Capital diversion in Vietnamese state-owned enterprises

Abstract

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