Government Ownership and Firm
Performance: The Case of Vietnam(*)
Ngo My Tran
Walter Nonneman
Ann Jorissen
(*)Ngo,
M.T, Nonneman, W., Jorissen, A. (2014) Government ownership and firm performance:
The case of Vietnam, International Journal of Economics and Financial Issues, 4(3): 628-650
March 2015
Outline
• Context and rationale
• Contribution
• Theoretical model and propositions
• Data and methodology
• Empirical results
• Conclusion
2
Context and rationale
- The Vietnamese Government keeps a
substantial stake
- Policy and scholarly debate on the effect of
partial state ownership on firm performance
- The extensive empirical literature is inconclusive
- Few theoretical modelling efforts on the effect of
partial government ownership on firm
performance
- No research for Vietnam on the effect of partial
state ownership on firm performance
3
Research question
Does the degree of government
ownership matter for firm performance?
4
Two ways of analyses
- Theoretical by extending a game theoretic model
of government versus management of Huang and
Xiao (2012) to derive propositions on effects of
partial government ownership on firm
performance.
- Empirical by estimating a dynamic econometric
model (using system GMM) based on a panel of
partially privatized Vietnamese firms (2004-2012)
to determine the effect of the degree of
government ownership on firm performance.
5
Contribution
i.
Expand the theoretical predictions of Huang and
Xiao (2012) and provide empirical evidence for
these propositions.
ii. Shedding more light on the effect of
government ownership on firm performance in
transition economies.
iii. Being valuable to evaluate the effects of the
privatization policies of the Vietnamese
government
6
Theoretical model
Huang and Xiao (2012)
+ Main reasoning: the net effect of the ‘helping
hand’ and the ‘grabbing hand’ of government
ownership in the firms
+ ‘Helping hand’: more government ownership
brings, higher capital subsidy for the firm (i.e.
debt guarantee, business connection...).
+ ‘Grabbing hand’: the firm’s profit will be
extracted by the government, proportional to its
shareholding (i.e. excessive employment
(Shleifer and Vishny, 1994) excessive production
(Bai et al., 1997) or resource tunneling (Johnson
et al., 2000)
7
Theoretical model
 A two-period Stackelberg game between the
government and the firm
+ The government’s maximization problem:
(1)
Assumption: w=r=1, t=0, 0<α+β<1, c>0 and g(a)= ar
(2)
+ The manager’s maximization problem:
(3)
Assumption: w=r=1, t=0, 0<α+β<1, c>0 and b(a)= na, n>0
(4)
8
Propositions of Huang and Xiao (2012)
Sales per employee:
Profits per employee:
Return on sales:
9
Further develop some propositions
• Proposition 1: The efficient use of labor of the firm,
as measured by value added per employee, is
negatively affected by government ownership
• Proposition 2: The efficient use of capital of the
firm, as measured by turnaround indicator or sales
over assets, is negatively affected by government
ownership
10
Further develop some propositions (tt)
• Proposition 3: The profitability of the firm, as
measured by return over assets, is negatively
affected by government ownership
• Proposition 4: The profitability of the firm, as
measured by return on equity, is negatively affected
by government ownership
11
Data for empirical test of the model
• Panel data extracted from the annual business
surveys of the Vietnamese General Statistics
Office for the period 2004-2012
• Extracting those firms having some degree of
state ownership (0<a<1)
• Firms with values deviating more than three
standard deviations from the mean were
removed.
12
Variable name
Performance indicators
ROA
ROE
TURN
VAEMP
Characteristics
AGE
SOLV
LNASSET
State ownership
Definition
Return on total assets or pre-tax profit(*)/total assets
Return on equity or pre-tax profit/equity
Turnaround or sales/total assets
Value added per employee (million VND) (Value added is defined sales
minus purchases of goods and services)
Age of firms mid period in the year 2012
Solvency ratio or debt/total assets
Natural logarithm of total assets
Percentage of government shareholdings in the firm
Control dummy
Joint stock companies with state holding being smaller than 50 percent
of total shareholding but controlling the enterprises are coded as 1, 0
otherwise.
Industry dummies
Fishing, agriculture, manufacturing, electricity/gas, construction,
wholesale/retailer, hotel/restaurant, science/technology, transport,
financial, mining/quarrying, real estate (= reference group)
Region dummies
Red river delta, Northern midlands and mountain areas, North Central
coast and South Central coast, Central highlands, South East and Mekong
river delta River (=reference group)
Year dummies
Nine year dummies from year 2004 (=reference group) to year 2012
13
Econometric models
• Pooled OLS model:
• Random effects model:
• Dynamic panel data model:
14
State ownership and the percentage of
government control by year
No of
firms
LARGE FIRMS
SMEs
Whole sample
State
ownership
Percentage
of control
No of
firms
State
ownership
Percentage
of control
No of
firms
State
ownership
Percentage
of control
By year
2004
830
0.34
-
266
0.32
-
564
0.34
-
2005
1603
0.40
-
441
0.37
-
1162
0.41
-
2006
2148
0.39
0.21
512
0.35
0.18
1636
0.41
0.22
2007
2615
0.39
0.15
550
0.34
0.15
2065
0.40
0.16
2008
2814
0.39
0.17
496
0.35
0.19
2318
0.40
0.16
2009
2206
0.41
0.15
452
0.38
0.17
1754
0.42
0.14
2010
2687
0.42
0.16
308
0.40
0.21
2379
0.42
0.16
2011
2576
0.43
0.15
227
0.43
0.17
2349
0.43
0.15
2012
2367
0.43
0.15
182
0.45
0.13
2185
0.43
0.15
15
The estimates of pooled models
ROA
State ownership
Control
AGE
SOLV
LNASSET
Constant
R2
N
ROE
0.04***
0.07***
(0.01)
(0.02)
-0.00
-0.01**
(0.00)
(0.01)
0.00***
0.00***
(0.00)
(0.00)
-0.11***
0.01
(0.01)
(0.01)
0.00**
0.01***
(0.00)
(0.00)
0.09***
-0.00
(0.01)
(0.03)
0.16
0.08
5,859
5,820
VAEMP
TURN
42.73**
1.03***
(20.32)
(0.17)
-3.58
-0.11*
(6.85)
(0.06)
-0.94***
0.01***
(0.21)
(0.00)
-81.44***
0.36***
(11.54)
(0.10)
51.46***
-0.20***
(1.87)
(0.02)
-393.57***
2.62***
(29.59)
(0.25)
0.30
0.24
4,850
5,848
17
The estimates of pooled models
State ownership
State*LNASSET
Control
AGE
SOLV
LNASSET
Constant
R2
N
ROA
ROE
VAEMP
TURN
-0.12*
(0.07)
0.01**
(0.01)
-0.00
(0.00)
0.00***
(0.00)
-0.11***
(0.01)
-0.00
(0.00)
-0.37***
(0.14)
0.04***
(0.01)
-0.01**
(0.01)
0.00***
(0.00)
0.01
(0.01)
0.00
(0.00)
1.20
(1.26)
-0.02
(0.11)
-0.11*
(0.06)
0.01***
(0.00)
0.36***
(0.10)
-0.20***
(0.04)
0.14***
(0.02)
0.16
5,859
0.13***
(0.05)
0.08
5,820
-449.70***
(152.25)
43.36***
(13.29)
-4.54
(6.85)
-0.96***
(0.21)
-81.02***
(11.53)
39.37***
(4.15)
(11.52)
-253.90***
(52.02)
0.30
4,850
2.57***
(0.44)
0.24
5,848
18
Graph of firm performance indicators for large-,
medium- and small-size firms (pooled models)
ROE
ROA
Large-size firms
Medium-size firms
Large-size firms
Small-size firms
Medium-size firms
0.25
0.15
Small-size firms
0.2
0.1
0.15
0.1
0.05
0.05
State ownership
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
State ownership
1
0.2
0.4
0.6
0.8
1
1.2
1.4
-0.05
VAEMP
TURN
Larges-size firms
Medium-size firms
Small-size firms
2
50
State ownership
0.2
0.4
0.6
0.8
1
1.2
1.4
State ownership
0.2
0.4
0.6
0.8
1
1.2
-2
-50
-4
-6
19
The estimates of pooled models
State ownership
State squared
State*LNASSET
State squared*LNASSET
Control
AGE
SOLV
LNASSET
Constant
R2
N
ROA
ROE
0.73***
(0.26)
-1.49***
(0.46)
-0.04*
(0.02)
0.10**
(0.04)
-0.00
(0.00)
0.00***
(0.00)
-0.12***
(0.01)
0.00
(0.00)
0.04
(0.04)
0.17
5,859
0.37
(0.53)
-1.22
(0.93)
0.01
(0.05)
0.04
(0.08)
-0.01
(0.01)
0.00***
(0.00)
0.01
(0.01)
0.01
(0.01)
0.03
(0.07)
0.08
5,820
VAEMP
488.91
(575.40)
-1,722.63*
(1,024.42)
-35.14
(50.60)
144.36
(90.51)
-3.95
(6.90)
-0.96***
(0.21)
-81.02***
(11.56)
47.85***
(6.63)
-355.10***
(78.77)
0.30
4,850
TURN
-1.20
(4.92)
4.55
(8.66)
0.25
(0.44)
-0.49
(0.77)
-0.10*
(0.06)
0.00***
(0.00)
0.36***
(0.10)
-0.22***
(0.06)
2.81***
(0.68)
0.24
5,848
20
Graph of firm performance indicators for large-,
medium- and small-size firms (pooled models)
ROA
ROE
Large-size firms
Medium-size firms
1
0.4
Large-size firms
Small-size firms
Medium-size firms
Small-size firms
0.8
0.3
0.6
0.2
0.4
0.1
0.2
State ownership
State ownership
0.2
0.4
0.6
0.8
0.2
1
VAEMP
0.4
0.6
0.8
1
1.2
TURN
1.4
Larges-size firms
Medium-size firms
Small-size firms
800
Large-size firms
2
Medium-size firms
Small-size firms
State ownership
600
0.2
0.4
0.6
0.8
1
1.2
1.4
400
-2
200
-4
State ownership
0.2
0.4
0.6
0.8
1
1.2
-6
21
The estimates of
dynamic panel data models
State ownership
State*LNASSET
Control
AGE
SOLV
LNASSET
L.ROA
ROA
ROE
VAEMP
TURN
-0.17***
(0.06)
0.02***
(0.01)
-0.00
(0.00)
0.00***
(0.00)
-0.09***
(0.01)
-0.01***
(0.00)
(0.00)
0.19***
(0.02)
-0.28**
(0.14)
0.03**
(0.01)
-0.01
(0.01)
0.00***
(0.00)
0.02**
(0.01)
-0.00
(0.00)
(0.01)
-381.74**
(151.45)
35.88***
(13.12)
5.30
(6.79)
-0.54***
(0.17)
-58.27***
(11.45)
18.84***
(4.12)
(8.84)
0.14
(0.72)
0.06
(0.06)
-0.03
(0.03)
0.01***
(0.00)
0.23***
(0.05)
-0.24***
(0.02)
(0.04)
L.ROE
0.37***
(0.02)
L.VAEMP
0.55***
(0.03)
L.TURN
Constant
N
0.16***
(0.02)
4,766
0.13***
(0.05)
4,727
-95.97*
(50.05)
3,492
0.09***
(0.01)
3.25***
(0.24)
4,767
23
Large-size firms
Medium-size firms
Graphical presentation
(dynamic models)
Small-size firms
Large-size firms
Medium-size firms
Small-size firms
ROA
ROE
Large-size firms
Medium-size firms
0.2
Small-size firms
4
0.15
0.1
2
State ownership
-5
5
10
15
20
25
30
0.05
35
State ownership
0.2
0.4
0.6
0.8
1
-2
-0.05
-0.1
-4
15000
VAEMP
Large-size firms
TURN
Medium-size firms
5
Small-size firms
10000
State ownership
-5
5
10
15
20
5000
-5
State ownership
20
40
60
80
100
120
140
160
180
-10
-5000
24
The estimates of
dynamic panel data models
State ownership
State squared
State*LNASSET
State squared*LNASSET
Control
AGE
SOLV
LNASSET
L.ROA
ROA
ROE
VAEMP
TURN
0.54**
(0.25)
-1.27***
(0.44)
-0.04
(0.02)
0.09**
(0.04)
0.00
(0.00)
0.00***
(0.00)
-0.09***
(0.01)
0.00
(0.00)
0.19***
(0.02)
0.51
(0.54)
-1.41
(0.94)
-0.02
(0.05)
0.08
(0.08)
-0.00
(0.01)
0.00***
(0.00)
0.02**
(0.01)
0.00
(0.01)
-356.21
(568.14)
-37.51
(1,006.17)
42.41
(49.74)
-12.79
(88.56)
6.37
(6.84)
-0.54***
(0.17)
-59.25***
(11.48)
18.34***
(6.62)
-4.77*
(2.84)
9.05*
(4.95)
0.51**
(0.25)
-0.82*
(0.44)
-0.03
(0.03)
0.01***
(0.00)
0.23***
(0.05)
-0.28***
(0.03)
L.ROE
0.37***
(0.02)
L.VAEMP
0.55***
(0.03)
L.TURN
Constant
N
0.08**
(0.03)
4,766
0.03
(0.07)
4,727
-100.50
(77.97)
3,492
0.09***
(0.01)
3.78***
(0.39)
4,767
25
Graphical presentation
(dynamic models)
0.3
ROA
ROE
Large-size firms
Medium-size firms
Large-size firms
Medium-size firms
0.25
0.25
Small-size firms
Small-size firms
0.2
0.2
0.15
0.15
0.1
0.1
0.05
State ownership
0.05
0.2
State ownership
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
0.4
0.6
0.8
1
-0.05
1
-0.1
-0.05
VAEMP
TURN
Large-size firms
1000
Medium-size firms
Small-size firms
Large-size firms
2
Medium-size firms
800
Small-size firms
1
600
State ownership
400
0.1
200
0.2
0.3
0.4
0.5
0.6
0.7
-1
State ownership
0.2
0.4
0.6
0.8
1
1.2
-2
-200
-3
-400
26
Key findings
- Theoretical analysis based on the modified HX-model
predicts negative effects of the extent of government
ownership on profitability and on efficient use of capital
and labor
- Empirical analysis (dynamic panel estimates):
+ Profitability and labor productivity suffers with more
extensive government ownership (concurs with the
theoretical predictions from the modified H-X model).
+ Yet, an extensive stake of government in large sized
firms might positively affect firm performance.
27
Thank you very much for your listening!
Welcome all your comments!
28