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Acknowledgements
I owe a debt of gratitude to many people who helped me complete this thesis. I would
like to acknowledge the Giúp of all. First of all I would like to express my deepest
acknowledgement to my supervisor, Professor Geoffrey Grant Meredith from the
Graduate College of Management (SCU), for his valuable advice and recommendations.
I acknowledge Dr. Lyndon Brooks, his assistants from the Graduate Research
College (SCU), and Mr. Tho Dinh Nguyen from the School of Marketing (UTS) for their
support with statistical techniques and data analysis. I also acknowledge Ms. Rosemary
Graham from the International Office (SCU) for her comments on English in earlier
drafts of my thesis.
In the process of data collection for this research, many people contributed to the
task and I am particularly grateful for their contributions. I am greatly indebted to Dr.
Pham Van Nang, Dr. Le Bao Lam, and Dr. Le Thanh Ha from Ho Chi Minh City
University of Economics for their introduction to contacts with the small and medium
enterprises (SMEs) community located in Ho Chi Minh City.
I also wish to thank Mr. Nguyen Trong Hanh, Vice Director of Department of
Taxation, Mr. Du Quang Nam, Vice Director of Statistical Office – Ho Chi Minh City;
and Mr. Tran To Tu, Managing Director of Investment Consulting Corporation for
providing secondary data related to the current practices of SMEs in Vietnam.
I would like to thank the following organizations which supported me in
completing my thesis and degree: the Swiss Agency for Development and Cooperation
(SDC), the Swiss – AIT – Vietnam Management Development Program (SAV), the
Mekong Project Development Facility (MPDF), the Small and Medium Enterprise
Promotion Centre (Vietnam Chamber of Commerce and Industry – VCCI), HCM City
University of Economics, HCM City Statistical Office, HCM City Department of
Investment and Planning, HCM City Department of Taxation. Specially, I would like to
extend my sincere gratitude to the Government of Switzerland and Dr. Hans Stoessel,
Director of SAV for granting the scholarship which enabled me to participate in a
doctoral degree at Southern Cross University, New South Wales, Australia.
iiiI would particularly like to thank the following friends for their support related to
data collection: Mr. Doan Thanh Tuan, Ms. To Ngoc Huong, and Mr. Bui Hai Binh from
Truong Doan Company Limited, Mr. Hoang Trong from Ho Chi Minh City University of
Economics, Mr. Vo Sy Nhan from Ho Chi Minh City Department of Investment and
Planning, and all my students who worked as fieldworkers for data collection.
Finally, to my parents and my wife, I wish to extend my loving thanks for their
encouragement. My greatest debt of gratitude is to my wife, Mrs. Que Thi Tran, who was
patiently waiting me during my study in Australia. This thesis could not have been
written without her daily encouragement.
iv
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiAbstract
After a decade of reforming policy, building and developing the multi-sector market
economy, Small and Medium Enterprises (SMEs) in Vietnam have developed strongly
and contributed to creating employment, increasing GDP, and raising the nation’s volume
of exports. However, SMEs have found difficulties on the way to development due to
lack of management experience and financial resources, and due to uncertainty within the
business environment. As a result, SMEs often faced obstacles during their operations.
This thesis examines the relationship between financial management and profitability of
SMEs to determine whether financial management practices and financial characteristics
impact on SME profitability.
Objectives of the thesis are (1) to investigate and describe features of financial
management practices and financial characteristics of SMEs in Vietnam, (2) to develop
and test a model of SME profitability, and (3) to contribute knowledge of the
relationships between financial management and characteristics to improve SME
profitability by using tools of efficient financial management.
In terms of structure, the thesis has six chapters. The thesis begins by defining the
research problem and questions, and providing a justification for the research study.
Chapter one also reviews the research background, and presents definitions of terms,
significance and scope of the study. Chapter two examines the economic background,
business structure and the development of SMEs in Vietnam. This chapter also reviews
previous research related to financial management for SMEs in Vietnam to identify gaps
between financial management for SMEs in Vietnam and financial management for
SMEs worldwide.
Chapter three reviews financial management including financial management
practices, financial characteristics and profitability of SMEs around the world, especially
in the developed economies such as the United States of America (USA), the United
Kingdom (UK), Australia and Canada. This review emphasizes profitability and the
impact of financial management practices and financial characteristics on SME
profitability. Objectives of this chapter are to review previous research related to the
areas of financial management practices, financial characteristics, and profitability of
vSMEs and to build a model of the impact of financial management practices and financial
characteristics on SME profitability.
Chapter four discusses aspects of the research methodology including research
design, data collection and data analysis methods, and hypothesis testing to support the
model. Objectives of this chapter are: (1) to justify the research methodology of this
study, (2) to explain research methodology used in the study, and (3) to demonstrate how
research design, and data collection and analysis can be utilized in this study to answer
the research questions outlined in the chapter 1.
Data analysis and findings are presented in chapter five. This chapter presents
descriptive findings of financial management practices, financial characteristics and SME
profitability and findings of the research study related to testing the model of SME
profitability. Objectives of this chapter are (1) to systematically present the descriptive
findings of the research study, (2) to interpret significance of these findings based on data
analysis, (3) to present the results of testing the model of SME profitability, and (4) to
explain how the model, developed from a literature review, was supported by data
analysis. Finally, the thesis ends with chapter six where conclusions are summarized and
applications of the research findings are indicated for the financial management
practitioners.
The thesis provides descriptive findings of financial management practices and
financial characteristics and demonstrates the simultaneous impact of financial
management practices and financial characteristics on SME profitability. In addition, the
research study provides a model of SME profitability, in which profitability was found to
be related to financial management practices and financial characteristics. With the
exception of debt ratios, all other variables including current ratio, total asset turnover,
working capital management and short-term planning practices, fixed asset management
and long-term planning practices, and financial and accounting information systems were
found to be significantly related to SME profitability.
With the findings as presented above, this research study provides many
implications for financial management practices and contributes to knowledge of
financial management of SMEs. The model of SME profitability can be used as guidance
for actions to improve the profitability of SMEs in Vietnam.
vi
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiGlossary of terms and abbreviations
AFTA ASEAN Free Trade Agreement
ANOVA Analysis of variance
APEC Asia Pacific Economic Cooperation
ASEAN Association of South East Asian Nations
CED Committee of Economic Development
CF Cash flows
CUR Current ratio
DER Debt ratio
E.q Equation
EBT Earning before tax
EBIT Earning before interest and taxes
EFF Efficiency of financial management practices
EOQ Economic order quantity
FAIS Financial and accounting information system
FALP Fixed asset management and long-term planning practices
FDI Foreign direct investment
FSSB Financial Studies of the Small Business
GDP Gross domestic products
GSO General Statistical Office
IFC International Financial Corporation
IRR Internal rate of return
MIRR Modified internal rate of return
MPDF Mekong Project Development Facilities
NOI Net-operating-income
NPV Net present value
PRO Profitability
RE Retained earnings
ROA Return on assets
viiROE Return on equity
ROI Return on investment
ROS Return on sales
SBA The Small Business Administration (United State of America)
SBV The State Bank of Vietnam
SME Small and medium enterprise
SMENET Small and Medium Enterprise Net
SPSS The Statistical Package for Social Science
TA Total assets
TAT Total asset turnover
UK United Kingdom
USA United States of America
USM Unlisted Securities Market
VCCI Vietnamese Chamber of Commerce and Industry
VIDB Vietnam Investment and Development Bank
VN Vietnam
VND Vietnam dong
Vietcombank Vietnam Bank for Foreign Trade
WTO World Trade Organization
WCSP Working capital management and short-term planning practices
viii
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiTable of Contents
CERTIFICATE.......................................................................................................................................... ii
ACKNOWLEDGEMENTS ....................................................................................................................... iii
ABSTRACT .............................................................................................................................................. v
GLOSSARY OF TERMS AND ABBREVIATIONS ................................................................................ vii
TABLE OF CONTENTS .......................................................................................................................... ix
LIST OF TABLES..................................................................................................................................... xiii
LIST OF FIGURES .................................................................................................................................. xvii
CHAPTER ONE: INTRODUCTION TO THE STUDY
1.1 INTRODUCTION ...................................................................................................................1
1.2 RESEARCH BACKGROUND .................................................................................................3
1.3 RESEARCH PROBLEM .........................................................................................................4
1.3.1 Research questions ...................................................................................................6
1.3.2 Research objectives ..................................................................................................6
1.4 METHODOLOGY....................................................................................................................7
1.5 JUSTIFICATION FOR THE STUDY.......................................................................................8
1.6 DEFINITIONS OF TERMS USED IN THE STUDY ................................................................10
1.7 SIGNIFICANCE AND SCOPE OF THE STUDY ....................................................................13
1.8 ANALYTICAL MODEL FOR THE STUDY..............................................................................13
1.9 STRUCTURE OF THE STUDY ..............................................................................................15
1.10 CONCLUSIONS .......................................................................................................................16
CHAPTER TWO: THE ECONOMIC STRUCTURE AND SMEs IN VIETNAM
2.1 INTRODUCTION ....................................................................................................................17
2.2 VIETNAM: BACKGROUND INFORMATION..........................................................................19
2.2.1 Overview of the country .............................................................................................19
2.2.2 The Vietnam economy...............................................................................................23
2.2.3 The Vietnam population and labour...........................................................................38
2.3 VIETNAM BUSINESS STRUCTURE .....................................................................................40
2.3.1 Types of business in Vietnam....................................................................................41
2.3.2 Overview of enterprises in Vietnam...........................................................................43
2.3.3 Small and medium enterprises in Vietnam ................................................................44
2.3.4 Policies for supporting SMEs.....................................................................................50
ix2.4 SMALL AND MEDIUM ENTERPRISE FINANCE IN VIETNAM .............................................51
2.4.1 Types of finance.........................................................................................................52
2.4.2 Use of finance............................................................................................................53
2.4.3 Financial management for SMEs...............................................................................54
2.4.4 Problems in financial management............................................................................55
2.5 BUSINESS STRUCTURE AND SMEs IN HO CHI MINH CITY .............................................56
2.6 CONCLUSIONS......................................................................................................................58
CHAPTER THREE: FINANCIAL MANAGEMENT AND PROFITABILITY OF
SMEs
3.1 INTRODUCTION ....................................................................................................................59
3.2 DEFINITIONS OF SMEs.........................................................................................................61
3.2.1 Qualitative definitions.................................................................................................61
3.2.2 Quantitative definitions ..............................................................................................64
3.2.3 The forms of ownership of SMEs...............................................................................65
3.3 FINANCIAL MANAGEMENT FOR SMEs...............................................................................67
3.3.1 Defining financial management .................................................................................68
3.3.2 Objectives of financial management..........................................................................69
3.3.3 Major decisions of financial management .................................................................71
3.3.4 The specific areas of financial management .............................................................72
3.4 FINANCIAL MANAGEMENT PRACTICES.............................................................................76
3.4.1 The context of financial management practices ........................................................76
3.4.2 Accounting information systems................................................................................77
3.4.3 Financial reporting and analysis ................................................................................83
3.4.4 Working capital management ....................................................................................89
3.4.5 Fixed asset management ..........................................................................................95
3.4.6 Capital structure management...................................................................................100
3.5 FINANCIAL CHARACTERISTICS OF SMEs .........................................................................104
3.5.1 Identifying financial characteristics ............................................................................104
3.5.2 Measuring financial characteristics............................................................................107
3.5.3 Previous findings related to financial characteristics.................................................111
3.6 SME PROFITABILITY.............................................................................................................119
3.6.1 Importance of profitability...........................................................................................119
3.6.2 Defining and measuring profitability...........................................................................120
3.6.3 Factors influencing profitability ..................................................................................123
3.7 RELATIONSHIPS BETWEEN FINANCIAL MANAGEMENT AND SME PROFITABILITY ....126
3.8 MODEL OF THE IMPACT OF FINANCIAL MANAGEMENT ON SME PROFITABBILITY....128
x
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phi3.9 CONCLUSIONS......................................................................................................................131
CHAPTER FOUR: RESEARCH METHODOLOGY
4.1 INTRODUCTION ....................................................................................................................132
4.2 APPRAISAL OF PRIOR RESEARCH METHODOLOGIES ...................................................134
4.3 RESEARCH DESIGN .............................................................................................................137
4.3.1 Classification of research design...............................................................................137
4.3.2 Selecting research design or paradigm .....................................................................140
4.3.3 Selecting research methods or techniques ...............................................................141
4.4 VARIABLE DEFINITIONS, SURVEY INSTRUMENT AND MODEL DEVELOPMENT..........144
4.4.1 Variable measurements and survey instrument ........................................................144
4.4.2 Model development....................................................................................................162
4.4.3 Hypothesis statements ..............................................................................................165
4.5 DATA COLLECTION METHODS ...........................................................................................168
4.5.1 Secondary data collection..........................................................................................169
4.5.2 Primary data collection ..............................................................................................170
4.6 DATA TRANSFORMATION ..................................................................................................174
4.7 DATA ANALYSIS METHODS.................................................................................................175
4.7.1 General consideration................................................................................................175
4.7.2 Descriptive statistics ..................................................................................................176
4.7.3 Bivariate analysis.......................................................................................................177
4.7.4 Multivariate analysis...................................................................................................178
4.8 CONCLUSIONS......................................................................................................................183
CHAPTER FIVE: DATA ANALYSIS AND FINDINGS
5.1 INTRODUCTION ....................................................................................................................184
5.2 LINKS BETWEEN DATA ANALYSIS AND RESEARCH OBJECTIVES AND QUESTIONS.186
5.3 DESCRIPTIVE FINDINGS OF THE RESEARCH STUDY.....................................................187
5.3.1 Sample descriptions and SME characteristics ..........................................................187
5.3.2 Descriptive findings of financial management practices............................................190
5.3.3 Descriptive findings of financial characteristics .........................................................206
5.3.4 Descriptive findings of profitability of SMEs...............................................................211
5.4 ASSOCIATIVE ANALYSIS AND FINDINGS OF THE RESEARCH STUDY..........................215
5.4.1 Factor analysis and principal components of financial management practices ........216
5.4.2 Bivariate analysis and findings ..................................................................................221
5.4.3 Multiple regression analysis and findings ..................................................................225
xi5.4.4 Test for the difference of average profits between efficient and inefficient financial
management groups of SMEs....................................................................................234
5.5 CONCLUSIONS......................................................................................................................236
CHAPTER SIX: CONCLUSIONS AND IMPLICATIONS
6.1 INTRODUCTION ...................................................................................................................237
6.2 CONCLUSIONS RELATED TO RESEARCH QUESTIONS AND TESTING THE MODEL..239
6.2.1 Conclusions related to financial management practices ...........................................239
6.2.2 Conclusions related to financial characteristics.........................................................247
6.2.3 Conclusions of SME profitability ................................................................................249
6.2.4 Summary of research question answers ...................................................................255
6.3 IMPLICATIONS OF THE RESEARCH STUDY.....................................................................258
6.3.1 Implications for financial management practices of SMEs ........................................258
6.3.2 Contributions to knowledge of this research into financial management for SMEs ..262
6.4 LIMITATIONS OF THE RESEARCH STUDY .......................................................................263
6.5 IMPLICATIONS FOR THE FURTHER RESEARCH.............................................................264
Bibliography......................................................................................................................................266
Appendix 1
Appendix 2
Appendix 3
Appendix 4
xii
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiList of tables
Table Page
2.1 Changes in economic structure, 1986 – 1991 ............................................................27
2.2 State-budget revenue, 1986 – 89................................................................................28
2.3 State-budget revenue, 1991 – 93................................................................................29
2.4 Financial institutions in Vietnam, 1995.....................................................................30
2.5 GDP index by economic sector and rate of inflation.................................................31
2.6 Index of exchange rate of USD/VND........................................................................32
2.7 GDP index by economic industry..............................................................................32
2.8 Agriculture development over the years....................................................................33
2.9 Industry development over the years .........................................................................34
2.10 Export and import value by major countries..............................................................35
2.11 Population by sex and areas.......................................................................................38
2.12 Population growth rates and structure........................................................................39
2.13 Labor force by economic sector.................................................................................39
2.14 Labor force by the state and non-state sector.............................................................40
2.15 Unemployment rate of labour force in 1998..............................................................40
2.16 Number of businesses by economic sector and average capital ................................43
2.17 Number of businesses and employees on July 1, 1995..............................................44
2.18 Definitions of SMEs in Asian countries ....................................................................46
2.19 Number of enterprises in manufacturing industry by scale of employees and total
capital.........................................................................................................................49
2.20 Business operation problems of SMEs in Vietnam ...................................................50
2.21 The kind of SME support programs...........................................................................51
2.22 Some financial characteristics of SMEs in Vietnam..................................................54
2.23 Business structure of SMEs in Ho Chi Minh City.....................................................57
2.24 Size of businesses in Ho Chi Minh City ....................................................................57
3.1 Summary of the quantitative definitions of small business .......................................65
3.2 Forms of SME ownership in the USA .......................................................................65
3.3 Legal status of small firms in the UK ........................................................................66
xiii3.4 Summary of advantages and disadvantages of each form of ownership ...................67
3.5 Responsibility for the bookkeeping and accounting task ..........................................78
3.6 Responsibility for preparation and use of financial information ...............................78
3.7 The results of survey of computer software application............................................79
3.8 The most important applications of computer software ............................................79
3.9 The most important applications of computers..........................................................80
3.10 Percentage of awareness and utilization of costing systems......................................81
3.11 Evaluate the adequacy of accounting records............................................................82
3.12 Accounting information prepared externally or internally ........................................82
3.13 Summary of research areas related to the accounting system practices of SMEs .....83
3.14 Use of financial statement techniques by small manufacturers in Quebec................84
3.15 Responsibility for financial statement interpretation.................................................85
3.16 Proportion of respondents indicating use of selected financial ratios........................86
3.17 Percentage of use of financial ratios ..........................................................................87
3.18 Percentage of preparing accounting information both internally and externally.......88
3.19 Summary of the main research areas related to the financial reporting and analysis 89
3.20 Cash surplus investment practices .............................................................................90
3.21 Instruments of short-term investment used................................................................91
3.22 Awareness and utilization of credit control systems..................................................92
3.23 Methods used by small and large enterprises to determine inventory level ..............92
3.24 Working capital management: Frequency (%) of using or reviewing.......................93
3.25 Summary of working capital management practices.................................................95
3.26 Percentage of firms using capital project selection methods.....................................96
3.27 The extent of use of formal methods of the capital investment evaluation ...............96
3.28 Primary method of investment analysis.....................................................................97
3.29 Percentage use of different methods by small, medium, and large enterprises .........97
3.30 Percentage of kinds of screening rate used to evaluate the capital projects ..............98
3.31 Methods of determining the required rate of return as using discounted cash flow..99
3.32 Summary of fixed asset management practices.........................................................99
3.33 Viewpoint guiding firms’ financing decisions...........................................................102
3.34 Factors influencing percentage of bank debt usage ...................................................103
xiv
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phi3.35 Summary of literature review of financial characteristic variables ...........................106
3.36 Summary of measurement of financial characteristic variables ................................110
3.37 Financial ratios used in the study of Meric and Meric (1997)...................................117
3.38 Comparison of liquid ratios between Korean and USA firms ...................................118
3.39 Summary of measurement of SME profitability........................................................123
4.1 Classification of research designs..............................................................................139
4.2 Summary of advantages and disadvantages of the most typical surveys...................143
4.3 Model classification...................................................................................................163
4.4 Number and percentage of SME sample and population...........................................174
4.5 Summary of multivariate techniques for the analysis of dependence........................181
5.1 Structure of SMEs in the sample by type of industry and form of ownership...........187
5.2 Sample distribution by form of ownership within industry.......................................189
5.3 Business characteristics of SMEs in the sample........................................................189
5.4 Characteristics of accounting system organization....................................................190
5.5 Responsibility – accounting information system.......................................................191
5.6 Using computer in accounting information system ...................................................192
5.7 Kinds of financial statements prepared......................................................................193
5.8 Frequency of preparing and analyzing financial statements......................................193
5.9 Responsibility – preparing and analyzing financial statements.................................194
5.10 Kinds of financial analysis and ratios used................................................................194
5.11 Preparing cash budgets ..............................................................................................196
5.12 Cash balance determination .......................................................................................196
5.13 Cash surplus or shortage ............................................................................................197
5.14 Sales on credit and credit polices...............................................................................198
5.15 Frequency of reviewing receivable levels and bad debts...........................................199
5.16 Percentage of bad debts compared to sales................................................................199
5.17 Frequency of reviewing inventory levels and preparing inventory budgets..............200
5.18 Basis of determining inventory levels and using EOQ Model ..................................201
5.19 Frequency of evaluating investment projects and reviewing efficiency of using
fixed assets after investing.........................................................................................202
5.20 Methods used to evaluate investment projects...........................................................203
xv5.21 Frequency of preparing and reviewing financial budgets..........................................204
5.22 Kinds of financial budgets prepared ..........................................................................204
5.23 Responsibility – preparing financial budgets.............................................................205
5.24 Frequency of comparing between budgeted and actual results .................................205
5.25 Descriptive statistics of financial ratios .....................................................................207
5.26 Test for difference of means of financial ratios between two groups........................208
5.27 Comparison of current ratios .....................................................................................208
5.28 Descriptive findings of SME current ratios ...............................................................209
5.29 Descriptive findings of SME debt ratios....................................................................210
5.30 Descriptive findings of SME activity ratio ................................................................211
5.31 Overview of SME profitability ..................................................................................213
5.32 Relationship between profitability and types of business..........................................213
5.33 Relationship between profitability and business characteristics................................214
5.34 Total variance explained and three principal components of financial management
practices .....................................................................................................................217
5.35 Factor analysis results for measuring financial management practices.....................219
5.36 Three principal components of financial management practices...............................218
5.37 Correlation matrix of PRO, ROS, ROA, and ROE....................................................222
5.38 Correlation matrix of PRO and independent variables..............................................223
5.39 Correlation matrix of ROS and the independent variables ........................................224
5.40 SME profitability regression model using profitability as dependent variable .........226
5.41 Descriptive finding of relationship between profitability and current ratio ..............227
5.42 Relationship between SME profitability and the efficiency of financial
management practices................................................................................................230
5.43 Regression model of SME profitability after removing debt ratio ............................231
5.44 SME profitability regression model using return on sales as dependent variable .....232
5.45 Descriptive statistics of profitability of two groups of SMEs....................................235
5.46 Independent group test of mean profit difference......................................................235
6.1 Summary of conclusions related to financial management practices ........................246
6.2 Summary of conclusions related to financial characteristics of SMES .....................249
6.3 Summary of research questions and answers.............................................................257
xvi
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiList of figures
Figure Page
1.1 Structure of chapter 1.................................................................................................2
1.2 Fields of the research problem...................................................................................5
1.3 Analytical model for the research..............................................................................14
1.4 Structure of the study.................................................................................................15
2.1 Structure of chapter 2.................................................................................................18
2.2 Political structure of Vietnam ....................................................................................23
2.3 Business structure in Vietnam ...................................................................................41
2.4 Breakdown of business by size..................................................................................42
2.5 SME financial management practices and the gap ....................................................56
3.1 Structure of chapter 3.................................................................................................60
3.2 The central position and role of financial management.............................................68
3.3 The relations among objectives of financial management.........................................70
3.4 A model of financial management.............................................................................74
3.5 Interaction between theories and practices of financial management .......................75
3.6 Financial ratios linked to return on equity .................................................................125
3.7 Model of the impact of financial management on SME profitability........................130
4.1 Structure of chapter 4.................................................................................................133
4.2 Survey instrument for measuring accounting information system ............................148
4.3 Survey instrument for measuring financial reporting and analysis ...........................150
4.4 Survey instrument for measuring cash management practices..................................152
4.5 Survey instrument for measuring receivable management practices.........................154
4.6 Survey instrument for measuring inventory management practices..........................156
4.7 Survey instrument for measuring fixed asset management .......................................157
4.8 Survey instrument for measuring financial planning.................................................159
4.9 Analytical model for the research study ....................................................................165
4.10 Structure of SMEs in Vietnam and the target population..........................................171
4.11 A classification of multivariate methods ...................................................................179
xvii5.1 Structure of chapter 5.................................................................................................185
5.2 Distribution of sample by industry ............................................................................188
5.3 Distribution of sample by ownership.........................................................................188
5.4 Relationship between profitability and debt ratio......................................................229
6.1 Structure of chapter 6.................................................................................................238
6.2 The revised model of SEM profitability ....................................................................254
xviii
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiChapter One:
Introduction to the Study
1.1 INTRODUCTION
This chapter provides a general introduction to the research study. The purpose is to
establish foundations for following chapters and the study as a whole, by providing a
general picture of the study. This chapter is structured into ten sections as presented
by figure 1.1 (page 2).
Section 1.1 provides a general introduction to the chapter and section 1.2
examines the research background where the research problem is identified. Section
1.3 defines the research problem, presents a statement of the problem and expands the
research problem in two subsections 1.3.1 and 1.3.2. Subsection 1.3.1 addresses the
research questions that will be respectively answered in chapters of the study.
Subsection 1.3.2 presents research objectives that the study covers in the process of
solving the research problem defined.
Section 1.4 briefly discusses the general aspects of research methodology such
as selecting from alternative types of research and research design, whereas the details
of research methodology will be discussed in chapter 4. Section 1.5 provides some
justifications for the study including the rationale and arguments for the study.
Section 1.6 explains the context of specialized terms used in the study and
section 1.7 points out the significance and scope of the study. Section 1.8 presents the
analytical model of the study fully developed in chapter 3. Section 1.9 describes
overall structure of the thesis, and finally section 1.10 summarizes conclusions drawn
from the research. Figure 1.1 provides a visual representation of the structure of the
chapter.
Pham Van Tra (Minister of Defence)
Nguyen Thi Xuan My
Truong Tan Sang (Head, Economic Commission of the CPV Central Committee)
Le Xuan Tung
Le Minh Huong (Minister of Public Security)
Nguyen Tan Dung (Deputy Prime Minister)
Pham Thanh Ngan
Nguyen Minh Triet (Party Secretary, Ho Chi Minh City)
Phan Dien
Economic Overview
Key Indicators
Population (1998) :78.1 million
Exchange rate (15/3/2000) :7636 dong/A$
GDP per capita (1999) :approx. US$360
GDP growth (1999) :4.8%
Inflation (1999) :0.1%
Total exports (1999) :US$11.523 billion
Total imports (1999) :US$11.636 billion
Current account deficit (1999) :US$113 million
Unemployment (1999 est.) :7.4% (significant variation between urban and rural areas)
Macroeconomic Environment and Reform Prospects
The Vietnamese economy is currently in transition from a centrally planned to a marketbased economy. However, the economy is still largely centrally planned, with state
ownership still the predominant
form of ownership. The
government is committed to state
sector dominance as a key feature
of the Vietnamese economy. This
is effected through measures such
as price controls, production
planning and access to credit.
However, there has been some
development of monetary, fiscal
and trade policy as tools of
economic management within the
context of maintaining a "socialist
economy with a market
orientation". The financial sector
is in poor shape, Moody's ratings agency recently giving Vietnam a B1 rating. Vietnam
has a controlled exchange rate which is allowed to fluctuate within a very narrow band.
While the dong has been gradually depreciating as permitted by this band, it is still
generally regarded to be overvalued.
6
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiThe state owned sector is not only protected from international competition, but
also from the domestic private sector. However, as part of broader efforts to improve the
investment climate for domestic and foreign investors alike, as well as provide
employment opportunities for Vietnamese, the government has recognised the legitimacy
of the private sector and the
inherent disadvantages it faces
vis-a-vis the state owned sector.
The government is undertaking a
privatisation process
(equitisation) to improve the
overall performance of the state
owned sector and allow the
private sector to operate in more
sectors. The Enterprise Law,
passed in 1999, was the first step
in providing a legal platform for
private sector development.
Equitisation has not proceeded as
quickly as the government has expected, in part because many state assets are not
attractive investment options. Key sectors, such as aviation, power supply,
telecommunications and post are among industries which will remain monopolised by
large SOEs, and subject to central planning management mechanisms.
Vietnam has committed to global economic integration through its participation in
AFTA and APEC, its WTO accession negotiations and most recently its signing in July
2000 of the US-Vietnam Bilateral Trade Agreement. However, global integration is a
long-term objective and the Government has recently introduced a number of policies
which appear to contradict the spirit of trade liberalisation. Although actively
encouraging exports, Vietnam is pursuing an import substitution industrialisation policy
which affords disproportionate protection to the predominant state owned sector, and
restricts imports in an ad hoc manner to protect its currency.
Recent Economic Performance
The Vietnamese Government's underlying objective is to achieve stable and high
economic growth and development. Such growth was achieved in the early to mid 1990s,
with real growth averaging 8% annually. However, the combined effects of the stalling
reform process, the regional economic crisis, falling demand, including declining foreign
and domestic investment, have slowed growth. According to official figures, GDP growth
declined from 9.5% and 9.3% in 1995 and 1996 to 4.8% in 1999. The IMF estimated
growth at 3.5% and the World Bank at around 4% in 1999. With an official growth rate
of 6.2% for the first half of 2000 (partly the result of the recently improved value of its
crude oil exports), Vietnam is expected to meet the government's growth target for 2000
of around 6%. The government has attempted to stimulate growth through a combination
of fiscal and monetary policy measures. However, these have yet to prove fruitful. In
1999, unemployment was estimated at 7.4% by the World Bank. This is a major
preoccupation for the Vietnamese government in its efforts to maintain economic and
political stability. The economy does not generate enough jobs to accommodate the
78
annual growth in the labour force. According to the Ministry of Planning and Investment,
total investment in Vietnam grew by 9% in 1999. But investment, as a proportion of GDP
has fallen from 29% in 1997 to 19% in 1999 (World Bank estimate) . Half of this decline
can be attributed to the decline in foreign direct investment (FDI) flows from around
US$2 billion annually between 1995-7 to the IMF's estimate of US$800 million of
realised investment in 1999.
On a sectoral basis, industrial output reached around US$12 billion, an increase of
10.4% over 1998. Overall, the industrial sector remained uncompetitive and was
frustrated by falling demand, reflected by widespread stockpiling. Sub-sectors most
affected were cement, sugar and steel. Of total industrial production, the state sector
accounted for 50% (up from 44.5% in 1998), domestic private sector about 20%,
achieving a growth rate of 8.8%, and the foreign invested sector about 30%, achieving a
growth rate of nearly 20%. The agricultural sector was a bright spot in the economy, with
an official growth rate of 5.3%. However, a simultaneous decline in domestic food prices
by 7.8% led to the actual lowering of farmers' incomes, driving the decline in domestic
demand even further. The consumer price index (CPI) rose by only 0.1% in 1999 and fell
consistently from March to October 1999. Measures to stimulate demand have not been
successful. Statistical data on the services sector is not readily available, but most
commentators agree that economic activity in this sector reflects broader economic
trends. As in most developing countries, the informal service sector masks
underemployment and unemployment to a significant degree.
Vietnam's trade deficit fell to US$113 million from US$2.1345 billion in 1998, a
fall of 95%. Export earnings reached US$11.523 billion, an increase of 23.1%. Notable
export performances included crude oil (mainly due to increased world prices), textiles
and garments, footwear, seafood, electronic appliances and computers, and handicrafts.
The coal, coffee, and tea export sectors contracted. Vietnam's total imports in 1999 were
valued at US$11.636 billion, a slight increase of 0.9% or US$200 million from 1998.
Declining domestic demand and the implementation of import quotas largely limited
import growth. Cotton, textile thread, oil and petroleum, steel, plastic and chemicals were
among the import sectors experiencing slight increases
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Acknowledgements
I owe a debt of gratitude to many people who helped me complete this thesis. I would
like to acknowledge the Giúp of all. First of all I would like to express my deepest
acknowledgement to my supervisor, Professor Geoffrey Grant Meredith from the
Graduate College of Management (SCU), for his valuable advice and recommendations.
I acknowledge Dr. Lyndon Brooks, his assistants from the Graduate Research
College (SCU), and Mr. Tho Dinh Nguyen from the School of Marketing (UTS) for their
support with statistical techniques and data analysis. I also acknowledge Ms. Rosemary
Graham from the International Office (SCU) for her comments on English in earlier
drafts of my thesis.
In the process of data collection for this research, many people contributed to the
task and I am particularly grateful for their contributions. I am greatly indebted to Dr.
Pham Van Nang, Dr. Le Bao Lam, and Dr. Le Thanh Ha from Ho Chi Minh City
University of Economics for their introduction to contacts with the small and medium
enterprises (SMEs) community located in Ho Chi Minh City.
I also wish to thank Mr. Nguyen Trong Hanh, Vice Director of Department of
Taxation, Mr. Du Quang Nam, Vice Director of Statistical Office – Ho Chi Minh City;
and Mr. Tran To Tu, Managing Director of Investment Consulting Corporation for
providing secondary data related to the current practices of SMEs in Vietnam.
I would like to thank the following organizations which supported me in
completing my thesis and degree: the Swiss Agency for Development and Cooperation
(SDC), the Swiss – AIT – Vietnam Management Development Program (SAV), the
Mekong Project Development Facility (MPDF), the Small and Medium Enterprise
Promotion Centre (Vietnam Chamber of Commerce and Industry – VCCI), HCM City
University of Economics, HCM City Statistical Office, HCM City Department of
Investment and Planning, HCM City Department of Taxation. Specially, I would like to
extend my sincere gratitude to the Government of Switzerland and Dr. Hans Stoessel,
Director of SAV for granting the scholarship which enabled me to participate in a
doctoral degree at Southern Cross University, New South Wales, Australia.
iiiI would particularly like to thank the following friends for their support related to
data collection: Mr. Doan Thanh Tuan, Ms. To Ngoc Huong, and Mr. Bui Hai Binh from
Truong Doan Company Limited, Mr. Hoang Trong from Ho Chi Minh City University of
Economics, Mr. Vo Sy Nhan from Ho Chi Minh City Department of Investment and
Planning, and all my students who worked as fieldworkers for data collection.
Finally, to my parents and my wife, I wish to extend my loving thanks for their
encouragement. My greatest debt of gratitude is to my wife, Mrs. Que Thi Tran, who was
patiently waiting me during my study in Australia. This thesis could not have been
written without her daily encouragement.
iv
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiAbstract
After a decade of reforming policy, building and developing the multi-sector market
economy, Small and Medium Enterprises (SMEs) in Vietnam have developed strongly
and contributed to creating employment, increasing GDP, and raising the nation’s volume
of exports. However, SMEs have found difficulties on the way to development due to
lack of management experience and financial resources, and due to uncertainty within the
business environment. As a result, SMEs often faced obstacles during their operations.
This thesis examines the relationship between financial management and profitability of
SMEs to determine whether financial management practices and financial characteristics
impact on SME profitability.
Objectives of the thesis are (1) to investigate and describe features of financial
management practices and financial characteristics of SMEs in Vietnam, (2) to develop
and test a model of SME profitability, and (3) to contribute knowledge of the
relationships between financial management and characteristics to improve SME
profitability by using tools of efficient financial management.
In terms of structure, the thesis has six chapters. The thesis begins by defining the
research problem and questions, and providing a justification for the research study.
Chapter one also reviews the research background, and presents definitions of terms,
significance and scope of the study. Chapter two examines the economic background,
business structure and the development of SMEs in Vietnam. This chapter also reviews
previous research related to financial management for SMEs in Vietnam to identify gaps
between financial management for SMEs in Vietnam and financial management for
SMEs worldwide.
Chapter three reviews financial management including financial management
practices, financial characteristics and profitability of SMEs around the world, especially
in the developed economies such as the United States of America (USA), the United
Kingdom (UK), Australia and Canada. This review emphasizes profitability and the
impact of financial management practices and financial characteristics on SME
profitability. Objectives of this chapter are to review previous research related to the
areas of financial management practices, financial characteristics, and profitability of
vSMEs and to build a model of the impact of financial management practices and financial
characteristics on SME profitability.
Chapter four discusses aspects of the research methodology including research
design, data collection and data analysis methods, and hypothesis testing to support the
model. Objectives of this chapter are: (1) to justify the research methodology of this
study, (2) to explain research methodology used in the study, and (3) to demonstrate how
research design, and data collection and analysis can be utilized in this study to answer
the research questions outlined in the chapter 1.
Data analysis and findings are presented in chapter five. This chapter presents
descriptive findings of financial management practices, financial characteristics and SME
profitability and findings of the research study related to testing the model of SME
profitability. Objectives of this chapter are (1) to systematically present the descriptive
findings of the research study, (2) to interpret significance of these findings based on data
analysis, (3) to present the results of testing the model of SME profitability, and (4) to
explain how the model, developed from a literature review, was supported by data
analysis. Finally, the thesis ends with chapter six where conclusions are summarized and
applications of the research findings are indicated for the financial management
practitioners.
The thesis provides descriptive findings of financial management practices and
financial characteristics and demonstrates the simultaneous impact of financial
management practices and financial characteristics on SME profitability. In addition, the
research study provides a model of SME profitability, in which profitability was found to
be related to financial management practices and financial characteristics. With the
exception of debt ratios, all other variables including current ratio, total asset turnover,
working capital management and short-term planning practices, fixed asset management
and long-term planning practices, and financial and accounting information systems were
found to be significantly related to SME profitability.
With the findings as presented above, this research study provides many
implications for financial management practices and contributes to knowledge of
financial management of SMEs. The model of SME profitability can be used as guidance
for actions to improve the profitability of SMEs in Vietnam.
vi
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiGlossary of terms and abbreviations
AFTA ASEAN Free Trade Agreement
ANOVA Analysis of variance
APEC Asia Pacific Economic Cooperation
ASEAN Association of South East Asian Nations
CED Committee of Economic Development
CF Cash flows
CUR Current ratio
DER Debt ratio
E.q Equation
EBT Earning before tax
EBIT Earning before interest and taxes
EFF Efficiency of financial management practices
EOQ Economic order quantity
FAIS Financial and accounting information system
FALP Fixed asset management and long-term planning practices
FDI Foreign direct investment
FSSB Financial Studies of the Small Business
GDP Gross domestic products
GSO General Statistical Office
IFC International Financial Corporation
IRR Internal rate of return
MIRR Modified internal rate of return
MPDF Mekong Project Development Facilities
NOI Net-operating-income
NPV Net present value
PRO Profitability
RE Retained earnings
ROA Return on assets
viiROE Return on equity
ROI Return on investment
ROS Return on sales
SBA The Small Business Administration (United State of America)
SBV The State Bank of Vietnam
SME Small and medium enterprise
SMENET Small and Medium Enterprise Net
SPSS The Statistical Package for Social Science
TA Total assets
TAT Total asset turnover
UK United Kingdom
USA United States of America
USM Unlisted Securities Market
VCCI Vietnamese Chamber of Commerce and Industry
VIDB Vietnam Investment and Development Bank
VN Vietnam
VND Vietnam dong
Vietcombank Vietnam Bank for Foreign Trade
WTO World Trade Organization
WCSP Working capital management and short-term planning practices
viii
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiTable of Contents
CERTIFICATE.......................................................................................................................................... ii
ACKNOWLEDGEMENTS ....................................................................................................................... iii
ABSTRACT .............................................................................................................................................. v
GLOSSARY OF TERMS AND ABBREVIATIONS ................................................................................ vii
TABLE OF CONTENTS .......................................................................................................................... ix
LIST OF TABLES..................................................................................................................................... xiii
LIST OF FIGURES .................................................................................................................................. xvii
CHAPTER ONE: INTRODUCTION TO THE STUDY
1.1 INTRODUCTION ...................................................................................................................1
1.2 RESEARCH BACKGROUND .................................................................................................3
1.3 RESEARCH PROBLEM .........................................................................................................4
1.3.1 Research questions ...................................................................................................6
1.3.2 Research objectives ..................................................................................................6
1.4 METHODOLOGY....................................................................................................................7
1.5 JUSTIFICATION FOR THE STUDY.......................................................................................8
1.6 DEFINITIONS OF TERMS USED IN THE STUDY ................................................................10
1.7 SIGNIFICANCE AND SCOPE OF THE STUDY ....................................................................13
1.8 ANALYTICAL MODEL FOR THE STUDY..............................................................................13
1.9 STRUCTURE OF THE STUDY ..............................................................................................15
1.10 CONCLUSIONS .......................................................................................................................16
CHAPTER TWO: THE ECONOMIC STRUCTURE AND SMEs IN VIETNAM
2.1 INTRODUCTION ....................................................................................................................17
2.2 VIETNAM: BACKGROUND INFORMATION..........................................................................19
2.2.1 Overview of the country .............................................................................................19
2.2.2 The Vietnam economy...............................................................................................23
2.2.3 The Vietnam population and labour...........................................................................38
2.3 VIETNAM BUSINESS STRUCTURE .....................................................................................40
2.3.1 Types of business in Vietnam....................................................................................41
2.3.2 Overview of enterprises in Vietnam...........................................................................43
2.3.3 Small and medium enterprises in Vietnam ................................................................44
2.3.4 Policies for supporting SMEs.....................................................................................50
ix2.4 SMALL AND MEDIUM ENTERPRISE FINANCE IN VIETNAM .............................................51
2.4.1 Types of finance.........................................................................................................52
2.4.2 Use of finance............................................................................................................53
2.4.3 Financial management for SMEs...............................................................................54
2.4.4 Problems in financial management............................................................................55
2.5 BUSINESS STRUCTURE AND SMEs IN HO CHI MINH CITY .............................................56
2.6 CONCLUSIONS......................................................................................................................58
CHAPTER THREE: FINANCIAL MANAGEMENT AND PROFITABILITY OF
SMEs
3.1 INTRODUCTION ....................................................................................................................59
3.2 DEFINITIONS OF SMEs.........................................................................................................61
3.2.1 Qualitative definitions.................................................................................................61
3.2.2 Quantitative definitions ..............................................................................................64
3.2.3 The forms of ownership of SMEs...............................................................................65
3.3 FINANCIAL MANAGEMENT FOR SMEs...............................................................................67
3.3.1 Defining financial management .................................................................................68
3.3.2 Objectives of financial management..........................................................................69
3.3.3 Major decisions of financial management .................................................................71
3.3.4 The specific areas of financial management .............................................................72
3.4 FINANCIAL MANAGEMENT PRACTICES.............................................................................76
3.4.1 The context of financial management practices ........................................................76
3.4.2 Accounting information systems................................................................................77
3.4.3 Financial reporting and analysis ................................................................................83
3.4.4 Working capital management ....................................................................................89
3.4.5 Fixed asset management ..........................................................................................95
3.4.6 Capital structure management...................................................................................100
3.5 FINANCIAL CHARACTERISTICS OF SMEs .........................................................................104
3.5.1 Identifying financial characteristics ............................................................................104
3.5.2 Measuring financial characteristics............................................................................107
3.5.3 Previous findings related to financial characteristics.................................................111
3.6 SME PROFITABILITY.............................................................................................................119
3.6.1 Importance of profitability...........................................................................................119
3.6.2 Defining and measuring profitability...........................................................................120
3.6.3 Factors influencing profitability ..................................................................................123
3.7 RELATIONSHIPS BETWEEN FINANCIAL MANAGEMENT AND SME PROFITABILITY ....126
3.8 MODEL OF THE IMPACT OF FINANCIAL MANAGEMENT ON SME PROFITABBILITY....128
x
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phi3.9 CONCLUSIONS......................................................................................................................131
CHAPTER FOUR: RESEARCH METHODOLOGY
4.1 INTRODUCTION ....................................................................................................................132
4.2 APPRAISAL OF PRIOR RESEARCH METHODOLOGIES ...................................................134
4.3 RESEARCH DESIGN .............................................................................................................137
4.3.1 Classification of research design...............................................................................137
4.3.2 Selecting research design or paradigm .....................................................................140
4.3.3 Selecting research methods or techniques ...............................................................141
4.4 VARIABLE DEFINITIONS, SURVEY INSTRUMENT AND MODEL DEVELOPMENT..........144
4.4.1 Variable measurements and survey instrument ........................................................144
4.4.2 Model development....................................................................................................162
4.4.3 Hypothesis statements ..............................................................................................165
4.5 DATA COLLECTION METHODS ...........................................................................................168
4.5.1 Secondary data collection..........................................................................................169
4.5.2 Primary data collection ..............................................................................................170
4.6 DATA TRANSFORMATION ..................................................................................................174
4.7 DATA ANALYSIS METHODS.................................................................................................175
4.7.1 General consideration................................................................................................175
4.7.2 Descriptive statistics ..................................................................................................176
4.7.3 Bivariate analysis.......................................................................................................177
4.7.4 Multivariate analysis...................................................................................................178
4.8 CONCLUSIONS......................................................................................................................183
CHAPTER FIVE: DATA ANALYSIS AND FINDINGS
5.1 INTRODUCTION ....................................................................................................................184
5.2 LINKS BETWEEN DATA ANALYSIS AND RESEARCH OBJECTIVES AND QUESTIONS.186
5.3 DESCRIPTIVE FINDINGS OF THE RESEARCH STUDY.....................................................187
5.3.1 Sample descriptions and SME characteristics ..........................................................187
5.3.2 Descriptive findings of financial management practices............................................190
5.3.3 Descriptive findings of financial characteristics .........................................................206
5.3.4 Descriptive findings of profitability of SMEs...............................................................211
5.4 ASSOCIATIVE ANALYSIS AND FINDINGS OF THE RESEARCH STUDY..........................215
5.4.1 Factor analysis and principal components of financial management practices ........216
5.4.2 Bivariate analysis and findings ..................................................................................221
5.4.3 Multiple regression analysis and findings ..................................................................225
xi5.4.4 Test for the difference of average profits between efficient and inefficient financial
management groups of SMEs....................................................................................234
5.5 CONCLUSIONS......................................................................................................................236
CHAPTER SIX: CONCLUSIONS AND IMPLICATIONS
6.1 INTRODUCTION ...................................................................................................................237
6.2 CONCLUSIONS RELATED TO RESEARCH QUESTIONS AND TESTING THE MODEL..239
6.2.1 Conclusions related to financial management practices ...........................................239
6.2.2 Conclusions related to financial characteristics.........................................................247
6.2.3 Conclusions of SME profitability ................................................................................249
6.2.4 Summary of research question answers ...................................................................255
6.3 IMPLICATIONS OF THE RESEARCH STUDY.....................................................................258
6.3.1 Implications for financial management practices of SMEs ........................................258
6.3.2 Contributions to knowledge of this research into financial management for SMEs ..262
6.4 LIMITATIONS OF THE RESEARCH STUDY .......................................................................263
6.5 IMPLICATIONS FOR THE FURTHER RESEARCH.............................................................264
Bibliography......................................................................................................................................266
Appendix 1
Appendix 2
Appendix 3
Appendix 4
xii
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiList of tables
Table Page
2.1 Changes in economic structure, 1986 – 1991 ............................................................27
2.2 State-budget revenue, 1986 – 89................................................................................28
2.3 State-budget revenue, 1991 – 93................................................................................29
2.4 Financial institutions in Vietnam, 1995.....................................................................30
2.5 GDP index by economic sector and rate of inflation.................................................31
2.6 Index of exchange rate of USD/VND........................................................................32
2.7 GDP index by economic industry..............................................................................32
2.8 Agriculture development over the years....................................................................33
2.9 Industry development over the years .........................................................................34
2.10 Export and import value by major countries..............................................................35
2.11 Population by sex and areas.......................................................................................38
2.12 Population growth rates and structure........................................................................39
2.13 Labor force by economic sector.................................................................................39
2.14 Labor force by the state and non-state sector.............................................................40
2.15 Unemployment rate of labour force in 1998..............................................................40
2.16 Number of businesses by economic sector and average capital ................................43
2.17 Number of businesses and employees on July 1, 1995..............................................44
2.18 Definitions of SMEs in Asian countries ....................................................................46
2.19 Number of enterprises in manufacturing industry by scale of employees and total
capital.........................................................................................................................49
2.20 Business operation problems of SMEs in Vietnam ...................................................50
2.21 The kind of SME support programs...........................................................................51
2.22 Some financial characteristics of SMEs in Vietnam..................................................54
2.23 Business structure of SMEs in Ho Chi Minh City.....................................................57
2.24 Size of businesses in Ho Chi Minh City ....................................................................57
3.1 Summary of the quantitative definitions of small business .......................................65
3.2 Forms of SME ownership in the USA .......................................................................65
3.3 Legal status of small firms in the UK ........................................................................66
xiii3.4 Summary of advantages and disadvantages of each form of ownership ...................67
3.5 Responsibility for the bookkeeping and accounting task ..........................................78
3.6 Responsibility for preparation and use of financial information ...............................78
3.7 The results of survey of computer software application............................................79
3.8 The most important applications of computer software ............................................79
3.9 The most important applications of computers..........................................................80
3.10 Percentage of awareness and utilization of costing systems......................................81
3.11 Evaluate the adequacy of accounting records............................................................82
3.12 Accounting information prepared externally or internally ........................................82
3.13 Summary of research areas related to the accounting system practices of SMEs .....83
3.14 Use of financial statement techniques by small manufacturers in Quebec................84
3.15 Responsibility for financial statement interpretation.................................................85
3.16 Proportion of respondents indicating use of selected financial ratios........................86
3.17 Percentage of use of financial ratios ..........................................................................87
3.18 Percentage of preparing accounting information both internally and externally.......88
3.19 Summary of the main research areas related to the financial reporting and analysis 89
3.20 Cash surplus investment practices .............................................................................90
3.21 Instruments of short-term investment used................................................................91
3.22 Awareness and utilization of credit control systems..................................................92
3.23 Methods used by small and large enterprises to determine inventory level ..............92
3.24 Working capital management: Frequency (%) of using or reviewing.......................93
3.25 Summary of working capital management practices.................................................95
3.26 Percentage of firms using capital project selection methods.....................................96
3.27 The extent of use of formal methods of the capital investment evaluation ...............96
3.28 Primary method of investment analysis.....................................................................97
3.29 Percentage use of different methods by small, medium, and large enterprises .........97
3.30 Percentage of kinds of screening rate used to evaluate the capital projects ..............98
3.31 Methods of determining the required rate of return as using discounted cash flow..99
3.32 Summary of fixed asset management practices.........................................................99
3.33 Viewpoint guiding firms’ financing decisions...........................................................102
3.34 Factors influencing percentage of bank debt usage ...................................................103
xiv
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phi3.35 Summary of literature review of financial characteristic variables ...........................106
3.36 Summary of measurement of financial characteristic variables ................................110
3.37 Financial ratios used in the study of Meric and Meric (1997)...................................117
3.38 Comparison of liquid ratios between Korean and USA firms ...................................118
3.39 Summary of measurement of SME profitability........................................................123
4.1 Classification of research designs..............................................................................139
4.2 Summary of advantages and disadvantages of the most typical surveys...................143
4.3 Model classification...................................................................................................163
4.4 Number and percentage of SME sample and population...........................................174
4.5 Summary of multivariate techniques for the analysis of dependence........................181
5.1 Structure of SMEs in the sample by type of industry and form of ownership...........187
5.2 Sample distribution by form of ownership within industry.......................................189
5.3 Business characteristics of SMEs in the sample........................................................189
5.4 Characteristics of accounting system organization....................................................190
5.5 Responsibility – accounting information system.......................................................191
5.6 Using computer in accounting information system ...................................................192
5.7 Kinds of financial statements prepared......................................................................193
5.8 Frequency of preparing and analyzing financial statements......................................193
5.9 Responsibility – preparing and analyzing financial statements.................................194
5.10 Kinds of financial analysis and ratios used................................................................194
5.11 Preparing cash budgets ..............................................................................................196
5.12 Cash balance determination .......................................................................................196
5.13 Cash surplus or shortage ............................................................................................197
5.14 Sales on credit and credit polices...............................................................................198
5.15 Frequency of reviewing receivable levels and bad debts...........................................199
5.16 Percentage of bad debts compared to sales................................................................199
5.17 Frequency of reviewing inventory levels and preparing inventory budgets..............200
5.18 Basis of determining inventory levels and using EOQ Model ..................................201
5.19 Frequency of evaluating investment projects and reviewing efficiency of using
fixed assets after investing.........................................................................................202
5.20 Methods used to evaluate investment projects...........................................................203
xv5.21 Frequency of preparing and reviewing financial budgets..........................................204
5.22 Kinds of financial budgets prepared ..........................................................................204
5.23 Responsibility – preparing financial budgets.............................................................205
5.24 Frequency of comparing between budgeted and actual results .................................205
5.25 Descriptive statistics of financial ratios .....................................................................207
5.26 Test for difference of means of financial ratios between two groups........................208
5.27 Comparison of current ratios .....................................................................................208
5.28 Descriptive findings of SME current ratios ...............................................................209
5.29 Descriptive findings of SME debt ratios....................................................................210
5.30 Descriptive findings of SME activity ratio ................................................................211
5.31 Overview of SME profitability ..................................................................................213
5.32 Relationship between profitability and types of business..........................................213
5.33 Relationship between profitability and business characteristics................................214
5.34 Total variance explained and three principal components of financial management
practices .....................................................................................................................217
5.35 Factor analysis results for measuring financial management practices.....................219
5.36 Three principal components of financial management practices...............................218
5.37 Correlation matrix of PRO, ROS, ROA, and ROE....................................................222
5.38 Correlation matrix of PRO and independent variables..............................................223
5.39 Correlation matrix of ROS and the independent variables ........................................224
5.40 SME profitability regression model using profitability as dependent variable .........226
5.41 Descriptive finding of relationship between profitability and current ratio ..............227
5.42 Relationship between SME profitability and the efficiency of financial
management practices................................................................................................230
5.43 Regression model of SME profitability after removing debt ratio ............................231
5.44 SME profitability regression model using return on sales as dependent variable .....232
5.45 Descriptive statistics of profitability of two groups of SMEs....................................235
5.46 Independent group test of mean profit difference......................................................235
6.1 Summary of conclusions related to financial management practices ........................246
6.2 Summary of conclusions related to financial characteristics of SMES .....................249
6.3 Summary of research questions and answers.............................................................257
xvi
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiList of figures
Figure Page
1.1 Structure of chapter 1.................................................................................................2
1.2 Fields of the research problem...................................................................................5
1.3 Analytical model for the research..............................................................................14
1.4 Structure of the study.................................................................................................15
2.1 Structure of chapter 2.................................................................................................18
2.2 Political structure of Vietnam ....................................................................................23
2.3 Business structure in Vietnam ...................................................................................41
2.4 Breakdown of business by size..................................................................................42
2.5 SME financial management practices and the gap ....................................................56
3.1 Structure of chapter 3.................................................................................................60
3.2 The central position and role of financial management.............................................68
3.3 The relations among objectives of financial management.........................................70
3.4 A model of financial management.............................................................................74
3.5 Interaction between theories and practices of financial management .......................75
3.6 Financial ratios linked to return on equity .................................................................125
3.7 Model of the impact of financial management on SME profitability........................130
4.1 Structure of chapter 4.................................................................................................133
4.2 Survey instrument for measuring accounting information system ............................148
4.3 Survey instrument for measuring financial reporting and analysis ...........................150
4.4 Survey instrument for measuring cash management practices..................................152
4.5 Survey instrument for measuring receivable management practices.........................154
4.6 Survey instrument for measuring inventory management practices..........................156
4.7 Survey instrument for measuring fixed asset management .......................................157
4.8 Survey instrument for measuring financial planning.................................................159
4.9 Analytical model for the research study ....................................................................165
4.10 Structure of SMEs in Vietnam and the target population..........................................171
4.11 A classification of multivariate methods ...................................................................179
xvii5.1 Structure of chapter 5.................................................................................................185
5.2 Distribution of sample by industry ............................................................................188
5.3 Distribution of sample by ownership.........................................................................188
5.4 Relationship between profitability and debt ratio......................................................229
6.1 Structure of chapter 6.................................................................................................238
6.2 The revised model of SEM profitability ....................................................................254
xviii
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiChapter One:
Introduction to the Study
1.1 INTRODUCTION
This chapter provides a general introduction to the research study. The purpose is to
establish foundations for following chapters and the study as a whole, by providing a
general picture of the study. This chapter is structured into ten sections as presented
by figure 1.1 (page 2).
Section 1.1 provides a general introduction to the chapter and section 1.2
examines the research background where the research problem is identified. Section
1.3 defines the research problem, presents a statement of the problem and expands the
research problem in two subsections 1.3.1 and 1.3.2. Subsection 1.3.1 addresses the
research questions that will be respectively answered in chapters of the study.
Subsection 1.3.2 presents research objectives that the study covers in the process of
solving the research problem defined.
Section 1.4 briefly discusses the general aspects of research methodology such
as selecting from alternative types of research and research design, whereas the details
of research methodology will be discussed in chapter 4. Section 1.5 provides some
justifications for the study including the rationale and arguments for the study.
Section 1.6 explains the context of specialized terms used in the study and
section 1.7 points out the significance and scope of the study. Section 1.8 presents the
analytical model of the study fully developed in chapter 3. Section 1.9 describes
overall structure of the thesis, and finally section 1.10 summarizes conclusions drawn
from the research. Figure 1.1 provides a visual representation of the structure of the
chapter.
Pham Van Tra (Minister of Defence)
Nguyen Thi Xuan My
Truong Tan Sang (Head, Economic Commission of the CPV Central Committee)
Le Xuan Tung
Le Minh Huong (Minister of Public Security)
Nguyen Tan Dung (Deputy Prime Minister)
Pham Thanh Ngan
Nguyen Minh Triet (Party Secretary, Ho Chi Minh City)
Phan Dien
Economic Overview
Key Indicators
Population (1998) :78.1 million
Exchange rate (15/3/2000) :7636 dong/A$
GDP per capita (1999) :approx. US$360
GDP growth (1999) :4.8%
Inflation (1999) :0.1%
Total exports (1999) :US$11.523 billion
Total imports (1999) :US$11.636 billion
Current account deficit (1999) :US$113 million
Unemployment (1999 est.) :7.4% (significant variation between urban and rural areas)
Macroeconomic Environment and Reform Prospects
The Vietnamese economy is currently in transition from a centrally planned to a marketbased economy. However, the economy is still largely centrally planned, with state
ownership still the predominant
form of ownership. The
government is committed to state
sector dominance as a key feature
of the Vietnamese economy. This
is effected through measures such
as price controls, production
planning and access to credit.
However, there has been some
development of monetary, fiscal
and trade policy as tools of
economic management within the
context of maintaining a "socialist
economy with a market
orientation". The financial sector
is in poor shape, Moody's ratings agency recently giving Vietnam a B1 rating. Vietnam
has a controlled exchange rate which is allowed to fluctuate within a very narrow band.
While the dong has been gradually depreciating as permitted by this band, it is still
generally regarded to be overvalued.
6
Ket-noi.com kho tai lieu mien phi Ket-noi.com kho tai lieu mien phiThe state owned sector is not only protected from international competition, but
also from the domestic private sector. However, as part of broader efforts to improve the
investment climate for domestic and foreign investors alike, as well as provide
employment opportunities for Vietnamese, the government has recognised the legitimacy
of the private sector and the
inherent disadvantages it faces
vis-a-vis the state owned sector.
The government is undertaking a
privatisation process
(equitisation) to improve the
overall performance of the state
owned sector and allow the
private sector to operate in more
sectors. The Enterprise Law,
passed in 1999, was the first step
in providing a legal platform for
private sector development.
Equitisation has not proceeded as
quickly as the government has expected, in part because many state assets are not
attractive investment options. Key sectors, such as aviation, power supply,
telecommunications and post are among industries which will remain monopolised by
large SOEs, and subject to central planning management mechanisms.
Vietnam has committed to global economic integration through its participation in
AFTA and APEC, its WTO accession negotiations and most recently its signing in July
2000 of the US-Vietnam Bilateral Trade Agreement. However, global integration is a
long-term objective and the Government has recently introduced a number of policies
which appear to contradict the spirit of trade liberalisation. Although actively
encouraging exports, Vietnam is pursuing an import substitution industrialisation policy
which affords disproportionate protection to the predominant state owned sector, and
restricts imports in an ad hoc manner to protect its currency.
Recent Economic Performance
The Vietnamese Government's underlying objective is to achieve stable and high
economic growth and development. Such growth was achieved in the early to mid 1990s,
with real growth averaging 8% annually. However, the combined effects of the stalling
reform process, the regional economic crisis, falling demand, including declining foreign
and domestic investment, have slowed growth. According to official figures, GDP growth
declined from 9.5% and 9.3% in 1995 and 1996 to 4.8% in 1999. The IMF estimated
growth at 3.5% and the World Bank at around 4% in 1999. With an official growth rate
of 6.2% for the first half of 2000 (partly the result of the recently improved value of its
crude oil exports), Vietnam is expected to meet the government's growth target for 2000
of around 6%. The government has attempted to stimulate growth through a combination
of fiscal and monetary policy measures. However, these have yet to prove fruitful. In
1999, unemployment was estimated at 7.4% by the World Bank. This is a major
preoccupation for the Vietnamese government in its efforts to maintain economic and
political stability. The economy does not generate enough jobs to accommodate the
78
annual growth in the labour force. According to the Ministry of Planning and Investment,
total investment in Vietnam grew by 9% in 1999. But investment, as a proportion of GDP
has fallen from 29% in 1997 to 19% in 1999 (World Bank estimate) . Half of this decline
can be attributed to the decline in foreign direct investment (FDI) flows from around
US$2 billion annually between 1995-7 to the IMF's estimate of US$800 million of
realised investment in 1999.
On a sectoral basis, industrial output reached around US$12 billion, an increase of
10.4% over 1998. Overall, the industrial sector remained uncompetitive and was
frustrated by falling demand, reflected by widespread stockpiling. Sub-sectors most
affected were cement, sugar and steel. Of total industrial production, the state sector
accounted for 50% (up from 44.5% in 1998), domestic private sector about 20%,
achieving a growth rate of 8.8%, and the foreign invested sector about 30%, achieving a
growth rate of nearly 20%. The agricultural sector was a bright spot in the economy, with
an official growth rate of 5.3%. However, a simultaneous decline in domestic food prices
by 7.8% led to the actual lowering of farmers' incomes, driving the decline in domestic
demand even further. The consumer price index (CPI) rose by only 0.1% in 1999 and fell
consistently from March to October 1999. Measures to stimulate demand have not been
successful. Statistical data on the services sector is not readily available, but most
commentators agree that economic activity in this sector reflects broader economic
trends. As in most developing countries, the informal service sector masks
underemployment and unemployment to a significant degree.
Vietnam's trade deficit fell to US$113 million from US$2.1345 billion in 1998, a
fall of 95%. Export earnings reached US$11.523 billion, an increase of 23.1%. Notable
export performances included crude oil (mainly due to increased world prices), textiles
and garments, footwear, seafood, electronic appliances and computers, and handicrafts.
The coal, coffee, and tea export sectors contracted. Vietnam's total imports in 1999 were
valued at US$11.636 billion, a slight increase of 0.9% or US$200 million from 1998.
Declining domestic demand and the implementation of import quotas largely limited
import growth. Cotton, textile thread, oil and petroleum, steel, plastic and chemicals were
among the import sectors experiencing slight increases
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