The research, which forms part of Pham’s doctoral work at National Economics University in Hanoi, analyzes a balanced panel of 135 Vietnamese listed industrial firms covering the period from 2016 to 2024. That window is analytically valuable because it spans years of robust pre-pandemic expansion, the sharp disruption of COVID-19, and the uneven recovery that followed. By holding the sample constant across all nine years, the authors ensure that every firm contributes equally to the analysis, avoiding the selection biases that can creep in when companies enter or exit a dataset mid-study. The result is a comprehensive portrait of how the financial anatomy of Vietnam’s industrial listed sector has evolved through one of the most turbulent stretches in modern economic history.

What sets the study apart methodologically is its three-stage analytical framework, which begins with a technique rarely applied to corporate finance in emerging markets: compositional data analysis. Financial statements are inherently compositional in nature, because the components of a balance sheet or income statement are constrained to sum to a fixed total. Treating raw ratios without accounting for this constraint can produce misleading statistical artifacts, a problem long recognized in fields like geology and ecology but often ignored in financial research. By applying compositional data methods, the authors respect the true geometry of financial statement data, ensuring that the relative structure of assets, liabilities, and equity is analyzed in a mathematically coherent way.

Building on that foundation, the researchers employed Ward’s hierarchical clustering to sort firm-year observations into recurring financial profiles. Ward’s method is a clustering algorithm that merges observations in a way that minimizes the increase in within-group variance at each step, producing compact and internally coherent groups. Rather than forcing firms into arbitrary categories defined by regulators or rating agencies, the clustering lets the data speak for itself, revealing natural groupings based on the relative composition of each firm’s financial statements. The analysis identified four distinct financial profiles, ranging from financially robust firms to the most vulnerable companies whose balance sheets signal elevated structural risk.

The second stage of the framework tackles a persistent problem in performance research: the proliferation of accounting ratios. Analysts can compute dozens of measures covering profitability, leverage, liquidity, efficiency, and growth, but these indicators overlap heavily and often move together in ways that obscure rather than clarify a firm’s true condition. Pham and Dao addressed this by applying principal component analysis to eleven accounting ratios, distilling them into three composite indices that capture the dominant dimensions of variation across the sample. The first index summarizes overall Performance, the second captures Financial Risk, and the third measures Management Efficiency. Principal component analysis works by identifying linear combinations of the original variables that explain the maximum possible variance, effectively compressing a crowded dashboard of ratios into a small set of orthogonal summary scores that retain most of the informational content.

With firms classified into profiles and composite indices constructed, the third stage estimated the relationships between financial risk, management efficiency, and performance using interactive two-way fixed-effects regression models. Fixed-effects models control for time-invariant characteristics of each firm and for shocks common to all firms in a given year, which helps isolate the genuine association between the explanatory indices and performance from confounding factors such as managerial quality or industry-wide cycles. The models included interaction terms between the indices and profile membership, allowing the strength of each relationship to differ across the four financial profiles. Standard errors were clustered at the firm level to account for serial correlation in the residuals of individual companies over time.

The headline findings are both intuitive and consequential. Financial risk was negatively associated with performance across all four profiles, confirming that firms carrying heavier structural financial burdens tend to underperform regardless of their position on the risk spectrum. Crucially, however, the strength of this adverse relationship was not uniform. The most financially vulnerable profile exhibited the strongest negative association, suggesting that risk is not merely a drag on performance but an increasingly punishing one as a firm’s balance sheet deteriorates. This nonlinearity carries a clear implication for investors and policymakers: the marginal cost of additional leverage or liquidity strain is highest precisely where firms can least afford it.

Management efficiency told a different story. The composite index of efficiency was positively associated with performance in several of the identified profiles, and the relationship was significantly stronger in the largest profile of firms. In other words, operational discipline, asset utilization, and cost control appear to translate into superior performance most powerfully for the broad middle of Vietnam’s industrial listed sector, where competitive pressures reward managerial skill most directly. For the smallest and most vulnerable groups, the payoff to efficiency gains appears more muted, possibly because structural financial fragility overwhelms the benefits of good management, or because such firms face constraints that prevent efficient practices from being fully exploited.

Robustness testing is where the study earns particular credibility. The authors re-estimated their models using Driscoll-Kraay inference, a technique designed to handle cross-sectional dependence in panel data, where shocks to one firm may spill over to others through supply chains, credit markets, or common exposure to macroeconomic conditions. They also considered lagged profile membership, addressing the concern that a firm’s current performance might influence its profile classification rather than the other way around. The main patterns remained broadly consistent under both checks, indicating that the core conclusions are not artifacts of a particular statistical assumption or of simultaneity between classification and outcomes.

The broader significance of the research extends beyond Vietnam’s borders. Emerging markets often lack the deep institutional infrastructure of developed economies, making it harder for investors, creditors, and regulators to distinguish genuinely resilient firms from those that merely look healthy on headline metrics. A profile-based approach offers a complementary lens: instead of asking whether a firm beats a uniform sector-wide benchmark, analysts can ask whether a firm’s financial structure, risk exposure, and management efficiency combine in ways characteristic of resilient or fragile archetypes. As Vietnam continues to attract foreign investment and its industrial firms take on longer-term sustainability-oriented projects, the capacity to match assessment methods to financial profiles may prove essential for channeling capital toward the companies best positioned to sustain growth through the next decade of global economic uncertainty.

Subject of Research: Financial performance assessment of Vietnamese listed industrial firms using compositional data analysis and principal component analysis

Article Title: Evaluating the financial performance of Vietnamese listed industrial firms using compositional data analysis and PCA indexing

Article References: Evaluating the financial performance of Vietnamese listed industrial firms using compositional data analysis and PCA indexing. (n.d.). https://doi.org/10.1007/s43621-026-04976-y

Image Credits: AI Generated

DOI: 10.1007/s43621-026-04976-y

Keywords: Vietnam, financial performance, compositional data analysis, principal component analysis, financial risk, management efficiency, hierarchical clustering, panel data, listed firms, industrial sector, corporate financial resilience, financial econometrics