Economics and Business
Quarterly Reviews
ISSN 2775-9237 (Online)
Published: 30 April 2020
Banking Relationship Ties to Firm Performance: Evidence from Food and Beverage Firms in Vietnam
Le Thanh Tam, Nguyen Phuong Ngan, Nguyen Trong Trung, Cao Phuong Minh
National Economics University, Vietnam
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10.31014/aior.1992.03.02.224
Pages: 602-616
Keywords: Bank Relationship, Firms’ Performance, Foreign Ownership, Leverage, Vietnamese Food and Beverage Listed Firms
Abstract
This paper is aimed at analyzing the effects of banking relationship on performance of Vietnamese firms in Food and Beverage (F&B), one of the highest potential sectors. Panel data of 170 observations covers 34 F&B firms listed in the Vietnam stock exchanges in the period 2014-2018. The fixed effect model (FEM) is applied. The key findings are: First, short-term loan financing, leverage, and fixed asset ratios all negatively impacted on F&B firm performance, while firm size and net profit margin had positive impacts. These findings were consistent with previous studies. Second, the opposite results with previous studies were: (i) negative corelation of ROE and number of banks firms working with, as F&B firms were inefficient in selecting bank partners; (ii) positive relation of short-term liabilities ratio and ROA/ROE, as F&B firms utilize other non-bank liabilities shortly; (iii) foreign ownership had negative relationship with ROA& ROE. Foreign investors did not have significant roles in most F&B firms. Third, long-term borrowing from banks, state ownership and ages all insignificantly correlated with firm performance. Recommendations to F&B firms include: (1) Reduce the short-term loans and fixed assets investment, while increase the cheap equity funding sources via shareholders (2) Be selective in working with banks to have better fees and interest saved with banks. (3) Utilize other short-term liabilities, including payables and advances – the low-cost funding sources. F&B firms have good bargaining powers in requesting advances from their clients. (4) Have smart buy-in strategies on foreign ownership.
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