State ownership, board characteristics and corporate financial performance in publicy listed firms in Vietnam

Abstract

State ownership plays an important role in guiding corporate governance to achieve a number of government objectives. Therefore, using this capital can help businesses achieve high profits and growth. In addition, the characteristics of the board are also significant for increasing the profitability of the business. Using a sample data of 30 large companies with large market capitalization as well as great market influence listed on stock exchanges in Vietnam; and using the traditional regressions such as OLS, FEM and REM as well as the endogenous analysis, the research results indicated that state ownership has a positive contribution to financial performance. Moreover, larger board size is significantly consistent with higher financial performance. The study also affirmed that enterprises should choose equity instead of debt to ensure higher financial benefits for businesses.

IMPACT STATEMENT

Improving the role of the board of directors, especially the state capital in business is necessary. In fact, state ownership plays an important role in guiding corporate governance to achieve a number of government objectives. Therefore, using this capital can help businesses achieve high profits and growth. In addition, the characteristics of the board are also significant for increasing the profitability of the business. Using a sample data of 30 large companies with large market capitalization as well as great market influence listed on stock exchanges in Vietnam; and using the traditional regressions as well as the endogenous analysis, the research results indicated that state ownership has a positive contribution to financial performance. In addition, larger board size is significantly consistent with higher financial performance. The enterprises should choose equity instead of debt to ensure higher financial benefits for businesses.

Keywords:

• Board of directors
• enterprise
• performance
• state
• governance

REVIEWING EDITOR:

• Robert Read, Economics, University of Lancaster, Lancaster, UK

SUBJECTS:

• Economics; Finance; Business, Management and Accounting

1. Introduction

Enterprises play an important role in production, creating jobs, contributing to the budget and generating output for the country. The economic development of each country cannot be without the contribution of businesses (Hussain et al., 2021). Therefore, the growth of enterprises helps to make a more practical contribution to production and economic efficiency in general, promoting regional and national economic growth (Cuevas-Vargas et al., 2022; Tran et al., 2022).

The development of the enterprise goes hand in hand with the contribution of financial resources to its business activities. Corporate capital can come from equity financing contributed by existing or new shareholders, funding from the state or stock market, and debt financing can come from the credit market. It can be said that enterprises can flexibly use their own capital or capital from debt to finance production (Caselli et al., 2023).

Countries always want to promote some important economic activity, so they often use their capital to invest in a number of state-owned enterprises to govern certain areas where the state prioritizes development and leads the economy (Yu, 2013). State ownership also plays a role in guiding enterprises to invest in some areas where private enterprises invest ineffectively (Wei & Varela, 2003). Effective use of state ownership can promote economic development as well as correct market failures.

Research on the effect of state ownership on corporate financial performance has been conducted through a number of studies in recent times. Research results show that the impact of state ownership on financial performance is ambiguous and ambiguous. Kubo and Phan (2019) argued that state ownership has a positive impact on corporate profits, so state-owned enterprises generally operate more efficiently and have higher financial benefits. However, Lin et al. (2022) argued that state-owned enterprises are often inefficient and can overwhelm investment between the public and private sectors and thus can reduce economic growth. Lin et al. (2022) affirmed that SOEs are difficult to improve productivity and often less efficient than non-state enterprises. In addition, Ke and Wang (2021) also said that the influence of state ownership has not been seen in investment enterprises, especially venture capital enterprises. On the contrary, Wei and Varela (2003) argues that high state ownership is generally not conducive to enterprise growth.

In the case of Vietnam, the country’s economic development is largely driven by businesses, including both state-owned and private enterprises. In light of economic development, Vietnam is experiencing the expansion of private enterprise while state-owned enterprises or state-owned capital investments in enterprises are decreasing day by day. Furthermore, equitization in Vietnam is associated with reducing state ownership in enterprises, and also consistent with the participation of non-state capital (also known as privatization). According to Van Tan (2022), equitization in Vietnam is separated into three phrases: (i) in the pilot stage, equitization progress is very slow due to the lack of a clear legal corridor, so only 558 enterprises can be equitized, of which are mainly small and medium enterprises, as well as they are profitable enterprises that are expected to develop faster after equitization. In the second stage from 2001 to 2010, about 3,126 enterprises were equitized. It can be said that this period had a large number of equitized enterprises, and at the same time, Vietnam had many private enterprises that developed rapidly, contributing to accelerating the equitization process. In the third stage from 2011 to 2018, Vietnam shifted towards equitizing large enterprises, especially corporations and groups with a wide scope of operations and large assets. However, Vietnam’s economy also encountered some difficulties during this period, especially the banking system crisis due to huge bad debts, slow economic growth and the decline in financial efficiency of large enterprises, so equitization progress is slow. Further, Vietnam participated in Comprehensive and Progressive Agreement for Trans- Pacific Partnership (CPTPP) that has created more opportunities for Vietnamese businesses to participate more deeply in the global value chain. However, Kien et al. (2023) or Nguyen and Nguyen (2022) indicated that the COVID-19 pandemic has had a negative impact on Vietnam in particular and many Asian countries in general during the period 2020 to 2022. As a result, the performance of Vietnamese enterprises is nagetively affected, and at the same time the progress of equitization is almost impossible. It can be said that the state ownership in many enterprises still accounts for a large proportion

Therefore, it can be seen that state ownership still holds the dominant position in most Vietnamese enterprises, especially large enterprises. To assess the influence of state ownership on corporate financial performance to assess whether the equitization process of SOEs is effective, is the main reason for the formation of this study. What’s new in this study is this: the study was conducted in Vietnam, one of the fastest growing countries in Southeast Asia, and at the same time, the country has a fast-growing number of businesses. Besides, Vietnam’s stock market is growing strongly, contributing to economic development and integration. The result of this study was to assess the role of state capital for large enterprises in the stock market. On the Vietnamese stock market, there is always a group of securities with large capitalization, high liquidity and classified in a typical basket of securities on the stock market, and called VN30 or HNX-30. Second, previous studies have used traditional regression methods and did not assess the immutability of companies in the same industry over time. Because companies in the same industry are often difficult to change over time and have similar operational characteristics, they can be both partners and competitors in the market. Third, previous studies have not assessed the impact of interdependence between businesses, especially when businesses are both partners and competitors in the market, which can have side effects on each other. Specifically, it can be said that the development strategy of one business can affect the development of another. Fourth, like China, Vietnam develops its economy according to market principles, however, the state economy still dominates many activities in the economy, or it can be said that state resources are the leading force and have a more important position than private resources for the socio-economic development of the country. Fifth, this study uses endogenous analysis in the estimation model, while also assessing dependencies among firms operating in the stock market based on Hoechle (2007). In fact, companies that often operate in similar socio-economic environments often have reciprocal influence, so it is necessary to perform dependency testing and that is what is new of this study compared to other studies investigated by Aguilera et al. (2021), Caselli et al. (2023) or Ke and Wang (2021). Therefore, studying the impact of state ownership on business performance is necessary and the findings can give policy implications for Vietnam and some economies in transition.

This study is divided into 5 main parts. In addition to the problem statement, part 2 discusses previous studies, section 3 discusses data sources and research methods. In sections 4 and 5, research findings and conclusions are discussed.

In this study, the authors collected sample data from 30 listed companies (understood as companies that had previously met regulatory and reputable listing standards, large companies with large market capitalization, with great market influence) on stock exchanges in Vietnam. The study used traditional regression such as OLS, FEM and REM as well as Hoechle-based dependence testing (2007). In addition, the study may have endogenous problems, the use of two-step generalized moment method (IV-GMM) instrumental variables should be further considered. Research results indicate that state ownership has a positive contribution to financial performance. Moreover, larger board sizes are consistent with higher margins. The study also affirmed that enterprises should choose equity instead of debt to ensure higher financial benefits for businesses.

2. Theoretical framework

According to the Cobb-Douglas production function, the output of a company is expressed as follows: $$Y=A\hspace{0.17em}{K}^{\alpha }{L}^{\beta }$$

In fact, output Y is highly dependent on capital (K), labor (L), and technological factors (TFP). Capital K can come from state resources or non-state resources, while labor L includes employees in state-owned and non-state enterprises. Labor L is also expressed through the quality of labor. When labor is appointed to a management position in an enterprise, the labor’s contribution to enterprise performance can be increased.

An enterprise wants to improve business efficiency, it is obvious that it wants to improve its productivity or output, thus requiring the enterprise to add capital, or additional labor or improve labor productivity. In addition, businesses can also consider adding technology, management and operating skills to optimize their operations (Li, 2023). Therefore, countries are always looking for ways to optimize business operations, including improving capital markets to help businesses access capital at low cost, while investing in human resources to help them achieve their goals and thereby create quality human resources (Maldonado et al., 2022). Moreover, corporate governance policies also require businesses to operate in a transparent environment, improving overall productivity.

However, public goods theory emphasizes the role of the state in socio-economic development. In fact, the economy operates according to market laws, it is possible that certain industries and sectors do not attract investment or underperform (McEvoy & McGinty, 2023). Therefore, state resources can be invested in enterprises, especially large ones, to create spillover effects in the economy, while overcoming market failures (Papadimitriou & Peng, 2023). As a result, the economy can be operated more efficiently and meet the development requirements of each country. Simultaneously, after the Second World War, Vietnam, China and a number of countries in the bloc of countries significantly developed their economy based on a centralized economy, which emphasized the role of the state economy in building basic infrastructure, or forming large enterprises has a pervasive impact on the economy (Gates et al., 1993; Malesky & London, 2014; Thanh Hai, 2021). Therefore, many large enterprises are influenced by state resources. Although the equitization of state-owned enterprises has taken place strongly in the recent period, the influence of state capital in most of giant enterprises is still large (Thanh Hai, 2021; Van Tan, 2022), hence doing the influence of state ownership in these countries to be able to assess the impact of policy transformation is necessary.

3. Literary review

State capital is an important additional resource in the process of socio-economic development in countries. However, resources from the state budget are often limited because budgets are often prioritized in areas where the private sector is underperforming or overcoming market failures. Therefore, the efficient use of state resources becomes even more urgent, helping the economy achieve high growth. Studies on the relationship between state ownership and corporate financial performance show relatively diverse results. Specifically, the positive impact of this relationship is confirmed in the study of Kubo and Phan (2019), arguing that state ownership can form the most efficient enterprises, which in turn can brings financial benefits and higher business value. However, most studies believed that increased state ownership is unlikely to make businesses effective, on the contrary, private ownership or FDI ownership has the ability to improve financial efficiency. The evidence of Wei and Varela (2003), Aguilera et al. (2021), Caselli et al. (2023) all affirmed that state ownership can reduce corporate financial efficiency. Therefore, it is evident that corporate efficiency depends on the type of ownership as well as when businesses have individual owners holding controlling power, they can can be more flexible in business plans, and therefore can exploit the market more effectively. Expanding the research, there is also evidence that confirming this relationship has a non-linear form, that is, there is both a negative and a positive impact of state ownership on business performance, as confirmed by Yu (2013) at Chinese non-financial companies.

Step by step to summarize this relationship, we followed the study of Kubo and Phan (2019). The review studies can be divided into three main research groups. Research groups related to state ownership and the efficiency and benefits of state-owned enterprises include the study by Kubo and Phan (2019), which studied listed companies and showed that state ownership has a positive impact on corporate performance. However, the impact of state ownership is different and depends on the type of state ownership. The authors emphasize the effectiveness of state ownership in the form of sovereign wealth funds capable of forming the best-performing companies. Therefore, there is likely to be a nonlinear relationship between state ownership and business efficiency, i.e. when state ownership is low, increasing state ownership makes business more profitable. However, companies with high state ownership tend to be less efficient. On the other hand, according to the agency’s theory, state ownership has the potential to reduce the financial performance of the business because owners and agents have different behaviors and interests. The representative because of his behavior always seeks personal interests may not be interested in the interests of the trust state. Aguilera et al. (2021) also argue that state ownership can harm companies’ financial performance, but can vary significantly from country to country due to government political ideology, physical differences, etc. Political institutions, state capacities, and political constraints can also affect this relationship. Aguilera et al. (2021) analyzed in a sample data including 131 countries over a 53-year period and further shed light on this negative relationship. However, the authors argue that this effect is small and very heterogeneous across countries. At the same time, the study confirms that political ideology and will likely influence the willingness of state-owned enterprises to pursue business and social goals. In addition, Yu (2013) studied dashboard data for 10,639 observations of Chinese non-financial companies between 2003 and 2010, the results of which confirmed that there is a U-shaped relationship between state ownership and business performance.Specifically, when state ownership increases, the efficiency of enterprises decreases and then increases again at the optimal state ownership threshold, i.e. when state capital is capable of dominating the operation of enterprises. In the case of China, state ownership has declined significantly since 2006, but the authors argue that this ownership ratio remains relatively high in some important industries such as oil, natural gas, mining. open, publishing, broadcasting and media sectors. Moreover, higher levels of ownership give the state the ability to centralize governance through government support and political connections.

The second research group follows the direction of research on state capital ownership and productivity of state-owned enterprises. Wei and Varela (2003) studied the relationship between state equity ownership and firm performance in recently privatized companies. It is important to note that ownership of state shares reduces the value of the enterprise, meaning that companies with a high percentage of state capital are often not conducive to the development of the enterprise. The results further show that the firm performance is not an important determinant of state ownership, but more specifically, its size and strategic industrial location are key determinants of state ownership in newly privatized Chinese enterprises. In another case, Caselli et al. (2023) studied the Italian stock market between 2007 and 2019 and found that a firm performance depends on different types of shareholders, that is, the form of capital raising has an impact on the firm performance. Enterprises, especially the group of shareholders with voting rights, have a great influence on the financial performance of the enterprise and help the business perform better than if the enterprise does not centralize ownership or does not form dominant shareholders. However, Caselli et al. (2023) emphasize that businesses dominated by state ownership often operate at a disadvantage compared to those dominated by private ownership or foreign investors.

Another possibility, Ke and Wang (2021) arguing that minority shareholders have an impact on improving corporate profitability, especially in venture capital firms. However, state minority shareholders do not affect the business performance of enterprises, thereby showing that the influence of state ownership in venture capital enterprises has not been seen. Another study, Lin et al. (2022) studied at an agricultural processing enterprise in China between 1998 and 2013 and used a trend point method matched with differences to control for endogenousness. The authors argue that the productivity of non-state enterprises can be improved through the country’s agricultural stimulus program, while state-owned enterprises cannot improve productivity. Thereby, it can be seen that non-state enterprises operate more effectively than state-owned enterprises.

In addition to capital, governance factors also affect business performance, as confirmed by García-Ramos and García-Olalla (2011), Maldonado et al. (2022), Sheikh and Alom (2021), Kim et al. (2023). Improving the quality of human resources is associated with the quality of management expressed through the ability to lead and operate a business, which in turn is a factor affecting business operations. It is evident that the relevance of the characteristics of the board of directors or the structure of shareholders to the productivity and financial performance of the enterprise can be confirmed. Related to this suggestion, it is worth mentioning the study by Kim et al. (2023) who suggest that the board has a positive impact on the financial performance of the business, even increasing the capacity of the board is likely to improve the likelihood of the business succeeding in the market. In particular, the Board of Directors strengthens the commitment to business leadership associated with social factors, businesses have better opportunities for sustainable development. Therefore, the selection of a board of directors of appropriate quality and its size has the potential to enhance business operations with many criticisms of the board and maintain business performance. This is similar to Sheikh and Alom (2021) in the case of Bangladesh that the size and leadership of the board has an impact on the performance of the company, but that a company’s lack of transparency in its practices can reduce its performance.

4. Data sources and research methodology

4.1. Data sources

For the study, the authors collected sample data from 30 companies listed on the stock exchanges of Ho Chi Minh City and Hanoi. These are large companies with large market capitalization, have a great influence on the Vietnamese stock market as well as are often in the VN30 or HNX-30 group. The selection of Vietnam as an emerging market can show a different view in this market segment. Enterprises in the VN30 and HNX-30 groups are always of special interest to Vietnamese and foreign investors, even when investing in other stocks, they must pay attention to them. Because, these enterprises have large capitalization, high liquidity and are classified in a typical basket of securities on the stock market. In addition, we also choose businesses with a long enough number of years of listing (from 2010 to 2021). Therefore, a small number of businesses in the VN30 and HNX30 with a short number of years of listing will not be selected for this study.

The data collection period is from 2010 to 2021. Data is collected from Audited Financial Statements and Annual Reports. At the same time, the data is processed for errors before performing estimated analysis.

4.2. Research methodology

The study uses the balanced panel data for analysis. To perform the research analysis, the study used ordinary least squares regression (OLS), fixed effects analysis (FEM) and random effects analysis (REM). The study also used F test to choose between OLS and FEM, and used Hausman test to choose between FEM and REM, then the best regression model can be selected. Further, the study applies autocorrelation and heteroskedasticity analysis, when encountering these defects, the feasible generalized least squares (FGLS) method is used to help the regression model achieve the best results as discussed by Nguyen and Huynh (2023).

In addition, the study also tests and evaluates the correlation and interaction between enterprises in the same industry. Moreover, firms in the same industry often have similar characteristics, but between enterprises always change over time, so this study will evaluate the characteristics of enterprises over time.

Further discussed on the research methodology, Hoechle (2007) indicated that there is account for heteroskedasticity as well as for temporal and spatial dependence in the residuals of time-series cross-section models proposes FGLS. However, this method is infeasible when the time dimension T is smaller than its cross-sectional dimension. Further, the method produces unacceptably small standard error estimates. Therefore, pooled OLS regressions with the panel corrected standard errors should be performed. This method is also considered as the robustness check for the FGLS.

In addition, the study may have endogeneity problems, especially studies that are a common feature of studies on firm—profit, therefore, in this study, we wish to use the GMM analysis to analyze the endogeneity in the estimation model as mentioned by Nguyen and Huynh (2023). We detect endogenous variables through Hausman—Wu test. This test is performed through the following steps:

We assume it is endogenous regression. Let’s estimate the following equation: $Y_t$

We assume that $Y_t$ is the endogenous regressor. Let’s estimate the following equation:

$Y_t={\pi }_1+\hspace{0.17em}{\pi }_2{C}_{t-1}+\hspace{0.17em}{\pi }_3{I}_{t-1}+\hspace{0.17em}{\pi }_4{G}_t+\hspace{0.17em}{\partial }_t=\widehat{Y_t}+\widehat{{\partial }_t}$; and we have: $\widehat{Y_t}$ are the estimated or predicted values of $Y_t$; $\widehat{{\partial }_t}$ are estimated residuals

We run the regression with $E_t$ as the dependent variable, and above estimated residuals $\widehat{{\partial }_t}$ as an independent variable along with other variables, we have the following equation: $$E_t={\varnothing }_1+{\varnothing }_2{Y}_t+{\varnothing }_3{E}_{t-1}+{\theta }_1{\stackrel{⌢}{\partial }}_t+{\mu }_1$$

The results of the above equation help us the finding of the endogeneity or exogeneity of $Y_t$. Therefore, the hypothesis should be shown as follows:

$H_0:{\theta }_1=0$, $Y_t$ is exogenous

$H_0:{\theta }_1\ne 0$, $Y_t$ is endogenous

Based on previous studies, especially Kubo and Phan (2019), the proposed regression equation is as follows:

Equation 1: $$\mathit{\text{PROFITit}}=\hspace{0.17em}{\beta }_0+{\beta }_1\mathit{\text{STATEit}}+\hspace{0.17em}{\beta }_2\mathit{\text{BOARDSIZEit}}+{\beta }_3\mathit{\text{MEETINGit}}+{\beta }_4\mathit{\text{DEBTit}}+{\beta }_5\mathit{\text{AUDITit}}+\hspace{0.17em}\mu$$

The study also assesses the influence of external factors on the business performance of enterprises, then the regression equation is as follows: $$\begin{array}{c}\mathit{\text{PROFITit}}=\hspace{0.17em}{\beta }_0+{\beta }_1\mathit{\text{STATEit}}+\hspace{0.17em}{\beta }_2\mathit{\text{BOARDSIZEit}}+{\beta }_3\mathit{\text{MEETINGit}}+{\beta }_4\mathit{\text{DEBTit}}\\ +{\beta }_5\mathit{\text{AUDITit}}+{\beta }_6\mathit{\text{GDPt}}+{\beta }_7\mathit{\text{INFt}}+\hspace{0.17em}\mu \end{array}$$

A summary of the variables of the research model is shown in Table 1 below:

Table 1. Description of variables.

Variable	Shortening	Previous studies
Dependent variables
Company’s profitability	PROFITABILITY, measured by ROA	Ke and Wang (2021), Lin et al. (2022)
Independent variables
State ownership	STATE	Ke and Wang (2021), Lin et al. (2022)
Board Size	BOARDSIZE, measured by the size of the Board/11	García-Ramos and García-Olalla (2011), Zhou et al. (2018)
Number of meetings in a month	MEETING	García-Ramos and García-Olalla (2011), Zhou et al. (2018)
Capital structure	DEBT	Cuevas-Vargas et al. (2022), Ullah et al. (2020)
Audit firm	AUDIT, gets 1 if a company chooses an auditing company in BIG4, gets 0 if a company does not choose an auditing company in BIG4	Zhou et al. (2018)
GDP	GDP per capita	Hussain et al. (2021)
INF	CPI	Hussain et al. (2021)

Source: Authors’ compilation.

5. Research results

5.1. Descriptive statistics

Table 2 is the descriptive statistics of the variables in the estimation model. As for ROA, this indicator reaches an average value of 7.85% and is quite high, reflecting high profitability. However, there is a difference between the most efficient companies and the least efficient companies. For the State, this index reached 23.37%, reflecting that 23.37% of enterprise capital is from the state, the remaining 66.63% is from non-state capital. In terms of board size, the average board size is 5.28 members, and this size is small compared to the maximum number of board members under the corporate law of 11. In terms of the number of monthly Board meetings, the average is 0.53 meetings/month. Meanwhile, 26.11% of enterprises chose auditing firms in BIG4 to audit, the remaining 73.89% chose small and medium auditing enterprises. Food enterprises have a debt ratio of 48.86% in the capital structure, the remaining 51.14% is equity.

Table 2. Descriptive statistics of research variables.

Variable	Mean	Std. Dev	Min	Max
ROA	.0785035	.0711571	−.364934	.3367818
STATE	.2337335	.2530772	0	.976053
BOARDSIZE	.4818182	.1828031	0	1
MEETING	.5328704	.5627244	0	3
DEBT	.4886112	.2246942	.092188	.9706116
AUDIT	.2611111	.4398517	0	1
GDP	2766.938	638.2857	1684.012	3756.489
INF	5.488995	4.740714	.6312009	18.67773

Source: Author’s Analysis.

As for the external factors affecting the business, typically GDP and CPI. In terms of GDP per capita, this index has a fast growth rate, demonstrating the rapid economic development of Vietnam in recent years and reaching 3756,489 USD/person/year. For the price index, inflation averaged 5.488% between 2010 and 2021.

5.2. Correlation matrix and VIF analysis

Correlation analysis aims to evaluate the phenomenon of possible multicollinearity in regression equations, especially in the case of strong correlations between independent variables. Table 3 shows that the independent variables are correlated with each other and the correlation coefficients are small, so multicollinearity is impossible. Furthermore, Table 4 shows that the VIF analysis has a value of less than 10, thus once again confirming that there is no multicollinearity.

Table 3. Correlation matrix between variables.

Clause	ROA	STATE	BOARDSIZE	MEETING	DEBT	AUDIT	GDP	INF
ROA	1.0000
STATE	0.1921	1.0000
BOARDSIZE	0.2724	0.0352	1.000
MEETING	0.0462	−0.0941	0.1115	1.000
DEBT	−0.5794	−0.0081	−0.2824	−0.1432	1.0000
AUDIT	0.2278	−0.1112	0.2306	0.1495	−0.3568	1.0000
GDP	−0.0813	−0.1431	0.1567	0.2124	−0.0267	0.1276	1.0000
INF	0.0815	0.1376	−0.1446	−0.1531	−0.0010	−0.1150	−0.6859	1.0000

Source: Author’s Analysis.

Table 4. Multicollinearity Checklist according to VIF.

Variable	VIF	1/VIF
GDP	1.95	0.512870
INF	1.91	0.524565
DEBT	1.22	0.817560
AUDIT	1.21	0.828457
BOARDSIZE	1.14	0.874361
MEETING	1.08	0.924894
STATE	1.05	0.956786
Mean VIF	1.37

Source: Author’s Analysis.

5.3. Regression results and discussion

The results in Table 5 show: Test F showed a better FEM estimate than the pooled OLS estimate. The Hausman test shows that the REM estimate is better than the FEM estimate, so it can be confirmed that the REM estimate gives the best estimate results. According to testing for autocorrelation and heteroskedasticity, it is evident that both defects are found in this study. Therefore, FGLS is preferred.

Table 5. Regression results.

Variable	Regression results
	OLS	FEM	REM	OLS	FEM	REM
STATE	0.0526*** (0.000)	0.0478** (0.020)	0.0488*** (0.004)	0.0491*** (0.000)	0.0352** (0.097)	0.0408** (0.019)
BOARDSIZE	0.0561** (0.019)	0.0051 (0.830)	0.0138* (0.545)	0.0634*** (0.008)	0.0112 (0.639)	0.0206 (0.368)
MEETING	−0.0039 (0.487)	0.0065 (0.299)	−0.0044 (0.457)	−0.0017 (0.756)	0.0109** (0.097)	0.0084 (0.171)
DEBT	−0.1731*** (0.000)	−0.2116*** (0.000)	−0.1987** (0.000)	−0.1707*** (0.000)	−0.2185*** (0.000)	−0.2002*** (0.000)
AUDIT	0.0056 (0.456)	−0.0191 (0.095)	0.0109 (0.273)	0.0069 (0362)	−0.0107 (0.371)	−0.0056 (0.582)
GDP				−0.0001 (0.223)	−0.0001 (0.107)	−0.0001 (0.114)
INF				0.0004 (0.653)	0.0002 (0.726)	0.0003 (0.686)
_cons	0.1237*** (0.000)	0.1706*** (0.000)	0.1574*** (0.000)	0.1395*** (0.000)	0.1945*** (0.000)	0.1771*** (0.000)
Prob	0.0000	0.0000	0.0000	0.0000	0.0000	0.0000
Adj R-squared	0.3746	0.3495	0.3642	0.3922	0.4355	0.4582
F test	F (29.295) = 7,89 Prob = 0.000			F (29, 293) = 7.91 Prob = 0.000
Hausman test		Chi2(5) = 7.05 Prob > chi2 = 0.2174			Chi2(6) = 6.64 Prob > chi2 = 0.3557
Breusch and Pagan Lagrangian multiplier test for random effects			chibar2(01) = 201.33 Prob > chibar2 = 0.0000			Chibar2(01) = 205,73 Prob > chibar2 = 0.0000
Wooldridge test for autocorrelation in panel data			H0: no first-order autocorrelation F(1, 29) = 5,343 Prob > F = 0.0281			H0: no first-order autocorrelation F(1, 29) = 4,877 Prob > F = 0.0353

Note. *, **, and ***with significance level 10%,5% 1%. Values in brackets are p-value.

Source: Author’s Analysis.

Tables 6 and 7 show FGLS regression results, which can be considered to correct defects when regressing through REM. However, as explained above, the firms in this study have relatively similar characteristics, so they are invariant over time and therefore we estimate FEM with its fixed year.

Table 6. Regression results (Equation 1).

Variable	Regression results
	FGLS	FE Year	Robustness check	Robustness check	IV-GMM
STATE	0.0526*** (0.000)	0.0420** (0.015)	0.0526*** (0.000)	0.0526*** (0.002)	0.0480*** (0.000)
BOARDSIZE	0.0561** (0.017)	0.0197 (0.396)	0.0561** (0.033)	0.0561** (0.044)	0.0792*** (0.002)
MEETING	−0.0039 (0.482)	0.0098 (0.112)	−0.0039 (0.426)	−0.0039 (0.344)	0.0792*** (0.002)
DEBT	−0.1731*** (0.000)	−0.2014*** (0.000)	−0.1731*** (0.000)	−0.1731*** (0.000)	−0.1541*** (0.000)
AUDIT	0.0056 (0.452)	0.0032 (0.750)	0.0056 (0.468)	0.0056 (0.482)	0.0081 (0.301)
_cons	0.1237*** (0.000)	0.1732*** (0.000)	0.1237*** (0.000)	0.1237*** (0.000)	0.0997*** (0.000)
Prob	0.0000	0.0000	0.0000	0.0000	0.0000
Adj R-squared		0.3815	0.3841	0.841

Note. *, **, and *** with significance level 10%,5% 1%. Values in brackets are p-value.

Source: Author’s Analysis.

Table 7. Regression results (Equation 2).

Variable	Regression results
	FGLS	FE Year	Robustness check	Robustness check	IV-GMM
STATE	0.0491*** (0.000)	0.0421** (0.014)	0.0491*** (0.000)	0.0491*** (0.000)	0.0454*** (0.000)
BOARDSIZE	0.0634*** (0.007)	0.0197 (0.395)	0.0634* (0.019)	0.0634* (0.019)	0.0850*** (0.001)
MEETING	−0.0017 (0.753)	0.0098 (0.113)	−0.0017 (0.720)	−0.0017 (0.627)	−0.0001 (0.987)
DEBT	−0.1707*** (0.000)	−0.2014*** (0.000)	−0.1707*** (0.000)	−0.1707*** (0.000)	−0.1517*** (0.000)
AUDIT	0.0069 (0.356)	0.0032 (0.750)	0.0069 (0.395)	0.0069 (0.415)	0.0088 (0.258)
GDP	−0.0001 (0.216)	−0.0001 (0.704)	−0.0001* (0.052)	−0.0001* (0.053)	−0.0001 (0.546)
INF	0.0004 (0.649)	−0.0002 (0.988)	0.0004 (0.502)	0.0004 (0.358)	0.0007 (0.454)
_cons	0.1395*** (0.000)	0.1732*** (0.000)	0.1395*** (0.000)	0.1395*** (0.000)	0.1052 (0.001)
Prob	0.0000	0.0000	0.0000	0.0000	0.0000
Adj R-squared		0.4576	0.3922	0.3922

Note. *, **, and *** with significance level 10%, 5%, 1%. Values in brackets are p-value.

Source: Author’s analysis.

Table 8 shows the results of the Hausman - Wu test. The results show that there is a possibility of endogeneity when the p-value is less than 0.1 or less than 10%, then the hypothesis H0 with the exogenous variable is rejected and there is a possibility of endogeneity occurring in the regression. On the contrary, when the p-value coefficient is greater than 0.1, or greater than 10%, then the hypothesis H0 with the exogenous variable is not rejected, so the endogeneity phenomenon is eliminated. The research results show that the DEBT variable is likely to cause endogeneity. The results of Tables 6 and 7 show the regression after handling the endogeneity problem in the estimation model, Nguyen and Huynh (2023) indicated that the study should give the use of the instrumental variables two-step generalized method of moments (IV-GMM) as the estimated method.

Table 8. Results of the Hausman—Wu test.

Instrumental variable	F-statistic	P-value
STATE	0.593804	0.4416
BOARDSIZE	0.014001	0.9059
MEETING	0.98748	0.3212
DEBT	5.19743	0.0233
AUDIT	0.666062	0.4151
GDP	0.721665	0.3963
INF	0.06045	0.8060

Source: Author’s Analysis.

Tables 6 and 7 present the regression results which can be explained as follows:

First, the STATE estimator has a positive sign and is statistically significant, which means that state ownership has a positive impact on the financial performance of enterprises. That is, state capital is used effectively to help businesses improve profits in the case of Vietnam. Indeed, state ownership still dominates in Vietnam’s listed firms. This can be explained that Vietnam started as a closed economy and has significantly transformed into the global economy. Therefore, state ownership plays an important role in most enterprises, especially large enterprises. Although Vietnam has equitized many enterprises recently according to the Vietnamese government, however, the process of equitizing large enterprises is still slow. The reason can be explained due to the slow growth of the economy and the influence of the COVID-19 pandemic. Further, the legal procedures related to state assets have not been completed yet, making it difficult for the government to pay attention to the equitization process (Ministry of Finance, 2022). In addition, the increased supervision mechanism for state-owned enterprises has promoted these enterprises to operate effectively. This research result is confirmed by Yu (2013), effective use of state resources can help enterprises achieve high profits. However, the interests of the state may not always be able to be used effectively as the agent may pursue their own interests and compromise state capital as suggested in the agency theory. This poses solutions to control power in SOEs to reduce agency costs and information asymmetry. Other research by Kubo and Phan (2019) also confirms that state ownership has a positive impact on business performance because businesses have the ability to use the state’s advantages to create competition for businesses. As assessed by Thanh Hai (2021), Van Tan (2022), state ownership-based enterprises have the ability to access land resources and credit sources with cheapter cost than non-state ownership-based enterprises. Therefore, they often have certain advantages in business and can be more effective, especially state ownership-based enterprises with professional management capabilities and the ability to create competition in the marketplace.

Research results also suggest that the size of the board of directors has a positive and statistically significant effect in some cases. That is, the study favors a firm with a larger board size often has higher economic benefits. Indeed, the larger the size of the board of directors, the more critical opinions and oversight the company has over the company’s operations, and thus the more effective the board’s decisions become, thus it can help your business run better. This research result is also confirmed in the study of Kim et al. (2023) arguing that enterprises with large size of boards of directors have the ability to grasp market information and have the ability to acquire higher quality of governance, so large enterprises often choose more members to the board of directors in order to exploit the capacity and intelligence of all members for serving management decisions. This strategy also increases the transparency and quality of the board of directors, whereas small-sized boards are often less transparent and therefore do not bring positive effects to business operations as discussing by Sheikh and Alom (2021).

Research results show that choosing a reputable auditing unit and the frequency of meetings of the Board of Directors have no impact on the efficiency of the enterprise. However, the study confirmed that the more debt used, the lower the financial performance of the business. Conversely, enterprises using equity is likely to improve financial efficiency, this result supports enterprises should choose capital from inside before looking for capital from outside. This result is consistent with the pecking order theory in the choice of capital structure in a firm. According to the agency theory, it can be seen that there is always a conflict of interest between the owner and the agent when the representative always wants to seek his own interests and may have management decisions affecting the owner’s interests. Therefore, research results in Vietnam show that listed enterprises should prioritize using equity rather than using higher-risk debt, which can sometimes push enterprises into recession due to the phenomenon of the financial distress. This research result is confirmed by Nguyen and Huynh (2023) and suggests that businesses should prioritize choosing equity capital over debt, this conclusion is suitable for countries with its volatility business conditions and macroeconomic instability, or price fluctuations. Choosing equity capital can help businesses feel more secure when investing in fixed assets, creating investment resources and long-term development.

6. Conclusions

The research results have some theoretical implications, the research results show that state ownership has a positive contribution to financial performance. Moreover, the larger size of the board is consistent with higher profitability. Research has also shown that companies that choose capital structures that favor debt have lower financial performance, and conversely, companies that choose equity generally have higher financial performance.

The results of the study in practical terms may have some policy implications for Vietnam and some transition countries or countries heavily influenced by the state economy. First, when the government maintains an appropriate proportion of state ownership in enterprises, it can bring practical benefits to the economy, however, the economy also needs to develop the private and foreign economies to diversify resources in economic development. According to previous studies, state resources are also important in creating the main foundation for listed enterprises and for the economy, these projects always require large resources and are diffuse in nature. State resources have the potential to make a great contribution to development. In the context of economies in transition, the mobilization of private and foreign capital takes time to invite these capital flows to make domestic investment while state economic resources have more advantages. Second, governments create favorable conditions to attract non-state capital flows to diversify investment activities, improve health systems, strengthen human resources and develop the national economy

The study has some limitations and suggestions for future research. Firstly, the authors have only conducted research on large enterprises that have been listed on the stock market for many years in Vietnam, however, the future research should be expanded to smaller scale enterprises to clearly evaluate the effectiveness of the equitization process of state-owned enterprises. Second, the study has not evaluated the influence of institutions, the integration process, the influence of the private economic sector and the foreign-invested sector that also affect the role of state-owned enterprises and the equitization process of state-owned enterprises in Vietnam. It is evident that it affects state ownership in enterprises in the future.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Notes on contributors

Quang Minh Nguyen

Quang Minh Nguyen is a graduate of doctoral study at the National Economics University, Vietnam. He works for University of Finance—Marketing and specializes in macroeconomics, and finance and banking. He has published some scientific papers on worldwide.

Chien V. Nguyen

Chien V. Nguyen is a graduate of doctoral study at the Department of Economics of University of Colombo, Sri Lanka. He works for Thu Dau Mot University and his research interests are economics and business administration.