Government support and firm financial performance: New evidence from a transitional economy

Nguyen Trong, Co and Vu Van, Huong and Bartolacci, Francesca (2017): Government support and firm financial performance: New evidence from a transitional economy.

Abstract

Using a panel dataset of five waves of private manufacturing SMEs surveys in the period 2007-15, this paper contributes to literature by considering for the first time the effects of government support on firms’ financial performance in Vietnam. Interestingly, contrary to the many findings of previous studies, we find that government assistance affect firms’ financial performance after controlling for heterogeneity, unobservable factors and dynamic endogeneity. This finding supports for the viewpoints of institutional theory. Also, the study shows that technical supports from government such as export promotion, human resource training and technology programmes have insignificant linkages with firm financial performance, but financial supports play an important role, suggesting that supporting measures as tax exemptions, soft loans and investment incentives promote financial efficiency and are vital for the development of Vietnamese private SMEs.

• Item Type: MPRA Paper
• Language: English
• Keywords: Government support, innovation, firm financial performance, SMEs, Vietnam
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; G - Financial Economics > G3 - Corporate Finance and Governance

References

Adams, R., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291-309.

Anh, N. N., Mai, N. P., Nhat, N. D., & Chuc, N. D. (2011). Trade liberalization and innovation linkages: Micro-evidence from Vietnam SME surveys. Globalization and innvation in East Asia Retrieved ERIA Research Project Report No. 004 from http://www.eria.org/publications/research_project_reports/images/pdf/y2010/no4/All_Pages_Micro_data_Y2010.pdf

Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143.

Cuong, T. T., Rand, J., Silva, P., Tam, N. T., and Tarp, F. (2008). Dac diem moi truong kinh doanh o Vietnam / Characteristics of the Vietnamese Business Environment: Evidence from a SME survey in 2007. Hanoi, VietNam: CIEM

Dezsö, C. L., & Ross, D. G. (2012). Does female representation in top management improve firm performance? A panel data investigation. Strategic Management Journal, 33(9), 1072-1089.

Flannery, M. J., & Hankins, K. W. (2013). Estimating dynamic panel models in corporate finance. Journal of Corporate Finance, 19, 1-19.

Fajnzylber, P., Moloney, W., Montes-Rojas, G. (2009). Releasing Constraints to Growth or Pushing on a String? Policies and Performance of Mexican Micro-Firms, Journal of Development Studies, 45(7), 1027-1047.

González, V. M. (2013). Leverage and corporate performance: International evidence. International Review of Economics & Finance, 25, 169-184.

Hansen, H., Rand, J., & Tarp, F. (2009). Enterprise growth and survival in Vietnam: does government support matter? The Journal of Development Studies, 45(7), 1048-1069.

Harvie, C., and Lee, B. C. (2008). Small and medium sized enterprises in East Asia: sectoral and regional dimensions. Cheltenham, England: Edward Elgar Publishing.

Kokko, A., and Sjöholm, F. (2005). The internationalization of Vietnamese small and medium-sized enterprises. Asian Economic Papers, 4(1), 152-177.

Le, C. L. V. (2010). Technical efficiency performance of Vietnamese manufacturing small and medium enterprises. Unpublished doctoral dissertation, School of Economics-Faculty of Commerce, University of Wollongong, NSW, Australia.

Li, H., Meng, L., Wang, Q., & Zhou, L.-A. (2008). Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of development economics, 87(2), 283-299.

Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417-1426.

Nguyen, T., Locke, S., & Reddy, K. (2014). A dynamic estimation of governance structures and financial performance for Singaporean companies. Economic Modelling, 40(C), 1-11.

Nguyen, T. T., & Van Dijk, M. A. (2012). Corruption, growth, and governance: Private vs. state-owned firms in Vietnam. Journal of Banking & Finance, 36(11), 2935-2948.

Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417-1426.

Rand, J. (2007). Credit constraints and determinants of the cost of capital in Vietnamese manufacturing. Small Business Economics, 29(1-2), 1-13.

Takalo, T., & Tanayama, T. (2010). Adverse selection and financing of innovation: is there a need for R&D subsidies? The Journal of Technology Transfer, 35(1), 16-41.

Vu, H., Tran, T. Q., Nguyen, T., & Lim, S. (2016). Corruption, types of corruption and firm financial performance: New evidence from a transitional economy. Journal of Business Ethics, 1-12.

Wintoki, M. B., Linck, J. S., & Netter, J. M. (2012). Endogeneity and the dynamics of internal corporate governance. Journal of Financial Economics, 105(3), 581-606.

Wu, A. (2016). The signal effect of Government R&D Subsidies in China: Do ownership matter? Technological Forecasting and Social Change.

Wooldridge, J. M. (2009). Introductory econometrics: A modern approach (4 ed.). Mason, USA: South-Western Cengage Learning.

Zhang, H., Li, L., Zhou, D., & Zhou, P. (2014). Political connections, government subsidies and firm financial performance: Evidence from renewable energy manufacturing in China. Renewable Energy, 63, 330-336.

Zhou, Q., Faff, R., & Alpert, K. (2014). Bias correction in the estimation of dynamic panel models in corporate finance. Journal of Corporate Finance, 25, 494-513.