To What Extent Changing Tax Policy and External Financing Influence the Risk Level of Viet Nam Insurance Industry During and After the Global Crisis

Review Article

Austin J Bus Adm Manage. 2018; 2(2): 1026.

To What Extent Changing Tax Policy and External Financing Influence the Risk Level of Viet Nam Insurance Industry During and After the Global Crisis

Huy DTN*

Chung Yuan Christian University for Class Lectures, Japan

*Corresponding author: Dinh Tran Ngoc Huy, Chung Yuan Christian University for Class Lectures, Japan

Received: March 29, 2018; Accepted: May 09, 2018; Published: May 16, 2018


Over past few years, the global financial crisis shows certain influence on emerging financial markets including Viet Nam. Therefore, this study chooses an analytical approach to give some systematic opinions on how many some certain determinants such as income tax and leverage, affect the level of market risk in listed insurance organizations.

First, it calculates equity and asset beta values in three (3) different scenarios of changing tax rates and changing the level of financial leverage.

Second, under 3 different scenarios of changing tax rates (20%, 25% and 28%), we recognized that there is not large disperse in equity beta values, estimated at 0,118 for current leverage situation.

Third, by changing tax rates in 3 scenarios (25%, 20% and 28%), we recognized both equity and asset beta mean values have positive relationship with the increasing level of tax rate.

Last but not least, this paper covers some ideas and policy suggestions.

JEL classification numbers: G00, G3, G30

Keywords: Risk management; Asset beta; Financial crisis; Corporate tax; Leverage


After financial crisis and reactions in financial industry taking place recently, we find out that there are signals of impacts of tax rates and the level of financial leverage on the fluctuations of market risk, measured by both equity and asset beta values. This leads to a question on using external debt of management team in a hope that the business market value can be recovered. Despite of trying to select an easy-reading writing style, there is still some academic words need to be explained in further.

The organization of paper contents is as following. As our previous series of paper, Research literature, issues, methodology and theories are covered in the first two sessions. Next, it followed by introduction of our empirical findings in session 3 (3rd). Continuously, session four (4) covers conclusion and policy suggestion. Before last, there are exhibit session which covers some calculated results of this paper’s analysis and comparison.

Preliminary Notes

Research issues

This research aims to figure out two (2) issues:

Issue 1: What happen to asset beta if both FL and tax rate change in 3 scenarios

Issue 2: What happen to equity beta if both FL and tax rate change in 3 scenarios

Literature review

John (1999) mentions a two-rate tax system where land is taxed at a higher rate than structures in his research on two-rate property tax effects on land development [1].

Smith (2004) mentions in Chicago, properties located in a designated TIF (Tax Increment Financing) district will exhibit higher rates of appreciation after the area is designated a qualifying TIF district when compared to those properties selling outside TIF districts, and when compared to properties that sell within TIF district boundaries prior to designation [2].

Anderson (2009) recognized that the user cost tax elasticities are relatively small while the expected house price inflation elasticity is substantially larger and therefore plays a greater role in affecting housing market demand.

McCarty (2012) stated there is evidence which suggests that for the most tax risky firms investors also apply a higher discount rate to estimations of future cash flows. Then, Vello and Martinez (2012) indicated there is a negative and significant relation between the market risk and the tax planning efficiency index of firms that have good governance practices [3-5].

Next, Madhou (2012) found out, for Australia firms over the period 2003-2008, those with low leverage appear to hold higher cash holdings than high leverage ones. Then, McCauley (2013) pointed that during calm periods, portfolio investment by real money and leveraged investors in advanced countries flow into emerging markets, leading to an asymmetric asset swap (risky emerging market assets against safe reserve currency assets) and leveraging up by emerging market central banks. Last but not least, Gunarathna (2013) found out in different industries in Sri Lanka, firm size does not significantly affect the financial risk, but the degree of financial leverage has a significant positive correlation with financial risk [6-10].

Conceptual theories

The tax system not only responds to the globalization but also affects national income, investment levels and risks of doing business. Furthermore, tax system can affect the investment return and the ratio of re-investment and business growth.

The using of leverage also could create both negative and positive effects on business operational results. A firm will make decision on significant amount of debt when it hopes ROA will be higher than the lending interest. Although Fl might increase or decrease ROE in different situations, at an ideal level of leverage, the firm will receive positive impact from FL on its ROE.


In this research, analytical research method is used, philosophical method is used and specially, scenario analysis method is used. Analytical data is from the situation of listed banking industry firms in VN stock exchange and applied current tax rate is 25%.

Main Results

Empirical research findings and discussion

Data used are from total 7 listed insurance industry companies on VN stock exchange (HOSE and HNX mainly). In the scenario 1, current tax rate is kept as 25% as in the 2011 financial statements which is used to calculate market risk (beta) while leverage degree is kept as current, then changed from 30% up to 20% down. Then, two (2) FL scenarios are changed up when tax rate is up to 30% and down to 20%. In summary, the below Tables 1-7 shows three (3) scenarios used for analyzing the risk level of these listed firms.