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Does the implementation of internal controls promote firm profitability? Evidence from private Vietnamese small- and medium-sized enterprises (SMEs)

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  • Vu, Quang
  • Nga, Nguyen Thi Thuy

Abstract

Previous studies have not investigated whether firms can use internal control (IC) systems as a means to promote firm profitability. Applying an instrumental variable approach to the data on small and medium-sized enterprises (SMEs) in the Vietnamese manufacturing industry, this paper discovered that implementing ICs does improve firm profitability. This result is driven by several mechanisms. First, the use of ICs decreases bribery. Second, although ICs do not enable access to credit, they advance the formalization process and help firms gain government support. This suggests that in the context of ineffective institutions, firms can improve their financial performance by applying the appropriate IC systems.

Suggested Citation

  • Vu, Quang & Nga, Nguyen Thi Thuy, 2022. "Does the implementation of internal controls promote firm profitability? Evidence from private Vietnamese small- and medium-sized enterprises (SMEs)," Finance Research Letters, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:finlet:v:45:y:2022:i:c:s1544612321002506
    DOI: 10.1016/j.frl.2021.102178
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Internal controls (ICs); Bribery; Credit access; Firm profitability; Vietnam;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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