POLITICAL PATRONAGE AND CORPORATE LEVERAGE: EVIDENCE FROM VIETNAMESE LISTED FIRMS

Abstract

Since the open-door policy of 'Doi Moi' was launched in 1986, Vietnam has made great strides, from among the world’s most impoverished nations to a lower middle-income country. During the development process, there is a growing tendency towards the co-operation between the public and private sectors with the emergence of state-owned and state-controlled enterprises. Previous literature have shown that politically patronised firms tend to gain better access to credit markets than others, owing to either established connections with financial intermediaries or state influence within major banks. This study explores the difference in capital structure between politically patronised and non-connected firms. Applying difference-in-differences approach to a panel dataset of 160 Vietnamese publicly listed companies over the period 2006-2015, empirical results indicate that politically patronised firms tend to hold significantly higher levels of debt than non-connected ones. Besides, taking an exogenous shock, namely the 2008 financial crisis, into consideration, the above results still remain true during the crisis as well as post-crisis period.