Corporate Ownership Structure and Cash Holdings in the Vietnamese Market

Abstract

This study examines the relationship between corporate ownership structures and cash holdings in Vietnam using panel regression. We use a sample of 646 non-financial firms listed on the Ho Chi Minh City Stock Exchange from 2010 to 2018. Our main analysis employs firms’ state and foreign ownership status as the explanatory variables and firms’ cash holdings as the response variable. Both state ownership and foreign ownership exert a statistically significant positive influence on the investee firms’ internal cash reserves. Our baseline result implies that both state and foreign investors are likely to demand high cash ratio based on precautionary motives. To address endogeneity issues, we also include a firm’s cash policy in the past three years in the analysis. Both types of ownership and cash holdings are significantly positively related, hinting that our results are robust to autocorrelation. This positive link reveals that firms are likely to accumulate large cash savings in a weak business environment characterized by poor investor protection and high levels of political uncertainty and information asymmetry. These results indicate a possibility that different management preferences of domestic and foreign shareholders may be overridden by an adverse business environment. One important policy implication is that regulatory agencies should adopt a uniform accounting standard for financial reports, preferably under the international financial reporting standards (IFRS), to improve the information transfer between outside investors and shareholders. This will enhance minor shareholders’ rights and values and induce more effective monitoring mechanisms to enter the market, thereby creating a healthier business environment.