1. Government Ownership and Firm Performance: The Case of Vietnam (*) Ngo My Tran Walter Nonneman Ann Jorissen March 2015 (*) Ngo, M.T, Nonneman, W., Jorissen, A. (2014) Government ownership and firm performance: The case of Vietnam, International Journal of Economics and Financial Issues, 4(3): 628-650

2. 2 Outline Context and rationale Contribution Theoretical model and propositions Data and methodology Empirical results Conclusion

3. 3 Context and rationale -The Vietnamese Government keeps a substantial stake -Policy and scholarly debate on the effect of partial state ownership on firm performance -The extensive empirical literature is inconclusive -Few theoretical modelling efforts on the effect of partial government ownership on firm performance -No research for Vietnam on the effect of partial state ownership on firm performance

4. 4 Research question Does the degree of government ownership matter for firm performance?

5. 5 Two ways of analyses -Theoretical by extending a game theoretic model of government versus management of Huang and Xiao (2012) to derive propositions on effects of partial government ownership on firm performance.Huang and Xiao (2012 -Empirical by estimating a dynamic econometric model (using system GMM) based on a panel of partially privatized Vietnamese firms (2004-2012) to determine the effect of the degree of government ownership on firm performance.

6. 6 Contribution i.Expand the theoretical predictions of Huang and Xiao (2012) and provide empirical evidence for these propositions.Huang and Xiao (2012 ii.Shedding more light on the effect of government ownership on firm performance in transition economies. iii.Being valuable to evaluate the effects of the privatization policies of the Vietnamese government

7. 7 Theoretical model Huang and Xiao (2012) Huang and Xiao (2012 + Main reasoning: the net effect of the ‘helping hand’ and the ‘grabbing hand’ of government ownership in the firms + ‘Helping hand’: more government ownership brings, higher capital subsidy for the firm (i.e. debt guarantee, business connection...). + ‘Grabbing hand’: the firm’s profit will be extracted by the government, proportional to its shareholding (i.e. excessive employment (Shleifer and Vishny, 1994) excessive production (Bai et al., 1997) or resource tunneling (Johnson et al., 2000)Shleifer and Vishny, 1994Bai et al., 1997Johnson et al., 2000

8. 8  A two-period Stackelberg game between the government and the firm + The government’s maximization problem: Assumption: w=r=1, t=0, 0 0 and g(a)= ar + The manager’s maximization problem: Assumption: w=r=1, t=0, 0 0 and b(a)= na, n>0 Theoretical model (1) (2) (3) (4)

9. 9 Propositions of Huang and Xiao (2012) Sales per employee: Profits per employee: Return on sales:

10. 10 Further develop some propositions Proposition 1: The efficient use of labor of the firm, as measured by value added per employee, is negatively affected by government ownership Proposition 2: The efficient use of capital of the firm, as measured by turnaround indicator or sales over assets, is negatively affected by government ownership

11. 11 Proposition 3: The profitability of the firm, as measured by return over assets, is negatively affected by government ownership Proposition 4: The profitability of the firm, as measured by return on equity, is negatively affected by government ownership Further develop some propositions (tt)

12. 12 Data for empirical test of the model Panel data extracted from the annual business surveys of the Vietnamese General Statistics Office for the period 2004-2012 Extracting those firms having some degree of state ownership (0<a<1) Firms with values deviating more than three standard deviations from the mean were removed.

13. 13

14. 14 Econometric models Pooled OLS model: Random effects model: Dynamic panel data model:

15. 15 State ownership and the percentage of government control by year

16. 16 State ownership and the percentage of government control by industry and size

17. 17 The estimates of pooled models

18. 18 The estimates of pooled models

19. 19 Graph of firm performance indicators for large-, medium- and small-size firms (pooled models)

20. 20 The estimates of pooled models

21. 21 Graph of firm performance indicators for large-, medium- and small-size firms (pooled models)

22. 22 The estimates of dynamic panel data models

23. 23 The estimates of dynamic panel data models

24. 24 Graphical presentation (dynamic models)

25. 25 The estimates of dynamic panel data models

26. 26 Graphical presentation (dynamic models)

27. 27 Key findings -Theoretical analysis based on the modified HX-model predicts negative effects of the extent of government ownership on profitability and on efficient use of capital and labor -Empirical analysis (dynamic panel estimates): + Profitability and labor productivity suffers with more extensive government ownership (concurs with the theoretical predictions from the modified H-X model). + Yet, an extensive stake of government in large sized firms might positively affect firm performance.

28. 28 Thank you very much for your listening! Welcome all your comments!