Financial investment under banking uncertainty: evidence from Vietnamese firms

Japan Huynh

Post-Communist Economies, 2024, vol. 36, issue 8, 930-958

Abstract: This study explores the relationship between banking uncertainty and firms’ financial investments. Using data from Vietnam during 2007–2022, we find that firms tend to hold more financial investments, particularly short-term items, amid higher banking uncertainty. We conduct various sensitivity tests to demonstrate the robustness of this finding, particularly addressing endogeneity concerns with instrumental variables. Regarding the underlying mechanisms, our finding could be explained by both precautionary and profit-seeking incentives in motivating firms to invest in financial assets during uncertain times. Further analysis reveals that the uncertainty effect is weaker for firms with bank-firm relationships and firms listed on the Ho Chi Minh Stock Exchange (HOSE) compared to the Hanoi Stock Exchange (HNX). Our research also highlights that uncertainty impacts corporate financialisation more strongly during macroeconomic shocks caused by the financial crisis and the COVID-19 pandemic. Finally, we reveal that holding more financial assets is positively related to firm value, but this benefit diminishes during times of heightened banking uncertainty.

Date: 2024
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DOI: 10.1080/14631377.2024.2437621

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