Investment in the context of financial constraints: A case of Vietnamese listed firms

Abstract

To consider investment in the context of financial constraints, this study focuses on analysing the sensitivity of investment to internal funds (cash flow) to examine the impact of financial constraints on investment by Vietnamese
enterprises as well as supporting evidence that the financial market is imperfect. Using data from financial statements
and market data of 306 enterprises listed on the Ho Chi Minh City Stock Exchange, the authors find that Vietnamese
listed firms have to face with many financial constraints due to investment dependence on the availability of internal finance. In particular, the firms with low dividend payout and high KZ (Kaplan & Zingales) index do exhibit higher sensitivity coefficients of investment to internal funds than those with high dividend payout firms and low KZ index. The findings imply that the sensitivity of investment to internal funds varies across the degree of financial constraints of firms, and financial constraints are considered a barrier to investment of the Vietnamese enterprises.