Profitability and Cost Management in Former State Owned Enterprises in Vietnam

Abstract

By the mid 1980s, Vietnam's economic system had deteriorated to the point of crisis. Chronic shortages of key staples had fanned hyperinflation and localised outbreaks of commercial activities contrary to central regulations had become endemic. In the face of these forces, a vigorous reform program known as was embraced by the Communist Party of Vietnam, the holder of exclusive political power. Privatisation and the creation of capital markets in which equity interests in privately owned enterprises could be traded represented key planks of the Doi Moi reform platform. This paper provides evidence on the impact of privatisation and listing of former state owned enterprises (SOEs) in Vietnam, by examining changes in the profitability and cost management practices of a sample of listed former SOEs. This evidence contributes to the literature by examining profit makeup at a component level, rather than on the aggregate basis which has been adopted in prior studies. This allows the development of richer insights than have previously been possible into the factors contributing to observed changes in post privatisation profitability.