State ownership and corporate risk-taking: empirical evidence in Vietnam

Abstract

Whether state ownership can affect the behaviour of corporations is an important research question, especially in a context such as severe recession or pandemic where policy makers have to consider bailing out large companies, thus increasing state ownership in corporations. This study investigates the impact of state ownership on corporate risk-taking in Vietnamese listed firms. We find that state ownership is positively associated with corporate risk-taking. The findings suggest that state ownership may encourage excessive risk-taking, which has implications for policy makers when they consider increasing state ownership in corporations. We argue that state ownership representatives in Vietnamese corporations tend to take excessive risks to facilitate their personal gains, consistent with the prediction of the double-agency problem hypothesis. We highlight the important role of a monitoring mechanism, which can mitigate this agency problem. We find that foreign ownership moderates the relationship between state ownership and risk-taking in Vietnamese firms, consistent with the usefulness of a corporate-governance mechanism in mitigating the double-agency problem.