Financial Constraints, Investment, and Firm Value: Evidence from Vietnamese Firms

Quynh Xuan Pham; Hau Long Le

Authors

Quynh Xuan Pham An Giang University, VNU-HCM, Vietnam
Hau Long Le School of Economics, Can Tho University, Vietnam https://orcid.org/0009-0004-0005-6423

Keywords:

Financial Constraints, Firm Investment, Firm Value, Optimal Investment

Abstract

In an imperfect capital market, firms face financial constraints due to information asymmetry. These constraints have a significant impact on the effectiveness of investment decisions. When either an underinvestment or overinvestment process occurs, it directly affects the firm's value. This study aims to examine the quadratic relationship between investment and firm value, specifically within the context of financial constraints. Our analysis is based on a dataset comprising 269 Vietnamese non-financial firms listed on the Ho Chi Minh City Stock Exchange (HOSE) from 2013 to 2022, resulting in a total of 2,690 firm-year observations. After checking the stationarity of panel data, three estimation methods are OLS, REM, and FEM tested in turn, and finally, the GLS method is applied to deal with the heteroskedasticity problem. The results indicate a quadratic relationship between investment and firm value, suggesting the presence of an optimal investment level. Notably, the optimal level varies depending on the firm's degree of financial constraints. Firms with fewer financial constraints tend to have a higher optimal investment level compared to those with greater financial constraints.

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