Privatization of Vietnamese Firms and Its Effects on Firm Performance

Abstract

The paper analyzes the effects of privatization on the performance of firms switching their ownership from state-owned to private-owned ownership. By using difference-indifference with control variables and propensity score matching techniques, this study overcomes some shortcomings in previous studies on the effect of privatization on performance in transition economies such as no control of selection bias and the inadequateness to single out the privatization effect from the concurrent effects of other economic factors. We find that a shift from state or collective ownership to private ownership can consistently enhance the performance of switchers in terms of profitability. This suggests that privatization is an efficient way to improve the financial performance of Vietnamese state-owned enterprises.

The history of accounting standard setting in an emerging transition economy: The case of Vietnam

“…For example, in 2015, Vietnam offered a 3.47 per cent stake of Airports Corporation of Vietnam to the public, of which 80 per cent was purchased by foreign investors (Petty and Nguyen, 2015). A shift from state to private ownership consistently leads to a more efficient use of capital and labour, and enhances the performance of the reformed SOEs in terms of profitability (Tran et al, 2015). As the SOEs are privatised, their financial and management practices are placed under increasingly greater scrutiny, which raises a demand for improved corporate governance and enhanced disclosures and reporting practices.…”

Privatization of Vietnam Airlines: a successful reform or a timid policy step

“…In a capitalist economy perspective, the market is private. Any interference of by a government for political or social purposes may create operational constraints and distortions (Tran et al 2015). The term 'privatization' came from an attempt to eliminate or reduce the state sector and move towards a market-oriented system.…”

“…This separation raises issues between the owners (or the state and its agencies) and the managers of the operations, which involve incentive incompatibility and information cooperation (Lin et al 1998). Tran et al (2015) argued that those managers could be dictated in relation to their political interest. The managers find it easy to run a business and thus it leads to low productivity.…”

“…Due to the connection between the CEO, directors or manager in SOEs and the authorities, corruption is more likely to appear and therefore create more other socio-political and also economic problems. Tran et al (2015) argued that those managers could be dictated in relation to their political interest. Furthermore, the companies' benefits are not directly related to those managers' benefits.…”

Performance Measurement for Sustainability: Does Firm Ownership Matter

“…SOEs are established by the government; hence, a shutdown of an SOE is not driven by market forces, but is a decision of politicians [68]. SOEs' chief executive officers (CEOs) and managers are aware of the soft budget constraints which SOEs face [63,[69][70][71][72]. Moreover, CEOs and managers are appointed by the government, sometimes based on political connections rather than professional ability or leadership styles [58,73].…”