Factors affecting asset investment decisions of State-owned enterprises in the northwest of Viet nam

199 FACTORS AFFECTING ASSET INVESTMENT DECISIONS OF STATE-OWNED ENTERPRISES IN THE NORTHWEST OF VIET NAM PhD. Trinh Mai Van, trinhmaivan@gmail.com Department of Scientific Management, National Economics University (NEU), Hanoi, PhD. Phan Hong Mai, Scholl of Finance and Banking, NEU MSc. Dao Thi Van Anh, daovananh1987@gmail.com Department of Economics, Tay Bac University, Son La, Viet Nam Abstract: Reality, State - owned enterprises in the Northwest of Viet Nam tend to invest more in width, but the investment decisions of enterprise's assets are not based on the profitability of capital or assets. The paper focuses on the factors that influence the investment decisions to assets of state-owned enterprises. The subjects in this study are from the provinces of the Northwest which are all similar in the level of regional economic development and technology manufacturing. Using data of state - owned enterprises in the Northwest from 2012 to 2015, apply linear regression techniques with the smallest minimum estimation model, but the data is aggregated as panel data, the authors find that assets investment decisions of state - owned enterprises in the Northwest depend on capital investment of state, sales and borrowing or appropriated capital in the business process. Keywords: asset investment decision, influence factor, state-owned enterprises 1. Introduction Asset acts as a labor resource in the business process. They are considered as material and technical facilities which play an important role in production and business activities, as a condition for enterprises to increase labor productivity and develop the national economy. On the micro perspective, machinery and equipment, manufacturing technology process... are the factors determining the size and production capacity of enterprises. On the macro perspective, physical and technical infrastructure will contribute to assessing the strength of the national economy (Karlsson et al., 2014). Exactly, it can be said that asset is very important for businesses. In the recent 3 years, the rate of state-owned enterprises in localities went bankrupt and dissolved is quite high, in Son La, Dien Bien, Lai Chau and Hoa Binh province, it is about 20% of the total state-owned enterprises in local. This shows that business performance as well as their annual contribution to GDP is very low. Besides, these enterprises are facing serious difficulties such as lack of capital to invest, renew long-term assets, low productivity, lack of experience in marketing, investment decisions making. Among these difficulties, the lack of financial resources and experience in asset investment decisions are the most serious problems. Investing in ineffective assets can have a big impact on profit and business results of enterprises. In contrast, investing in 200 effective assets will help businesses pass difficulties and increase profits. In fact, local SOEs are mostly small and medium size, which are difficult to get credits from commercial banks because the banks think that their profits are difficult to offset credit risk. Accordingly, how to use capital and make assets investment decisions effectively becomes more important for businesses. Many enterprises, especially state-owned enterprises in the Northwest region also invest in assets but their profit is low and assets are used ineffectively. In particular, the long-term assets investment do not meet the requirements of large-scale production, high quality, automation and modernization. This is the reason why the production capacity of these enterprises is still low and business results is not high, expressed by the profitability coefficient of state-owned enterprises Northwest region in the period 2012 - 2014 only about 0.08 to 0.1. Therefore, clarify the factors that affect assets investment decisions, as well as clarify the relationship of these decisions with the business results of the enterprises is necessary in the current conditions. This will really help managers in general and state-owned enterprises in the northwestern region in particular to perform the task of corporate finance effectively. At the same time, it is the basis for the State issue suitable policies, support enterprises to invest long-term assets as desired, achieve the target. * Overview of previous studies The search for factors affecting asset investment is quite limited and many arguments. Previous studies (Jahera John et al., 1996); (Panda, Swati, 2012); (Lenka, 2014) mainly focus on identifying factors affecting capital structure which is an important resource for the development of enterprises. There are many studies that selected investment decision is the object of study, but the authors focus only on the factors that affect the investment decisions based on the theory of individual investment behavior, instead of studying the investment decisions of the business. For the asset of business which is a form of expression‘s capital, is considered in terms of: Improve effective use of assets (Brand Strategy, 2003), solutions for effective asset management (Moore Ron, 2006); asset depreciation method (O'Bannon Isaac, 2011) rather than factors affecting asset investment. From different perspectives, there are many researchers who have studied the investment decisions of enterprises or general assets in enterprises. However, so far researchers rarely choose asset investment as the main object of their research. When previous studies investigated the process of investment decision making in general enterprise, they showed that investment decision is a process of many standards and many factors (Enoma and Mustapha, 2010). These factors include not only the economic and risk factors but also the political, social and government‘s regulations (Enoma and Mustapha, 2010). It means that there are many factors, both internal and external, that prevent the asset investment process, but they have not yet been fully and uniformly recognized. Therefore, an in-depth study of the factors affecting assets investment decisions is 201 necessary to help managers make investment decisions correctly, it contributes to ensure long-term and sustainable development of enterprises. * Factors affect on the assets investment decisions of the business There are many factors that influence the assets investment decisions of business, there are direct factors, but also there are indirect and linear factors that affect the investment decisions. In addition, the nature and level of impact‘s factors are not the same. There are some positive factors that help businesses make more investment decisions while some factors negatively impact. However, the author focuses only on the following factors: - Sales growth: Eisner (1960) has shown that sale growth has the opposite effect on enterprise‘s investment decisions. It means that enterprises have higher sale, the less investment. In Vietnam, in 2008, Le Khuong Ninh et al. indicated that the investments of non-state enterprises also depend on the growth of sale and profitability. The larger the sales, the greater the demand for investment, and this is opposed to Eisner's theory (1960). - Equity/ Owner's equity: The study of Budina et al. (2000) confirms that the investment of small enterprises is more influenced by the equity than the large enterprises. When Budina et al. (2000) argued that equity positively correlated to the investment decision of the enterprise, it means that the more equity enterprise has, the more enterprise invests. But then, Gelos and Werner (2002) argued that equity negatively correlated. In Vietnam, the regression model of Le Khuong Ninh et al. (2008) showed that the investment of non-state enterprises in Kien Giang depends largely on equity or the rate of profit last year divided by fixed assets next year and it is entirely consistent with the theory, consistent with the study of Budina et al. (2000). Meanwhile, the equity variable in the model of Le Bao Lam and Le Van Huong (2010) about investment decision of enterprises in Tien Giang province has a negative coefficient and statistical significance at level 5 % is consistent with the result of Gelos and Werner (2002). - Debt payable: Le Khuong Ninh et al. (2008) have been very successful in finding new factors when they research about the non-state sector in Kien Giang, these include: loans and ability to increase ground. The authors argued that the loan is also a factor positive influencing the investment decisions of these enterprises. - Profitability of equity (ROE): Profitability of equity (ROE) measures the profitability of each capital that invested by the owner. As a result, the higher ROE is, the better the equity is used. Le Bao Lam et al. (2010) confirmed that ROE does not affect on investment decisions of enterprises in Tien Giang province. - Ownership of enterprise: Besley (1995) suggested that the ownership of enterprise influenced the investment decisions of enterprises. In Vietnam, Le Bao Lam et al. (2010) also confirmed the positive 202 relationship of this factor with the investment decision of the enterprise. However, the subjects of Besley (1995) or Le Bao Lam et al (2010) are non-state enterprises, of which a large number of these enterprises are private that are very dynamic, flexible and they rarely lose investment opportunities. In comparison with other types of enterprises, private enterprises tend to invest more. Therefore, the authors suggest that the results of these studies should be do again for state-owned enterprises. 2. Method * Data set: According to the Business Law in 2014, SOEs are enterprises with 100% state capital. With this classification, the article uses secondary information as the annual financial reports in the period 2012-2015 in the Northwest, Viet Nam. There are 38 state- owned enterprises in Son La, Dien Bien, Lai Chau and Hoa Binh province of Northwest. * Research Methods: Use panel data with the support of Stata software. Especially, this study uses the least squares estimation model (OLS) but the data is synthesized as array for 4 years and the factors which to be studied were mainly the endogenous factors in the enterprise, they were collected from the characteristics and results from the actual production and business activities of state-owned enterprises in the Northwest region. * Variables of the model: The purpose of model is to detect factors that affect the asset investment decisions of the business. The research model has the form of the equation as follows: Where: i = 1,2, ..., n and t = 2012, ..., 2015. Dependent variables and independent variables are described in the table 1. Table 1. Description of variables Variables Variable’s name Description TS Total assets Total asset value, calculated at the end of year, target No. 270 on the balance sheet accounting dt Sales Total sales value in each year, target No. 10 on the balance sheet accounting dtvcsh Equity Equity at the end of the year minus the beginning of the year dtnpt Debt payable Debt payable at the end of the year minus the beginning of the year dtroe Profitability of equity ROE of the next year minus the previous year, ROE measured by the quotient of net profit after tax and equity value loaihinhdn Type of business a dummy variable that equals one if the type of business is joint stock company (is classified according to Business Law in 2014), and zero otherwise. Source: Research by the authors 203 3. Results 3.1. Descriptive statistics of variables In order to have a comprehensive understanding of factors on asset investment decisions, the general descriptive statistics of variables are shown in Table 2. Table 2. Descriptive statistics of variables Variable Obs Mean Std.Dev. Min Max TS 152 72.1 72.1 1.77 887 dt 152 31.0 33.8 0.0024 183 dtnpt 114 1.28 18.5 -57.5 153 dtvcsh 114 13.3 61.5 -175 510 dtroe 114 -0.00037 0.138 -0.83 0.773 loaihinhdn 152 1.578947 0.4953601 1 2 Source: Research by the authors Most of the variables in the model have a high difference between the highest value and the lowest value. The total asset variable represents the size of enterprises, with the smallest value was 1.77 billion VND and the largest value was 887 billion VND with an average value was 72.1 billion VND showing a big difference between samples. The sale variable represents the sales of enterprises each year, the average value was 31 billion VND, the lowest value was 239 VND and the highest was 183 billion VND. This variable represents the difference in sales between enterprises was quite large. The Debt payable variable reflects the ability of enterprises to borrow loans, the smallest value of variable was negative (-) while the highest value was up to 153 billion VND, it means that some enterprises had paid old debts without additional mobilization and some businesses still borrowed large amounts of capital. The equity variable shows the growth of equity over the years. The difference between the highest value and the lowest value of the variable is also great, it shows that every year there were enterprises that increased equity but there were also enterprises that have reduced equity. Equity decreased because business result was low, it made negative profit. The Profitability of equity variable reflected the increase in profitability from equity, the lowest value was -0.83 and the highest was 0.77, it showed that the profitability of some enterprises increased at a high level. But there were also businesses had low profitability. The Type of business variable received only 2 values of 1 and 0, corresponding to two popular types of state-owned enterprises in the Northwest: joint-stock company and limited liability company. 3.2. Correlation analysis This study uses correlation analysis to determine the correlation coefficients of the independent and dependent variables as well as the collinearity of the independent variables. First, Pearson's correlation analysis is to examine the correlation‘s variable and to avoid the problem of collinearity. As the results shown in table 3, the correlation coefficient matrix of the assets investment variables of state owned enterprises in the 204 Northwest is below 0.18. Correlation coefficients between variables are approaching to zero, it means that the independent variables in the model have no linear relationship with each other. Table 3. Correlation matrix dt dtvcsh dtno dtroe loaihinhdn dt 1.0000 dtvcsh -0.1103 1.0000 dtno -0.0708 -0.1778 1.0000 dtroe 0.0540 -0.0114 0.0209 1.0000 loaihinhdn -0.1149 0.1829 -0.0493 0.0399 1.0000 Source: Research by the authors Moreover, this study conducts a test on the VIFs (variance inflation factors) to examine the linearity of the independent variables, the results shown in table 4. The test results indicate that the VIF values for all the independent variables in this model are below 1.08. These coefficients are all around 1.01 to 1.08, indicating there is no collinearity problem. Table 4. Variance inflation factors Variable VIF 1/VIF dtvcsh 1.08 0.926857 loaihinhdn 1.05 0.956872 dtnpt 1.04 0.958877 dt 1.03 0.968710 dtroe 1.01 0.994163 Mean VIF 1.04 Source: Research by the authors 3.3. Empirical results Estimated results of the model are shown in the table 3. According to F value testing, the regression model is statistically significant at 1%. This means that the explanatory variables in the model affect on the variability of the dependent variable. The independent variables in this model can explain 50.8% of variation in the dependent variable. The remaining variation of the dependent variable can be explained by other factors that the authors do not or no research. Table 5 shows that the significance level of P-value (sig.) of Equity and Debts payable variables are less than 1% and Sale variable is less than 5%. Therefore, we conclude that these variables are significant in the model. The remaining variables: Profitability and Type of business are not statistically significant. That means that the 205 Equity, Debts payable and Sale are factors that influence the assets investment decisions of the enterprises. Specifically: Sale variable: It has a positive coefficient and a statistical significance is 10%. This result contradicts Eisner's study (1960), but it is similar to Le Khuong Ninh‘s study (2008) in Vietnam. It means that the higher the sales of enterprises are, the more assets enterprises invest to expand the size. Table 5. Estimated results of the model Variables Coefficients Sales 0.6490652** (0.2803755) Equity 1.625756*** (0.162144) Debts payable 2.159756 *** (0.5301604) Profitability 4.84e+09 (6.95e+10) Type of business 1.29e+10 (1.98e+10) Intercept 1.50e+10 (3.44e+10) Standard errors are given in parentheses. Dependent variable: Total assets Observations: 152. *p < 10% **p < 5% ***p < 1% R 2 = 50,8%. F(5, 108) = 22.30*** Source: Research by the authors Equity variable: It has a positive coefficient and is statistically significant at 1%, this result is perfectly consistent with the theory. It is also consistent with result of Budina et al. (2000) that the higher the equity is, the more investment in assets business has. This result is consistent with the actual situation of state-owned enterprises in the Northwest, because these enterprises use state capital to invest, so the size of capital is not high and the ability to borrow is low, the demand for investment to expand the size of production and business mainly depends on the equity. Debts payable variable: The regression coefficient of this variable is positive and is very large at 2.16. This shows that the impact of the loan amount and the debt on the investment of the business is very large. It is consistent with the result of research by Le Khuong Ninh et al. (2010), which means that the higher the debt is, the more investment in assets the state-owned enterprises in the Northwest have. 206 Research results show that the Debts payable and Equity are the factors influencing the investment decisions of enterprises. From this it can be seen that the demand for investing to expand the size of state-owned enterprise in the Northwest is very large, showing that whenever there is an opportunity to increase sale, equity or debt, these firms tend to invest more assets. This is perfectly suitable with actual situation in these areas, which are state-owned enterprises with small and medium sizes, so whenever they have the opportunity to increase the capital, they tend to invest in assets. However, the results of research can also confirm that businesses are focused on developing more width. Variables have no meaning in the model: Type of business and Profitability are factors that have a low or no affection on the assets investment decisions of the firms. State-owned enterprises in the Northwest are joint-stock companies and one-member limited liability companies. The results show that whether they are joint stock companies or limited companies, the type of business does not affect the investment decisions of these firms. In addition, the profitability in general and the profitability of equity in particular does not have much affection on the assets investment decisions of the business because most of these businesses have low business performance, it makes indicator reflect the profitability is not high, so it does not affe