The impact of agency cost on firm performance: a comparison between state-owned and non-state-owned enterprises listed on Vietnam Stock Market

Abstract

Although many studies have concentrated on diverse aspects of agency cost and firm performance, some limitations still exist. Precisely, most previous studies have focused on the impact of ownership structure (management ownership, foreign ownership), free cash flow, and dividend policy on agency cost (Alabdullah, 2013; Alfadhl, 2013; Trinh, 2017) and paid attention to determinants of firm performance such as capital structure, board structure, and corporate governance (Ciftci and Tatoglu, 2019). Furthermore, there is limited empirical evidence on the influence of agency cost on firm performance with the present of state-ownership, which is categorized into two groups of originally state-owned and non-state-owned enterprises. Since Vietnam has been in the process of equitization, the dominant role of state-owned-enterprises has been replaced by the emerging position of the private sector, which places the government in a dilemma of how to allocate scarce national resources between the two sectors for optimal economic development. Moreover, several theories and studies have examined the impact of state ownership. However, empirical evidence shows mixed and conflicting outcomes as well as illustrates that this relationship is subject to precise situations (Konings, 1997; Lin, Ma, and Su, 2009; Tran et al., 2014). Therefore, the objective of this study is to examine the impact of agency costs on firm performance of two groups of enterprises and the influence of state ownership on firm performance in a typical transitional country like Vietnam. Therefore, the study uses panel data of non-financial listed companies on the Vietnam stock market from 2008 to 2020 and employs pooled ordinary least squares (OLS), fixed effect model (FEM), and random effect model (REM) together with the instrumental variable generalized method of moments (GMM) for analyzing data as well as confirming and strengthening the research outcomes. The research findings show that agency costs in originally state-owned firms are higher and have a more negative effect on firm performance than those of non-state-owned firms. Furthermore, the capital structure and state-ownership posit a negative impact on firm performance, while profit growth and country investment have a positive influence on firm performance. The study also figures out the U-shape relation between state-ownership and firm performance.