnamese Listed Firms A thesis submitted for the degree of Doctor of Philosophy in Business Administration ID: PBAIU15013 Ho Chi Minh City, Vietnam - 2022 VIET NAM NATIONAL UNIVERSITY HO CHI MINH CITY INTERNATIONAL UNIVERSITY Impact of Residual State Ownership on Privatised Firm Performance: Evidence from Vietnamese Listed Firms A thesis submitted for the degree of Doctor of Philosophy in Business Administration ID: PBAIU15013 Independent Reviewer 1: Assoc. Ha Thi Thieu Dao Independent Reviewer 2: Assoc. Nguyen Phong Nguyen Committee Chair: Assoc. Mai Ngoc Khuong Committee Secretary: Dr.

Nguyen The Nam Committee Member (Evaluator 1): Prof. Ha Nam Khanh Giao Committee Member (Evaluator 2): Assoc. Ha Thi Thieu Dao Committee Member (Evaluator 3): Assoc. Tran Quoc Trung Committee Member: Dr.

Kieu Anh Tai Committee Member: Dr. Ha Minh Tri Supervisor 1: Assoc. Vo Thi Quy (International University) Supervisor 2: Dr. Reza Hajargasht (Swinburne University of Technology) Ho Chi Minh City, Vietnam - 2022 Abstract The rise of state capitalism in the 21st century has reignited research on the impact of state ownership.

Current literature indicates that the effect of state ownership onto firm performance may be beneficial in some cases and detrimental in other cases. There are also factors which could potentially moderate the relationship between state ownership and firm performance. In this thesis, we investigate the net impact of residual state ownership on 500 Vietnamese privatised firms listed on the Hanoi and Ho Chi Minh City stock exchanges over the period of 2007-2017. We first employ semiparametric regression and stochastic frontier analysis (SFA) to investigate the relationship between residual state ownership and the performance and efficiency of privatised firms, respectively.

Second, we utilise quadratic regression to investigate the moderating roles of two governmental mechanisms, an independent government monitoring body (IGMB) which supervises state-owned enterprises (SOEs) and hardening of soft budget constraint (HSBC), on the relationship between residual state ownership and privatised firm performance. Furthermore, we use a propensity score matching technique to quantify the marginal effects of the IGMB and HSBC on the performance of privatised firms. According to our knowledge, we are the first who employ these updated econometric techniques to assess the net impact of state ownership on privatised firm performance in the Vietnamese context and further evaluate the moderating roles of those two upon governmental mechanisms on the relationship between residual state ownership and privatised firm financial performance. The results from our semiparametric regression and SFA model indicate an inverted U- shaped relationship between level of state ownership and privatised firm performance.

We also uncover a positive moderating role for the IGMB on the relationship between residual state ownership and privatised firm performance. Furthermore, HSBC is found to have a direct positive effect on the performance of privatised firms. These results imply that state ownership should not be considered merely a source of inefficiency. Rather, up to a moderate level (less than 40%) it impacts positively on privatised firm performance via its “monitoring” effect.

However, when state ownership becomes dominant, its marginal impact is detrimental to the performance of privatised firms via its “expropriation” effect. Also, the performance of privatised firms could be enhanced by transferring the management of SOEs to a IGMB which would liberate government ministries from governing SOEs, separate government functions and business management of SOEs, and allow privatised firms to pursue purely economic objectives and operate under a “market mechanism”. Furthermore, the performance of privatised firms might be improved by HSBC due to providing an equal treatment of state-owned and non-state-owned enterprises. Since in a fair competitive environment privatised firms would have to transform themselves and become more efficient or they will become replaced by private firms with higher efficiency.

Acknowledgements I would like to thank Swinburne University of Technology and International University VNU-HCM for granting me a scholarship to take part in the PhD program. This PhD journey has opened the door for me to a research world that I am very interested in. Also, I would like to express my deepest gratitude to my two supervisors, Dr. Reza Hajargasht and Assoc.

Thi Quy Vo, for their guidance. I really appreciate their knowledge in the field, as well as their kindness. Their vision and wisdom have shaped my thesis. Without their guidance, this thesis would not have been possible.

To all the professors and staff of Swinburne University of Technology and International University VNU-HCM, I would like to thank them for all the professional assistance and facilities that I received during my candidature. To all the reviewing panel members, I would like to thank them for their invaluable insights and constructive comments. Their guidance assisted me in identifying and solving challenges in the study. Furthermore, I would like to thank professional accredited editor Mary-Jo O’Rourke AE for copyediting and proofreading my thesis according to the national university-endorsed ‘Guidelines for editing research theses’ (IPEd, 2019).

Next, I would like to thank my father, Nguyen Manh Hung, and my uncle, Assoc. Nguyen Manh Hung, and my grandparents for their support and encouragement. To my wife, Nguyen Tran Thuy Trang, I really appreciated her support so I could fully devote myself to the research. And finally, I would like to thank my little daughter, Nguyen Hoang Tue Anh, who is always the motivation for me to complete this PhD journey.

Declaration This is to certify that to the best of my knowledge, the content of this thesis is my own work. This thesis has not been submitted for the purpose of attaining any other degree or qualification from any institution. I certify that the content of this thesis is original and dissimilar to any other research which has been previously created by any other individual or collection of individuals, and that all the assistance received in preparing this thesis and sources have been acknowledged. Relevant publications of this thesis Scopus indexed journals: NGUYEN, M.

Investigating the Association between Residual State Ownership and Privatized Firm Efficiency. The Journal of Asian Finance, Economics and Business, 7(5), 225-236. Government Control and Privatized Firms’ Performance: Evidence from Vietnam. The Journal of Asian Finance, Economics and Business, 7(10), 663-673.663 Contents Abstract +1 Acknowledgements.

Relevant publications of this thesis. Hee 5 List of AbbreviatÏOTS. cv 2v nh HH HH HH. Hư Hư HH HH HH hư này 10 00 hố ố.

ốẽ ẽ ẽốố ẽố ẽ ố ẽ ố ố ố ố ẽ ố. 12 List of Tables Chapter 1: Introduction. Justification for the research. Academic research gaps.

Scope of research. Stochastic frontier analysis 1. Estimation of moderating role via quadratic regression 1. Estimation of moderating role via propensity score matching technique.

Contributions of the Study. Structure of the thesis. Definitions of key terms.Trrrrerreirrrrree 13 Chapter 2: Institutional Backgroundd. Overview of state-owned enterprises in the Vietnamese context.

Definition of state-owned enterpriSeS. Key characteristics of state-owned enterprises. State sector in comparison with other economic seCtOTS. Overview of privatisation.

Privatisation phases in Vietnam. Characteristics of privatisation in Vietnam. Corporate governance in privatised firms. Key shareholders of privatised firms.

Key policies of Vietnamese government on SOEs. “Grasp the big, let go of the small” 2. Independent specialised monitoring committee. Introduction of competition.

Hardening of soft budget constraint.cccc2cct c2 vvhecrtrittrttrrttrrirrttirrrtriirrrirrrriee 32 3. Theoretical arguments on the role of state ownership 3. Theoretical arguments against state ownership 3. Theoretical arguments for state ownership.

Discussion of theoretical arguments 3. Empirical evidence on the impact of state ownership. Detrimental effects of state ownership. Beneficial effects of state ownership.

Non-monotonic effect of state ownership 3. Discussion of empirical evidence on the impact of state ownership. Underlying factors influencing the impacts of state ownership. Type of state ownership.-----©7+c+cccccrterrkrrrkerrkrrrrirrrrrrrer 58 SN Na.

Discussion of underlying factors influencing the impacts of state ownership 66 3. _ Existing studies on the impacts of state ownership on firm performance in the Vietnamese oi ẽ. Conceptual model and hypothesis development. Relationship between residual state ownership and privatised firm PCTFOFMANCE.

(222222 E2 2221 T11 TT H11 T11 T1 HH Hà HH re 69 3. Relationship between residual state ownership and privatised firm efficiency 70 3. Moderating role of independent government monitoring body on the relationship between residual state ownership and privatised firm performance. Moderating role of hardening of soft budget constraint on the relationship between residual state ownership and privatised firm performance.eccrrrrrirrtriitttrirrtttrrrrtrirrrririrriirrriiiriirrrriirriee 72 Chapter 4: Methodology.

Analysing the relationship between residual state ownership and privatised firm PCTFOLMANCE. HH Hà HH ng re. Analysing the relationship between residual state ownership and privatised firm efficiency. Model specification 44, Analysing the moderating roles of the independent government monitoring body and hardening of soft budget constraint.essssseccssseessssseeessneeesnseessunscessnsecesnsecesnnesecsnsceesnnscessnecessnnssesnnseesnnseesnnncessneesesnness 90 Chapter 5: Empirical Findings and Discussions.

Relationship between residual state ownership and privatised firm performance 92 5. Discussion of empirical results 5. Relationship between residual state ownership and privatised firm efficiency .---cc+ccttcrirtrhe re 112 5. Discussion of empirical reSuÌts.

Moderating role of independent government monitoring body. Discussion of empirical results 5. Moderating role of hardening of soft budget constraint. Discussion of empirical results 5.cvccc cv cv the 136 Chapter 6: ConcÏusion.

Residual state ownership and privatised firm performance. Residual state ownership and privatised firm efficiency. Moderating role of independent government monitoring body on the relationship between residual state ownership and privatised firm performance. Moderating role of hardening of soft budget constraint on the relationship between residual state ownership and privatised firm performance 6.

Implications of the Stud y. Implications for theory. Implications for policy and practiCe. Limitations of the Stud y.ssccssesssssssseessseessessuscssesssscsssesssccsssessssssuessssessusssusesssessusesssecsvessusessscsssesssnsssnesssessisesseesnes 154 List of Abbreviations 2SLS Two-stage least squares BO Board ownership BOD Board of Directors BOS Board of Supervisors CMSC Committee for Management of State Capital at Enterprises CPI Corruption Perceptions Index DIO Domestic institutional ownership FDI Foreign direct investment FIO Foreign institutional ownership FP Firm performance GC General corporation GFC Global financial crisis (2007-2008) GDP Gross domestic product HNX Hanoi Stock Exchange HSBC Hardening of soft budget constraint HSX Ho Chi Minh City Stock Exchange IGMB Independent government monitoring body IV Instrumental variable LEV Leverage MB Market to book value ratio MO Managerial ownership OLS Ordinary least squares PSM Propensity matching technique PVN Vietnam Oil and Gas Group (PetroVietnam) ROA Returns on assets ROE Returns on equity ROS Returns on sales SBV State Bank of Vietnam SEG State economic group SFA Stochastic frontier analysis SO State ownership SOE State-owned enterprise WTO World Trade Organization List of Figures Figure 2.1: Management structure of joint-stock COMPANIES .1: Conceptual model of relationship between residual state ownership and privatised firm performance under the context of governmental mechanisms/ policies to Promote its performance oo.

eee ee eee ố .1: Semiparametric estimates of firms’ ROA (%), ROE (%) and ROS (%) on state OWMNETSNIP (?%6).2: Semiparametric estimates of firms’ Tobin’s Q and market to book value ratio on State ownership ('%),.3: Semiparametric IV estimates of firms’ ROA (%), ROE (%) and ROS (%) on state OWNETSHIP (%) 70Ẽ07070Ẻ8ẺẺ8.ốốốốốốốốốốố ốố ố ốc cố .4: Semiparametric IV estimates of firms’ Tobin’s Q and market to book value ratio D0504 5()()s00 200708.5: Histogram of privatised firms’ effiCieTiCyy.6: The marginal effect of state ownership on firm efficiency.7: The marginal effect of state ownership on firm efficiency. 114 List of Tables Table 2.1: Number of SOEs Over 1995~2015.2: Contribution of Vietnamese economic sectors to GDP (%) over 1995-2016 .3: Share of SOEs among all active enterprises (%) .4: Comparison between state-owned enterprises, non-state enterprises and FDI enterprises regarding shares of the economy Over 2010-2015 (%).5: Number of firms privatised Over 1992-2017 0.1: Summary of studies suggesting detrimental impacts of state ownership.2: Summary of studies suggesting beneficial impacts of state ownership .3: Summary of studies suggesting a nonlinear relationship between state ownership and firm pe€FÍOTImATIC€.4: Summary of suggested mediators/moderators of the relationship between state ownership and firm DerÍOTImaTnC€. -- - + + es eseeeseseseeeeteteseseseseseseseacseensnsnseessssseasaeanenenens 61 Table 3.5: Summary of suggested moderating/ mediating role of state ownership on existing relatiOTnsl1DS. cece eee eeeeesesescsesescecssscessesesesesessscscessessessesesesessesesesesssseeeseseseessnensneeeeee 64 Table 4.