Government Support and Firm Profitability in Vietnam

Thanh Minh Nguyen; Tuyen Quang Tran; Long Thanh Do

doi:10.2478/cer-2018-0029

Authors

Thanh Minh Nguyen Ph.D., Faculty of Accounting, Academy of Finance; Hanoi, Vietnam
Tuyen Quang Tran Ph.D., Center for Data and Socio‑Economic Analysis, University of Economics and Business, Vietnam National University, Hanoi, Vietnam
Long Thanh Do The Office of National Science and Technology Programs, Ministry of Science and Technology, Hanoi, Vietnam

DOI:

https://doi.org/10.2478/cer-2018-0029

Keywords:

government support, profitability, quantile approach, SMEs

Abstract

Existing studies on the linkage between government subsidies and firm financial performance often use a mean regression approach and focus mainly on developed countries. To fill the gap, this study, for the first time, considers the impact of government support activities on the profitability of manufacturing SMEs in a developing country, Vietnam. Using an unbalanced panel dataset covering the period 2009–2015, government financial supports show an insignificant linkage with firm profitability when using OLS. However, a fixed‑effect quantile approach reveals that government financial support is negatively related for firms with low profit but is positively related for firms in the high profitability percentile. Our findings also suggest that policymakers should focus on helping start‑ups instead of ineffective, informal firms.

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