Covid-19, free cash flow and firm performance: Evidence in Vietnamese manufacturing firms

Abstract

This research aims to understand the impact of free cash flow on firm performance. In addition, the authors include the effect of COVID-19 pandemic in the model to learn more about the differences between the two periods before and during the COVID-19 outbreak. Based on a 1648-observation panel dataset of 103 listed firms in Vietnamese manufacturing industry during the period from Q1-2018 to Q4-2021, the authors estimated the relationships using several economic techniques such as OLS and GLS regressions, Propensity Score Matching and Difference-in-Difference methods. The obtained results are thus robust to autocorrelation, heteroskedasticity and endogeneity issues. In particular, the authors found evidence of a positive impact between free cash flow and firm performance. Also, the COVID-19 outbreak has a negative impact on the performance of manufacturing firms in Vietnam. Finally, the authors found differential performance impacts of the COVID-19 between the two groups of large enterprises and SMEs, that is, the negative effect of pandemic is more profound in large firms rather than SMEs. The study has several management implications for companies and investors in making reasonable and appropriate decisions.