Enterprises with state capital investment in Vietnam, except: enterprises with 100% state capital investment, enterprises operating in the fields of finance, banking and insurance

The results of the Pearson correlation test at 5% correlation

significance to test the linear relationship between the independent

variables and the dependent variable showed that the existence of a

correlation between state ownership and firm performance allows the

implementation of regression models to analyze the impact of state

ownership on firm performance. In addition, the existence of correlation

relationships between independent variables, potential multicollinearity

problem should be noted when analyzing regression, especially the

correlation between the group of variables on the ownership structure

(State, InLocal, OrLocal, Foreign) with debt structure (LTD, STD, Lev)

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retical problems, literature overview; statistical and comparative methods to clarify the current situation of the ownership structure and performance of state-invested enterprises in Vietnam. 5 Chapter 1 THEORETICAL BASIS OF OWNERSHIP STRUCTURE AND FIRM PERFORMANCE 1.1 Ownership structure Ownership structure of the enterprise is understood as the relationship between the equity components of the enterprise, determined by the correlation of the equity ratio held by the owners, representing the relationship of ownership in the enterprise. Ownership structure is often studied in two aspects: by concentration and by shareholder characteristics: 1.1.1 Ownership structure according to concentration 1.1.2 Ownership structure according to shareholder characteristics 1.2 Firm performance 1.2.1 Viewpoints on firm performance Firm performance is a very wide category. It can be approached from many aspects depending on the research objectives. According to the majority of researches related to the topic of the thesis, the thesis focuses on the research of firm performance in terms of economic efficiency, with the research subject with each specific enterprise is the business operating efficiency. 1.2.2 The system of evaluation criteria for firm performance 1.3 The theory of the relationship between ownership structure and firm performance 1.3.1 Signalling hypothesis According to this point of view, the presence of state shareholding along with its level of ownership in an enterprise is believed to have an impact on investors' perception of the enterprise's 6 value. However, this perception is not entirely the same for investors; depending on the perception point of view, the appearance of the state as a major shareholder will generate either a negative or positive signal to investors. 1.3.2 Competition theory According to the theory of competition, firm performance is mainly determined by competition in the market rather than ownership; the performance of SOEs and private enterprises will not have a significant difference in suitable competitive environment conditions. In fair competitive market conditions, information reflecting business operating conditions can be obtained from competition, thereby overcoming the problem of asymmetric information; enterprises’ success is not related to the form of enterprise ownership, but full and fair competition is the premise for firm performance. The low efficiency of SOEs comes from soft budget constraints, which are financial support from the state due to policy burdens; therefore, when the policy burden is removed, it is not necessary to privatize SOEs if SOEs have the same performance as private firms in a fair competition market. 1.3.3 Theory of endogenous ownership structure Ownership structure of a business should be considered as an endogenous result, reflecting the influence of shareholders and transactions in the stock market. When the owner of a private enterprise decides to sell shares or when the shareholders of a joint stock company decide to issue additional shares, these decisions will change the ownership structure of the enterprise and with probability ownership structure will be more dispersed. Stock trading would then reflect the desire of potential and current owners to change their ownership stake in 7 the enterprise. The ownership structure that appears, whether centralized or dispersed, must be affected by the purpose of maximizing shareholder returns, so there will be no systematic relationship between the ownership structure and firm performance. Chapter 2 LITERATURE REVIEW 2.1 The impact of ownership structure on firm performance 2.1.1 Research by concentration 2.1.2 Research by shareholder characteristics * The impact of state ownership, private ownership on firm performance * The impact of foreign ownership on firm performance 2.2 Interaction between ownership structure and firm performance When researching into the relationship between ownership structure and firm performance, in addition to the main research direction on the impact of ownership structure on firm performance, some researchers have simultaneously researched on the impact of firm performance on the ownership structure: Loderer and Martin (1997), Cho (1998), Wei et al (2005), Hu and Izumida (2008a), Gurbuz and Aybars (2010) and Demsetz (1983), initiators of the school “ownership structure is endogenous”. 2.3 Research gaps With the view of the performance comparative approach of enterprises before and after equitization, most research results have shown that the enterprises after equitization have substantially increased sales, increased profits, and improved executive efficiency, 8 and at the same time, significantly reduced the debt level and increased the dividend rate. Such results can be found in researches by Boubakri and Cosset (1998), Megginson and Netter (2001). Or the studies from the performance comparative approach of enterprises with the types of ownership: state, private, and mixed-owned, show the general results of low-to-high firm performance of state-owned, mixed-owned and private-owned enterprises (Ehrlich et al., 1994; Majumdar, 1998; Boardman et al., 2002). However, not all researchers agree with the above research results, for example, Aussenegg and Jelic (2002), Alipour (2013). The reason for the difference of research results is due to the difference in the characteristics of the countries as well as the level of economic development between periods. With the research aspect of the concentration of ownership, research results of the relationship between ownership structure and firm performance are also very different. In China, in the relationship with firm performance, state ownership has a negative impact (Sun and Tong, 2003; Wei et al., 2005; Lin et al., 2009); positive impact (Jiang et al., 2008; Ng et al., 2009); a U-shaped relationship (Wei et al., 2005; Tian and Estrin, 2008; Lin et al., 2009; Yu, 2013), or an inverted U-shape (Sun et al., 2002; Wei et al., 2003). In Vietnam, scientists also carry out researches from comparative approach such as Tran Tien Cuong et al (2006), Loc et al (2006), researches on ownership structure according to concentration and detection of relationship between ownership structure and firm performance such as Phung Duc Nam and Hoang Thi Phuong Thao (2013), Tran Thi Thanh Tu and Pham Viet Hung (2013), and Le Duc Hoang (2015). Regarding the method of selecting the research model, the above studies select the panel data model with the static table data 9 regression model through 3 methods of running the model: Pool-OLS, random effect and fixed effect and testing to choose the right model. Most research results in Vietnam show that state ownership has a negative impact on firm performance, some studies show that state ownership also has a positive impact when the level of ownership is not concentrated (Tran Thi Thanh Tu and Pham Viet Hung, 2013); an inverted U shape (Phung Duc Nam and Hoang Thi Phuong Thao, 2013; Le Duc Hoang, 2015). However, Vietnamese scholars have not conducted in-depth studies of endogenous ownership structures, the test models normally focus on the single effects of ownership components, or the models only study the unidirectional equations. Unlike the above studies, on the basis of the system of theories of signal hypothesis and competition theory, the research model in this thesis will be set up on the basis of viewpoint mainly from listed companies on the stock market, there is no difference between the goals of state shareholders and other shareholders and therefore ownership structure by ownership characteristics will not have much influence on firm performance, the impact if any is mainly due to the issue of concentration or dispersion of the ownership structure (and so the ownership components at the concentration level can all have a positive impact on firm performance), due to the competition problem of the market. The above argument is also based on the characteristic that state-owned enterprises listed on the stock market are equitized SOEs, and the improvement of firm performance after equitization is proven (according to the results of previous comparison school researches after equitization), and especially with the positive impact on the performance of the listing (Tran Thi Thanh Tu and Pham Viet Hung, 2013). 10 Besides, due to endogenous issues, through the impact of a competitive market, firm performance will be able to affect the ownership structure. This is also an issue that needs to be studied. Chapter 3 OWNERSHIP STRUCTURE AND PERFORMANCE OF STATE - INVESTED ENTERPRISES IN VIETNAM 3.1 State- invested enterprises in Vietnam 3.1.1 Classification of enterprises according to ownership criteria 3.1.2 State-invested enterprises 3.1.3 The role of state-invested enterprises 3.1.4 The measures and forms of arrangement and renewal of state - invested enterprises 3.2 Ownership structure and performance of state - invested enterprises in Vietnam 3.2.1 Ownership structure state-invested enterprises in V ietnam through the reform and renovation process 3.2.2 Performance of state-invested enterprises 3.3 Requirements for the process of restructuring and improving the performance of SOEs when Vietnam joins a new generation of free trade agreement In a nutshell, over 25 years of reorganization and renovation, the state-invested enterprise sector despite its gradual narrowing in number and fields of operation, especially a sharp decline in state- owned enterprises with 100% of charter capital or controlling shares; However, it always plays a leading role in the economy, with the highest contribution to GDP compared to non-state enterprises and 11 FDI enterprises. Through arrangement, renovation, the performance of the SOE sector has been improved. Among the measures and forms of arrangement and renewal of state-invested enterprises in recent years (such as: equitization, assignment, sale, transfer, merger, consolidation, dissolution of enterprises, restructuring capital sources, assets), measures that change the equity structure such as equitization, restructuring of capital sources, assets are measures that have a positive impact on the performance of the enterprises in consideration of general statistical data, especially equitization. However, the results of implementing these measures have been limited recently, the equitization of SOEs has not made a fundamental change in the equity structure; the equitization and divestment progress is slow. Besides, there are no specific criteria associated with the performance of SOEs when implementing equitization and divestment, but mainly based on sectors and industries. In fact, through statistical data, it shows that the performance of the SOE sector is still based on the scale and loan, but the efficiency of capital use is low; the indicators of profitability performance compared between the period 2016-2018 and the period 2011-2015 decreased (while the other business sectors increased); the investment efficiency of the SOE sector has not met the requirements of reforming growth models through improving labor productivity, technology and governance capacity. Therefore, in the coming time, continue to implement the policy of restructuring and improve the performance of SOEs, the requirements of the new generation FTAs for SOEs to operate under market mechanism, equal competition with other economic sectors, and transparency of information in operations will be the issues to be addressed. 12 Chapter 4 RESEARCH METHODS 4.1 Research model and hypothesis Research model focuses on: (i) Testing the simultaneous effects of ownership components on firm performance; (ii) Using two equations test to examine the interaction between ownership structure and firm performance. 4.1.1 Research hypotheses 4.1.2 Research model Equation 1: Examining the impact of ownership structure on firm performance - Linear impact test - Test non-linear effects of ownership components on firm performance with the addition of variables: Inside: - The dependent variable: PF measures firm performance by ROA, ROE, TobinsQ. - The independent variables: State, InLocal, OrLocal, Foreign are the % ownership of major shareholders (> = 5%), the State, domestic individuals, domestic organizations (except the State) and the 13 foreign. SquareY (in turn, the square of each element possessing the non-linear impact test) - The control variables: X: includes variables: Firm size (Size); financial leverage (LTD, STD); cost of debt (CostD); fixed assets (FixAss); liquidity (Liq); age of firm (Age). - The dummy variables: Year is the dummy variable of time, Industry is the industry dummy variable. Board: Firm that the State holds controlling or not controlling shares, value 1 if State> = 50% and value 0 if State <50%. Equation 2: Examining the impact of firm performance on ownership structure (state ownership), using the following estimation model: - The dependent variable: Dstate: equal to the annual state equity ratio (t-1) - annual state equity ratio (t) / annual state equity ratio (t-1)). - The independent variables: PF (according to indicators ROA, ROE, Tobin-Q). - The control variables: Including some variables with measures such as Model 1: LTD, Size, FixAss; dummy variables Year, Industry, Board; and additional variables Rgrow (Annual revenue growth), OwnEq (% equity to equity ratio). 4.2 Methods of data analysis In addition to using the static table data regression model method as the majority of previous studies, expanding the research according to dynamic table data regression model for analysis. 14 4.3 Research Data Research data includes all state-invested enterprises (as major shareholders with a stake of 5% or more) listed on the stock market of Vietnam (HNX and HOSE) during the 8-year period from 2010 to 2017 provided by Vietstock, excluding enterprises in the financial sector due to the specific business characteristics of this sector (Rajan and Zingales, 1995). With the sample of 429 enterprises in 8 years, the number of corresponding observations is 3.432, of which 2.495 are state-invested. 4.3.1 Sample descriptive statistics 4.3.2 Correlation relationship between variables The results of the Pearson correlation test at 5% correlation significance to test the linear relationship between the independent variables and the dependent variable showed that the existence of a correlation between state ownership and firm performance allows the implementation of regression models to analyze the impact of state ownership on firm performance. In addition, the existence of correlation relationships between independent variables, potential multicollinearity problem should be noted when analyzing regression, especially the correlation between the group of variables on the ownership structure (State, InLocal, OrLocal, Foreign) with debt structure (LTD, STD, Lev). Chapter 5 RESEARCH RESULTS AND DISCUSSION 5.1 The impact of ownership structure on firm performance 5.1.1 Test of linear relationship 5.1.2 Test of non-linear relationship 15 5.2 The impact of firm performance on ownership structure 5.3 Some extensive studies 5.3.1 Research with the dynamic regression model through GMM There is no case of conflicting results between the static model and the dynamic model. 5.3.2 Research on the impact of state ownership on firm performance in a number of industries and fields The results of testing research data for the construction industry (proportion of 26.3% of the total number of enterprises) and the manufacturing industry (proportion of 31% of the total number of enterprises) show that: The factors of industries and fields of operation of enterprises have certain influence on the relationship between the ownership structure and the performance of the state- invested enterprises. Main testing results in Part 5.1 and 5.2 are summarised in Table 5.1 and 5.2; the conclusion is as follows: - First, the results in Table 5.1 confirm the positive role of the domestic private sector for SOEs after equitization when there is a positive linear relationship with the SOE (similar to many previous studies ); the appearance of foreign ownership has a negative impact on firm performance when there is a negative linear relationship (unlike many previous research results, which is a positive impact, this is explained by the dispersion of foreign ownership due to legal regulations in Vietnam), but it will play an active role if a certain degree of concentration exists when a non-linear relationship also exists (U-shaped). - Second, Table 5.1 shows that state ownership as well as whether the state holds the right to dominate or not to dominate 16 enterprises has no statistically significant linear impact on firm performance; especially in contrast to some previous research results (inverted U-shape), the results of the non-linear (U-shaped) impact of state ownership on firm performance can show that SOEs after equitization, once the conditions for listing on the stock market have been ensured, corresponding to the conditions of scale, finance, transparency in operations ..., with inherent objective advantages of the state ownership, state ownership at a certain concentration will be proportional to firm performance (The research results are explained on the basis of competition theory, theory of signalling hypothesis). Comparing with the research results on firm performance of SOEs in the period before and after equitization, the results of the non-linear inspection according to the above explanation are also consistent with the reality as well as previous inspection studies, which showed that activities of SOEs after equitization are more effective than before equitization. In addition, expanding research on the impact of state ownership on firm performance in some fields (construction, production) shows that the industry, the field of operation of the enterprise has certain influence on relationship above. Therefore, the proposed policy implications on the basis of test results will need to take into account this factor. - Third, with the results in Table 5.2, the performance of SOEs listed on the stock market has a positive impact on the level of state divestment, proving the attractiveness of SOEs which operate effectively for private investors. On the other hand, the results show that the current divestment policy of state capital investment in SOEs after equitization needs to take into account the firm performance factor. 17 - Fourth, Table 5.1 shows that ineffective use of loans, depending on the size of enterprises with state capital investment (similar to most previous research results); meanwhile, regarding the size of enterprises, the results in Table 5.2 also partly reflect the policy of increasing the divestment of state capital investment in large-scale enterprises (corporations, groups) in the research period when the size of enterprises has the same impact direction as state divestment. - Fifth, the issue of representatives, land assets, the level of equitization are bottlenecks in the restructuring of state-owned enterprises, which can be seen from Table 5.2, this test result is completely consistent with the current situation of Vietnam in the restructuring process. In addition to the conclusions drawn from the static model test results mentioned above, when expanding the study to test the dynamic model of the impact of ownership structure on firm performance, there are no signs of the effects of the components like static model. With this result, the change of equity structure does not affect firm performance. This is appropriate when the stock market develops, the change of equity structure becomes frequent due to trading and investment activities in the market, especially in the short term. In a competitive environment where there is no difference between the goals of state shareholders and other shareholders, the change in ownership structure will not affect firm performance. This conclusion should be noted when implementing the policy of divestment of state capital investment in SOEs after equitization, listed on the stock market, operating effectively. 18 Table 5.1 Impacts of ownership structure on firm perfomance No Variables ROA ROE TobinQ I Group of independent variables A Linear impact 1 State ownership 2 InLocal ownership + + 3 OrLocal ownership + + 4 Foreign ownership - - B Nonlinear impact 1 State ownership U 2 InLocal ownership 3 OrLocal ownership 4 Foreign ownership U 5 The state dominates (equity> = 50%) II Group of control variables 1 LTD (long-term liabilities / total assets) - - - 2 STD (short-term assets/short-term liabilities) - - 3 CostD (financial expenses / liabilities) - - - 4 Liq (short-term assets/ short-term liabilities) 5 Size (logarithm of total assets) + + 6 FixAss (fixed assets / total assets - - 7 Age (age to list on the stock market) - - + 8 Board (dominant state > = 50%) Notes: (i) Same direction impact (+), opposite direction impact (-); (ii) The results aggregated on the above table is the static model test result; (iii) The dynamic model test results have no cases of conflict with the static model results, the main difference is that the ownership components have no impact on firm performance. 19 Table 5.2 Impacts of firm performance on state ownership structure No Variables Dstate (state divestment) 1 ROA 2 ROE + 3 TobinsQ + 4 LTD (long-term liabilities / total assets) 5 Board (dominant state> = 50%) - 6 Size (logarithm of total assets) + 7 FixAss (fixed assets / total assets) - 8 OwnEq (% equity / equity) + 9 RGrow (annual revenue growth) + Note: Same direction impact (+), opposite direction impact (-) 20 Chapter 6 RECOMMENDATIONS ON POLICY IMPLICATIONS 6.1 Some recommendations on the implications of restructuring and improving performance of state-invested enterprises 6.1.1 State divestment policy in post-equitization enterprises should take into account the firm performance factor, especially when the enterprises are listed on the stock market, operating effectively For SOEs after equitization, when they have met the conditions to be listed on the stock market, corresponding to the conditions of scale, finance, transparency in operations ..., with inherent objective advantages of state ownership, state ownership at a certain level of concentration, will have a positive impact on firm performance. Therefore, when an SOE has been equitized, although the level of equitization has not been achieved compared to the approved plan, operates effectively, especially it is listed on the stock market, the continued divestment of state investment in order to achieve the target for the percentage of shares held by the State under the approved plan needs to be considered. 6.1.2 Equity policy attracts foreign investors, takes advantage of and promotes the active role of foreign ownership Loosening the ownership ceiling of foreign investors when the State offers securities to the public, focusing on selection of foreign strategic investors in SOE equitization. 6.1.3 The investment of state capital in enterprises should come from the main economic efficiency; determine competition is the main driving force to improve firm performance. 21 Activities of enterprises with state capital investment compliance with market mechanism, equal competition with in enterprises of other economic sectors in accordance with the law; publicity and transparency of enterprises' operations and accountability in corporate governance (especially SOE holding dominant shares) are important factors in promoting firm performance. 6.1.4 Exactly identify bottlenecks in restructuring enterprises with state-invested enterprises; focus on representatives, land assets, and equitization level. 6.2 Recommendations for implementation of policy implications 6.2.1 Recommendations to the Government, the Prime Minister - Improve mechanisms and policies for SOEs to operate under the market mechanism; - Review and narrow down the fields and industries t

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