Consolidate and develop differentiation strategy
In the current competitive situation,
businesses that want to stand firm are forced to
make a difference through their action, for
example: being creative, pioneering and
predicting and solving customers’ problems
based on the word “conscientious”. Firstly,
businesses should be continuously improving
and innovating the product structure, such as
through: eliminating obsolete and unprofitable
products; improving, perfecting the appearance
of and the content and design of existing
products; adding new products in accordance
with needs and trends; quantitatively changing
the production by each type. Secondly,
constantly innovating machinery and
technology to increase productivity, product
quality and enterprise competitiveness. Lastly,
focusing on researching and developing to
create a diverse product, implementing
communications and marketing activities to
provide information about the uniqueness
of products.
Property expansion
At this moment, investment in purchasing
assets in the right direction, for the right
purpose, enhancing innovation, maximizing and
effectively using the capacity of machinery and
equipment are all extremely important. Firstly,
businesses need to have the right systems,
processes, personnel and plans; in other words,
improve the management capacity with vision.
Secondly, increase the number of merger and
acquisition (M&A) activities to open more
opportunities to approach, associate and
cooperate with foreign businesses, gain better
environmental exposure and newer conditions.
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VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 70-80
70
Original Article
The Impact of Business Strategy on Firm Performance
of Listed Firms in Vietnam
Nguyen Vinh Khuong*, Le Phan Minh Thu, Luong Bao Han,
Nguyen Thuy Minh Dan, Pham Truc Mai, Tran Nguyen Hieu Thao
1University of Economics and Law, Ho Chi Minh City, Vietnam
Quarter 3, Linh Xuan Ward, Thu Duc Dist., Ho Chi Minh City, Vietnam
2Vietnam National University, Ho Chi Minh City, Vietnam
Quarter 3, Linh Xuan Ward, Thu Duc Dist., Ho Chi Minh City, Vietnam
Received 28 September 2020
Revised 18 December 2020; Accepted 19 December 2020
Abstract: This study was conducted to contribute empirical evidence of the impact of Michael
Porter’s business strategy on performance in Vietnamese listed firms. Based on data from 620
firms on the Vietnamese stock exchange from 2010 to 2019, we use a quantitative research method
to demonstrate the positive association between performance and differentiation strategy. We
found cost leadership strategy has no meaning. Based on the results, we make implications for
listed firms and regulatory agencies which will contribute to improving firm performance.
Keywords: Business strategy, cost leadership, differentiation, firm performance, listed firm, Vietnam.
1. Introduction *
In the current new era, the business
environment is constantly moving, transactions
are constantly being created and
implementation is becoming increasingly
difficult and complicated. In this ever-changing
environment - a characteristic of today’s global
economy - businesses are faced with fierce
competition pressure. Therefore, having a
strong competitive advantage is an important
task for top management [1]. On the other hand,
_______
* Corresponding author.
E-mail address: khuongnv@uel.edu.vn
https://doi.org/10.25073/2588-1108/vnueab.4407
using business strategy is a way to ensure a
sustainable competitive advantage - by
investing in the resources needed to develop the
main capabilities of the business, and if the
advantage is sustainable, it will lead to superior
long-term firm performance [2]. Specifically,
Allen (2007) found that the lack of focus on
business strategy was the main reason for the
collapse of some Japanese businesses [3].
Meanwhile, Japanese iconic businesses e.g
Honda, Sony and Nintendo have “risen to
global dominance through the development and
determination of their business strategy”.
However, up to now, while there have been
many studies on the impact of business strategy
on financial performance, conclusions have not
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71
yet been reached or results are mixed and non-
generalized due to heterogeneity in
measurement. Helms et al. (1997) proposed a
mixed strategy (cost leadership strategy and
differentiation strategy) for best performance
[4]. Thornhill and White (2007) argue that a
strategy aimed at low cost and firm
performance brings better performance [5]. In
an investigation by Banker et al. (2014) they
suggest that product differentiation strategies
provide more sustainable performance than cost
leadership strategies [6], as firm performance
sources can be copied by competitors [7] or
better new sources appear [8]. On the other
hand, there has been a lot of research so far
showing that pursuing one of Porter’s generic
competitive strategies - included differentiation
strategy or cost leadership strategy, allows a
business to achieve better performance [9-12].
In Vietnam, researches on firm performance
are rarely mentioned. If any, they only focus on
other influencing factors. Almost no research
has been fully focussed on the relationship
between business strategy and firm
performance, especially using the research
sample of listed firms on the stock market of
Vietnam. Specifically, in recent years, listed
firms in Vietnam, in the process of doing
business, always set for themselves the goal of
both expanding business and improving
performance to the highest level, and making
efforts to accomplish those goals. However,
businesses only expand business on the basis of
expanding markets, business items, business
forms and so on, but do not focus on improving
performance. This is a dilemma for all
businesses,as well as for management.
Previous studies on the relationship
between business strategy and financial
performance are measured through returns on
assets, using Tobin’s q-coefficient and Porter’s
business strategy (cost leadership,
differentiation). The conclusion is positively
correlated [6, 13-16]. This study aims to
evaluate the direction of impacts of two groups
of business strategies-Michael Porter (cost
leadership, differentiation) and on the financial
performance of companies on Vietnam’s stock
market, based on the quantitative research
method in accordance with the table data and data
of 620 listed firms. The financial statements were
published in the period 2010-2019.
2. Theoretical Framework and Hypotheses
Development
2.1. Theoretical Framework
Resource - Based Theory
The theory of resources stemming from
economics and governance from Barney’s
representative has been applied and proven in
many different fields and industries. The main
ideology of this theory is when the market
position is high or low, does a firm’s
competitive advantage rely mainly on how
effectively the enterprise uses a set of tangible
or valuable non-tangible resources? Enterprises
will succeed if equipped with the most
appropriate resources and know-how to
combine resources more effectively than
competitors. Resource theory focuses on the
internal elements of a business, showing that
organizations must develop the company’s unique
core competencies that make them outperform
their competitors by doing it differently.
Contingency Theory
This theory was first mentioned in the mid-
1960s by Fred Fiedler, a scientist who
specialized in the study of the personality and
characteristics of leaders. Fiedler’s contingency
theory defines the behaviors (styles) of leaders,
then identifies the key elements of the situation
attached to that leadership style to achieve
efficiency. Therefore, for leadership to be
effective, one must define each person’s
leadership style and put them in the right
context for that style to address a specific
situation. This effect is the outcome of two
elements - “leadership style” and “solving the
situation in the direction of good prospects”
(later called “controlling the situation”).
Game Theory
In 1950 to 1951, the definition of an
optimal strategy for the game was developed by
John Nash, that later became known as the
“Nash equilibrium” in 1994. The strategy is
accepted by competitors participating in the
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72
game. Game theory can be applied in
economics to analyze issues related to the
formation of the market strategies of
competitors that depend on each other. Game
theory is used in the economic analysis of
decision making, an analytical tool in
interactive situations and business strategy
selection, in which players use strategic
thinking to bring about the greatest benefit for
themselves in the context of the other party and
who also act for their own interests without
regard for the benifits of others.
2.2. Hypotheses Development
Following the theory and previous studies,
the research hypothesis is formulated as below:
Banker et al, based on 12,849 observations
of the operating years on exchanges in US such
as NYSE, AMEX and NASDAQ from 1989 to
2003, studied the relationship between
positioning business strategy and the
sustainability of financial performance [6]. In
particular, the authors used Michael Porter’s
overall competitive strategy [9, 10] including
cost leadership strategy and differentiation
strategy. These strategies are distinguished and
measured according to Balsam et al. (2011)
[15], three ratios (net revenue/cost of capital of
PPE, net revenue/net value of factory and
equipment, number of employees/total assets)
representing the cost leadership strategy and three
ratios (selling and management expenses/net
sales, R&D costs/net sales, net sales/cost of goods
sold) representing a differentiation strategy. In
addition, return on assets (ROA) is a measure of
financial performance. The results show that cost
leadership strategy and differentiation strategy
have a positive impact on financial performance.
This shows the important trade-off that managers
have to make in making decisions regarding the
allocation of business resources.
Asdemir et al, based on 31,113 years of
operation of 4,536 unique companies
(excluding CRSP data) between 1989 and 2009,
studied the importance of a business strategy
for the pursuit of competitive advantage and
financial performance, as well as market
awareness [13]. Specifically, the author
operated Michael Porter’s overall competition
strategy [9, 10] including cost leadership and
differentiation. According to Balsam et al.
(2011) [15], the author used three ratios (net
revenue/capital cost of PPE, net revenue/net
value of factory and equipment, number of
employees/total assets) representing the cost
leadership strategy, and three ratios (selling and
management expenses/net sales, R&D costs/net
sales, net sales/cost of goods sold) representing
a differentiation strategy. Moreover, the research
shows that although the market appreciates the
strategy of differentiation, it still underestimates
the difference, leading to abnormal returns in
the future.
Birjandi et al, based on 45 companies on the
Tehran stock exchange (TSE) - Iran, in the
period of 2003-2010, studied the impact of
business strategy on the relationship between
financial leverage and financial performance
[14]. Specifically, the strategies of companies
are classified according to Michael Porter’s [10]
overall competition strategy including cost
leadership strategy and differentiation strategy.
In addition, the independent variable is
financial leverage built on the book value of
debt and assets. On the other hand, the
dependent variable of financial performance is
represented by the ratio of the firm's market
value and the book value of total assets, which
is more objective and beyond the control of
managers compared to ROE, ROI [17, 18]. The
results show that in enterprises pursuing a cost
leadership strategy, financial leverage, dividend
payment, and business strategy all have a
positive influence on financial performance. On
the other hand, in enterprises pursuing a
differentiation strategy, financial leverage and
firm size have a positive impact and business
strategy; dividend payments have a negative
impact on financial performance.
Balsam et al, based on 11,087 observations
of the operating years of 1,658 unique
companies from 1992 to 2006, studied the
relationship between the business strategy and
the use of financial efficiency to measure
compensation. usually executive [15].
Specifically, the author operates the overall
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73
competition strategy of Michael Porter [9, 10].
In particular, the cost leadership strategy is
represented by three ratios (net revenue/capital
cost of PPE, net revenue/net value of factory
and equipment, number of employees/total
assets). This shows the ability to effectively use
company capital and resources by employees.
And the differentiation strategy is represented
by three ratios (selling and management
expenses/net sales, R&D costs/net sales, net
sales/COGS). On the other hand, the executive
compensation variable is based on indicators
such as sales or sales logs, return on assets
(ROA), annual stock returns, and investment
opportunities. The results showed that firms
pursuing a strategy of leading significantly
weighted costs into net sales and those
following a differentiation strategy had an
expressly lower weight on ROA. These
discoveries are appropriate for businesses to
adjust the reward system, encouraging
managers to pursue a specific business strategy.
Ilyas et al, based on 132 textile sector firms
listed on the Pakistan Stock Exchange (PSX)
during 2008 - 2016, studied the impact of
Michael Porter’s cost leadership strategy on
financial performance [9-10, 16]. Specifically,
the cost leadership strategy is the independent
variable of this study and is measured by the
proxy of net revenue to ratio of assets. The
dependent variable - firm performance - is
measured through return on assets (ROA). The
results show that the relationship between firm
performance and cost leadership strategy is that
the dividend payout and size of the firm is
positive, and leverage is negative. In addition, the
cost leadership strategy, dividend payout and
leverage significantly affect financial performance,
while the size of the firm is negligible.
The above studies show that cost leadership
and differentiation strategy always have a
positive impact on firm performance, except the
research results of Birjandi et al [14] suggest
that a differentiation strategy has a negative
impact. Moreover, a differentiation strategy
helps maintain firm performance longer and
more sustainably with higher compensation
than the other [6, 13], but with greater systemic
risk and volatility and the weight of firms is less
used [15]. In addition, on how to measure two
strategies, the majority of studies follow
Balsam et al [15], in which each strategy is
represented by three financial indicators.
However, due to limited research data, the
majority of studies represented the cost
leadership strategy with the ratio of net sales
and assets [14, 16]. On the other hand, the
dependent variable of firm performance is
represented by the net return on assets (ROA)
in most studies; some use Tobin’s q factor [13]
or the ratio of the firm’s market value divided
by the total assets’ book value [14].
Specifically, firm financial performance has
a positive impact resulting from the cost
leadership strategy [6, 13, 15-16]. Firstly, if
firms in the industry set the same price, the firm
pursuing a cost leadership strategy could set
prices lower than their competitors but still
have the same or higher profits. Secondly, if
industry competition increases and firms start to
compete on prices, low-cost firms will be able
to withstand competition better than others.
Third, this strategy often requires a large market
share and initial investment and can create a
high economy in the process of purchasing raw
materials, causing the cost to decrease.
Thereby, firm financial performance increases
and creates growth opportunities for the market.
This leads to our first hypothesis:
H1: Cost leadership strategy has a positive
impact on firm financial performance
Differentiation strategy creates a position
for business to deal with other competing
forces, creates customer trust in brands, and
leads to fewer price fluctuations. On the other
hand, the market value of the differentiated
product type increases and exceeds the cost of
production (book value) due to them. Thereby,
firm financial performance increases and
creates growth opportunities for the market.
This leads to our second research hypothesis:
H2: Differentiation strategy has a positive
impact on firm financial performance
3. Research Methods
3.1. Data
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74
The research sample is 620 joint-stock
firms and corporations listed on the HOSE and
HNX in the period from 2010 to 2019. Data
was collected from the Datastream data source
of Thomson Reuters at the Center for Financial
Economic Research, University of Economics
and Law. Firms selected for the model needed
to fully meet the following conditions: Have all
necessary indicators to serve the calculation and
be non-financial firms, and public service firms,
and must have sufficient audited financial
statements and annual reports published during
the research period. Therefore, with these
conditions met, a strong balanced panel for the
data sample was created.
3.2. Methodology
Because of its simplicity the regression
method often used, whether it is for quantitative
or qualitative research, is the ordinary least
squares method (OLS). Therefore, this study
uses the modern regression method GMM
(Generalized Method of Moments), though not
new but quite often used. Lars Peter Hansen
first presented this in 1982. GMM is a
generalized method of many popular estimation
methods such as OLS, MLE, FE, RE, etc. Even
if terms of endogenous assumptions are
violated, the GMM method produces stable,
unbiased and effective estimates. On the other
hand, the GMM model makes it more simple to
select and achieve the condition of a standard
tool variable (Overidentification of Estimators)
because it uses exogenous variables at another
time or takes the latency of variables that can be
used as tool variables for endogenous variables
at the present. In addition, GMM is suitable for
short table data with a short time (T) series and
long number (N) of firms, like this study with the
data of the time table short (only 10 years) but the
number of firms is very large (620 firms).
3.3. Research Model
The research model demonstrates the
impact of Michael Porter’s overall competitive
strategy on firm financial performance:
PERi,t = β0 + β1DIFFit + β2OSTit + β3AGEit +
β4SIZEit + β5TANGit + γi + δt + μi,t
Including:
i = 1, 2, 3,... 620 (where i is representing
620 listed firms); t = 1, 2, 3,... 10 (where t is a
10-year period from 2010 to 2019).
PERit - The dependent variable, which
measures the firm financial performance i at
time t. Measured by ROA (ROA = Net income/
Total book value of assets) and TOBINq
(TOBINq = Market value of asset/ Total assets
variables) [19-27].
DIFFit - Independent variable, representing
the differentiation strategy of the firm i (DIFF =
(1) Selling, general and administrative
expenses/ Net sales; and (2) Net sales/ Cost of
goods sold) [28-35].
COSTit - Independent variable representing
the cost leadership strategy of the firm i (COST
= (1) Net sales/ Capital expenditures on
property, plant and equipment; and (2) Net
sales/ Net book value of plant and equipment)
[11, 28-31, 34].
AGEit - Control variable, representing the
operation time of the firm i at time t (AGE =
Natural logarithm of firm age) [20, 26, 36].
SIZEit - Control variable, representing the
firm i size at time t (SIZE = Natural logarithm
of total assets) [20-21, 23-26, 36-37].
TANGit - Control variable, representing
tangible assets of the firm i at time t (TANG =
Tangible assets/Total assets) [24].
Control variables
The author uses a number of control
variables in the research model to address the
effects of business strategy on firm financial
performance.
First, the operating time control variable
(AGE) is estimated by the natural logarithm of
the activity year. Firms with a large firm age are
less effective in specific environments;
established firms often have management
experience in a certain field and it will be
difficult for them to adapt to quick changes and
high levels of uncertainty. Accordingly, the
author predicts AGE has a negative impact on
financial performance.
Second, the control variable on asset size
(SIZE) is measured by the natural logarithm of
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75
the total assets. In terms of firm size, there are
two conflicting views on firm financial
performance. First, larger firms can use
economies of scale, have better access to capital
markets [38] and possess a greater ability to set
barriers for newcomers to join. Second, Pi and
Timme stated that larger firms may also show
more conflicts between managers and
shareholders, leading to a fall in profits to limit
management control [39]. However, the
research team favored the second view so it was
hypothesized that SIZE has a negative impact
on financial performance.
Third, the tangible asset (TANG) control
variable is measured by the ratio of tangible
assets to total assets. Currently, in the
competitive market among firms in the same
industry, between increasingly fierce products,
tangible assets (TANG) of firms are low,
unable to meet the demand, so all firms must
strive to increase competitiveness for the
quality of its products means that this requires
firms to have new long-term plans to invest in
tangible assets. If firms cannot afford to upgrade
their tangible assets, this means they lose their
firm's competitive advantage in the market.
Accordingly, the author predicts TANG has a
pessimistic effect on financial performance.
4. Research Results
4.1. Descriptive Statistics
Descriptive statistics of research variables
are presented in Table 1.
According to the descriptive statistics of all
variables in the descriptive statistics table, the
collected data gaps are not the same. Therefore,
the number of observations for each variable is
not uniform. In some variables, the contrariety
among the minimum and maximum value is
relatively high. For example, the ROA ranges
from -1.587 to 0.7836; TOBINq ranges from -
25.96 to 17.06. There are several variables that
can be negative: ROA and TOBINq.
Table 1. Descriptive statistics of research variables
Variable Number of observations Mean Standard deviation Minimum Maximum
ROA 5.542 0.0620 0.0829 -1.5874 0.78369
TOBINq 5.084 0.9458 1.044 -25.96 17.06
DIFF 5.547 0.1900 0.3923 0 1
COST 5.113 0.1715 0.3770 0 1
AGE 6.192 2.569 0.6395 0 4.7874
SIZE 5.550 27.055 1.514 22.995 32.253
TANG 5.543 0.2668 0.220 0 0.9703
Source: Data analysis from STATA software.
The difference between the minimum and
maximum values is relatively high in the
following variables. For example, AGE ranges
from 0 to 4.7874; SIZE ranges from 22.995
to 32.253.
In the period 2010-2019, the Mean of
operating time (AGE) is 2.5695, showing that
the Mean of years of establishment of the firm
up to now is not low. These are firms with
experience, have a high reputation and have
good customer networks. Also during that
period, the Mean value of the size of assets
(SIZE) is 27.055. Large-scale firms can take
advantage for the firm from scale, thus saving
costs and increasing profits.
4.2. Correlation Matrix
Correlation analysis is a measure of the
intensity of the relationship between two
variables and two variables are considered as
“random” variables - regardless of the
independent and dependent variables.
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Table 2. Correlation coefficient matrix between variables in the model
ROA TOBINq DIFF COST AGE SIZE TANG
ROA 1.0000
TOBINq 0.3511 1,0000
DIFF 0.1686 0.1349 1.0000
COST -0.0035 -0.5098 -0.0775 1.0000
AGE -0.0253 0.0430 -0.0386 0.0152 1.0000
SIZE -0.0336 0.1734 -0.1248 -0.1011 0.1012 1.0000
TANG -0.0152 0.0171 0.0098 -0.4194 -0.0659 0.1717 1.0000
Source: Data analysis from STATA software
The results show that the differentiation
strategy (DIFF) has the highest correlation with
the return on assets (ROA) with a correlation
coefficient of 16.86% and the asset size (SIZE)
correlated highest with Tobin's q coefficient
(TOBINq) with a correlation coefficient of
17.34%; correlated below 1%.
4.3. Regression Results
4.3.1. Regression result of dependent
variable (ROA)
Except for the differentiation strategy
(DIFF), all the remaining variables in the model
are not statistically significant at 10%
(both greater than 10%). Therefore, is there
only a differentiation strategy that has a
significant impact on the return on assets or the
financial performance of businesses listed on
the Vietnamese stock exchange significant
(due to 0.539 > 0.1).
Table 3. Regression analysis of ROA
Variables Correlation coefficient
Standard
Error
T test
Level of
significance
Reliability
95%
Interval
Lag.ROA 0.5449 0.10897 5.00 0.000 0.3309 0.7589
DIFF 0.032 0.0190 1.71 0.088 -0.0048 0.0698
COST 0.0129 0.0210 0.61 0.539 -0.0284 0.0543
AGE -0.005 0.0085 -0.67 0.505 -0.0224 0.0110
SIZE 0.0005 0.0027 0.19 0.853 -0.0048 0.0058
TANG -0.0020 0.0268 -0.08 0.938 -0.0548 0.05074
_CONS 0.0140 0.0819 0.17 0.864 -0.1468 0.1749
Arellano-
Bond Test
Arellano-Bond test for AR(1) in first differences
Arellano-Bond test for AR(2) in first differences
0.000
0.156
Sargan test
chi2(38) = 71.86
Prob > chi2 = 0.001
Hansen test
chi2(38) = 38.85
Prob > chi2 = 0.431
Source: Data analysis from STATA software.
The autocorrelation test in the research
model is done through the Arellano - Bond test
with the hypothesis: H0. There is no
autocorrelation in the model and H1. There is
autocorrelation in the model. The results in
Table 3 have P-value = 0.156 > 0.1 or the
Arellano - Bond test with a statistical
significance at 10%, meaning there is not
enough basis to reject the hypothesis H0 about
no autocorrelation in the research model. This
proves that the results estimated by the GMM
system method are consistent with the research
data and are meaningful.
N.V. Khuong et al. / VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 70-80
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The appropriateness test of the instrumental
variables in the research model is implemented
through the Sargan and Hansen tests. The
results in Table 3 have:
- Sargan test: P-value = 0.001 < 0.1 shows
that the conformity is not strong, but not weak
by many tools
- Hansen test: P-value = 0.431 > 0.1 shows
a strong fit, but weak by many tools
Based on the regression model, we see an
independent variable that affects the variation
of the return on assets (ROA) and is statistically
significant with P-value < 10%.
4.3.2. Regression result of dependent
variable (TOBINq)
Except for the cost leadership strategy
(COST) and tangible assets (TANG), all
remaining variables in the model are
statistically significant at 10% (both less than
10%). Therefore, only the differentiation
strategy has a significant impact on Tobin's
q-factor or financial performance on listed firms
on the Vietnamese stock exchanges; the cost
leadership strategy is not significant (due to
0.496 > 0.1).
Table 4. Regression analysis of TOBINq
Variables
Correlation
coefficient
Standard
Error
T test
Level of
significance
Reliability 95% Interval
Lag.TOBINq 0.6297 0.0336 18,69 0.000 0.5635 0.6958
DIFF 0.5188 0.1854 2,80 0.005 0.1547 0.883
COST -0.0833 0.1224 -0,68 0.496 -0.323 0.15704
AGE 0.1486 0.0353 4,20 0.000 0.0791 0.218
SIZE 0.0278 0.0140 1,98 0.048 0.0002 0.0555
TANG 0.0163 0.1305 0,13 0.900 -0.2399 0.2727
_CONS -0.9363 0.4004 -2,34 0.020 -1.722 -0.1498
Arellano-Bond Test
Arellano-Bond test for AR(1) in first differences
Arellano-Bond test for AR(2) in first differences
0.006
0.317
Sargan test
chi2(94) = 864.88
Prob > chi2 = 0.000
Hansen test
chi2(94) = 101.16
Prob > chi2 = 0.288
Source: Data analysis from STATA software.
The autocorrelation test in the research
model is implemented through the Arellano -
Bond test with the hypothesis: H0. There is no
autocorrelation in the model and H1. There is
autocorrelation in the model. The results in
Table 6 have P-value = 0.317 > 0.1 or Arellano
- Bond test is statistically significant at 10%,
meaning there is not enough basis to reject the
hypothesis H0 about no autocorrelation in the
research model. This proves that the results
estimated by the GMM system method are
consistent with the research data and
are meaningful.
Based on the regression model, we see that
there are 3 independent variables that affect the
variation of the q-dependent variable of Tobin
(TOBINq) and are statistically significant with
the P-value <10%:
DIFF is a differentiation strategy. Research
results show that enterprises pursuing
differentiation strategies have a strong impact
on business performance. Specifically, when the
strategy of differentiation increases (decreases) by
1 unit, the q coefficient of Tobin increases
(decreases) by 0.5188874 units, consistent with
the hypothesis of the research group.
According to previous studies, the cost
leadership strategy has a positive impact on
corporate financial performance. However, we
did not find such a relationship based on the
research results (COST variable does not make
N.V. Khuong et al. / VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 70-80
78
sense). Besides, we found no similar evidence
for the tangible asset control (TANG) variable.
On the other hand, differentiation strategies
have a positive and strong impact on corporate
financial performance. This is entirely
consistent with the previous research hypothesis
and studies such as [6, 13, 15-16]. This proves
that the market of listed companies in Vietnam
which is diversified in creating differentiation
for products besides improving quality,
simultaneously significantly reduce the threat of
competitors. Customers with diverse consumer
demands will see that the value of the
difference is worthy of continuously improving
products. The operation time factor (AGE) of
the enterprise is contrary to the hypothesis.
Negative impacts on performance prove that the
longer the business operation, the lower the
performance as well as the profit of the
enterprise. This is a worse performance
compared to business start-ups or less-active-
age businesses. The firm size factor (SIZE)
positively affects corporate financial
performance and satisfies the hypotheses as
well as previous studies [14, 16, 26, 40]. This
demonstrates that when there is an increase in
size, it will help businesses increase production
to meet the demand in times of a shortage of
supply in the market and increases sales and
profits for businesses. This means the more the
corporate assets, the higher the financial
performance in Vietnam’s listed enterprises.
5. Conclusions and Recommendations
5.1. Conclusions
Our research provides a direct result of the
relationship between independent variables and
firm performance of the business, namely the
cost leadership and differentiation strategy. In
this paper, in order to find out how to achieve
good corporate financial performance, we have
measured the financial performance by two
dependent variables, the return on assets and the
Tobin’s q-coefficient. From there, we use the
GMM regression model to measure specifically
and clearly how the independent variables
(including control variables) affect the two
dependent variables and draw conclusions.
The study not only helps us to recognize the
current situation of Vietnamese enterprises in
improving corporate financial performance, but
also points out the major impact on
performance. From there, Vietnamese
businesses can make the right choices in
choosing their business strategies, so as to
improve corporate financial performance.
According to our group’s research and
discussion results, each dependent variable is
affected by 5 independent variables. In
particular, we see the most prominent strategy
affecting corporate financial performance that
business managers and orientations should
consider: The differentiation strategic variable
(DIFF) has the largest, same-dimensional
impact on financial performance (ROA and
TOBINq). Therefore, enterprises oriented to
differentiation can consider investing in
development and strengthening their strategy.
There are also two factors, operation time
(AGE) and asset size (SIZE). Both impact the
same direction on financial performance.
Businesses should also consider extending the
operation time and increasing the assets size of
their business. On the other hand, there are ¾
recognized research hypotheses (except for
asset size in model variable dependent of
Tobin’s q-coefficient).
5.2. Recommendations
Improving financial performance has
always been a vital issue for businesses and is a
great concern of investors. In particular, this is
true in the context that Vietnam’s economy is
increasingly integrating deeply into the regional
and world economy with lots of pressures.
Enterprises with high financial performance
will bring many benefits to employees,
themselves and the whole society. So from the
research results obtained in part 4 with the three
most prominent relationships affecting financial
performance, we want to propose practical
recommendations to improve and enhance
performance for listed companies in Vietnam in
the current period of fierce competition:
N.V. Khuong et al. / VNU Journal of Science: Economics and Business, Vol. 36, No. 5E (2020) 70-80
79
Consolidate and develop differentiation strategy
In the current competitive situation,
businesses that want to stand firm are forced to
make a difference through their action, for
example: being creative, pioneering and
predicting and solving customers’ problems
based on the word “conscientious”. Firstly,
businesses should be continuously improving
and innovating the product structure, such as
through: eliminating obsolete and unprofitable
products; improving, perfecting the appearance
of and the content and design of existing
products; adding new products in accordance
with needs and trends; quantitatively changing
the production by each type. Secondly,
constantly innovating machinery and
technology to increase productivity, product
quality and enterprise competitiveness. Lastly,
focusing on researching and developing to
create a diverse product, implementing
communications and marketing activities to
provide information about the uniqueness
of products.
Property expansion
At this moment, investment in purchasing
assets in the right direction, for the right
purpose, enhancing innovation, maximizing and
effectively using the capacity of machinery and
equipment are all extremely important. Firstly,
businesses need to have the right systems,
processes, personnel and plans; in other words,
improve the management capacity with vision.
Secondly, increase the number of merger and
acquisition (M&A) activities to open more
opportunities to approach, associate and
cooperate with foreign businesses, gain better
environmental exposure and newer conditions.
Acknowledgments
This research is funded by University of
Economics and Law, Vietnam National
University Ho Chi Minh City, Vietnam.
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