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

Abstract

This paper investigates the effect of investments in subsidiaries, joint ventures and affiliates (affiliate investment) on firm growth. Using both static and dynamic panel data models with a sample dataset of 2,056 firm-year observations on Vietnam’s stock market from 2008-2015, the study finds that increasing affiliate investment in prior periods had a significantly positive impact on asset growth and net income growth (but not sales growth) of the firms in subsequent periods. In addition, the study finds new empirical evidence that private-controlled firms are more efficient than government-controlled firms in terms of affiliate investment. It is also found that profitability, government ownership and foreign ownership are significant dynamics for firm growth. This research sheds light on the role of affiliate investment as a corporate diversification strategy to boost firm growth, including growth rates of multinational corporations. It also provides important implications about the determinants of different dimensions of firm growth in the context of an Asian emerging economy.