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The impact of interest-subsidy policy on firm profitability: Evidence from Vietnamese lending-rate ceiling policy

By Nguyen Thi Phuong Lan (VNP 23)

Supervisor: Dr. Pham Phu Quoc

Abstract:

The empirical results which examine the real impact of interest-subsidy policy on firm profitability are not consistent. The supporters indicate that it has the significantly positive impact on firm profitability. On the other hand, their critics prove that this policy is just the way through which government officials spend national budget. To verify the empirical impact of interest-subsidy policy in Vietnam, this thesis employs difference-in-difference techniques and a unique dataset of Vietnamese listed firms. The results show that the lending-rate ceiling policy issued in Vietnam in 2012 had positive impact on both return on total assets (ROA) and return on equity (ROE), but at different levels: slight level on ROA while strong level on ROE. Noticeably, the positive influence of lending-rate ceiling policy on firm profitability was much less than the negative influence of bank-debt to total resources ratio. So, this finding also implies that interest subsidy would supply the firm cheap working capital to maintain existing level of productive capital at a more profitable.

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