Payout policies, government ownership, and financial constraints: Evidence from Vietnam

Abstract

This study investigates the impact of government ownership on payout policies, cash holdings, capital expenditures, and borrowing costs for firms in Vietnam. Using the central hypothesis that state-owned firms (SOEs) are less financially constrained than privately-owned firms, we provide several main findings. First, we reveal that SOEs typically pay higher dividends, have higher total payouts, but undertake lower repurchases than privately-owned firms. Second, we find that SOEs have less need to hoard cash and spend less of their cash flow on capital expenditures than non-state-owned firms. Finally, our research indicates that SOEs have lower borrowing costs than privately owned firms. These findings support the view that, in frontier markets, firms with non-state ownership can mitigate the adverse effects of financial constraints by decreasing total payouts to shareholders and instead using their cash flow to increase cash holdings or capital spending.