THE IMPACT OF BANKING RELATIONSHIP ON FIRM PERFORMANCE: EVIDENCE FROM HO CHI MINH STOCK EXCHANGE, VIETNAM

Authors

  • Khuu Thi Phuong Dong Can Tho University, Vietnam
  • Nguyen Thi Ngoc Hoa Can Tho University, Vietnam
  • Tran Cong Hiep Branch of Deloitte Vietnam Audit Company Limited
  • Tran Viet Thanh Truc Can Tho University, Vietnam

DOI:

https://doi.org/10.33736/ijbs.5955.2023

Keywords:

banking relationship, firm performance, fixed effect model, Ho Chi Minh stock exchange, Vietnam

Abstract

This study aimed to investigate how close banking relationships affect Vietnamese public listed firms’ financial performance based on the empirical evidence of 172 companies listed on Ho Chi Minh City Stock Exchange in the period 2017 – 2019. Regression models, including Pooled Ordinary Least Square (OLS), Fix Effects Model (FEM) and Random Effects Model (REM) were explored to test the proposed hypotheses. The results indicated that banking relationships have advantages that outweigh disadvantages, which brings a positive impact on firm performance. These results suggested that firms should pay attention to the quality of the banking relationships instead of seeking for negotiation power and diversity in sources of funds.

References

Agarwal, R., & Elston, J. A. (2001). Bank-firm relationship, financing and firm performance in Germany. Economic Letters 72(2), 225-232. doi:10.1016/S0165-1765(01)00427-X.

https://doi.org/10.1016/S0165-1765(01)00427-X

Agarwal, R., & Gort, M. (2002). Firm and product life cycles and firm survival. American Economic Review, 92(2), 184-190. doi:10.1257/000282802320189221.

https://doi.org/10.1257/000282802320189221

Aoki, M., Patrick. H., & Sheard, P. (1994). The Japanese main bank system: An introductory overview, in Masahiko Aoki and Hugh Patrick, eds: The Japanese Main Bank System. Oxford, UK: Oxford University Press.

https://doi.org/10.1093/0198288999.001.0001

Baum, C. F., Schaffer, M. E., & Stillman, S. (2007). Enhanced routines for instrumental variables/generalized method of moments estimation and testing. The Stata Journal, 7(4), 465-506.

https://doi.org/10.1177/1536867X0800700402

Boot, A. W. A. (2000). Relationship banking: What do we know?" Journal of Financial Intermediation 9(1): 7-25. doi:10.1006/jfin.2000.0282.

https://doi.org/10.1006/jfin.2000.0282

Cao, W., Chen, J., & Chi, J. (2010). "Bank firm relationship and firm performance under a state-owned bank system: Evidence from China." Banks and Bank Systems, 5(3), 68-79. Castelli, A., Dwyer, G. P. J., & Hasan, I. (2012). "Bank relationships and firms' financial performance: The Italian experience". European Financial Management, 18(1), 28-67.

https://doi.org/10.1111/j.1468-036X.2009.00531.x

Degryse, H., & Ongena, S. (2001). Bank relationships and firm profitability. Financial Management, 30(1), 9-34. doi:10.2307/3666389.

https://doi.org/10.2307/3666389

Dennis, S. A., & Mullineaux, D. J. (2000). Syndicated loans. Journal of Financial Intermediation 9(4), 404-426. doi:10.1006/jfin.2000.0298.

https://doi.org/10.1006/jfin.2000.0298

Diamond, D. W. (1984). Financial intermediation and delegated monitoring. Review of Economic Studies, 51(3), 393-414. doi:10.2307/2297430.

https://doi.org/10.2307/2297430

Diamond, D. W. (1991). Monitoring and reputation: The choice between bank loans and directly placed debt. Journal of Political Economy, 99(4), 689-721. doi:10.1086/261775. Guajarati, D. N. (2003). Basic econometrics (4th ed.). New York: McGraw Hill.

https://doi.org/10.1086/261775

Gustafson, M. T., Ivanov, I. T., & Meisenzahl, R. R. (2017). Bank monitoring: Evidence from syndicated loans. Journal of Financial Economics, 139(2), 452-477. doi:10.1016/j.jfineco.2020.08.017.

https://doi.org/10.1016/j.jfineco.2020.08.017

Hale, G., & Santos, J. A. C. (2009). Do banks price their information monopoly?. Journal of Financial Economics, 93(2), 185-206. doi:10.1016/j.jfineco.2008.08.003.

https://doi.org/10.1016/j.jfineco.2008.08.003

Hamdani, N. A., Solihat, A., & Maulani, G. A. F. (2020). The influence of current ratio, debt-to-equity ratio, inventory turnover, and return on investment on price-earnings ratio of cement industry companies listed at Indonesia stock exchange. In Hurriyati, R., Tjahjono, B., Yamamoto, I., Rahayu, A., Abdullah, A. G., & Danuwijaya, A. A (Eds.), Advances in Business, Management and Entrepreneurship: Proceedings of the 3rd Global Conference on Business Management & Entrepreneurship (GC-BME 3) Bandung, Indonesia (pp. 7). London: CRC Press.

https://doi.org/10.1201/9780429295348-105

Hiraki, T., Ito, A., & Kuroki, F. (2003). Single versus multiple main bank relationships: Evidence from Japan. Social Science Research Network. Retrieved from https://www.fs.hub.hit-u.ac.jp/

https://doi.org/10.2139/ssrn.437320

Hitt, M. A., Hoskisson, R. E., & Kim, H. (1997). International diversification: Effects on innovation and firm performance in product-diversified firms. Academy of Management Journal, 40(4), 767-798. doi:10.5465/256948.

https://doi.org/10.5465/256948

Hoshi, T., Kashyap, A. & Scharfstein, D. (1990). The role of banks in reducing the costs of financial distress in Japan. Journal of Financial Economics, 27(1), 67-88. doi:10.1016/0304-405X(90)90021-Q.

https://doi.org/10.1016/0304-405X(90)90021-Q

Houston, J., & James, C. (1996). Bank information monopolies and the mix of private and public debt claims. Journal of Finance, 51(5), 1863-1889. doi:10.1111/j.1540-6261.1996.tb05229.x.

https://doi.org/10.1111/j.1540-6261.1996.tb05229.x

Jensen, M. C., Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. doi:10.1016/0304-405X(76)90026-X.

https://doi.org/10.1016/0304-405X(76)90026-X

King, M. R., & Santor, E. (2008). Family values: Ownership structure, performance and capital structure of Canadian firms. Journal of Banking and Finance, 32(11), 2423-2432. doi:10.1016/j.jbankfin.2008.02.002.

https://doi.org/10.1016/j.jbankfin.2008.02.002

Kutsuna, K., Smith, J. K., & Smith, R. L. (2007). Banking relationships and access to equity capital markets: Evidence from Japan's main bank system. Journal of Banking and Finance, 31(2), 335-360. doi:10.1016/j.jbankfin.2006.04.007.

https://doi.org/10.1016/j.jbankfin.2006.04.007

Le, T. N. M. (2016). Evaluate the impact of the number of banking relationships on the business performance of the company in Can Tho city. Master's Thesis in Economics, Can Tho University, Vietnam

Le, Y. X. (2015). Impact of banking relationship on the company's operations in Vinh Long. Master's Thesis in Economics, Can Tho University, Vietnam.

Limpaphayom, P., & Polwitoon, S. (2004). Bank relationship and firm performance: Evidence from Thailand before the Asian financial crisis. Journal of Business Finance and Accounting, 31(9‐10), 1577-1600. doi:10.1111/j.0306-686X.2004.00585.x. Loderer, C. F., & Waelchli, U. (2010). Firm age and performance. Retrieved from http://dx.doi.org/10.2139/ssrn.1342248

https://doi.org/10.2139/ssrn.1342248

Maskin, E. S. (1996). Theories of the soft budget-constraint. Japan and the World Economy, 8(2), 125-133.

https://doi.org/10.1016/0922-1425(96)00038-2

Massa, M., & Dass, N. (2006). The dark side of bank-firm relationships: The (market) liquidity impact of bank lending. Retrieved from: http://dx.doi.org/10.2139/ssrn.891046

https://doi.org/10.2139/ssrn.891046

Myers, S. C. (1984). Capital structure puzzle. National Bureau of Economic Research Working Paper No. w1393. Retrieved from http://www.nber.org/papers/w1393. doi:10.3386/w1393.

https://doi.org/10.3386/w1393

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221. doi:10.1016/0304-405X(84)90023-0.

https://doi.org/10.1016/0304-405X(84)90023-0

Nguyen, L. T. T. (2013). Research on factors affecting the business performance of food manufacturing and processing companies listed on Vietnam's stock market. Master's Thesis in Business Administration, Da Nang University, Vietnam.

Pouraghajan, A., Malekian, E., Emamgholipour M., Lotfollahpour, V., & Bagheri, M. M. (2012). The relationship between capital structure and firm performance evaluation measures: Evidence from the Tehran Stock Exchange. International Journal of Business and Commerce, 1(9), 166-181.

Jamil, M. P. A. S. (2015). The effect of banking relationship on firm performance in Malaysian public listed companies. Master's Thesis, Universiti Utara Malaysia.

Rajan, R. G. (1992). Insiders and outsiders: The choice between informed and arm's length debt. Journal of Finance, 47(4), 1367-1400. doi:10.1111/j.1540-6261.1992.tb04662.x.

https://doi.org/10.1111/j.1540-6261.1992.tb04662.x

Simerly, R. L., & Li, M. (2000). Environmental dynamism, capital structure and performance: A theoretical integration and an empirical test. Strategic Management Journal, 21(1), 31-49.

https://doi.org/10.1002/(SICI)1097-0266(200001)21:1<31::AID-SMJ76>3.0.CO;2-T

Thanh Ha. (2020). Vốn hóa thị trường trên HoSE đạt trên 2,87 triệu tỷ đồng, chiếm 57% GDP. Retrieved December 16 2020, from nhipsongkinhdoanh.vn .

Vo, V. D., & L. T. Pham. (2012). Analysis of factors affecting the relationship between commercial banks and companies in Can Tho. Banking Magazine, 10, 42-47.

Vo, X. V. (2014). Ownership structure, operational efficiency and company value in Vietnam's stock market. Development and Integration Journal, 16(26), 28-32.

Vu, H. T., & Nguyen, M. H. (2013). The effect of banking relationships on firm performance in Vietnam. International Journal of Economics and Finance, 5(5), 148-158. doi:10.5539/ijef.v5n5p148.

https://doi.org/10.5539/ijef.v5n5p148

Yildirim, A. 2020. The effect of relationship banking on firm efficiency and default risk. Journal of Corporate Finance, 65, 101500. doi:10.1016/j.jcorpfin.2019.101500.

https://doi.org/10.1016/j.jcorpfin.2019.101500

Yosha, O. (1995). Information disclosure costs and the choice of financing source. Journal of Financial Intermediation, 4(1), 3-20. doi:10.1006/jfin.1995.1001.

https://doi.org/10.1006/jfin.1995.1001

Zeitun, R., & Tian, G. G. (2007). Does ownership affect a firm's performance and default risk in Jordan?. Corporate Governance: The international Journal of Business in Society, 7(1), 66-82. doi:10.1108/14720700710727122.

https://doi.org/10.1108/14720700710727122

Downloads

Published

2023-08-14

How to Cite

Khuu Thi Phuong Dong, Nguyen Thi Ngoc Hoa, Tran Cong Hiep, & Tran Viet Thanh Truc. (2023). THE IMPACT OF BANKING RELATIONSHIP ON FIRM PERFORMANCE: EVIDENCE FROM HO CHI MINH STOCK EXCHANGE, VIETNAM. International Journal of Business and Society, 24(2), 711–726. https://doi.org/10.33736/ijbs.5955.2023