The Effect of the Balance of Payments on Firm’s Cash Holdings: Evidence from Vietnam Stock Exchange

Abstract

This study investigates how the overall balance of payments influences corporate cash holdings in Vietnam—an emerging economy undergoing transition and marked by strong government presence in strategic sectors.
The study employs panel data from 613 listed firms in Vietnam covering the period 2009–2021. A fixed effects model is used to control for unobserved heterogeneity and to examine the causal effect of balance of payments dynamics on firm-level liquidity decisions. The results reveal a significant negative relationship between the overall balance of payments and corporate cash holdings. This effect is particularly pronounced among firms operating in highly competitive industries, firms with strong growth prospects, and non-state-owned enterprises. Macroeconomic factors, especially the balance of payments, play an important role in shaping corporate liquidity decisions. The findings emphasize that firms do not make cash-holding decisions in isolation but respond to broader economic conditions. The study provides valuable implications for both policymakers and corporate managers. It suggests the importance of incorporating macroeconomic indicators—especially the balance of payments—into financial planning, liquidity management, and strategic decision-making, particularly in contexts of market competition, growth orientation, and differing ownership structures.