Impact of Residual State Ownership on Privatised Firm Performance: Evidence from Vietnamese Listed Firms

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.