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Government cost and firm value: Evidence from Vietnam

Author

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  • Nguyen, Dong Phong
  • Vo, Xuan Vinh
  • Anh Tran, Thi Tuan
  • Thoa Tu, Thi Kim

Abstract

This paper investigates the relationship between government cost and firm value at the provincial level in a transitional economy. We shed further light on the question whether local government plays the role of grabbing or helping hand. We use a unique dataset covering government spending and corporate performance characteristics collected from provincial statistical yearbook and Datastream. The results show that there exists a nonlinear U-shaped relationship between local government cost and firm value. Particularly, the threshold value of provincial government spending is about 5%. Furthermore, the U-shaped nonlinear relationship is strongly evidenced in lower quantiles of firm value but not significant at high firm value quantiles, ceteris paribus. The article also offers an interesting result concerning the moderating role of state ownership. The effect of government cost on firm value is stronger for the state-owned firms at lower quantiles of firm value.

Suggested Citation

  • Nguyen, Dong Phong & Vo, Xuan Vinh & Anh Tran, Thi Tuan & Thoa Tu, Thi Kim, 2018. "Government cost and firm value: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 46(C), pages 55-64.
    • Handle: RePEc:eee:riibaf:v:46:y:2018:i:c:p:55-64
    DOI: 10.1016/j.ribaf.2017.10.001
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    More about this item

    Keywords

    Government cost; Firm value; Grabbing hand; Helping hand; Quadratic regression function; Quantile regression;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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