Does Improving the Perception of Corruption Depress the Cash-Holding Decisions of Vietnamese-listed Firms? Roles of State Ownership and Foreign Ownership

The Corruption Perception Index (CPI) is a synthetic index based on a combination of surveys and assessments on corruption issues, announced by Transparency International Organization. Enhancing this index in countries with high levels of corruption is highly critical. This study researches the effect of improving corruption perception on corporate cash holdings in Vietnam. Estimated results from the System Generalized Method of Moments (SGMM) show that increased CPI reduces corporate cash holdings in Vietnam from 2010 to 2022. Most interestingly, as the CPI index in Vietnam improves, enterprises with a high percentage of foreign ownership tend to hold less cash. In contrast, companies with a high ratio of state ownership tend to hold more cash. Research results show that raising corruption perception not only enhances market transparency but also reduces prevention motivation and agency problems of Vietnamese enterprises, mainly foreign-owned enterprises. This paper is a pioneering study, shedding light on the benefits of raising corruption awareness on the cash management policies of firms in the context of drastic anti-corruption efforts in Vietnam.