Institutional environment, government ownership and firm profitability: empirical evidence from Vietnam

Abstract

This study explores the correlation between government ownership and profitability of firms, as well as the impacts of the institutional environment on this relationship in Vietnam by using the sample of 503 non-financial firms over the period 2007 to 2015. Using a two-step system-GMM method, the study discovers the strong evidence that government ownership and regional institutional environment have a positive impact on the profitable ability of firms. Moreover, expanding results show that the combination between the transparent regional institutional environment and the low (high) government ownership facilitates more improvement in the firm's profitability. Besides that, the study also finds that the businesses' characteristics such as size, short-term debt ratio, tangible asset proportion, and the growth rate have a statistically significant relationship with profitability. Our study implies that the government should continuously improve the national institutional environment by strongly enhancing the provincial competitiveness of the national economy, thereby acting as a precursor to economic prosperity. Furthermore, privatising or centralizing the level of government ownership should be at the mercy of the market conditions in order to enhance the profitability of firms. © 2019, Academy of Accounting and Financial Studies Journal.