Investments in subsidiaries, joint ventures, affiliates and firm growth: Evidence from Vietnam

ms should not rely on external 
sources of funding to boost the expansion in both sales and assets, particularly for accelerating net income growth. 
Foreign ownership: Foreign ownership shows a significantly positive impact on sales growth, and this finding is consistent in 
all estimation methods, including static and dynamic models. Interestingly, while foreign ownership appears to improve sales 
growth, it is found to have a negative impact on asset growth, particularly in private-controlled firms. Precisely, foreign 
ownership is estimated to be significantly negatively related to the asset growth rate of private firms at the 5% significance level. 
An increase of 1% in foreign ownership is associated with a drop of more than 0.2% in asset growth. The sign of the coefficient 
on foreign ownership is also negative for net income growth, but this effect is not statistically significant. In the context of an 
emerging stock market like Vietnam, the increase of foreign shareholdings in the listed firms can be a positive signal to the 
market in terms of improved credit rating and long-term growth, resulting in attracting more business partners, gaining larger 
market shares and hence raising sales volume. At the same time, it is likely that the presence of foreign shareholders strengthens 
the monitoring role of shareholders while restraining the firms’ discretion to expand assets through investing in risky projects. 
5.3. Robustness Checks 
Two further tests are conducted to check for the robustness of the research methods used and the reliability of results as reported 
above. First, firm size is conventionally a variable of interest in investigating the determinants of firm growth, in particular for 
testing Gibrat’s law. Therefore, another proxy of firm size (SIZE2) is employed in this research to check for the robustness of 
the results reported above. SIZE2 is measured as the natural logarithm of the market capitalization of the firm. Second, firm age 
(AGE) is removed from both Model 1 and Model 2. Under such new treatments of variables, estimated results are entirely 
consistent. 
6. Conclusion 
Several main results of this research are summarized as follows. First, we have shown that investment in subsidiaries, joint 
ventures and affiliates (affiliate investment) did matter with regards to firm growth since the former had significantly positive 
dynamic effects on relevant measures of the latter. Second, there was strong evidence that the positive impact of affiliate 
investment was valid for private-controlled firms instead of government-controlled firms. Furthermore, this study has found that 
profitability, government ownership and foreign ownership were significant dynamics for firm growth in the context of a 
transitional and emerging market. This study makes a theoretical contribution to the literature by shedding light upon the 
relationship between affiliate investment and firm growth as well as the impact of corporate investment behaviors on firm 
H. N. Pham and B. Kalyebara /Accounting 6 (2020) 11
growth in general. It indicates that long-term financial investment in the form of affiliate investment in the previous years plays 
a significantly positive role in accelerating firm growth in the current year. However, it depends on whether ownership 
concentration at the firm is in the hands of private shareholders or government shareholders. Methodologically, by focusing on 
affiliate investment in relation to three different dimensions of firm growth (i.e. sales growth, asset growth, net income growth), 
this study implies that any claims on the determinants of firm growth depend on how firm growth is measured. It shows that 
affiliate investment can be adopted as a good channel to boost some dimensions of firm growth but not all. Empirically, this 
study provides new evidence that private-controlled firms are more efficient than government-controlled firms in terms of 
affiliate investment, and corporate investment decisions by private investors are more value-enhancing than that of government 
shareholders. While affiliate investment can be utilised as a channel for corporate diversification into new business lines as 
already mentioned, this strategy should be adopted by private firms only for firm growth. Hence, this finding is also beneficial 
to the literature on corporate diversification. Besides, the finding for the effect of foreign ownership suggests that multinational 
corporations may encounter contradicting scenarios of financial growth rates in a host country. As mentioned earlier, foreign 
ownership is found to be positively associated with sales growth, but it has a negative impact on asset growth in the context of 
an Asian emerging economy like Vietnam. 
This paper has some limitations. First, under the equity method in accounting, affiliate investment appears in the balance sheet 
as a part of the firm’s total assets. Thus, there is a limitation in finding an alternative proxy of affiliate investment that covers 
all forms of long-term financial investment into subsidiaries, joint ventures and affiliates. Second, due to the focus of research, 
this study has not discussed the links between affiliate investment and corporate risk-taking behaviors. Further research examine 
the relationships among affiliate investment, corporate risk management and firm growth. 
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