Firm performance under the interactive moderation of capital structure, dividend policy and state ownership

Abstract

Privatization has become Vietnam’s top priority to drive the country toward the market-oriented economy as well as to improve business activities within SOEs since 1992. However, after quarter a century, the process is increasingly slowing down and is supposed not to help enhance firm performance because it is similar to “putting on a new bottle for the old wine”. Such a pressing problem leads the author to take into account the interactive effects of both internal policies and state ownership on firm performance so as to clarify the moderation of firm policies to state ownership and vice versa. This research hopes to contribute an important part to managers’ decisions on how to use debt and dividend policy and the government’s strategy on whether to continue pushing the privatization process among SOEs. Using a sample of 663 listed Vietnamese companies on HOSE and HNX from 2008 to 2015 together with SGMM as an econometric technique to address the problem of endogeneity caused by the dynamic approach, the study demonstrates that financial leverage, dividend policy, and state ownership are negatively related to firm performance. Such a negative impact can be moderated with the combination of any two variables out of the triad, meaning that a suitable decision on either debt or dividend policy can help increase profitability among SOEs. Nevertheless, the negative sign of the three-variable interaction implies that SOEs should be careful and cautious when they combine these two policies in their decision-making process. The marginal effects of each of the three variables show that firm performance becomes more effective if the other two variables are kept at the high – low and low – high value and gets less effective when it comes to the high – high and low – low level.