Supply chain finance, financial development and profitability of real estate firms in Vietnam

* Corresponding author 
E-mail address: buingoctoan@iuh.edu.vn (T.N. Bui) 
© 2020 by the authors; licensee Growing Science. 
doi: 10.5267/j.uscm.2019.9.001 
Uncertain Supply Chain Management 8 (2020) 37–42 
Contents lists available at GrowingScience 
Uncertain Supply Chain Management 
homepage: www.GrowingScience.com/uscm 
Supply chain finance, financial development and profitability of real estate firms in Vietnam 
Toan Ngoc Buia* 
aFaculty of Finance and Banking, Industrial University of Ho Chi Minh City (IUH), Vietnam 
C H R O N I C L E A B S T R A C T 
Article history: 
Received July 28, 2019 
Received in revised format 
August 29, 2019 
Accepted September 6 2019 
Available online 
September 6 2019 
 This paper investigates the impact of supply chain finance (SCF) and financial development 
on profitability of real estate firms in Vietnam over the 2013 - 2017 period. This is the first 
empirical research examining the impact of financial development on firm profitability. By 
employing GMM (generalized method of moment), this paper reveals the important role of 
supply chain finance (SCF) and financial development in profitability of real estate firms. 
Specifically, firm profitability (P) is influenced negatively by cash conversion cycle (CCC) 
and positively by financial development (FD). In addition, profitability is negatively correlated 
with control variable of financial leverage (LEV) and positively associated with control 
variable of firm size (SIZE). The findings reveal the role of supply chain finance and financial 
development in firm profitability which policymakers as well as managers at real estate firms 
can apply suitable methods in order to improve firms’ profits. 
.Growing Science, Canada by the authors; license 2020© 
Keywords: 
Supply chain finance 
Financial development 
Profitability 
Real estate 
Vietnam 
1. Introduction 
After the global financial crisis, Vietnam economy made an impressive recovery which has positive 
significant effects on real estate industry. That brings many opportunities for Vietnam’s real estate 
companies to extend its market. However, this extension also brings them big challenges, especially to 
their limited management skills, so it is compulsory to adjust their business operation and management 
skills, especially to improve capital approach ability in order to expand their financial capacities as well 
as markets. In specific, participating and completing supply chain finance (SCF) is the most concerned 
issue of real estate firms because these activities together with improving capital approach ability play 
vital roles in the process of market expansion. SCF brings companies more opportunities to access to 
capital (Marak & Pillai, 2019). The fact that SCF works ineffectively and capital approach ability is 
limited will increase risks or interruption in the operation of supply chain (Raddatz, 2010). Furthermore, 
SCF also brings companies more profits and efficiency (Lekkakos & Serrano, 2016). Especially, after 
an economic crisis, credit sources and trade credits from suppliers become constrained so it is even 
imperative for Vietnam economy which has just experienced that difficulty period from 2011 to 2012 
to complete SCF and raise capital approach ability. Moreover, supply chain finance allows its 
participants to reach their targets in cutting capital cost, optimizing working capital as well as boosting 
profits (Raghavan & Mishra, 2011). Despite its importance, supply chain finance has been a relatively 
new topic to most empirical studies (Caniato et al., 2016). Meanwhile, most of empirical research on 
SCF have not used data from financial statements in a wide range of companies, but only surveys or 
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in-depth interviews (Dong et al., 2007). The participation in SCF is not only to optimize companies’ 
working capital but also to access to medium-term and long-term bank loans. Consequently, national 
financial development really helps companies improve their capital approach abilities as well as profits. 
Especially for Vietnam, a developing country with a new stock market, credit source is a key factor in 
supplying capital for real estate firms. The economic recovery and financial development have been 
quite optimistic in recent years (Fig. 1). That contributes a lot in raising profits of real estate companies. 
Fig. 1. Financial development in Vietnam (Source: World Bank) 
To financial development, most empirical studies are mainly focused on analyzing its role in the 
economy. Meanwhile, its specific impact on firm profits has not been paid attention yet. Thus, this 
paper is conducted in the objective of giving empirical evidence on the impact of SCF and financial 
development on profitability of real estate firms. Its results are expected to help policymakers as well 
as managers at real estate firms acknowledge the importance of supply chain finance and financial 
development to firm profitability. 
2. Literature review and research hypothesis 
2.1. Supply chain finance and firm profitability 
Supply chain finance (SCF) has been brought in empirical research since the beginning of 21St century 
(Pfohl & Gomm, 2009). Accordingly, SCF is essential in providing both buyers and sellers with short-
term credit. SCF works effectively when being operated on the technological basis by automating all 
transactions and tracking the entire payment process. SCF helps reduce bankruptcy and uncertainty in 
the supply chain (Klapper, 2006) in order to stabilize the supply chain. SCF also contributes towards 
optimizing the company financial flows (Pfohl & Gomm, 2009). In other words, SCF aims to reduce 
capital cost, increase cash flow rate and increase financial relation among the supply chain participants 
(Wuttke et al., 2013). Specially, after some economic predicaments, the management aims to the 
improvement of supply chain finance (Polak  ... ofitability has rarely been researched despite their significant existence. 
Financial development is measured by indicator of domestic credit to private sector (% of GDP) (Lim, 
2018; Pradhan et al., 2018; Eren et al., 2019). Generally, the effective financial development can 
improve firm profitability, so the following hypothesis is suggested: 
H2: Financial development (FD) has a positive impact on firm profitability (P). 
3. Data and Methodology 
3.1. Data Collection 
The paper uses data from World Bank and financial statements of 35 real estate firms listed on Ho Chi 
Minh Stock Exchange which is the first centralized and biggest exchange in Vietnam. Its data covers 
the 2013-2017 period. Since 2013, Vietnam economy has firmly recovered after the difficult time, so 
this period is chosen to assure that the findings are stable and reflect the actual situations accurately. 
3.2. Methodology 
The author employs regression methods using panel data which consists of Pooled regression (Pooled 
OLS), Fixed effects model (FEM) and Random effects model (REM). In order to select the most 
appropriate model, F-test is used to giving a choice between Pooled OLS and FEM; meanwhile, 
Hausman test is used to choose between FEM and REM. 
Source: Compiled by the authors based on theory and prior literature. 
Fig. 3. Impact of cash conversion cycle and financial development on profitability 
Based on the most appropriate model, the author then conducts testing on multicollinearity, 
heteroscedasticity and autocorrelation among errors. After that, Generalized Method of Moment 
(GMM) is applied to resolve potential endogenous problems. According to Driffill et al. (1998), GMM 
Cash conversion cycle 
(CCC) 
Financial development (FD) 
Firm profitability 
(P) 
LEV, SIZE 
1H 
2H 
 40
is better than other regression methods using panel data in testing motion of financial variables. 
According to earlier findings, profitability is influenced by cash conversion cycle (CCC) which is an 
indicator of supply chain finance (SCF). Further, variable of financial development (FD) which is 
anticipated to affect firm profitability is brought in, too. Additionally, firm profitability may be also 
correlated with other firm-specific control variables, e.g. financial leverage (LEV), firm size (SIZE) 
(Gul et al., 2013). Consequently, the research model is estimated using the following equation: 
Pit = β0 + β1 CCCit + β2 FDit + β3 CAPit + β4 SIZEit + εit 
In which: 
Dependent variable: Firm profitability (P). 
Independent variables: Cash conversion cycle (CCC), financial development (FD). 
Control variables: Financial leverage (LEV), firm size (SIZE). 
Table 1 
Summary of variables 
Variables Code Measurements 
 Dependent variable 
Firm profitability P Net profit / Total assets 
Independent variables 
Cash conversion cycle CCC Days receivable + Days inventories - Days payable 
Day Receivable = (trade receivable / sales) * 365 
Days Inventory = (total inventories / cost of goods sold) * 365 
Days Payable = (trades payable / cost of goods sold) * 365 
Financial development FD Domestic credit to private sector / GDP 
Control variables 
Financial leverage LEV Total debt / Total assets 
Firm size SIZE Logarithm of total assets 
Source: Compiled by the authors based on theory and prior literature. 
4. Empirical Results 
Variable correlations are shown in Table 2: 
Table 2 
Variable correlations 
 P CCC FD LEV SIZE 
P 1.0000 
CCC -0.3204 1.0000 
FD 0.4919 -0.2052 1.0000 
LEV -0.1879 -0.0161 -0.0109 1.0000 
SIZE 0.2733 -0.3653 0.1114 0.1080 1.0000 
Source: Author's computed 
Table 2 indicates that variables of cash conversion cycle (CCC) and financial leverage (LEV) are 
negatively correlated with firm profitability (P). Meanwhile, variables of financial development (FD) 
and firm size (SIZE) have a positive association with firm profitability (P). Table 3 reveals no serious 
problems of multicollinearity and autocorrelation. However, heteroscedasticity has significance at the 
1% level. The paper uses Pooled regression (Pooled OLS), Fixed effects model (FEM) and Random 
effects model (REM). Results of Hausman test show REM is more appropriate. However, 
heteroscedasticity really exists in this model. Therefore, Generalized Method of Moment (GMM) is 
chosen to control this problem in order to assure stable and effective estimated results. 
Table 3 
Results of tests on multicollinearity, heteroscedasticity and autocorrelation 
Multicollinearity test Heteroscedasticity test Autocorrelation test Variable VIF 1/VIF 
CCC 1.19 0.8388 
Prob > chibar2 = 0.0000*** Prob > F = 0.2317 
SIZE 1.17 0.8546 
FD 1.05 0.9560 
LEV 1.01 0.9874 
Mean VIF = 1.11 
Note: *** indicates significance at the 1% level. Source: Author's computed 
T.N. Bui /Uncertain Supply Chain Management 8 (2020) 
41
Table 4 
Regression results 
P Pooled OLS FEM REM GMM 
Constant -42.8794*** -66.38501*** -49.0017*** -20.8736* 
CCC -0.0003** -8.37*10-6 -0.0002 -0.0003* 
FD 0.3112*** 0.3176*** 0.3177*** 0.1368* 
LEV -0.0599*** -0.0441 -0.0552** -0.0727*** 
SIZE 0.6882*** 1.5064** 0.8778*** 0.5288* 
R2 35.68% 44.55% 43.94% 
Significance level F(4, 170) = 23.57 Prob > F = 0.0000*** 
F(4, 136) = 27.32 
Prob > F= 0.0000*** 
Wald chi2(4) = 116.25 
Prob > chi2 = 0.0000*** 
Wald chi2(3) = 56.76 
Prob > chi2 = 0.0000*** 
F test Prob > F = 0.0000*** Hausman test Prob > chi2 = 0.3085 
Arellano-Bond test for AR(2) in first differences Pr > z = 0.673 
Sargan test Prob > chi2 = 0.534 Number of instruments = 10 Number of groups = 35 
Note: *, **, and *** indicate significance at the 10%, 5%, and 1% level, respectively. (Source: Author's computed) 
Also, according to Doytch and Uctum (2011), GMM can resolve potential endogenous problems. As 
can be seen in Table 4, the results of GMM are appropriate and utilizable. Accordingly, independent 
variable which is cash conversion cycle (CCC) exerts negative effects (-0.0003) on firm profitability 
(P) at the 10% level of significance. Independent variable of financial development (FD) has a positive 
influence (0.1368) on firm profitability (P) at the 10% level of significance. In addition, there exists a 
negative relationship (-0.0727) between financial leverage (LEV) and firm profitability (P) at the 1% 
significance level, and a positive correlation (0.5288) between firm size (SIZE) and firm profitability 
(P) at the 10% level of significance. Accordingly, the results reveal that supply chain finance and 
financial development play vital roles in improving profitability of real estate firms in Vietnam. 
About supply chain finance: Cash conversion cycle (CCC) negatively contributes to firm profitability 
(P), so the hypothesis H1 is accepted. This means that supply chain finance allows its participants to 
shorten cash conversion cycle, increase their working capital as well as maintain their funds in order to 
sufficiently supply to next operation cycle, reduce external sources, costs, risks and ultimately improve 
profits. This result supports what was reported by Gul et al. (2013), Zhang et al. (2019). 
About financial development: Financial development (FD) exerts positive effects on firm profitability 
(P), so the hypothesis H2 is accepted. This has not been found in earlier studies. Accordingly, it can be 
concluded that effective financial development helps firms access capital easily, especially medium-
term and long-term credits. Also, consumption on real estate will raise. Hence, it contributes to the 
profit improvement. 
5. Conclusions 
The results reveal that supply chain finance (SCF) and financial development are the key factors in 
improving profitability of real estate firms in Vietnam. Specifically, firm profitability (P) is negatively 
influenced by cash conversion cycle (CCC). Furthermore, it was positively affected by financial 
development (FD). This is a new finding of this study. Accordingly, this indicates that optimizing 
working capital by shortening cash conversion cycle and improving capital approach ability (medium-
term and long-term credits specially) will contribute to real estate firms in gaining more profits. 
Besides, financial leverage (LEV) has a negative impact and firm size (SIZE) has a positive impact on 
firm profitability (P). Based on these findings, policymakers and managers in real estate firms can 
recognize the effects of supply chain finance and financial development on firm profitability. Therefore, 
some implications of these results are suggested to improve profitability of real estate firms as follows: 
(1) To policymakers, it is necessary to establish suitable policies in the aim of effective financial 
development, so real estate firms can have more opportunities to access the capital, especially medium-
term and long-term credits; (2) To managers in real estate firms, it is essential to boost the participation 
and completion of supply chain finance. Concurrently, firm operational efficiency also needs improving 
to easily access to external sources, e.g. credits, capital raised though stock markets. This paper 
succeeds in giving empirical evidence regarding effects of supply chain finance and financial 
development on profitability of real estate firms. Nevertheless, the paper has its own limitations when 
excluding other control variables which may exert certain association on firm profitability (e.g. 
 42
macroeconomic factors) and firms in different fields so that comparison can be made. That will be an 
interesting research for future studies. 
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