Given the current business conditions in Vietnam that are measured by three different datasets Provincial Competitiveness Index, Worldwide Governance Indicator, and Doing Business, the e
Introduction
The quality of institutions and governance significantly influences the business environment, affecting firm performance and growth (Shawn and Tran, 2017) Companies in challenging environments face increased administrative burdens, stringent regulations, and financial constraints (Beck et al., 2005; Dollar et al., 2005) These challenges can lead to a misallocation of resources, hindering development and diminishing overall performance Conversely, a robust business environment with effective policies, solid infrastructure, and optimal resource allocation promotes better firm performance and growth Therefore, understanding the conditions under which firms operate is crucial for analyzing the drivers of economic growth.
In developing countries like Vietnam, the institutional environment is often underdeveloped, significantly impacting the business landscape While market systems partially influence this environment, government actions predominantly shape it Consequently, unclear regulations and weak formal institutions create uncertainties that can hinder the growth of the private sector.
Research on the impact of the business environment on firm performance is expanding, yet there is a notable lack of studies focusing on this relationship in developing countries like Vietnam This article utilizes a firm-level database to explore these dynamics further.
In a study involving 54 predominantly developed nations, Beck et al (2005) highlighted that legal and corruption barriers, such as the prevalence of bribes, the time required to engage with regulators, and the corruption among bank officials, negatively impacted firm growth Similarly, Farole et al (2017) examined the ease of doing business in various European countries, focusing on critical aspects like starting a business, obtaining construction permits, registering property, and enforcing contracts within the regional business environment.
Three studies reveal significant insights into the connection between the business environment and firm performance While the authors typically concentrate on specific elements of the business environment, they often overlook the use of a comprehensive range of measurements.
Research in Vietnam indicates that improving the business environment—by reducing corruption, land expropriation risks, and entry regulations—can enhance firm productivity (Shawn and Tran, 2017) However, McCulloch et al (2013) found that changes in the business environment generally have little effect on firm investments, except for transparency While existing studies focus on the local business environment's influence on productivity and investment, they often overlook its impact on financial performance Additionally, most research relies on the Provincial Competitiveness Index to assess the business environment, which, while informative regarding economic governance and administrative procedures, fails to provide a complete view by neglecting certain institutional factors.
Research indicates that the impact of business conditions can differ significantly among firms based on size and region However, there is limited literature focusing on the role of CEOs in today's business landscape Some studies suggest that domestic CEOs enhance firm performance due to their deeper understanding of the local market Additionally, while CEO experience is crucial for effective management and networking, the connection between CEO experience and firm performance within varying business environments is frequently overlooked.
This research enhances existing literature by exploring the influence of CEO experience on business performance in Vietnam's current economic landscape It posits that CEOs with extensive experience possess valuable insights and skills essential for effective firm management By focusing on the interplay between CEO experience and the business environment, the study aims to highlight the CEO's crucial role in leveraging favorable conditions to boost firm performance Additionally, it utilizes three comprehensive datasets—Provincial Competitiveness Index, Worldwide Governance Indicator, and Doing Business—to deepen the understanding of how both provincial and national business environments impact firm performance.
This research examines the performance of 291 listed companies in Vietnam from 2014 to 2018, utilizing a unique panel dataset that evaluates various dimensions of the business environment Through firm and year fixed-effects regression analysis with clustered robust standard error adjustments, the study finds that the current business environment in Vietnam negatively impacts firm growth However, an interesting contrast emerges when considering the interaction between the business environment and firm management; firms led by experienced CEOs can leverage the challenging conditions to enhance their performance This advantage is attributed to the management skills and social networks that seasoned CEOs possess, which are crucial for driving firm development.
This paper is structured as follows: the subsequent section reviews existing literature on the topic, followed by a description of data and variables in Section 3 Methodology and model specifications are outlined in Section 4, while Section 5 presents the results and analysis Finally, Section 6 concludes the paper.
Theoretical framework and literature review
Business environment
The business environment encompasses all internal and external factors that influence an enterprise's operations According to Jaunch and Glueck (1988), it consists of multiple layers, with the internal layer including controllable elements like capital, labor, and equipment, while the external layer comprises uncontrollable factors at the industry, country, and regional levels To thrive, businesses must adapt their internal components to leverage opportunities and address challenges presented by the external environment.
The business environment is primarily defined as a collection of external factors that significantly impact enterprises According to Wood (2000), these factors encompass social, technological, economic, and political elements (STEP) These influences are beyond the control of businesses and play a crucial role in their operations Expanding on Wood's definition, other scholars categorize these environmental factors into five groups: social, technological, economic, environmental, and political (STEEP) (Cartwright, 2002; Campbell et al., 2011).
Among a variety of papers studying the business environment, Stern’s argument
The concept of "business environment," as defined by Stern in 2002, encompasses the policy, institutional, and behavioral factors that impact investment returns and risks This definition highlights the significance of both current and anticipated conditions that shape the business landscape, making it a crucial aspect for investors to consider.
The performance of firms is influenced by three key aspects: macroeconomic factors, governance, and infrastructure Macroeconomic elements, including fiscal, monetary, and exchange rate policies, significantly impact firm profitability; for example, high tax rates can diminish net income and profit margins Governance, particularly the transparency of economic institutions and political stability, plays a crucial role in firm performance, as a lack of transparency can lead to corruption and unequal resource distribution, hindering business growth Lastly, basic infrastructure—such as power supply, transportation, and telecommunications—is essential; frequent power outages can disrupt operations, resulting in delayed orders and customer loss.
This research explores the relationship between business environment and firm performance by focusing on institutional quality, governance policies and regulations, and infrastructure, as outlined in Stern's perspective (2002) These critical aspects highlight the key environmental factors that affect business operations at the country level while also addressing the firm-level implications of institutions, laws, and regulations.
The impact of business environment on firm performance
The business environment significantly influences economic strength by affecting firm performance A negative business environment, marked by high corruption, stringent regulations, and uncertainty regarding taxation and licensing, leads to subpar economic outcomes.
A favorable business environment characterized by bureaucratic efficiency, low corruption, and minimal informal charges positively influences economic performance (Pagés, 2006; Rajan and Zingales, 1998; Choi et al., 2015; Shawn and Tran, 2017) However, some researchers argue that the business environment's impact on firm performance may be limited, citing methodological challenges in measuring it accurately, which can result in biased estimates due to issues like variable errors, omitted variables, and endogeneity (Commander et al., 2008; Commander and Svejnar, 2011).
Overall, previous researches about the business environment can be divided into three strands, including country, industry and firm levels
Research indicates that various indicators of the business environment significantly impact a country's overall outcomes Studies have examined factors such as governance, regulatory constraints, competitiveness, transparency, bureaucratic quality, corruption, law and order, the strength of the legal system, and economic freedom While these aggregate studies often explore the relationship between business environment features and macroeconomic performance, they typically do not establish causal effects Additionally, these studies face methodological challenges, including omitted variable bias and endogeneity issues.
Industry-level studies indicate that the business environment significantly influences industry performance Rajan and Zingales (1998) found that industries reliant on financial resources experience accelerated growth in financially developed markets Additionally, Beck et al (2008) noted that sectors with a predominance of small firms also show faster growth in such markets.
Research indicates that industries with higher barriers to entry tend to exhibit slower growth (Klapper et al., 2004) Additionally, Micco and Pagés (2006) found that sectors characterized by greater volatility generate fewer jobs and are less developed in nations with stringent hiring and firing regulations.
A study by Beck et al (2005) analyzed the firm-level impact of the business environment using data from 4,000 firms across 54 countries The findings revealed that legal and corruption obstacles, particularly bribes, time spent with regulators, and corruption among bank officials, negatively influenced firm growth, with variations observed based on firm size However, the study did not adequately address endogeneity or control for country and industry differences, opting instead for country random effects and dummy variables for manufacturing and services.
Farole et al (2017) investigated how the business environment influences firm performance in underdeveloped regions across four European countries Their research utilized Subnational Doing Business indicators, such as starting a business and enforcing contracts, and found that firms in regions with favorable business conditions experienced enhanced employment, sales growth, and profitability Additionally, the study highlighted that firms in stagnant lagging regions faced even greater challenges due to poor business environments However, as the research focused on limited aspects of the business environment, it calls for further studies to encompass a broader range of factors.
According to Dollar et al (2005), infrastructure plays a crucial role in determining firm performance in countries such as China, Bangladesh, Ethiopia, and Pakistan This study utilized the World Bank Enterprise Survey dataset to analyze the impact of the business environment—encompassing factors like power supply, public bureaucracy, and customs efficiency—on various performance metrics, including total factor productivity, wages, profits, output growth rates, employment, and fixed assets The findings highlight that power outages significantly hinder firm performance.
9 custom delays are the most important bottlenecks that inhibit firm productivity and profitability growth Whereas corruption and local governance shown insignificant results in firm performance
A study by Choi et al (2015) analyzing 7,838 Chinese listed firms from 1994 to 2006 revealed a positive correlation between provincial governance quality and firm performance, indicated by metrics such as ROA, labor productivity, and market-to-book ratio The research accounted for firm-specific factors including size, growth, ownership, and governance Notably, special economic zones with low taxes and efficient bureaucracies were found to significantly enhance firm performance, followed by marketization, effective property registration, and environmental protection Interestingly, political freedom also played a crucial role in boosting firm performance and productivity, even in non-democratic regimes Similarly, Bulow (2015) found that firms in countries with higher institutional quality outperformed those in nations with weaker institutions, based on data from 16,105 firms across 42 developing countries in the World Bank Enterprise Survey.
Commander et al (2008) posited that the business environment had little impact on performance at both the firm and country levels Their study, which analyzed data from 6,000 firms across 26 countries between 2002 and 2005, utilized resources like the World Bank's Doing Business report and the Business Environment and Enterprise Performance Survey They suggested potential reasons for their findings, including mis-measurement, mis-specification, complexity, and non-linearity Further research by Commander and Svejnar (2011) reaffirmed these conclusions, indicating that the business environment's influence on firm performance was minimal, with very few variables demonstrating any explanatory power.
10 simultaneously rather than singly or once country, year, and sector fixed effects were introduced
Research in Vietnam indicates that the quality of governance significantly influences private sector growth According to Shawn and Tran (2017), there is a strong connection between local governance, firm productivity, and resource distribution among businesses An improved business environment enhances firm productivity, primarily by lowering corruption, mitigating land expropriation risks, and easing entry regulations This study analyzed a panel dataset of 300,000 manufacturing firms alongside the Provincial Competitiveness Index (PCI) from 2009 to 2012.
In their 2013 study, McCulloch et al analyzed a panel of Vietnamese enterprises from 2006 to 2010 and found that firm investment was largely unaffected by changes in the overall business environment or its individual components, with the exception of transparency They noted a strong correlation between transparency and increased investment in the domestic private sector, although measuring its precise impact on investment levels remains challenging.
A 2015 study examined how local governance impacts firm performance by analyzing the varying governance norms in two regions divided by a historical boundary Utilizing a regression discontinuity method, the research revealed that foreign companies were less inclined to invest in areas characterized by a bureaucratic history.
While previous research has explored the relationship between business environment and firm performance, it often overlooks the interaction between these conditions and firm management Most studies typically assess variations in business environments across different countries, regions, firm sizes, and ownership types, leaving a gap in understanding how managers leverage these conditions to enhance profitability This study aims to fill this gap by examining the interplay between firm management practices and the business environment.
In Vietnam, the Provincial Competitiveness Index (PCI) is widely recognized as a key measure of the business environment This study enhances the analysis by incorporating additional metrics, such as the Doing Business index and Worldwide Governance Indicators, to gain deeper insights into how the local business environment influences firm performance The use of diverse datasets for robustness checks further strengthens the reliability of the research findings.
Data description
This study analyzes the relationship between the Vietnamese business environment and firm performance using four datasets from 2014 to 2018 It features a panel of firm-level data from 291 listed companies across various sectors in Vietnam, focusing on firm characteristics such as size, age, leverage, book-to-market ratio, and return on assets (ROA), as well as CEO characteristics including gender, experience, and age The companies are listed on the HOSE and HNX stock exchanges, representing over one-third of Vietnam's listed companies, with manufacturing firms comprising 36% of the sample, followed by construction and real estate firms at 25%.
The detailed description of the remaining datasets are presented below
The Vietnam Provincial Competitiveness Index (PCI), developed by the Vietnam Chamber of Commerce and Industry (VCCI) and the US Agency for International Development (USAID) and launched in 2005, evaluates economic governance and the ease of doing business across 63 provinces Comprising 10 components detailed in Table 1, the PCI promotes local socio-economic development by reflecting the quality of governance at the provincial level Provinces that demonstrate strong governance can gain recognition from local enterprises and receive positive evaluations in subsequent years, provided they continue their reform efforts Additionally, survey results highlight provinces that make significant strides in enhancing their business environment.
The PCI is developed through a three-step process: first, information is gathered from surveys of local businesses; second, ten component indexes are calculated and standardized on a 10-point scale; and third, weights are assigned to these components to derive a combined PCI score on a scale of 100 To ensure the results are representative, a stratified random sampling method is employed, selecting businesses based on type, industry, and age within each province Subsequently, a PCI survey is distributed to these selected participants to collect insights into their daily operations and experiences with local administrative procedures.
Figure 1 Overall PCI of Vietnam, 2011 - 2018
Source: PCI Report, VCCI and USAID
Recent PCI surveys indicate significant improvements in Vietnam's economic governance, particularly in reducing informal charges, with only 55% of the lowest-level enterprises encountering these fees over a five-year span Additionally, the business environment for private enterprises has become more equitable, as 75% of companies reported effective resolution of their issues by state officials Despite these advancements, there is still a pressing need to enhance the business environment further, as private enterprises continue to face numerous challenges in their operations.
PCI component What is measured
Time a newly established enterprise needs to apply for a business registration, acquire land, and receive all necessary licenses to conduct business
Two perspectives of land access: (i) How easy a firm receive a land use right certificate and (ii) Security of long-term land use rights
Transparency Firm ability to access proper planning and legal documents, as well as the role of the association in criticizing and consulting policies
Time businesses spend on administrative procedures; the frequency and length of annual inspections & examinations conducted by state officials
Informal Charges Level of informal costs that businesses have to pay, as well as the obstacles this burden causes to their business operations
Private enterprises face a challenging competitive landscape as state-owned and foreign-invested companies, along with those connected to provincial authorities, receive preferential treatment These entities benefit from exclusive incentives that facilitate access to essential resources such as land and credit, as well as expedited administrative processes, putting private firms at a disadvantage in their development efforts.
Creativity and wisdom of provincial authorities in implementing the government policies and making its own initiatives to develop the private sector
Provincial services play a crucial role in fostering private sector development by offering essential support such as market and legal information, trade promotions, and business partner matching Additionally, these services encompass technology-related assistance and training in accounting, finance, and business administration, ensuring that businesses have the resources they need to thrive.
Labor Training Level and quality of vocational training and skills development activities held by the provincial government
Private enterprises' trust in local legal institutions is crucial, as it determines whether they view these entities as effective mechanisms for dispute resolution and as platforms for reporting misconduct by public officials.
Source: PCI Report, VCCI and USAID
The Worldwide Governance Indicators (WGI) from the World Bank evaluate institutional quality on a country level, defining governance as the traditions and institutions through which authority is exercised WGI categorizes institutional quality into six dimensions across three key areas: (i) Voice & Accountability and Political Stability & Absence of Violence, which focus on the processes of government selection and oversight; (ii) Government Effectiveness and Regulatory Quality, which assess the government's ability to create and implement effective policies; and (iii) Rule of Law and Control of Corruption, which measure the respect for institutions governing social and economic interactions A comprehensive description of the WGI sub-indices is provided in Table 2.
WGI is a governance data source that gathers subjective perceptions from a diverse range of respondents, including local firms and NGOs, to assess governance quality The data is processed using the unobserved components model (UCM), which enhances the accuracy of weighted indicators and addresses challenges related to aggregate governance metrics This method provides a more logical framework for integrating data from multiple sources WGI estimates are standardized on a scale from -2.5 to 2.5, where higher scores indicate better governance This study evaluates Vietnam's overall institutional quality using the Institutional Quality (IQ) variable, calculated as the average of six key dimensions.
Although there is an improvement in institutional quality in Vietnam, IQ indices remained negative for a long period IQ index of Vietnam reached -0.353 points in
2018, far lower than the world average of -0.033 points In which, Voice & Accountability recorded the poorest performance at -1.446, while Political Stability
The Absence of Violence indicator scored the highest at 0.203, highlighting Vietnam's relatively weak governance, which necessitates policy reforms and improved monitoring This lack of effective governance could hinder firm growth, as noted in prior studies.
Figure 2 Average IQ index of some ASEAN countries, 2011 - 2018
Source: Worldwide Governance Indicator, World Bank
IQ components What is measured
Voice & Accountability Citizens’ level of participation in selecting the government, as well as freedom of expression
Political Stability & Absence of Violence
The likelihood that the government will be destabilized by unconstitutional or violent means
Public services quality, the independence of these services from political pressures, and policy formulation quality
The government’s ability to provide sound policies and regulations that promote private sector development
Whether citizens and the state trust and abide by the rules of society, including the quality of property rights, the police, and the courts, the risk of crime
Control of Corruption Whether public power is exercised for private gain, including both petty and grand forms of corruption
Source: Worldwide Governance Indicator, World Bank
Indonesia Malaysia Singapore Thailand Vietnam
Doing Business database from World Bank
The Doing Business database (DB), provided by the World Bank, emphasizes the government's crucial role in fostering a conducive environment for domestic business growth The research team asserts that efficient, transparent, and easily implemented regulations promote firm expansion and contribute to economic development, while burdensome regulations hinder private sector progress Covering ten aspects of business regulation across 190 economies, Doing Business serves as an essential tool for advocating effective regulatory and policy reforms For a comprehensive overview, refer to Table 3, which details the sub-indices of Doing Business.
The Doing Business data is gathered through comprehensive analyses of local laws and regulations, as well as in-depth interactions with experts via questionnaires, calls, written communications, and site visits To maintain consistency across different economies, a standardized methodology is employed, assuming that a typical firm operates in the largest business city of each country While this assumption may limit the representativeness of the data for an economy, it enhances cost-effectiveness and comparability The resulting indicators are scored on a scale from 0 to 100, with higher scores indicating better performance This study evaluates the overall ease of doing business in Vietnam using the Easy Business variable, which is derived from the average score of ten key components.
Table 3 Doing Business components description
Doing Business Components What is measured
Starting a Business Procedures, time, cost, and paid-in minimum capital to start a limited liability company
Procedures, time and cost to complete all formalities to build a warehouse, and the quality control and safety mechanisms in the construction permitting system
Procedures, time and cost to get connected to the electrical grid, the reliability of electricity supply and transparency of tariffs
Procedures, time and cost involved in registering property, and the quality of the land administration system
The strength of credit reporting systems and the effectiveness of collateral & bankruptcy laws in facilitating lending
Protecting Minority Investors Minority shareholders’ rights in related-party transactions and in corporate governance
Payments, time and total tax rate for a firm to comply with all tax regulation as well as post- filling processes
Trading Across Borders Time and cost associated with the logistical process of exporting and importing goods
This index measures the time and cost for resolving a commercial dispute and the quality of judicial processes
Time, cost, outcome and recovery rate of insolvency proceedings involving domestic legal entities, as well as the legal framework for insolvency
Source: Doing Business, World Bank
In 2018, Vietnam's Easy Business score improved to 67.93, placing it 68th globally and 5th among ASEAN nations, driven by 39 reforms that enhanced tax payments, contract enforcement, and electricity access Notably, the introduction of a Supervisory Control and Data Acquisition energy management system bolstered power supply stability, contributing to an impressive score of 87.64 in Getting Electricity However, Vietnam faced challenges in Resolving Insolvency and Starting a Business, ranking 129th and 123rd respectively, due to stagnant insolvency regulations and rising official fees for new businesses.
Figure 3 Ease of doing business and ranking of ASEAN countries, 2018
Source: Doing Business, World Bank
Myanmar Laos Cambodia Phillipines Indonesia Vietnam Brunei Thailand Malaysia Singapore
This study utilizes Return on Assets (ROA), calculated by dividing net income by total assets, as a key indicator of firm financial performance While various methods exist to assess firm performance, financial metrics are deemed the most critical for evaluating a company's success in meeting its strategic objectives (Katja, 2009) The average ROA among the sampled firms is 5.4%, but the significant gap between the minimum and maximum values indicates considerable variability in profitability across the firms Descriptive statistics for the main variables in this study are presented in Table 4.
Table 5 presents the correlation matrix for the variables, indicating that the study employs multiple measurements of the business environment While this could suggest a potential issue with multicollinearity due to high correlations among independent variables, the analysis of the Pearson correlation matrix alleviates some concerns, as all correlation values remain below 0.8.
Methodology
Research indicates that a challenging business environment, marked by financing, legal, and infrastructure limitations, significantly contributes to subpar firm performance Given the unfavorable business conditions in Vietnam, as evidenced by various metrics, this study posits a negative correlation between the Vietnamese business environment and firm financial performance Furthermore, the research aims to investigate how the impact of the business environment on firm performance differs based on management styles, specifically by analyzing the interaction between the business environment and CEO experience.
This study examines the influence of the business environment on firm performance by utilizing PCI and IQ variables, while controlling for firm and year fixed effects and applying clustered robust standard errors It operates under the assumption that the quality of the business environment is independent of firm performance and that changes in business conditions are not linked to unobservable, time-varying factors affecting performance By employing a fixed-effects model, the study minimizes biases related to unobserved heterogeneity and potential endogeneity Hausman tests are utilized to confirm that the fixed effects estimator is more suitable than the random effects estimator for this analysis.
In panel datasets, residuals for a specific firm can exhibit correlation across years due to the persistence of certain firm or CEO characteristics Additionally, residuals from different firms within the same year may also be correlated Consequently, employing an Ordinary Least Squares (OLS) model may result in biased standard errors and inaccurate coefficient estimates To mitigate within-cluster correlation, this study utilizes clustered standard errors alongside firm and year fixed effects, as suggested by Petersen (2009), to account for the dependencies inherent in panel data and produce more reliable estimates.
Meanwhile, robust standard errors (White-Huber standard errors) are also introduced to account for heteroskedasticity within the cluster
The baseline regression model to examine the effects of business environment on firm performance is presented as follows:
This study analyzes the financial performance of firm i in year t using Return on Assets (ROA) as the primary metric It incorporates the overall PCI score and its individual components, reflecting the performance of firms based on the PCI score of their respective provinces To account for unobservable firm-level effects that may influence the business environment, the study controls for firm-specific year effects, represented by fixed effects for both year and firm Additionally, a range of control variables is included, encompassing firm characteristics such as size, age, leverage, and book-to-market ratio, along with CEO characteristics like gender and age.
The coefficient of interest, β1, indicates how the business environment influences firm performance A positive and statistically significant β1 suggests that Vietnam's current business environment fosters growth for firms, while a negative value would imply the opposite effect.
To investigate the effects of firm management or CEO experience on the business environment – firm performance nexus, the following specification is employed using the same fixed effects method:
This specification includes the Experienced CEO variable which takes a value of 1 if the CEO has managerial experience and 0 otherwise The interaction term between
25 this variable and PCI variable is expressed as 𝑃𝐶𝐼 𝑖𝑡 × 𝐸𝑥𝑝𝑒𝑟𝑖𝑒𝑛𝑐𝑒𝑑 𝐶𝐸𝑂 The overall PCI and individual PCI component are also tested in turn
Here, the regression coefficient of the interaction term (β2) is important in investigating the role of an experienced CEO on dealing with domestic business environment
The similar model specifications are also applied for Institutional Quality and its components
To verify the results, this study then performs robustness checks using Easy Business as a key independent variable, using the same process as mentioned above 𝑅𝑂𝐴 𝑖𝑡 = 𝑐 + 𝛽 1 𝐸𝑎𝑠𝑦𝐵𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑖𝑡 + 𝛽 2 𝐹𝑖𝑟𝑚 𝑖𝑡 + 𝛽 3 𝐶𝐸𝑂 𝑖𝑡 + 𝜇 𝑖 + 𝛾 𝑡 + 𝜀 𝑖𝑡 (5)
Results and discussion
Baseline regression
The baseline regression analysis in Table 6 indicates no statistically significant relationship between the overall PCI as a measure of the business environment and firm performance across all four specifications This finding aligns with the arguments made by Commander et al (2008) and Commander and Svejnar (2011), who suggest that the business environment has limited explanatory power regarding firm performance They highlight that research in this area often relies on subjective surveys from a sample of representative firms, raising concerns about how PCI creators define a representative business This approach tends to overlook the heterogeneity among firms and sector specialization within a country Furthermore, the significant variation in responses from participating firms introduces potential biases in the evaluation process.
The introduction of PCI components reveals that most variables, as shown in Table 7, have statistically insignificant effects, with the exception of the Bias variable Specifically, a one-unit increase in policy bias within the local business environment results in a 0.6% decrease in Return on Assets (ROA) This suggests that Vietnam's current business climate tends to favor state-owned and foreign-invested enterprises State-owned companies are perceived to receive preferential treatment in administrative processes and have better access to land and credit (Freeman and Nguyen, 2009) Additionally, evidence indicates that local governments in Vietnam are actively reforming administrative procedures, offering tax incentives, and enhancing infrastructure to promote the growth of foreign direct investment (FDI) firms (Nguyen).
Table 6 Overall PCI and firm performance – Baseline regression
Firm fixed effect YES YES YES YES
Year fixed effect NO YES NO YES
Clustered-robust standard errors in parentheses
Table 7 PCI components and firm performance - Baseline regression
ROA ROA ROA ROA ROA ROA ROA ROA ROA ROA
Firm fixed effect YES YES YES YES YES YES YES YES YES YES
Clustered-robust standard errors in parentheses * p