A THESIS SUBMITTED TO THE GRADUATE COLLEGE OF MANAGEMENT IN PARTIAL
FULFILLMENT OF REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF BUSINESS ADMINISTRATION
AT SOUTHERN CROSS UNIVERSITY, N.S.W., AUSTRALIA
Certificate
I certify that the substance of this thesis has not already been submitted for any degree
and is not currently being submitted for any other degree or qualification.
I also certify that, to the best of my knowledge, any help received in preparing this thesis,
and all sources used have been acknowledged in this thesis.
Signature: Kieu Minh Nguyen ______________________
Date: ___________________________________________
ii
Acknowledgements
I owe a debt of gratitude to many people who helped me complete this thesis. I would
like to acknowledge the help 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.
iii
I 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
Abstract
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
v
SMEs 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
Glossary 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
vii
ROE 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
Table 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
ix
2.4 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
3.9 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
xi
5.4.4 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
