This paper studies the link between macro-financial variability and bank behaviour, which justifies the second-round effects of the global financial crisis on East Asia. Following Gallego et al. (The impact of the global economic and financial crisis on Central Eastern and South Eastern Europe (CESEE) and Latin America, 2010), the second round effects are defined as the adverse feedback loop from the slumps in economic activities and sharp financial market deterioration, which may influence the financial performance of bank, inter alia via deteriorating credit quality, declining profitability and increasing problems in retaining necessary capitalization. Differentiating itself from other research, this study stresses adjustments in four dimensions of bank performance and behaviour: asset quality, profitability, capital adequacy, and lending behaviour, assuming that any change in a bankspecific characteristic is induced by endogenous adjustments of the others. The empirical results based on partial adjustment models and two-step system GMM estimation show that bank's adjustment behaviour is subject to the variation in the macro-financial environment and the stress condition in the global financial market. There is no convincing evidence to support the effectiveness of policy rate cut to boots bank lending and to avoid a financial accelerator effect.
In the transition economy of Vietnam, financial market is dominated by banking sector but commercial banks heavily rely on collateral-based lending. While the relationship between collateral and implied credit risk is still in debate, this paper provides additional empirical evidence regarding the heterogeneous effects and transmission channels of collateral characteristics on loan delinquency. Applying instrumental variable probit analysis on a unique dataset of 2,295 internal loan accounts in Vietnam, we find the significantly negative impact of collateral quality on the probability of default of consumer loans, supporting the dominance of borrower selection and risk-shifting over lender selection effects. The finding implies that high quality collateral not only signals more credible borrower but also fosters good behavior in using loan, enabling bank to mitigate adverse selection and moral hazard problems.
In Vietnam, following the process of financial liberalization, the rapid banking expansion has resulted in structural frangibility and bad debt proliferation with negative implication for bank performance. This is the first comprehensive study that evaluates the performance of the Vietnamese banking system at the start of the Global Financial Crisis in 2008 up to 2016. We show that the Vietnamese banking system experienced a downward trend in technical efficiency over the liberalization period. However, there persists an efficiency gap among banks with different ownership structure, suggesting that privatization matters for performance improvement. One of the major contributions is the analysis of the impact of non-performing loans on bank performance. We argue that this category of loans and bank size have nonlinear effects on the estimated efficiency levels. Medium-sized banks are more efficient than big and small banks. This finding implies that the ongoing restructuring scheme pushing banks' scale expansion via capital build-up should be carefully taken into consideration.
Hybrid ownership—sharing partial business ownership with the state—is a new form of political connections that entrepreneurs in developing countries may employ to improve their access to key resources. This study investigates hybrid ownership as a strategic decision of entrepreneurs running small businesses in Vietnam—a transition economy. Utilising the resource dependence theory and legitimacy viewpoint, we propose and evidently show that increased state ownership in hybrid firms leads to improved performance. However, increasing state ownership beyond a minority share threshold harms firm performance due to the presence of agency costs. Also, the involvement of the state in firm governance reduces the benefits gained from having state ownership.
Plain English Summary
Is the more the better? How much state ownership really matters for hybrid firms to enhance their performance? More state ownership means more access to resources and privileges; but too much state ownership may reduce firm efficiency due to its poor governance. Analysing more than one million observations of small businesses in Vietnam, this study offers three insightful implications. First, for academics, institutional conditions should be considered when investigating political connections, especially in an emerging market context. Second, for practitioners, political connections in the form of hybrid ownership when being held at an adequate level can boost firm performance. However, an exceeding level of state ownership in hybrid firms may become harmful. Third, for policymakers, we suggest that forming hybrid business ownership with the private sector helps firms make use of state-owned resources. This collaboration is a win-win solution as long as the state ownership remains at an adequate level.
This paper aims to tell the "gamble of resurrection" story for small owner-managed firms.Analyzing a set of private firms in Vietnam, we find that firms that are less financially constrained, an increase in the degree of financing constraints leads to a decrease in the use of entrepreneurs' personal capital. However, once critical value of constraints is reached, this relationship reverses. Specifically, deferring investments that would otherwise be in time may result in firms' experiencing such serious financial distress that the entrepreneurs will invest their personal capital to try and maintain their firms' survival even it may be too late.
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