Abstract
Corporate risk-taking behavior and investment is a crucial factor in order to seek higher profits and a better trading strategy. Competitive advantage and innovation, while maintaining profitability and state ownership, are considered as crucial resources. Furthermore, it is essential to connect the short-term and long-term business and investment objectives plus stakeholder’s expectations to corporate sustainability and development. This connection is especially important in the context of transforming economies and getting better trading strategies. This study estimates the relationship between state ownership, profitability, corporate risk-taking behavior, and investment in Vietnam by using Generalized Method of Moments (GMM) methods. Using the data of 501 listed non-financial corporates during the period 2007–2015 from Ho Chi Minh City and Hanoi Stock Exchanges, we find that profitability is determined as a factor to reduce corporate risk-taking acceptance caused by the chances of entrenchment. Meanwhile, the impact of state ownership on the risk appetite of corporate has a non-linear effect. In particular, state ownership reduces corporate risk-taking behavior and investment but yet increases the risk-taking behavior and investment when the state ownership rate exceeds a threshold. One the one hand, this implies that the low level of state ownership not only prevents risk-taking behavior and investment but also results in more severe agency problems, causing unsustainability due to the imbalance of interests among various stakeholders. On the other hand, a dominant role of state ownership concentration causes a boost in corporate risk-taking decision-making in investment and trading strategy, leveraging the connection of significant external resources to deal with uncertain problems. The study contributes to existing theories of corporate governance in the context of a socialist-oriented market.
Highlights
Risk-taking behavior and trading strategy play a vital role in the choice of corporate investment activities and are critical to creating the development of a corporate since they provide opportunities for innovation, and improve performance and competitive advantages (Cheng et al 2020; Li andLiu 2017; Zhai et al 2015; Shoham and Fiegenbaum 2002)
We extend the models of Faccio et al (2016), Vo (2018), and others to develop the following new prior models to study the relationship between state ownership and corporate risk-taking behavior: Riski,t = α1 + α2 Pro f itabil ityi,t−1 + α3 Govi,t + α4 Sizei,t + α5 Fixedi,t + α6 Debti,t + α7 Growthi,t + εi,t, (1)
The deviation in corporate profitability is a crucial representation of risk-taking behavior in order to seek profit, carry on their investment, and alter their trading strategy, while state ownership is considered as a competitive advantage, connecting the long-term business objectives and stakeholder expectations that relate to corporate sustainability, investment, and trading strategy, especially in the context of transforming economies
Summary
Risk-taking behavior and trading strategy play a vital role in the choice of corporate investment activities and are critical to creating the development of a corporate since they provide opportunities for innovation, and improve performance and competitive advantages (Cheng et al 2020; Li andLiu 2017; Zhai et al 2015; Shoham and Fiegenbaum 2002). Risk-taking behavior and trading strategy play a vital role in the choice of corporate investment activities and are critical to creating the development of a corporate since they provide opportunities for innovation, and improve performance and competitive advantages Choices related to spending on research and development, acquisitions and divestitures, or competition actions. These choices mirror, as an indicator of, corporate risk-taking behavior. A corporate achieves efficiency, capital accumulation, and technological innovation through risk-taking activities and investments. Excessive risk-taking behavior and investment can have a negative impact on corporate performance, since it consumes corporate resources such as capital, labor, and equipment. An investigation of corporate risk-taking behavior and investment is essential, for scholars and for practicers in improving corporate governance
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