The effect of state ownership on corporate investment efficiency: evidence from listed firms in Vietnam

Extant literature shows that state ownership is a special type of ownership. Politicians tend to follow both social and economic goals to maintain their positions. In some cases, they may sacrifice the latter to achieve the former. Therefore, firms with high state ownership face more serious agency problems than those with low state ownership. This study investigates how state ownership affects corporate investment efficiency in Vietnam, where privatizing state-owned firms is an important economic policy. Our sample includes 4,937 observations from firms listed between 2007 and 2020. Using fixed effects, random effects, random effects Tobit, pooled OLS, and Poisson regression with fixed effects, we find that state ownership has a negative impact on corporate investment efficiency. In addition, the multinomial logistic regression results show that firms with state ownership are more likely to engage in overinvestment. State ownership weakens corporate governance and thus creates opportunities for managers to expropriate shareholders. Managers tend to increase firm size through overinvestment to strengthen their positions; therefore, firms with state ownership have lower investment efficiency.