Study The Impact Of Financial Management Practices And Profitability Of Vietnam’s Small And Medium Enterprises

After two decades of reforming policy, building and developing the multi-sector market economy, Small and Medium Enterprises (SMEs) in Vietnam have developed strongly and contributed to increasing GDP, raising the nation’s volume of exports, and creating employment. However, SMEs have found difficulties on the way to development due to lack of financial resources and management experience, and due to uncertainty within the business environment. As a result, SMEs often faced obstacles during their operations. This thesis examines the relationship between financial management and profitability of SMEs to determine whether financial management practices impact on SME profitability.Objectives of the thesis are (1) to investigate and describe features of financial management practices of SMEs in Vietnam,(2) to develop and test a model of SME profitability, and (3) to contribute knowledge of the relationships between financial management practices to improve SME profitability by using tools of efficient financial management.The thesis begins by defining the research problem and questions, and providing a justification for the research study. The thesis also reviews the research background, and presents definitions of terms, significance and scope of the study, examines the economic background, business structure and the development of SMEs in Vietnam. It also reviews previous research related to financial management for SMEs in Vietnam to identify gaps between financial management for SMEs in Vietnam and financial management for SMEs worldwide.Next, it reviews financial management including financial management practices, financial leverages and profitability of SMEs to emphasize profitability and the impact of financial management practices on SME profitability and to build a model of the impact of financial management practices and financial leverages on SME profitability.After that, the thesis discusses aspects of the research methodology including research design, data collection and data analysis methods, and hypothesis testing to support the model. Objectives of this part are:(1) to justify the research methodology of this study,(2) to explain research methodology used in the study, and (3) to demonstrate how research design, and data collection and analysis can be utilized in this study.Data analysis and findings are presented in next part. It presents descriptive findings of financial management practices and SME profitability and findings of the research study related to testing the model of SME profitability. Objectives of this part are (1) to systematically present the descriptive findings of the research study,(2) to interpret significance of these findings based on data analysis,(3) to present the results of testing the model of SME profitability, and (4) to explain how the model, developed from a literature review, was supported by data analysis. Finally, the thesis ends with conclusions are summarized and applications of the research findings are indicated for the financial management practitioners. The thesis provides descriptive findings of financial management practices and demonstrates the simultaneous impact of financial management practices on SME profitability. In addition, the research study provides a model of SME profitability, in which profitability was found to be related to financial management practices. With the exception of debt ratios, all other variables including current ratio, total asset turnover, working capital management and short-term planning practices, fixed asset management and long-term planning practices, and financial and accounting information systems were found to be significantly related to SME profitability. With the findings as presented above, this study provides many implications for financial management practices of SMEs. The model of SME profitability can be used for actions to improve the profitability of SMEs in Vietnam.