MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY HO XUAN TIEN FACTORS AFFECTING PERFORMANCE OF EQUITIZED ENTERPRISES: A CASE OF RESEARCH IN VIETNAM Major: Commercial Business Code: 9.34.01.21 SUMMARY OF ECONOMIC DISSERTATION Ho Chi Minh City – 2019 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY HO XUAN TIEN FACTORS AFFECTING PERFORMANCE OF EQUITIZED ENTERPRISES: A CASE OF RESEARCH IN VIETNAM Major: Commercial Business Code: 9.34.01.21 SUMMARY OF ECONOMIC DISSERTATION Ho Chi Minh City - 2019 The work was completed at: University of Economics Ho Chi Minh City Scientific instructor: Associate Prof PhD Bui Thanh Trang & Associate Prof PhD Le Tan Buu Reviewer 1: …………………………………………………… …………………………………………………… Reviewer 2: …………………………………………………… …………………………………………………… Reviewer 3: …………………………………………………… …………………………………………………… Thesis will be put before the Council to protect thesis at …………………………………………………………… At ………on………… The thesis could be found at the library: ……………… LIST OF RESEARCH WORKS OF OF THE AUTHOR THAT RELATED TO THE THESIS Ho Xuan Tien, 2016 Studying the the relationship between privatization and corporate performance of state-owned enterprises after privatization Journal of Vietnam Trade and Industry Review, ISSN 0866-7756, 49-53, No 9, Ha Noi Ho Xuan Tien, 2016 Relationship between of type of managerial ownership and corporate performance of state-owned enterprises after privatization that were listed in Vietnam securities Journal of Vietnam Trade and Industry Review, ISSN 0866-7756, 79-83, No 10, Ha Noi Bui Thanh Trang & Ho Xuan Tien, 2018 The Corporate entreprneurship theory in the context of the equitization of companies in Vietnam Journal of VN Trade and Industry Review, ISSN 0866-7756, 214-219, No 11, Ha Noi CHAPTER 1: RESEARCH OVERVIEW 1.1 The important of the research The transfer of ownership and control of SOEs from the state to the private sector is a privatization concept under the World Bank's widely accepted viewpoint (Shirley, 1992) However, in Vietnam, using the phrase ‘equitization’ is more appropriate, the privatization is a global term while the equitization is used more in Vietnam and it is understood as the transfer of SOEs to operate in the form of joint stock enterprises The agency theory, the property rights theory, the public choice theory all agree that the private ownership is inherently more effective than the state ownership in terms of economic benefits (Zhibin, 2004) so the transfer of the ownership and the control of SOEs from the state to the private sector is the best way to improve the economic landscape The equitization is the main point of the restructuring program within SOEs during Vietnam’s restructuring process, from the SOE system of about 12,000 enterprises (Vu Thanh Tu Anh, 2005), after 25 years since 1992, the government has managed to reorganize many SOEs and successfully equitized more than 4,529 enterprises The number of SOEs grew from nearly 1,500 enterprises in 2010 (Ministry of Finance, 2016), as of the end of September 2017, to 562 enterprises which mainly operate in the areas of ensuring macroeconomic balances for the economy, security and national defense The actual situation of the equitization process in Vietnam shows that the ownership structure of many equitized enterprises have not changed much, the state is still a dominant stakeholder and even a dominant decision make in the ownership structure, especially the State’s representative which is typical in Vietnam However, the practice of equitizing SOEs in Vietnam through financial indicators and Report No.436 / BC-CP on 17/10/2016, show that the majority of equitized enterprises achieved better performance than before, and there are even very impressive numbers Specifically, in the period 2011 - 2015, the performance improved compared to the previous year, such as the charter capital increased by 73%, the total assets increased by 39%, the equity increased by 60%, the revenue increased by 29%, the pre-tax profit increased by 49%, the budget payment increased by 29%, the average income of employees increased by 33% (Ministry of Finance, 2016) The equitization in Vietnam has not changed the ownership structure of the whole economy, the state still has a dominant ownership which has significant control over the capital structure of equitized enterprises, however the performance are still very positive This is contrary to the theory of privatization and the conclusion of most studies on the inverse proportional relationship between the ratio of the state ownership in enterprises and performance When assessing the performance of equitized enterprises, international and Vietnamese research often measure the performance of equitized enterprises in conjunction with different types of owners and performance, according to objective performance method that uses traditional financial indicators which are based on secondary financial data sources, hence this is often limited to the effect of different types of owners and performance, therefore it is impossible to explain the difference between the theory and the practice with the characteristics of equitization process in Vietnam By evaluating the performance from subjective performance measure which is based on the primary data source which is considered as opposite to the objective performance method, this research has expanded the scope of assessment of performance along with characteristics relating to the changes in ownership structure, corporate entrepreneurship and equitized enterprises’ expectations in the context of economic integration Thereby, the research is able to explain the cause of the differences between the theory and the practice of equitization in Vietnam and comes up with management implications for policy makers and leaders of equitized enterprises Moreover, the research theoretically contributes to the corporate entrepreneurship that acts as a mediator variable with three alternatives as strategic renewal, venturing and innovativeness, at the same time, reinforcing the theory of privatization with the distinctiveness of equitization in Vietnam compared to other countries On that basis, the topic "Factors affecting the performance of equitized enterprises: A case of research in Vietnam" is selected for this research 1.2 Goals  Building a relationship model between the factors of the changes in ownership structure, corporate entrepreneurship, the expectations in economic integration and the performance of equitized enterprises  Verifying the relationship between the changes in ownership structure and performance; change of ownership structure and corporate entrepreneurship; corporate entrepreneurship and perofrmance; corporate entrepreneurship and expected integration; expected integration and the performance of equitized enterprises  On that basis, explaining the cause of the difference between the theory and the practice with the characteristics of equitization in Vietnam, and proposing the implication of administration as a scientific basis for making implementation decision on SOEs’ equitization process in the context of worldwide economic integration 1.2 Object and scope of the research Research Objects: According to the research objectives above, the research objects are the factors affecting the performance of equitized enterprises, including changes ownership structure, corporate entrepreneurship, expected integration, equitized enterprises’s performace of and the relationship among these factors together Scope of research: Equitized enterprises are Vietnamese SOEs which have been transformed and operated in the form of joint stock companies Survey Objects: Survey objects in this qualitative research are experienced experts who have been working in the field of equitization for many years Survey objects in this quantitative research are key members in equitized SOEs such as heads of departments, team leaders, board of directors or other management positions in equitized enterprises Research methods This research uses both qualitative and quantitative methods It is divided into two phases: preliminary research and official research The preliminary research includes the preliminary qualitative research and the preliminary quantitative research The preliminary qualitative research used focused discussion techniques to explore, adjust and complement the scale of the research model The preliminary quantitative research was carried out by direct interviews with research objects to assess the reliability of the scale before conducting the official research The official research used quantitative methods with the following conventions: Scale reliability test, factor analysis EFA, CFA Testing the theoretical model of this research by SEM structure model The data analysis was conducted in SPSS and AMOS softwares 1.5 The research’s new contributions Theoretical contributions Although the agency theory, the property rights theory and the public choice theory have been verified in many studies around the world, however regarding the characteristics of equitization in Vietnam, it is necessary to have a specific verification to evaluate, reassert these theories, fill a gap of knowledge in the relationship between the equitization and the performance in the social and political environment of Vietnam In particular, by measuring performance according to the perceived level, the research results theoretically contribute to mediator variable of the corporate entrepreneurship accepted in the research model with three components as strategic renewal, venturing and innovativeness in the relationship between the changes in ownership structure and the performance of equitized enterprises Practical contributions The equitization process in Vietnam is very different compared to the rest of the world, it is equitization not privatization, the ownership structure changes are from a single owner which is the state to many forms of ownership in equitized enterprises, but the state still holds dominant shares and appoints representatives in most enterprises The agency theory, the public choice theory and the property rights theory claim that the state ownership is ineffective, but the practical situation in Vietnam shows that the performance in these enterprises are very positive There are many studies on the equitization and the performance around the world as well as Vietnam However, most of them only assess the performance by objective performance method which uses secondary financial data sources from the financial statements, so it can’t explain the difference between the practice and the theory when it comes to evaluate the performance of Vietnamese equitized enterprises in the past By using the subjective performance method based on the perceived level, the research results explain the cause of these differences Based on the research results, some policy implications are proposed to help the authorities improve the equitization process in the next phases 1.6 Research Structure The research includes five chapters: Chapter 1: Research Overview Chapter 2: Theoretical basis and Research model Chapter 3: Research methods Chapter 4: Analysis of results and verification of research model Chapter 5: Conclusion and implications for management CHAPTER 2: THEORETICAL BASIS AND RESEARCH MODEL 2.1 Definition of privatization and equitization 2.1.1 The concept of privatization The term “Privatization” has many interpretations (Farazmand, 2001) in the broadest sense of transferring activities or functions from the State to the private sector, especially in the field of production and services (Starr, 1988), the simplest and concise interpretation is the concept of Hashemi & Abolghassem (1993), the market orientation is the most comprehensive definition to describe the nature of privatization However, the definition that is accessible, popular and widely accepted belong to the World Bank and IMF (Zhibin, 2004), the privatization is the transfer of ownership or control of SOEs from the government to the private sector 2.1.2 The concept of equitization Privatization is a global phenomenon, an inevitable trend for many decades of many economies around the world (Yuliya, 2011) and Vietnam as well However, due to the creative application according to this specific method in Vietnam, the term “Equitization” is used more often Under Decree 64/2002/ND-CP dated 06/19/2002, the equitization means the conversion of SOEs into joint stock enterprises, according to the four forms of equitization as follows: Maintaining the existing State ownership in enterprises, issuing shares to attract more capital; selling a part of existing State ownership in enterprises; selling all existing state ownership in enterprises; implementing forms or combined with issuing shares to attract more capital 2.2 Privatization theory 2.2.1 Agency theory According to Jensen & Merkling (1976), there exists a conflict of interests between the Principal and the Agent, resulting in employers facing opportunistic behavior and moral hazard from representatives 11 According to the public choice theory, there is no innovation encouragement and absolutely no concept of corporate entrepreneurship in SOEs, SOEs’ appointed leaders are not related to the high-level personnel market but due to dominant political factors (Ana et al., 2010) Moreover, SOEs have a role to control the commodity market and are often protected when bankrupt (Pryke, 1971), so this results in company value being not in the top target of these enterprises and also does not give these enterprises the pressure to create corporate entrepreneurship (Lioukas et al., 1993) Privatization is the beginning of a process of change in businesses (Cuervo & Villalonga, 2000), enterprises are seen as being untied, released from management decisions, leading to a dramatic change, the initiative of business leaders with reshaping the strategic structure, business goals, development strategies and work motivation to support activities that increase shareholder value (Zahra et al., 2006), originally creating corporate entrepreneurship (Ana et al., 2010) Privatization has become a very important tool in economic policy (Uhlenbruck & De Castro, 1998) and helps to improve business results compared to previously being as an SOE (Cuervo & Villalonga, 2000) One of the reasons for privatization is to allow enterprises to form a corporate entrepreneurship through increasing initiatives, creativity and risk-taking in businesses (Ana et al., 2010) The agency theory shows that management style affects the level of ownership of enterprises (Ana et al., 2010), many studies show that there is a positive relationship between different types of owners such as department organizational ownership, management ownership, and the structure composition with the corporate entrepreneurship (Zahra, 1996) Antoncic & Hisrich (2003) analyzed the relationship between the change in ownership structure and the corporate entrepreneurship in the former socialist countries, the 12 research results showed that the reduction of state ownership shall increase the ownership of enterprises On that basis, hypothesis H2 is stated as follows: H2: The changes in ownership structure has a positive impact on corporate entrepreneurship of equitized enterprises 2.4.2.3 Change of ownership structure and performance For foreign ownership, regarding the property rights theory and public choice theory, foreign ownership has a positive impact on equitization, most of the studies also conclude that the foreign ownership has positive impacts on performance For administrative ownership, according to the agency theory, the interests of representatives in joint stock enterprises are not consistent with the interests of shareholders The separation of ownership and management rights in jointstock enterprises causes potential conflicts between shareholders and managers, for managers who pursue their own interests that contradict to the interests of shareholders One method of reducing this conflict is to encourage managers own their shares, however, according to Jensen & Meckling (1976), the larger the share ownership of management members, the more likely they tend to make a decision that maximizes the value of the owner property, which means maximizing their own asset value, this assumption is called the convergence of interest In addition, Morck & et al., (1988) argued that high-level administrative ownership can lead to entrenchment, a subjective phenomenon of managers when they take control of the company For state ownership, the agency theory, the property rights theory, the public choice theory say that state ownership is less effective than other forms of ownership because of differences in items goals, motivation and work of human self-interest (Sun & Tong, 2003; Gupta, 2005) Many studies prove that state ownership is less effective than private ownership due to the lack of work motivation (Megginson & Netter, 2001; Shirley & Walsh, 2000; Xu & Wang 13 (1999), Qi et al (2000), Sun & Tong (2003) and political intervention in economics (Faccio, 2006), the state is not a shareholder who only wants to maximize profits but also has to carry out many different objectives simultaneously (Aharoni, 1986) However, there is evidence that the high level of state ownership in enterprises and political intervention have a negative relationship (Fan et al., 2006; Yuan, 2008) as well as positive relationship (Berkman et al., 2009; Francis et al., 2009; Li et al., 2008) with performance With state-owned characteristics in developing countries, there is often a large state intervention in economic activities, state ownership has a negative impact on the performance of a company since the representatives from the state are not really shareholders of the company, so the high level of state ownership in equitized enterprises can negatively affect the business performance Based on the above analysis, H3 research hypothesis is stated as follows: H3: Change in ownership structure has a positive impact on the performance of equitized enterprises 2.4.2.4 Corporate entrepreneurship and Expected integration The corporate entrepreneurship demonstrates the ability of enterprises to take the initiatives and determinations to pursue their goals and they are willing to take risks in business Entrepreneurial orientation is a basic form of dynamic capabilities of the business as it helps increase the proactive habits and determination to pursue its goals and to be ready to accept business risks (Nguyen Dinh Tho & Nguyen Thi Mai Trang, 2009) Therefore, businesses with high corporate entrepreneurship always pursue business opportunities to discover opportunities and barriers (Keh et al., 2007) Successful internationalization is supported by international strategic investors, the formation of FTAs creates important effects on the investment environment and behavior of investors, the formation of FTAs can promote both domestic and foreign investment flows, investment flows between FTA 14 members as well as with outside FTAs The establishment of FTAs has significantly reduced distortions in the investment, production environment of its members, promoted investors' business activities, and brought about huge market access opportunities with higher demands (Bui Truong Giang, 2008) Attention-based view of the firm (Ocasio, 1977) shows that businesses will take action to adjust their strategy, mission and vision when enterprises are interested in other business, important events and developments in the market The organizational expectation theory (Cyert & March, 1992) shows that when businesses have expectations about changes in the business environment, the conglomerate enterprises will take action to adjust with that expectation On that basis, the H4 hypothesis is stated as follows: H4: The corporate entrepreneurship has a positive impact on the expected integration of equitized enterprises 2.4.2.5 Expected integration and performance Arguments for regional integration suggest that economic integration has a positive impact on all members (Krugman & Obstfeld, 2002), the removal of trade barriers, the formation of markets and the influence of the two economic and political aspects of integration have created opportunities for economic growth, positively impacting members’ economic growth (Rose, 2000; Rose & Eric, 2001) Although the phenomenon Britain referendum in 2016 that resulted in the decision to leave the EU (Brexit) has affected the integration trend of the world, the economic integration is still a popular trend for countries which are pursuing prosperity and maintaining bilateral and multilateral cooperation (Danson & Deogratias, 2016) Studies of Baldwin & Seghezza (1996); Baldwin et al., (1996), found a positive correlation between investment provisions in FTAs with an increase in trade and investment flows, the formation of FTAs with strong stimulating effects With foreign and domestic investment, the rate of 15 return on investment of all members in a regional integration agreement may increase even if the capital market is abundant The impact of the economic integration process associated with the change in ownership structure in enterprises is the cause of the improvement of business performance of enterprises in developing countries, the economic integration facilitates equitized enterprises to internationalize enterprises, approaching modern enterprise management methods, advanced technology and investment capital to equitize enterprises to integrate into the global economy (Bachiller, 2016) On that basis, the H5 hypothesis is stated as follows: H5: The expected integration has a positive impact on the performance of equitized enterprises 2.5.3 Research models On the basis of these hypotheses, the proposed theoretical model is: Change of Ownership Structure H3 Strategic Renewal H2 H1 Venturing Innovativeness Corporate Entrepreneurship Performance H4 H5 Expected Integration Figure 2.1: Proposed theoretical model 16 CHAPTER 3: RESEARCH METHODS 3.1.1 Research method 3.1.1.1 Preliminary research Preliminary research is done through qualitative and quantitative methods Preliminary research on qualitative factors explores the business results of equitized enterprises, preliminary qualitative research adjusts the scale from the existing scales of previous studies Participants in the discussion were experts in the field of equitization (Appendix 2) After the scale is added and adjusted, a preliminary quantitative research develops a survey questionnaire for official research Subjects of the survey are the heads of departments, team leaders, board of directors and other management positions in equitized enterprises Sample size is n = 120 conducted from December 1, 2016 to March 1, 2017 3.1.1.2 Official research The official research used quantitative method with similar survey objects as preliminary quantitative research but with a large sample of n = 320 Convenient sampling methods and direct investigation and e-mail methods are carried out from August 20, 2017 to December 31, 2017 3.1.2 Research process Theoretical basis Cronbach ‘s alpha Analysis of discovery factors Factors and Qualitative research (discover, adjust Consider the correlation of the total variable and Cronbach’s alpha Prelimina ry scale Preliminary quantification (n = 120) Evaluate indicators in exploratory factor analysis Official scale Cronbach’s ScaleEFA, alpha Evaluate indicators in Cronbach’s alpha, EFA, CFA SEM Evaluation of estimation indicators, relevance of Official quantitative (n = 320) 17 The scales in the topic are inherited from previous studies and modified to suit Vietnamese language and context in the qualitative research The scale of ownership structure change is inherited from the scale of Immaculate & et al., (2011), p.255; scale of integration expectations from Tho & Trang, (2011), p.720; entrepreneurship scale from Zahra's scale, (1996), p.1723; business results scale from Murphy & et al., 1996 A total of 22 observed variables are used to measure research concepts The scales are measured as Likert scales with levels, of which 1: completely opposed and 7: completely agree Methods of data analysis in official research Data collected from quantitative survey questionnaires were processed by SPSS software to evaluate Cronbach's alpha coefficients and EFA analysis Then, CFA analysis and SEM linear structure model through AMOS software with ML estimation method were used to test theoretical models and hypotheses Bootstrap method was used to re-estimate the parameters of the theoretical model compared to the ML method to reaffirm the confidence level of the estimates in the theoretical model Multi-group structural analysis was carried out to re-examine the relationship between the changes in ownership structure and the business results of equitized enterprises, according to the ratio of State ownership held at enterprises = 51% Finally, the corporate entrepreneurship variable is tested in the relationship between the changes in ownership structure and the business results of equitized enterprises 18 Table 3.13 Contents of scale used for official research STT Code Strategic Renewal Survey EXPECTED INTEGRATION The policy of economic integration in recent years has helped EI1 Our company seeks many strategic investors EI2 Our company finds many new business partners EI4 Our business is more straight-forward CHANGES IN OWNERSHIP STRUCTURE Equitization OS1 Foreign shareholders should be major shareholders OS5 Organization shareholders should be major shareholders OS6 The State should reduce its role as a shareholder CORPORATE ENTREPRENEURSHIP When converting into a joint stock company, our company: Reorganizing business activities to increase the cooperation and ENP2 communication between units ENP3 Initiating programs to improve product / service quality ENP4 Changing strategies to compete ENP5 Investing in new areas ENP6 Diversifying new areas in Vietnam ENP7 Expanding international operations ENP8 Sponsoring start-up projects (Startup) ENP9 Spending a lot of money on research and development (R&D) ENP10 Introducing new products / services to the market ENP11 Using superior technical solutions ENP12 Pioneering in developing new products / services in the global market and in Vietnam PERFORMANCE When converted into a joint stock company, our company: 18 P1 Achieving the desired profit (ROS) 19 P2 Achieving good growth rate 10 P3 Opening new markets 21 P4 Developing new products 22 P5 Increasing employee salary Venturing Innovativeness 19 CHAPTER 4: ANALYSIS OF RESULTS AND VERIFICATION OF RESEARCH MODEL 4.1 Research sample During the official survey, 825 surveys were sent to the research subjects 350 surveys received feedback, after the data cleaning process, 320 surveys met requirements, achieving the rate of 37.64% 4.2 Result of CFA confirmatory factor analysis Critical measurement model The critical model has 194 degrees of freedom Chi-square = 422.531 with a value of P = 0,000, because Chi-square has drawbacks of depending on the sample size, considering other indicators, it is shown that this model is consistent with market data: GFI = 0.898 ; TLI = 0.923; CFI = 0.936; RMSEA = 0.061 There is no correlation between the errors of the observed variables, so the components in the critical measurement model achieve uni-directional nature The standardized weights meet the permissible standard (> = 0.5) and are statistically significant, so the concepts in the critical measurement model achieve convergence values The correlation coefficient between concepts with accompanying standard deviations shows us that these coefficients are less than 1, statistically significant Therefore, the concepts in the critical measurement model achieve discriminant value Detailed results can be seen in Table 4.8, Appendix 8.3 and 10.1 4.3 Results of SEM linear structure model 4.3.1 Testing proposed theoretical model This theoretical model has 203 degrees of freedom, Chi-square value = 491.211 with P = 0.000 but all other criteria are satisfactory: GFI = 0.878; TLI = 0.909; CFI = 0.919; RMSEA = 0.067 The estimation results of the theoretical model are presented in Figure 4.3 (Appendix 8.4 shows the remaining criteria) Thus, it can be concluded that this model is suitable for data collected 20 4.3.2 Testing hypotheses of the research model research hypotheses are tested and shown in Table 4.10, this result shows that three relationships are statistically significant, two relationships are not statistically significant The relationship between expected integration and performance of equitized enterprises (hypothesis H5); The relationship between the change of ownership structure and performance of equitized enterprises (hypothesis H3) are not statistically significant (Sig.> 0.05), (details of other estimates can be seen in Appendix 8.4) Table 4.10: Regression coefficients of the proposed theoretical model Estimate Non-standardized Standardized Relationship Corporate entrepreneurship Eexpected integration Performance Performance Performance ← ← ← ← ← Change of ownership structure Corporate entrepreneurship Corporate entrepreneurship Expected integration Change of ownership structure SE CR P 0,788 0,637 0,065 9,728 0,000 0,887 1,067 -0,250 1,250 1,319 -0,220 0,121 0,402 0,225 10,360 3,285 -0,975 0,000 0,001 0,330 -0,065 -0,065 0,125 -0,520 0,603 4.3.3 Verification of adjustment theory model After the hypothesis H3 and H5 are out of the proposed theoretical model, the estimation results of the official theoretical model are presented in Figure 4.4 (Appendix 8.4), this theoretical model has 205 degrees of freedom Although the Chi-square value = 492.278 with P = 0.000 but all other criteria meet the requirements: GFI = 0.877; TLI = 0.909; CFI = 0.919; RMSEA = 0.066 (Appendix 8.4 shows the criteria for evaluating the remaining compatibility) Thus, it can be concluded that this adjustment model is suitable for data collected from the market Table 4.11 presents the estimates of the main parameters in the model, which shows three statistically significant relationships (P