Predictors of Return on Assets and Return on Equity for Banking and Insurance Companies on Vietnam Stock Exchange

Abstract

Objective: The objective of the article is to empirically examine the predictors of ROA and ROE for banks and insurance firms listed on the Vietnamese stock market.

Research Design & Methods: The authors applied a quantitative approach. A basic OLS regression model is used to investigate key proposed predicators of ROA and ROE.

Findings: Internal variables are statistically significant predictors for both ROA and ROE in the study, including firm size, book value, return on equity, years in business, and earnings per share. The direction of causality is not consistent across the ratios. Capital structure was significant and negative for ROE. Banks earned lower return on their assets and higher return on their equity than insurance companies.

Implications & Recommendations: Given the significance of internal variables such as firm size, return on equity, book value, years in business and earnings per share as predictors of ROA and ROE, management must focus on improving its internal organizational structure which affects these variables. Years in business is significant for both ROA and ROE which may reflect managers’ tacit knowledge. Firms should cultivate stability within its managerial staff. To aid future growth, management must secure the proper combination of debt to equity funding.

Contribution & Value Added: This article confirms past findings of internal predictors of ROA and ROE in banking. It is one of the first studies to examine predictors of ROA and ROE for firms in the insurance industry.

Keywords

return on assets, return on equity, banking, insurance, GLM, Vietnam

Author Biography

Phan Dinh Khoi

Lucille V. Pointer

Dr. Lucille Pointer is Professor of Marketing at the University of Houston-Downtown, Houston,Texas, USA. She earned a

Bachelor of Business Administration (Southern University, Baton Rouge, Louisiana, USA); Master of Business Administration (University of Wisconsin, Madison, Wisconsin, USA); and PhD in Marketing (Texas A& M University, USA). Her research interests include consumer behaviour, development economics, and teaching pedagogies.  She has published in several journals including the Journal of Business and Entrepreneurship, Journal of Marketing Education, Journal of Management Education, Health Marketing Quarterly and Emerging Markets for Finance and Trade.

Correspondence to: Prof. Lucille Pointer, PhD, University of Houston-Downtown, One Main Street, Houston, Texas, USA 77002, e-mail: pointerl@uhd.edu

Phan Dinh Khoi

Dr. Phan Dinh Khoi is an Assistant Professor of Finance and Chair of the Department of Finance and Banking at the College of Economics, Can Tho University, Vietnam. He earned a PhD degree in Finance from Lincoln University in New Zealand. He has published in international peer-reviewed journals including Journal of Asian Economics, Journal of the Asia-Pacific Economy, and Journal of Eastern European and Central Asian Research. His research interest focuses on development finance, development economics, corporate finance, and banking.

Correspondence to:  Dr. Phan Dinh Khoi, Chair, Department of Finance and Banking, College of Economics, Can Tho University, Viet Nam, email: pdkhoi@ctu.edu.vn.

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