Banking System Reform and Investment–Cash Flow Relation: The Case of Vietnam

Policies and Sustainable Economic Development | 453

Banking System Reform and Investment–Cash Flow
Relation: The Case of Vietnam
NGUYEN THI UYEN UYEN
University of Economics HCMC -

TU THI KIM THOA
University of Economics HCMC -

PHAM THIEN BACH
University of Economics HCMC -

Abstract
Becoming the 150th member of the World Trade Organization (WTO) in Jan 2007, Vietnam has step by step
opened the door of its financial system to the world. The banking industry, which was dominated by statecontrolled banks, was the main source of financing for inefficient state-owned enterprises while non-statecontrolled enterprises found it difficult to access bank loans. The growing presence of foreign banks in Vietnam
has resulted in decreasing in dependence on local banks and changed investment behavior. Using a sample of
listed companies in both stock exchanges in Vietnam, HOSE and HNZ, this research investigates the effect of
banking system reform which is measured by foreign bank’s presence on investment-cash flow sensitivity for
the period of 2009–14. We found evidence that banking system reform had certain effects on investment
behavior of listed firms. After the reform, they are less dependent on their internal cash flow for investments.
Underinvestment issues of non-state-controlled listed firms were also mitigated due to better accessibility to
bank loans.

Keywords: banking system reform; investment-cash flow sensitivity; state-controlled listed firms; nonstate-controlled listed firms; Vietnam


454 | Policies and Sustainable Economic Development

1. Introduction
Bank loans together with internal cash flow have been two main financing sources of funds for

firm’s investments in Vietnam. However, credit market is not a fair play ground for state – owned
enterprises and private companies due to some historical reasons1 although Vietnam has done a lot
of effort to improve the situation. Vietnam has conducted several reforms in banking sector in order
to improve its efficiency as well as competitiveness since it started the Doi Moi policy2 in 1986. The
biggest reform in banking sector was the separation the role of central bank and commercial bank.
Prior to 1990, banking system in Vietnam was a 1-tier system in which state bank functioned as both
central bank and commercial bank. After 1990, State Bank of Vietnam (SBV) only played the central
banking role, while its former commercial functions were separated and delegated to 4 newlyestablished major state-owned commercial banks (SOCBs): Bank for Foreign Trade of Vietnam
(Vietcombank), Vietnam Bank for Industry and Trade (Vietinbank), Vietnam Bank for Agriculture
and Rural Development (Agribank) and Bank for Investment and Development of Vietnam (BIDV).
The only four banks dominated the whole credit market with more than 70% market share.
Traditional customers of these banks are state-owned enterprises, which were favorable in getting
loans at lower cost. The entry into international trade and investment agreements such as USVietnam Bilateral Trade Agreement (2001), WTO (2007) of the country… allowed presence of foreign
banks with the hope that domestic banks would benefit from management technology, business
operating skills, professional knowledge and additional capital provided by foreign banks.
Equitisation (privatization) of state-owned commercial banks was also another effort to reform the
sector by the government, etc. However, after many reforms, companies have still not been easy to
access the bank’s capital while local banks are still struggling with restructuring programs to solve
non-performance loans (NPLs) as well as other structural problems. Tsai et al. (2014) found an
evidence that bank sector reform had a significant impact on Chinese companies’ investment – cash
flow relation in general and in both state-controlled listed and non-state controlled listed firms,
which reliance on internal cash flows were reduce after the reform. Although Vietnam has similar
political, cultural, social and economic conditions with China, Viet nam was just a very small country
in comparison with China that just opened the economy for about 30 years. Therefore we conduct
this research to examine the effect banking system reform on investment – cash flow relation in a
context of small transitional economy. Presence of foreign banks is considered additional credit
channel to companies for financing their investment opportunities, helping to mitigate firm’s
financial constraints. It also create reform pressures on local banks that they have to improve their

1

Vietnam used to be a centrally-planned economy in which state – owned banks mainly served for state-owned enterprises.

2

Doi Moi Policy is the policy on tranforming the economy from centrally-planned to market-oriented one.


Policies and Sustainable Economic Development | 455

corporate governance to compete with foreign banks who have stronger capital, more advanced
technologies, better business operating skills, etc.
In this study, we use a sample of Vietnamese listed firms from 2009 – 2014 to examine impact of
banking system reform, which is defined by presence of foreign banks, on firm’s investment – cash
flow relation. The impact was also investigated for the two sub samples: state-controlled listed firms
and nonstate-controlled firms due to their different ownership characteristics as Tsai et al. (2014).
As other transforming countries, state-owned enterprises in Vietnam also had to do some political
responsibilities and they got some favorable privileges in terms of capital, investment opportunities,
etc. than other form of businesses, especially private ones.
Our main findings are as follows: First, we found a U-shape relation between investment – cash
flow on listed companies in Vietnam. Second, banking system reform changed firm’s investment
behavior in the way they were less dependent on internal cash flow, implying that reducing
politically-oriented investment problem in state-controlled listed companies and also overinvestment
problem. Underinvestment problem in non state-controlled listed companies seemed to be alleviated
because the companies have more channels to raise funds.
Investment and debt relation is also investigated because bank loans are main source of funds for
Vietnamese companies.
Contribution of this study to enrich the literature, providing empirical evidence on the impact of
banking sector reform on investment – cash flow relation in a small transitional country. It also
provides some policy implications at both govermental and firm levels to improve investments.

The remainder of this research is organized as follows. Section 2 presents literature review.
Section 3 describes research methodology. Section 4 reports research results and Section 5 concludes
the research.
2. Literature review
2.1. Investment – cash flow relation
In financial theory, a company can use two sources of funds to finance its potential positive NPV
projects: internal funds which is the cash flow generated by company’s operation and external funds
which is newly – issued debt/equity. In a perfect capital market where transaction cost does not exist,
funds are available for all firms, so they do not need to rely on availability of internal cash flows for
financing their investments (Modigliani and Miller, 1958). However, in an imperfect capital market,
external funds are more costly than internal funds, so internal funds becomes main source of
financing.
The topic of investment – cash flow relation has been studied by many researcher for many
decades and this still is a controversial one so far. Fazzari et al. (1988) and (Allayannis and
Mozumdar, 2004; Cleary, 1999; Kaplan and Zingales, 1997) are representatives for the two opposite


456 | Policies and Sustainable Economic Development

opinions. Fazzari et al. (1988) used a sample of US manufacturing firm in the period of 1970 – 1984
to study firm’s investment and cash flow relation under financial constrain. The authors used payout
ratio as measure for financial constrain, in which firm paying decreasing dividend considered as
more financially constrained and vice versa. The authors found that financially constrained firms had
more sensitive relation between investment and cash flow, and the relation was less sensitive for
non-financially constrained firms. Hoshi et al. (1991) supported Fazzari et al. (1988) findings with
their research on relation between capital structure and investment. Hoshi et al. (1991) found that
individual company who did not have good relation with banks, meaning facing financial constraint
have higher investment – cash flow sensitivity than Keiretsu – a type of Japanese group.
The opposite opinion was represented by Kaplan and Zingales (1997). These authors built up KZ
index to measure financial constrain and examined investment – cash flow relation with KZ index.

They found that cash flow had positive relation with investment. Besides, less financially constrained
firms had more sensitive investment – cash flow relation which was opposite to Fazzari et al. (1988).
Sean Cleary (1999) used 2 samples, one US firms and the other Canadian firms to test both Fazarri
et (1988) and Kaplan and Zingales (1997) findings. The US sample results supported Kaplan and
Zingales (1997) that less financially constrained firms had more sensitive investment – cash flow
relation. However, the Canadian sample supported Fazzari et al. (1988). Sheshinski and Lopez-Calva
(1999) documented that state–controlled companies had soft budget constrain because they could
access external funds easier than private companies, so are less financially constrained.
Hubbards (1998); and Cleary et al. (2007) demonstrated that financial constrain would make the
U-shape curve of investment flatter, meaning that firm’s investment would be less dependent on its
internal cash flow. Cleary et al. (2007) found a U-shape for relation between investment and cash
flow with a large sample of 88,599 observations for the period of 1980 – 1999, causing by cost and
revenue effects. The cost effect arises because the more investment the firm takes, the more
borrowing cost incurred. Accordingly, higher level of investment, more revenue is expected to
generate. Guariglia (2008) supported Cleary et al. (2007) that there was a monotonical relation
between investment – cash flow and degree of internal or external financial constraints. “Internal”
financial constraints are measured by firms’ cash flow and coverage ratio, and “external” financial
constraint is measured by firm size, and age. Firth et al. (2012) also confirmed the U-shape curve but
further argue that the curve may vary with politically – oriented investment or soft budget constraint.
Tsai et al. (2014) also support Cleary et al. (2007) and Firth et al. (2012) with their findings that
banking system reform would reduce financial constrain for firms, especially non-state controlled
listed firms, leading flatter U-shape. It means that lesser investment- relation sensitivity would
reduce underinvestment problem of non-state controlled listed firms. Banking system reform also
reduced political- oriented overinvestment problem at state – controlled listed firms.


Policies and Sustainable Economic Development | 457

2.2. Effect of banking system reform on investment – cash flow relation:
A study of Liu and Lu (2007) on China reported that government officials at state – controlled

listed firms often had incentives to achieve social and political objectives to serve for their own
promotion, therefore politically-oriented investments were the main cause of overinvestment
situation in these firms. Firth et al. (2012) found similar evidence supporting that point of view.
Detragiache et al. (2008) found evidence that foreign banks were less sensitive to political
pressure, and they had less pressure of lending relation partners, who were capable of breaking
relation barriers. Political and non-economic motivations were not top priorities of domestic banks
now. Therefore, state-owned commercial banks were transformed from politically – incentive
organization to modern corporate governance – oriented ones. Therefore, reforming bank system by
allowing foreign banks holding ownership at domestic state-owned banks could reduce policies
favoring to politically – oriented investments of state – controlled companies. With presence of
foreign investors, credit granting would be more careful, that careless loans as well as politicallyoriented loans could be reduced. With this research, Detagiache et al. (2008) used foreign ownership
in domestic bank as proxy for banking system reform. This research was supported by Beger et al.
(2008). Beger et al. (2008) reported that after reform, foreign ownership in domestic banks,
especially state-controlled banks could change their lending practice, from politically – oriented to
commercially-oriented banks. Nonstate-controlled listed companies are considered more
transparent, more commercially-oriented and more efficient than state-controlled listed companies.
Therefore, after reform, nonstate-controlled listed companies had more channels to access bank loan
and underinvestment problem of nonstate- controlled listed companies were reduced.
Different with Detagiache et al. (2008), Tsai et al. (2014) in their study on effect of bank system
reform on investment – cash flow sensitivity defines presence of foreign bank at region where
company had headquartered or branches as measure of bank system reform. The research found
evidence that politically-oriented investments at state controlled listed companies were reduced after
the reform due to more commercially – oriented operations. Problem of underinvestment at non
state – controlled listed companies seemed to be reduced due to an increase in bank loans. The similar
results of effect of banking system reform on relation of financial leverage and investment were
found, meaning a reduction of distortion of investment in state controlled listed companies as well
as reduction on financial constraints at non state – controlled listed companies.
3. Research design
3.1. Hypothesis development and model specification
3.1.1. Investment – cash flow relation

Some recent researches (Cleary et al. (2007) and Firth et al. (2012) shows evidence of non-linear
shape for investment – cash flow relation (U-shape), meaning that there is a difference in the relation
when company has positive or negative cash flow. For positive cash flow companies, they are willing


458 | Policies and Sustainable Economic Development

to finance many investments for growth, therefore they are more dependent on their internal cash
flows. Meanwhile, negative cash flow companies face investment constrain due to lack of capital. If
they still want to take new investment projects, they need to use external funds which has higher
cost.
H1: There is a non linear investment – cash flow relation (U-shape) at Vietnamese companies
The hypothesis is tested by the following model which was developed by Fazzari et al. (1988),
then applied by Cleary et al. (2007) and Firth (2012):
IK i,t = α0 + α1 CFK i,t + α2 CFKSQR i,t + α3 (SaleGrowthi,t−1 ) + α4 SIZEi,t + α5 LEVi,t +
α6 AGEi,t + α7 BETAi,t + ei,t

(1)

Where IKi, t is investment ratio, measured by Ii, t divided by Ki, t-1. I is the investment in fixed assets
in year t, measured by book value of net fixed assets at the end of year t minus book value of net
fixed asset at beginning of year t, and plus depreciation in year t. Kit-s is total fixed asset of firm i at
the beginning of year t. CFKi,t is annual cash flow ratio, measured by earnings before interest, tax,
depreciation and amortization (EBITDA) of firm i in year t divided by total fixed asset of firm i at
beginning of year t (Ki,t-1). CFKSQR is square of CFK is included in the model. If CFKSQR significantly
takes positive sign, the relation will have U-shape. If it has negative sign significantly, the relation is
inverse U-shape... SaleGrowthi, 1-1 is proportion of change in sales from year t–2 to year t–1. Like
Tobin’Q, SaleGrowthi, t-1 is also a common proxy to control the effect of a firm’s growth potential
(Firth et al., 2012). Vietnam’s stock market is still very young and immature which is much affected
by “herd effect”. Fluctuation of stock price in many cases does not reflect the true potential of the

company. Meanwhile, companies normally increase investments to meet their increasing potential
sale growth, therefore we believe SaleGrowth is more appropriate than Tobin’s Q to measure
investment opportunity in Vietnam’s context. SIZEi,t is firm size. This variable is a proxy for the
degree of financial constraint experienced by firms (Guariglia, 2008), measured by logarithm of
beginning book value of total assets for firm in in year t. LEVi, t-1 is the beginning-of-period financial
leverage, measured by total liabilities to total assets for firm i in year t. AGEi, t is the number of years
since the company listed. This variable is used to measure information asymmetry (Myers and
Majluf, 1984). BETAi, t is the slope coefficient from the market model estimated using daily stock and
market returns: RI, t =  + Rm, t + i, t where Ri, t is the daily stock return of firm i, Rm, t is the daily
market return for day t. The estimation period is one year. BETA reflects the relation between
uncertainty and investment.
3.1.2. Effect of banking system reform on investment – cash flow relation
It is common to have problem of “flexible budget constrain in the centrally-planned economy,
which refers to the favorable policies for state-controlled organizations. Due to being owned by
government, these organizations are often bailed out if they are in trouble, normally in form of
subsidy, tax deduction or exemption, set low input cost, set high output price, low cost financing, etc.
Therefore, state – owned enterprises in Vietnam normally can access bank credit much easier and


Policies and Sustainable Economic Development | 459

normally at lower cost than private forms, that leads to the situation of overinvestment. Moreover,
like China, overinvestment problem in state-controlled companies are mainly caused by politicallyoriented investments (Firth et al., 2012) because officials in these companies also have incentives to
achieve social and political objectives for their promotion (Liu and Lu, 2007). Meanwhile, nonstatecontrolled companies are not favored with these privileges, so they have to rely on their own internal
cash flow to finance their investment opportunities (Tsai et al., 2014).
H2: Banking system reform mitigates overinvestment problem at state – controlled listed
companies
With the presence of foreign bank, credit market become more competitive and transparent.
State-owned banks may have to change its lending practices from politically-oriented to
commercially-oriented, so non-state controlled companies have more chance to access bank

financing, so underinvestment problem of these company could be reduced.
H3: Banking system reform mitigates underinvestment problem at non state – controlled listed
companies
We applied the following model which was developed by Tsai et al. (2014) to test the hypothesises
H2 and H3:
𝐼𝐾𝑖,𝑡 = α0 + α1 CFKPOS𝐼,𝑡 + α2 CFKNEG𝐼,𝑡 + α3 CFKPOSBANK 𝐼,𝑡 +
α4 CFKNEGBANK 𝐼,𝑡 + α5 BANK 𝐼,𝑡 + α6 SalesGrowthi,t−1 + α7 BANK i,t + α8 SIZEi,t +
α9 LEVi,t + α10 AGEi,t + α11 BETAi,t + vi + vt + εi,t

(2)

In this model, CFK is separated into positive CFK and negative CFK by using dummy variables
POS and NEG. POS takes the value 1 if CFKi,t is greater than 0, and 0 if otherwise. NEG takes the
value 1 if CFKi, t is less than 0, and 0 if otherwise. The relation between investment and cash flow will
have U-shape if CFKPOS (= CFK*POS) has positive sign and CFKNEG (= CFK*NEG) has negative
sign at conventional significances. BANKi,t is a dummy variable that takes the value 1 for firms located
in a region where foreign banks are allowed to do business in year t and afterwards, and 0 otherwise.
CFKPOSBANK (=CFK*POS*BANK) and CFKNEGBANK (=CFK*NEG*BANK) reflect effect of banking
system reform on firm’s investment behavior when it has positive or negative cash flow. Definitions
of other variables are as those of the model (1).
3.1.3. Effect of banking system reform on investment and debt relation:
As many other transitional economies, bank loans are still main source of external funds in
Vietnam where stock market is still young and immature. To see if banking system reform have any
impact on investment –debt relation, we develop following hypothesis:
H4: Banking system reform has a positive impact on firm’s investment – debt relation:
We applied the following model which was developed by Tsai et al. (2014) to test the hypothesis
H4:


460 | Policies and Sustainable Economic Development

IK i,t = β0 + β1 CFK i,t + β2 LEVi,t−1 + β3 BANK i,t + β4 BANK i,t ∗ LEVi,t−1 +
β5 SaleGrowthi,t−1 + β6 SIZEi,t + vi + vt + εi,t

(4)

Definitions of other variables are as those of the model (1).
3.2. Data
We use an unbalanced panel data from the period 2009 to 2014 for non-financial companies listed
on Ho Chi Minh City Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). Financial firms are
excluded because they have different investment behavior with non-financial firms. The firm’s
financial data is extracted from the Stockplus database. Market data is downloaded from the websites
www.vietstock.com.vn. Missing value observations are also excluded. Outliers that may influence the
results are excluded by winsorizing 1% for two tails for each variable.
4. Empirical results
4.1. Descriptive statistics
Table 1 describes the research sample. This sample is unbalanced panel of 3.124 observations of
non-financial companies listed on HOSE and HNX in Vietnam for the period of 2009 – 2014. Each
firm in the sample is classified as state – controlled listed company or nonstate-controlled company
for each year by proportion of state ownership of the company in that year. A shareholder or a group
of shareholders is defined as controlling one if it holds 50% or more of the voting shares. The
number of state – controlled listed firm is about a half of nonstate controlled firms.
Table 1
Sample structure
Year

State – controlled firms

Non state-controlled firms

Total

2009

80

190

270

2010

109

292

401

2011

150

391

541

2012

186

442

628

2013

195

448

643

2014

172

469

641

Notes: The sample includes non-financial firms listed on HOSE and HNX of Vietnam over the period of 2009 – 2014.
State controlled firms are those that the government held at least 50% of voting shares. The rest are nonstate –controlled
firms.

Table 2 presents a summary of the descriptive statistics for all variables in the regression models.
In average, mean and median of investment ratio (IK) for the whole sample is 17% and 3%
respectively. State–controlled listed firms in average invest more than non-state – controlled listed
firms (21% and 15% respectively). Although having higher growth potential as indicated by mean of
SaleGrowth (59%), non state – controlled listed firms has lower average internal cash flows (CFK
15%) and higher negative cash flows (NEG 39%), meaning that underinvestment exists in this group

Policies and Sustainable Economic Development | 461

and they seem to have to rely more on external funds to finance their investment than state –
controlled listed firms. In average, state – controlled listed firms have higher leverage (54%),
implying their higher accessibility to bank loans to non-state – controlled listed firms (49%).
Table 2
Variable descriptive statistic
Full sample

State-controlled listed firms

Non state – controlled listed firms

Variable

Obs

Mean

Median

Obs

Mean

Median

Obs

Mean

Median

IK

3124

0.17

0.03

892

0.21

0.03

2232

0.15

0.03

CFK

3124

0.17

0.04

892

0.23

0.06

2232

0.15

0.03

NEG

3124

0.37

0.00

892

0.32

0.00

2232

0.39

0.00

SaleGrowth

3124

0.46

0.09

892

0.12

0.08

2232

0.59

0.10

TA (bil. VND)

3124

1,641

458

892

2,173

619

2232

1,428

406

LEV

3124

0.51

0.54

892

0.57

0.61

2232

0.49

0.51

AGE

3124

4.30

4.00

892

4.30

4.00

2232

4.30

4.00

BETA

3124

0.67

0.67

892

0.67

0.69

2232

0.67

0.66

Notes: IK is investment ratio. CFK is annual cash flow ratio. SaleGrowth is proportion of change in sales from year t–2 to
year t–1. TA represents for firm size, measured by total assets. LEV is the beginning-of-period financial leverage,
measured by total liabilities to total assets. AGE is the number of years since the company listed. BETA is the slope
coefficient from the market model estimated using daily stock and market returns: R i, t =  + Rm,t + i,t where Ri,t is the
daily stock return of firm i, Rm,t is the daily market return for day t.

4.2. Correlations
Table 3 below presents correlations among the variables. The bottom left triangle reports
Spearman correlations and the upper right triangle reports Pearson correlations. IK has positive
correlation coefficient with CFKPOS at high level of significance (1%), and negative correlation with
CFKNEG but insignificant at conventional levels. It suggests the U-shape curve for investment and
cash flow relation. Besides, IK also has negative correlation with AGE and positive correlations with
SaleGrowth, LEV, and BETA at high significance.
Table 3
Pearson and Spearman correlation matrix

IK
IK

CFKPOS

CFKNEG

SaleGrowth

LEV

AGE

BETA

0.1038***

-0.0970***

-0.0006

-0.0056

-0.0783***

-0.0250

0.0136

0.0017

-0.0105

-0.0363**

-0.0418**

0.0020

-0.0521***

0.0066

0.0028

0.0145

-0.0175

-0.0148

-0.1341***

0.0316

CFKPOS

0.1461***

CFKNEG

-0.0096

0.8143***

SaleGrowth

0.1870***

0.0110

-0.0223

LEV

0.0410**

-0.1453***

-0.1459***

0.0368

AGE

-0.2137***

-0.0617***

0.0927***

'-0.1051***

-0.1199***

BETA

0.0626***

-0.0826***

-0.0560***

0.0996***

0.0387**

-0.0550***
-0.0750***

Notes: IK is investment ratio. CFK is annual cash flow ratio. CFKPOS is the positive cash flows. CFKNEG is the negative
cash flows. SaleGrowth is proportion of change in sales from year t–2 to year t –1. LEV is the beginning-of-period


462 | Policies and Sustainable Economic Development

financial leverage, measured by total liabilities to total assets. AGE is the number of years since the company listed. BETA
is the slope coefficient from the market model estimated using daily stock and market returns: R i,t =  + Rm,t + i,t where
Ri,t is the daily stock return of firm i, Rm,t is the daily market return for day t. *, **, *** respectively indicate significance
at 10%, 5% and 1%.

4.3. Regression results
4.3.1. Examining investment – cash flow relation
As explained in section 3 above, we used the model (1) in Section 3 which was developed by Fazzari
et al. (1988) and then applied by Cleary et al. (2007) and Firth (2012). The Table 4 below reports the
regression results. Coefficient of variable CFKSQR of the full sample is significantly positive at
0.0000298**. This confirms a U-shape investment - cash flow relation. Due to mean of both cash
flow (CFK) and investment (IK) are equal 0.17, a 10% increase in cash flow would lead to 0.0358%
increase in investment3. This number is rather small as compared with 1.12% as reported by
Guariglia (2008) in his study on British companies or 1.3% as reported by Firth et al. (2012) for
Chinese companies. There is similar relation for nonstate-controlled listed companies, but
insignificantly. For Vietnamese state – controlled listed companies, relation between IK and CFK is
inverse U-shape curve, represented by highly significantly negative coefficient (-0.00361***).
For state – controlled companies, regression coefficient of investment on SaleGrowth is
significantly negative at -0.00770, implying that in average these companies still invest even though
their growth potential decrease. This confirms overinvestment problem of this group of companies.
Will this problem exist after bank reform? We will further examine this problem in the section 4.3.2
below.
For non-state-controlled companies, coefficient of SaleGrowth is also negative but insignificant.
So we cannot confirm overinvestment problem in this group of companies yet.
In conclusion, we found a U-shape curve for investment – cash flow relation on a full sample of
Vietnam’s listed companies and inverse U-shape for state – controlled listed companies while Ushape for non-state – controlled listed companies are not confirmed yet. We also confirm
overinvestment problem at state – controlled listed companies.

3

According to Guariglia (2008, p.1802), the number 0.0358% is calculated by 0.17*10%*0.00358/0.17


Policies and Sustainable Economic Development | 463

Table 4
Regression of investment on cash flow
Model 1: 𝐈𝐊 𝐢,𝐭 = 𝛂𝟎 + 𝛂𝟏 𝐂𝐅𝐊 𝐢,𝐭 + 𝛂𝟐 𝐂𝐅𝐊𝐒𝐐𝐑 𝐢,𝐭 + 𝛂𝟑 (𝐒𝐚𝐥𝐞𝐆𝐫𝐨𝐰𝐭𝐡𝐢,𝐭−𝟏 ) + 𝛂𝟒 𝐒𝐈𝐙𝐄𝐢,𝐭 + 𝛂𝟓 𝐋𝐄𝐕𝐢,𝐭 + 𝛂𝟔 𝐀𝐆𝐄𝐢,𝐭 + 𝛂𝟕 𝐁𝐄𝐓𝐀 𝐢,𝐭 + 𝐞𝐢,𝐭
Full sample
CFK

0.00358**
(2.54)

CFKSQR

L.SaleGrowth

State controlled listed companies
0.00429***
(3.17)

0.0512***
(9.66)

0.0000298**
(2.46)

0.163***
(13.50)

Non state controlled listed companies
0.00162*
(1.76)

-0.00361***
(-12.48)

0.00333**
(2.02)
0.0000126
(0.65)

0.000706***
(4.56)

0.000695***
(4.49)

-0.00274
(-0.76)

-0.0124***
(-4.42)

-0.00108
(-0.61)

-0.00127
(-0.70)

SIZE

0.0186***

(13.24)

0.0186***
(13.40)

0.00110
(0.37)

-0.00205
(-0.81)

0.00366***
(2.67)

0.00430***
(2.95)

LEV

-0.0508***
(-6.06)

-0.0541***
(-6.39)

-0.548***
(-15.67)

-0.513***
(-16.75)

0.0672***
(6.81)

0.0495***
(4.91)

AGE

0.00124
(1.24)

0.000582
(0.59)

0.0272***
(8.22)

0.0277***
(7.36)

-0.00538***
(-5.03)

-0.00487***
(-4.54)

BETA

-0.0403***

(-15.43)

-0.0392***
(-15.80)

-0.111***
(-13.93)

-0.0532***
(-3.37)

-0.0278***
(-7.30)

-0.0241***
(-6.26)

_cons

0.268***
(2.79)

0.268***
(2.79)

0.358***
(3.73)

0.264***
(3.00)

0.439***
(5.06)

0.434***
(4.98)

N

2481

2481

697

697

1784

1784

No. of firms

641

641

412

412

611

611

Notes: Reported coefficients are fixed firm and year effect estimates and robust. IK is investment ratio. CFK is annual cash flow ratio. CFKSQR is the square of CFK. SaleGrowth is
proportion of change in sales from year t–2 to year t–1. LEV is the beginning-of-period financial leverage, measured by total liabilities to total assets. AGE is the number of years since the


464 | Policies and Sustainable Economic Development

company listed. BETA is the slope coefficient from the market model estimated using daily stock and market returns: Ri,t =  + Rm,t + i,t where Ri,t is the daily stock return of firm i, Rm,t
is the daily market return for day t. *, **, *** respectively indicate significance at 10%, 5% and 1%. Number in parentheses is z-statistic.


Policies and Sustainable Economic Development | 465

4.3.2. Analysing effect of banking system reform on investment – cash flow relation
Model (2) presented in Section 3 is used to conduct tests on effect of banking system reform on
investment – cash flow relation. Table 5 reports regression coefficients of the model for full sample,
and both subsamples: state – controlled listed companies and nonstate – controlled listed companies.
Table 5
Effect of banking system reform on investment – cash flow relation

CFKPOS
CFKNEG
CFKPOSBANK
CFKNEGBANK
BANK
L.SaleGrowth

SIZE
LEV
AGE
BETA
_cons
N

Full sample

State-controlled listed
companies

Nonstate-controlled listed
companies

0.0239**

-0.0109

0.226***

(2.00)

(-0.37)

(18.17)

-0.0962***

-0.0772***

-0.243***

(-4.31)

(-3.34)

(-9.73)

-0.0113

0.0432

-0.217***

(-0.92)

(1.38)

(-16.90)

0.0934***

0.106***

0.239***

(4.16)

(3.75)

(9.52)

-0.00599

-0.226***

0.0772***

(-1.10)

(-10.12)

(14.79)

0.000684***

-0.00176

-0.00163

(5.06)

(-0.32)

(-1.06)

0.0134***

0.00679

0.000628

(10.36)

(1.64)

(0.54)

-0.0376***

-0.533***

0.0375***

(-4.72)

(-16.08)

(5.60)

0.000175

0.0331***

-0.00598***

(0.22)

(12.05)

(-7.05)

-0.0311***

-0.113***

-0.0122***

(-10.55)

(-12.78)

(-3.71)

0.320***

0.273**

0.435***

(3.27)

(2.45)

(4.70)

2481

697

1784

Notes: Reported coefficients are fixed firm and year effect estimates and robust. IK is investment ratio. CFK is annual
cash flow ratio. CFKPOS (=CFK*POS) is positive cash flow. CFKNEG (=CFK*NEG) is negative cash flow. BANK i,t is a
dummy variable that takes the value 1 for firms located in a region where foreign banks are allowed to do business in
year t and afterwards, and 0 otherwise. CFKPOSBANK (=CFK*POS*BANK) and CFKNEGBANK (=CFK*NEG*BANK)
reflect effect of banking system reform on firm’s investment behavior when it has positive or negative cash flow.
SaleGrowth is proportion of change in sales from year t–2 to year t–1. LEV is the beginning-of-period financial leverage,
measured by total liabilities to total assets. AGE is the number of years since the company listed. BETA is the slope
coefficient from the market model estimated using daily stock and market returns: R i,t =  + Rm,t + i,t where Ri,t is the
daily stock return of firm i, Rm,t is the daily market return for day t. *, **, *** respectively indicate significance at 10%,
5% and 1%. Number in parenthese is z-statistic.


466 | Policies and Sustainable Economic Development

Presence of foreign bank in the located in a region where foreign banks are allowed to do business
has some impact on company’s investment behavior, especially non state-controlled listed
companies. Coefficient of BANK for this group is significantly positive at 0.0772 ( =1%), meaning
that banking system reform pushes up investment in this group, because they may have better
chance to access external financing (bank loans). However, this gives opposite effect on state –
controlled listed companies as indicated by negative sign on the coefficient. Maybe, presence of
foreign banks forces domestic banks to improve their transparency, to enhance their efficiency, etc.,
that politically- oriented loans are more strictly controlled. This leads to reduce funds to statecontrolled listed companies who are considered having privileges from domestic state owned
commercial banks.
Sign and significance of regression coefficients of CFKNEG and CFKNEGBANK for full sample (0.0962*** and 0.0934***) and state-controlled listed companies (-0.0772*** and 0.106***) and
nonstate-controlled listed companies (-0.243*** and 0.239***) are consistent to each other and
results of the Tsai et al. (2014), especially consistent with our expectations. The U-curves were flatter
after the reform, implying decreasing reliance on internal cash flow for investments. It indicates that

before banking system reform, when negative internal cash flow increased, companies of all kinds
would reduce their investment. However, level of reduction in nonstate-controlled listed companies
is more than 3 times of that in state -controlled listed companies. After the reform, companies still
increase their investment even their negative cash flows increase. Again, higher level of increase in
nonstate listed companies compared with state-controlled listed companies. It can be explained that
after the reform, companies, especially non state-controlled listed companies are easier to access
external funds (bank loans) to finance their investment opportunities even in case of negative
internal cash flow, which it was not easy to get before. So we can say that banking system reform
has significant impact on investment behavior of companies. We will examine overinvestment
problem at the latter part of this paper.
Effect of banking system reform on investment –cash flow relation by different investment
opportunities.
To examine companies’ investment behavior, companies in each subsample is classified as high
investment opportunity or low investment opportunity, measured by growth of sales. If company’s
sale growth in a year is higher (lower) median of sample sale growth in that year is classified as high
(low) opportunity.
Effect of banking system reform on investment – cash flow relation of state – controlled listed
companies by different investment opportunities.
Table 6 below presents regression results on effect of banking system reform on investment –
cash flow relation of state-controlled listed companies. In this table, collum (2) and (4) are extention
of collumm (1) and (3) respectively, in which BANK is included to investigate effect of banking system
reform.


Policies and Sustainable Economic Development | 467

Banking system reform has a significant positive effect on state-controlled listed companies,
especially high investment opportunity ones. The coefficients on CFKPOS, CFKNEG, are all highly
significant for both column (1) and (2). CFKPOSBANK and CFKNEGBANK in column (2) are also
highly significant but change sign, implying effect of banking system reform.

For low investment opportunity, coefficients on CFKNEG in the column (3) and (4) are significant
but CFKPOS. The coefficient on CFKPOSBANK and CFKNEGBANK in column (4) significantly
negative at 10% and 1% level respectively. These results suggest that, investment in low investment
opportunity state-controlled listed companies rely on their own internal funds, possibly implying
overinvestment which is reduced after the reform. On possible explanation is that state-owned banks
may be more market-oriented.
Table 6
Effect of banking system reform on investment – cash flow relation of state – controlled listed
companies by different investment opportunities
High investment opportunity
(1)

(2)

(3)

1.168***
(8.27)

(54.49)

(0.25)

(0.40)

CFKNEG

-1.066***

-0.750***

-0.0320**

0.274***

(-11.90)

(-8.92)

(-2.44)

(2.85)

CFKNEGBANK
BANK
L.SaleGrowth

0.000882

(4)

CFKPOS

CFKPOSBANK

3.581***

Low investment opportunity

0.00149

-3.408***

-0.0178*

(-48.12)

(-1.79)

0.348***

-0.309***

(3.77)

(-3.10)

0.478***

0.0230

(11.38)

(1.45)

0.0165

0.00300

-0.00118

-0.00228

(1.56)

(0.43)

(-0.26)

(-0.51)

0.0158

0.0121***

0.00399

0.00823**

(1.10)

(2.96)

(0.99)

(2.05)

0.242*

0.317***

-0.0292

-0.00988

(1.73)

(5.33)

(-0.75)

(-0.26)

AGE

0.0603***

0.0318***

0.00166

0.00301

(3.07)

(7.26)

(0.52)

(0.95)

BETA

0.0145

0.120***

0.0384***

0.0462***

(0.45)

(5.10)

(3.33)

(4.43)

4.761

-2.169**

0.0694

0.0136

(1.32)

(-2.42)

(0.97)

(0.18)

344

344

353

353

SIZE
LEV

_cons
N


468 | Policies and Sustainable Economic Development

Notes: Reported coefficients are fixed firm and year effect estimates and robust. IK is investment ratio. CFK is annual
cash flow ratio. CFKPOS (=CFK*POS) is positive cash flow. CFKNEG (=CFK*NEG) is negative cash flow. BANK i,t is a
dummy variable that takes the value 1 for firms located in a region where foreign banks are allowed to do business in
year t and afterwards, and 0 otherwise. CFKPOSBANK (=CFK*POS*BANK) and CFKNEGBANK (=CFK*NEG*BANK)
reflect effect of banking system reform on firm’s investment behavior when it has positive or negative cash flow.
SaleGrowth is proportion of change in sales from year t–2 to year t–1. LEV is the beginning-of-period financial leverage,
measured by total liabilities to total assets. AGE is the number of years since the company listed. BETA is the slope
coefficient from the market model estimated using daily stock and market returns: Ri,t =  + Rm,t + i,t where Ri,t is the

daily stock return of firm i, Rm,t is the daily market return for day t. *, **, *** respectively indicate significance at 10%,
5% and 1%. Number in parentheses is z-statistic.

Effect of banking system reform on investment –cash flow relation of non-state – controlled listed
companies by different investment opportunities.
Table 7 presents regression results of banking system reform on investment –cash flow relation
of non state – controlled listed companies by different investment opportunities. Banking system
reform (BANK) has significantly positive effect on both high and low investment opportunity non
state-controlled listed companies. For high investment opportunity group, the reform increases
investment even when companies face negative cash flow. However, investments of low investment
opportunity non state-controlled listed companies are much reliant on internal cash flow before the
reform, while after the reform, they decrease investment in whatever the internal cash flow is. So,
the underinvestment problem is partly alleviated.
Table 7
Effect of banking system reform on investment – cash flow relation of non state – controlled listed
companies by different investment opportunities
High investment opportunity
CFKPOS
CFKNEG

Low investment opportunity

(1)

(2)

(3)

(4)

0.0597***

0.0603*

0.000452

0.337***

(9.69)

(1.92)

(0.39)

(32.65)

-0.213***

-0.914***

-0.00982**

0.0337***

(-26.40)

(-16.97)

(-2.42)

(9.17)

CFKPOSBANK
CFKNEGBANK
BANK

-0.00831

-0.336***

(-0.26)

(-32.56)

0.777***

-0.0570***

(14.15)

(-6.94)

0.123***

0.0916***

(17.40)
L.SaleGrowth
SIZE
LEV

(24.49)

-0.00140***

-0.00453***

0.00343**

0.00652***

(-3.07)

(-4.04)

(2.26)

(2.77)

0.00972***

0.0238***

0.000553

-0.0000113

(5.06)

(16.83)

(0.52)

(-0.01)

-0.00967

-0.180***

0.0254***

-0.00776


Policies and Sustainable Economic Development | 469

High investment opportunity

AGE
BETA
_cons

Low investment opportunity

(1)

(2)

(3)

(4)

(-0.77)

(-22.51)

(4.61)

(-0.84)

-0.00377***

-0.0130***

-0.0164***

-0.0227***

(-3.71)

(-15.53)

(-37.26)

(-33.01)

-0.0754***

-0.0627***

0.0152***

0.0298***

(-13.53)

(-15.32)

(6.60)

(8.99)

0.402***

0.242**

0.177***

0.0587

(3.81)

(2.06)

(2.78)

(1.22)

898

898

886

886

N

Notes: Reported coefficients are fixed firm and year effect estimates and robust. IK is investment ratio. CFK is annual
cash flow ratio. CFKPOS (=CFK*POS) is positive cash flow. CFKNEG (=CFK*NEG) is negative cash flow. BANK i,t is a
dummy variable that takes the value 1 for firms located in a region where foreign banks are allowed to do business in
year t and afterwards, and 0 otherwise. CFKPOSBANK (=CFK*POS*BANK) and CFKNEGBANK (=CFK*NEG*BANK)
reflect effect of banking system reform on firm’s investment behavior when it has positive or negative cash flow.
SaleGrowth is proportion of change in sales from year t–2 to year t–1. LEV is the beginning-of-period financial leverage,
measured by total liabilities to total assets. AGE is the number of years since the company listed. BETA is the slope
coefficient from the market model estimated using daily stock and market returns: R i,t =  + Rm,t + i,t where Ri,t is the
daily stock return of firm i, Rm,t is the daily market return for day t. *, **, *** respectively indicate significance at 10%,
5% and 1%. Number in parenthese is z-statistic.

4.3.3. Analysing effect of banking system reform on investment – leverage relation
Regression coefficients in Table 8 belows shows effect of banking system reform on investment
– leverage relation. Coefficient of LEV and BANKLEV in both state-controlled listed companies and
non state – controlled listed companies are highly significant (at 1% level) but different sign. These
results imply that banking system reform may have different affect on investment – leverage relation
of different group of companies in Vietnam. After banking system reform, investment of statecontrolled companies are more reliant on bank loans while investment of non state - controlled listed
companies are more reliant on their internal cash flow. Coefficient on L.LEV in the column (2) of this
table is signigicantly negative but BANKLEV is significantly possitive. These results do not consistent
with our original expectations. One possible explaination is that before the banking system reform,
board of managers may reduce leverage to increase ability to raise external funds for future
investments, that they do not have to do after the reform as the findings of Lang et al. (1996). The

reason could be after the reform, besides domestic banks, they can access loans from foreign banks.
Table 8
Effect of banking system reform on investment – leverage relation

CFK
L. LEV

Full sample

State-controlled listed companies

Nonstate-controlled listed companies

(1)

(2)

(3)

0.00431***

0.0430***

0.00156

(3.85)

(5.60)

(1.50)

-0.0818***

-1.036***

0.104***


470 | Policies and Sustainable Economic Development

BANK
BANKLEV
L.SaleGrowth
SIZE
Cons
N

Full sample

State-controlled listed companies

Nonstate-controlled listed companies

(1)

(2)

(3)

(-4.32)

(-9.09)

(29.79)

-0.0699***

-0.878***

0.0819***

(-5.53)

(-12.45)

(16.07)

0.0795***

1.177***

-0.161***

(4.16)

(10.27)

(-21.60)

0.000549***

-0.00192

-0.00284**

(2.88)

(-0.58)

(-2.00)

0.00968***

-0.0668***

0.00509***

(11.12)

(-22.19)

(9.30)

126.6***

265.8***

137.3***

(72.68)

(46.74)

(62.44)

2481

697

1784

Notes: Reported coefficients are fixed firm and year effect estimates and robust. IK is investment ratio. CFK is annual
cash flow ratio. BANKi,t is a dummy variable that takes the value 1 for firms located in a region where foreign banks are
allowed to do business in year t and afterwards, and 0 otherwise. SaleGrowth is proportion of change in sales from year
t–2 to year t–1. LEV is the beginning-of-period financial leverage, measured by total liabilities to total assets. AGE is the
number of years since the company listed. BETA is the slope coefficient from the market model estimated using daily
stock and market returns: Ri,t =  + Rm,t + i,t where Ri,t is the daily stock return of firm i, Rm,t is the daily market return
for day t. *, **, *** respectively indicate significance at 10%, 5% and 1%. Number in parentheses is z-statistic.

Firth et al. (2008) records negative relation between investment and leverage for Chinese listed
companies. However, this relation is weaker in low investment opppotunity companies as well as in
high proportion of state ownership, meaning overinvestment in these firms. Lang et al. (1996) finds
that managers at high growth potential companies will chose low leverage because using too much
debt prevents the company from further borrowing to finance future investment opportunities.
Table 9 below reports regression results on effect of banking system reform on investment –
leverage relation for both low and high growth opportunities of the both subsamples.
Table 9
Effect of banking system reform on investment – leverage relation for both low and high growth
opportunities
State – controlled listed companies

CFK
L.LEV
BANK

Nonstate controlled listed companies

High investment
opportunity

Low investment
opportunity

High investment
opportunity

Low investment
opportunity

(1)

(2)

(3)

(4)

0.855***

0.000558

-0.0755***

-0.000418

(9.10)

(0.23)

(-27.39)

(-0.32)

-1.352***

0.173***

0.187***

0.0251

(-3.79)

(10.19)

(12.03)

(1.20)

-1.083***

-0.0493**

0.167***

0.0322***


Policies and Sustainable Economic Development | 471

State – controlled listed companies

Nonstate controlled listed companies

High investment
opportunity

Low investment
opportunity

High investment
opportunity

Low investment
opportunity

(1)

(2)

(3)

(4)

(-4.52)

(-2.14)

(16.01)

(2.84)

1.656***

0.173***

-0.326***

0.00596

(4.60)

(4.42)

(-17.86)

(0.28)

-0.144***

-0.00302

-0.00420***

-0.000997

(-10.45)

(-0.75)

(-2.67)

(-0.54)

-0.0351***

0.00986***

-0.0203***

0.00982***

(-3.62)

(3.98)

(-20.10)

(7.87)

177.3***

88.32***

158.2***

131.6***

(7.33)

(9.58)

(80.42)

(45.27)

344

353

898

886

BANKLEV
L.SaleGro
wth
SIZE
_cons
N

Notes: Reported coefficients are fixed firm and year effect estimates and robust. IK is investment ratio. CFK is annual
cash flow ratio. BANKi,t is a dummy variable that takes the value 1 for firms located in a region where foreign banks are
allowed to do business in year t and afterwards, and 0 otherwise. SaleGrowth is proportion of change in sales from year
t–2 to year t–1. LEV is the beginning-of-period financial leverage, measured by total liabilities to total assets. AGE is the
number of years since the company listed. BETA is the slope coefficient from the market model estimated using daily
stock and market returns: Ri,t =  + Rm,t + i,t where Ri,t is the daily stock return of firm i, Rm,t is the daily market return
for day t. *, **, *** respectively indicate significance at 10%, 5% and 1%. Number in parentheses is z-statistic.

Coefficients of L.LEV (-1.352) and BANKLEV (1.656) in collumn (1) of Table 9 are significant at
1% level, finding that before the reform, underinvestment exists in high investment opportunity and
the problem is miltigated after the refrom. Coefficient of L.LEV in column (1) suggest that before the
reform, company’s board of management may choose low leverage to increase ability to raise
external funds in the future as documented by Lang et al. (1996).
High investment opportunity state – controlled listed companies do not have to reduce debt
overhang after the reform as they have to do before for financing their future investments due to
more channels to get loans. However, the story is not the same for low investment opportunity, that
there is an significantly positive relation between investment and leverage for both before and after
the reform. For nonstate- controlled listed companies, they resutls are opposite with ones of state –
controlled listed companies.
5. Conclusion
Along with international integration and WTO’s roadmap, Vietnam has to open its door to foreign
banks. This research focus on investigating if investment behavior of Vietmamese listed companies
is affected by banking system reform measured by presence of foreign banks. The research also
studies if banking system reform reduces pollitical-oriented investments of state-controlled listed
companies, as well as miltigate underinvestment caused by financial constraint at non state –


472 | Policies and Sustainable Economic Development

controlled listed companies. Using an unbalanced panel of companies listing on HOSE and HNX from
2009 and 2014, we finds evidence for U-shape relation between investment and cash flows. However,
state – controlled lised companies has an inverse U shape curve while we can not confirm the relation
for non state-controlled listed companies.
Banking system reform measured by presence of foreign banks has signigicant impact on
investment behaviour of Vietnamese companies, and not exactly the same for state controlled and
non state-control listed companies. Before the reform, company’s investments are much reliant on
internal cash flow, but after the reform, the level of dependence is reduced because companies have
more chance to get bank loans. Besides, firms with different investment opportunity will have
different effect.
We also investigate effect of banking system reform on company’s investment and leverage. The
results show that the relation is changed after the reform. High investment opportunity statecontrolled listed companies before the reform have to reduce leverage to increase ability to raise
external fund to finance their future potention investments, thing they do not have to to after the
reform.
As a result, we conclude that banking system reform measured by presence of foreign banks has
significant impact on both company’s investment and financing behaviors. The impacts are not the
same for different group of companies.
References
Allayannis, G., & Mozumdar, A. (2004). The impact of negative cash flow and influential observations on investment–
cash flow sensitivity estimates. Journal of Banking & Finance, 28, 901-930.
Berger, A. N., Klapper, L. F., Martinez Peria, M. S., & Zaidi, R. (2008). Bank ownership type and banking relationships.
Journal of Financial Intermediation, 17, 37-62.
Cleary, S. (1999). The relationship between firm investment and financial status. The Journal of Finance, 54, 673-692.
Cleary, S., Raith, M., & Povel, P. (2007). The U-shaped investment curve: Theory and evidence. Journal of Financial and
Quantitative Analysis, 42, 1-39.
Detragiache, E., Tressel, T., & Gupta, P. (2008). Foreign banks in poor countries: Theory and evidence. Journal of Finance,
63, 2123-2160.
Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988). Financing constraints and corporate
investment. Brookings Papers on Economic Activity, 1988, 141-206.
Firth, M., Lin, C., & Wong, S. M. L. (2008). Leverage and investment under a state-owned bank lending environment:

Evidence from China. Journal of Corporate Finance, 14, 642-653.
Firth, M., Malatesta, P. H., Xin, Q., & Xu, L. (2012). Corporate investment, government control, and financing channels:
Evidence from China’s listed companies. Journal of Corporate Finance, 18, 433-450.
Guariglia, A. (2008). Internal financial constraints, external financial constraints, and investment choice: Evidence from
a panel of UK firms. Journal of Banking & Finance, 32, 1795-1809.
Hoshi, T., Kashyap, A., & Scharfstein, D. (1991). Corporate structure, liquidity, and investment: Evidence from Japanese
industrial groups. The Quarterly Journal of Economics, 106, 33-60.


Policies and Sustainable Economic Development | 473

Hubbard, R. G. (1998). Capital-market imperfections and investment. Journal of Economic Literature, 36(1), 193-225.
Kaplan, S. N., & Zingaples, L. (1997). Do investment- cash flow sensitivities provide useful measure of financing
constraints? The Quarterly Journal of Economics, 112(1), 169-215.
Lang, L., Stulz, R., & Walkling, R. A. (1991). A test of the free cash flow hypothesis. Journal of Financial Economics,
29(1991), 315-335.
Lang, L., Ofek, E., & Stulz, R. (1996). Leverage, investment, and firm growth. Journal of Financial Economics, 40, 3-29.
Liu, Q., & Lu, Z. J. (2007). Corporate governance and earnings management in the Chinese listed companies: A tunneling
perspective. Journal of Corporate Finance, 13, 881-906.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that
investors do not have. Journal of Financial Economics, 13, 187-221.
Modigliani, F., & Miller, M. (1958). The cost of capital, corporation finance and the theory of investment. The American
Economic Review, 48(3), 261-297.
Sheshinski, E., & Lopez-Calva, L. (1999). Privatization and its benefits: Theory and evidence. HIID Development
Discussion Paper No.698. Harvard University, Cambridge, MA.
Tsai, Y.-L., Chen, Y.-P., Lin, C.-L., & Hung, J.-H. (2014). The effect of banking system reform on investment-cash flow
sensitivity:
Evidence
from
China.

Journal
of
Banking
&
Finance,
46,
166-176.
/>