Capital diversion in Vietnamese state-owned enterprises

Abstract

Purpose – The authors estimated the hidden overhead (capital diversion or wasteful use of capital) of Vietnam state-owned enterprises (SOEs). Design/methodology/approach – The authors used a panel data set of 10,200 Vietnam SOEs observed over the period 2010–2018. The authors modeled and estimated the hidden overhead by using a stochastic production frontier. The hidden overhead parameter is modelled as the technical inefficiency in the production function. Findings – Vietnam SOEs are very capital intensive. The hidden overhead (or the wasteful use of capital) is very high with an average rate of 69%. Research limitations/implications – Alternative estimation methods should be used to account for endogeneity in production inputs. Lack of comparison with the Vietnam private firms. Originality/value – The paper proposes an original way to quantify hidden overhead (or capital diversion) in the Vietnam SOEs. The finding (a capital diversion rate of 69% on average) is astonishing. It calls for an urgent and profound reform of the Vietnam SOEs.

Keywords

• Productivity
• Stochastic production frontier
• Hidden overhead