Academic journal article International Journal of Business and Information

Capital Structure and Investment Behavior of Listed Companies in Vietnam: An Estimation of the Influence of Government Ownership

Academic journal article International Journal of Business and Information

Capital Structure and Investment Behavior of Listed Companies in Vietnam: An Estimation of the Influence of Government Ownership

Article excerpt

ABSTRACT

This study investigates the capital structure and investment activities of listed companies on the Hanoi Securities Exchange and the Ho Chi Minh Securities Exchange in Vietnam. Estimation analysis using panel data covering the four-year period 2006-2009 implies that the economic reforms (Doi Moi) implemented by the Vietnamese government have achieved some of their goals in terms of fund mobilization and corporate financing. This estimation study, however, also illustrates several limitations of the economic reforms, such as the opaque relationship between state-controlled companies and government banks, financial restrictions on investment activities, and inactive investment of companies that are state-controlled or that are listed on the Ho Chi Minh Securities Exchange.

Keywords: Corporate finance, capital structure, corporate governance, transition economy, Vietnam

JEL Categories: G32, G34, G38

(ProQuest: ... denotes formulae omitted.)

I. INTRODUCTION

After implementing the Doi Moi (economic reforms) policy, Vietnam applied market mechanisms. As a result, its economic structure has changed greatly. In order to multiply forms of possession, apply market mechanisms, and open the economy, the legal system has rapidly created many new laws such as the Private Company Law in 1990, the State-Owned Company Privatization Law in 1990, the Company Law in 2000, the Foreign Investment Law in 2001, the Interest Rate Liberalization Law in 2002, and the Competition Law in 2005.

Along with the Doi Moi, Vietnam implemented equitization of state-owned companies.1 With the exception of special industries that need to remain government-controlled, the privatization of state-owned companies has been carried out, beginning with those of comparatively small scale that have good chances of achieving business efficiency. As a result, the industries that need to remain government-controlled have gradually decreased in number. In addition, many private companies have been equitized, and many joint-stock companies have been newly established. By the end of 2008, about 3,000 out of the 5,000 state-owned companies had been equitized, and there are now about 30,000 joint stock companies that do not have state-owned capital.2

Stock listing is the final stage of the equitization process in Vietnam. In 1998, it was decided to establish securities exchanges in Hanoi City and Ho Chi Minh City as stock markets for joint stock companies to raise mid- and long-term funds. The Ho Chi Minh Securities Exchange (HOSE) and the Hanoi Securities Exchange (HASE) opened in 2000 and 2005, respectively. The listing conditions of the HOSE are stricter than those of the HASE. In order to be listed on the HOSE, companies need to have more minimum capital, show better business performance, and have a more dispersed stock holding structure (Table 1). The number of listed companies, amount of buying and selling, trading value, and aggregate market value of the HOSE and the HASE have all increased in recent years (Table 2).

In the period of transition, understanding whether companies that played a major role in domestic investment could raise funds effectively is crucial for privatizing the Vietnamese economy. However, very few analyses have been made of the fund-raising activity of companies in Vietnam to find out the characteristics and problems of this activity.

Nguyen [2006], who empirically studied the fund-raising structure of small and medium-sized companies in Vietnam, conducted the first study in this field in Vietnam. In addition, Biger et al. [2008] studied the financial structure of companies in Vietnam by using data from the company census conducted by the Vietnamese General Statistics Office in 2002 and 2003. Although these studies clarified the financial structure of companies in Vietnam, they had several limitations. First, since these studies focused on the financial activities of small and medium-sized companies that faced an undeveloped institutional infrastructure, the financial activities of listed companies in Vietnam remain uninvestigated. …

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