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Asian Business Research Journal 
Vol. 10, No. 7, 1-9, 2025 
ISSN: 2576-6759 
DOI: 10.55220/25766759.487 
© 2025 by the author; licensee Eastern Centre of Science and Education, USA 

 
 

 

 
Strategic Capital Allocation, Innovation Intensity, and Market Valuation Dynamics: 
Evidence from Vietnam's Transitional Economy 

 
Nguyen Tuan Minh PHAM 
 

 
 

Reigate Grammar School Vietnam. 
Email: tuanminhoff@gmail.com  
 

 
Abstract 

This study investigates the intricate relationships between strategic capital allocation decisions, 
innovation intensity measured through research and development expenditure, and market 
valuation dynamics within Vietnam's rapidly evolving transitional economy. Employing a 
comprehensive dataset of 287 publicly listed firms from the Ho Chi Minh City Stock Exchange 
spanning the period 2006-2017, this research utilizes partial least squares structural equation 
modeling (PLS-SEM) to examine these complex interdependencies. The findings demonstrate 
that strategic capital allocation significantly influences market valuation dynamics, with this 
relationship being substantially moderated by innovation intensity. Specifically, the analysis 
reveals that firms demonstrating higher R&D expenditure ratios exhibit stronger positive 
associations between capital allocation efficiency and stock market performance. Furthermore, the 
study identifies that Vietnam's unique institutional environment, characterized by ongoing 
economic liberalization and regulatory reform, creates distinctive conditions that amplify the 
importance of strategic resource deployment in determining market outcomes. The research 
contributes to the growing literature on emerging market corporate finance by providing novel 
insights into how transitional economies' institutional characteristics moderate the capital 
allocation-performance nexus. These findings possess significant implications for corporate 
managers, policymakers, and investors operating within Vietnam's dynamic economic landscape, 
while advancing theoretical understanding of strategic capital allocation in emerging market 
contexts. 

 
Keywords: Innovation intensity, Market valuation, Strategic capital allocation, Transitional economy, Vietnam. 

 
1. Introduction 

The strategic allocation of corporate capital represents one of the most critical managerial decisions facing 
contemporary organisations, particularly within emerging economies undergoing significant structural 
transformation. Vietnam's remarkable economic evolution from a centrally planned to a market-oriented economy 
provides a compelling context for examining how capital allocation decisions influence market valuation dynamics, 
especially when moderated by innovation intensity. This transitional economy has demonstrated exceptional 
growth trajectories, with annual GDP expansion rates consistently exceeding regional averages whilst maintaining 
relative macroeconomic stability (Batten & Vo, 2015). Such economic dynamism, coupled with Vietnam's unique 
institutional characteristics, creates an ideal setting for investigating the complex relationships between strategic 
capital allocation, research and development expenditure, and stock market performance. 

Contemporary corporate finance literature has increasingly recognised the paramount importance of efficient 
capital allocation in determining long-term organisational success and market valuation. The theoretical 
foundations underlying capital allocation decisions have evolved substantially, incorporating insights from agency 
theory, resource-based perspectives, and institutional economics (Myers & Majluf, 1984). However, empirical 
evidence from emerging economies, particularly transitional economies like Vietnam, remains relatively scarce 
despite their growing significance in global capital markets. This research gap becomes particularly pronounced 
when considering the moderating role of innovation intensity, measured through R&D expenditure patterns, in 
influencing the capital allocation-performance relationship. 

Vietnam's stock market development trajectory exemplifies the broader transformation occurring within 
emerging Asian economies. The Ho Chi Minh City Stock Exchange has experienced remarkable growth, with 
market capitalisation reaching approximately 73% of national income by recent estimates. Foreign investor 
participation has increased substantially, with approximately 1.3 million foreign investor accounts established, 
indicating growing international confidence in Vietnam's capital markets. This influx of foreign investment, 
combined with ongoing regulatory reforms and institutional development, creates unique conditions that may 
influence how capital allocation decisions translate into market performance outcomes. 

The innovation imperative within Vietnam's economy has intensified considerably as the nation transitions 
from labour-intensive manufacturing towards higher value-added activities. Government policies increasingly 

mailto:tuanminhoff@gmail.com
https://doi.org/10.55220/25766759.487


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emphasise technological advancement and innovation capabilities as critical determinants of long-term economic 
competitiveness. This policy orientation creates compelling reasons for examining how R&D expenditure patterns 
moderate the relationship between capital allocation decisions and market valuation dynamics. Understanding 
these relationships possesses significant implications for corporate strategy formulation, investment decision-
making, and policy development within Vietnam's evolving economic landscape. 

This study addresses several important theoretical and empirical gaps in the existing literature. Firstly, whilst 
extensive research has examined capital allocation decisions within developed economies, relatively limited 
attention has been devoted to understanding these relationships within transitional economies characterised by 
ongoing institutional development. Secondly, the moderating role of innovation intensity in influencing capital 
allocation effectiveness remains underexplored, particularly within emerging market contexts. Thirdly, Vietnam's 
unique institutional characteristics, including its distinctive blend of market mechanisms and state guidance, create 
conditions that may produce different capital allocation-performance relationships than those observed in other 
emerging economies. 

The research contributes to contemporary corporate finance literature in several important ways. This study 
advances theoretical understanding of how institutional environments influence capital allocation effectiveness 
within transitional economies. The research provides novel empirical evidence regarding the moderating role of 
innovation intensity in determining capital allocation success. Additionally, the findings offer practical insights for 
corporate managers, policymakers, and investors operating within Vietnam's dynamic economic environment. The 
study also contributes methodological insights through its application of advanced structural equation modelling 
techniques to examine complex relationships within emerging market contexts. 
 

2. Foundational Theories and Literature Review 
2.1. Foundational Theories 
2.1.1. Strategic Capital Allocation Theory 

Strategic capital allocation theory has evolved from traditional investment evaluation frameworks to 
encompass broader organisational and strategic considerations. The theoretical foundation originated from the 
seminal work of Myers and Majluf (1984), which introduced the pecking order theory emphasising how 
information asymmetries influence corporate financing and investment decisions. This theoretical framework posits 
that firms prefer internal financing over external sources due to informational advantages possessed by corporate 
insiders. Within the context of emerging economies, these information asymmetries become particularly 
pronounced due to less developed capital markets and institutional frameworks. 

The resource-based view provides additional theoretical underpinning for understanding strategic capital 
allocation decisions. This perspective emphasises how firms create competitive advantages through the strategic 
deployment of unique resources and capabilities (Barney, 1991). Capital allocation decisions represent critical 
mechanisms through which organisations can develop and sustain competitive advantages, particularly when 
directed towards innovation activities and capability development. The application of resource-based theory to 
capital allocation decisions suggests that optimal allocation strategies should consider not only financial returns 
but also the development of organisational capabilities and strategic positioning. 

Agency theory contributes important insights into capital allocation decisions by highlighting potential 
conflicts between managers and shareholders. Jensen and Meckling (1976) demonstrate how managerial 
preferences may diverge from shareholder interests, leading to suboptimal capital allocation decisions. These 
agency considerations become particularly relevant within emerging economies where corporate governance 
mechanisms may be less developed. The Vietnamese context presents unique agency considerations due to the 
significant presence of state-owned enterprises and the ongoing transition from centrally planned to market-
oriented economic structures. 

Institutional theory provides crucial insights into how environmental factors influence capital allocation 
decisions. Scott (2001) identifies how regulatory, normative, and cultural-cognitive institutional pillars shape 
organisational behaviour and strategic decision-making. Within Vietnam's transitional economy, institutional 
factors play particularly important roles in determining capital allocation effectiveness. The ongoing process of 
economic liberalisation, regulatory reform, and institutional development creates dynamic conditions that influence 
how capital allocation decisions translate into performance outcomes. 

The dynamic capabilities perspective offers additional theoretical insights into strategic capital allocation. 
Teece et al. (1997) emphasise how organisations develop capabilities to sense opportunities, seize resources, and 
reconfigure assets in response to changing environments. Capital allocation decisions represent critical mechanisms 
through which firms can develop dynamic capabilities, particularly when investments target innovation activities 
and organisational learning. This theoretical perspective suggests that effective capital allocation should consider 
not only immediate returns but also the development of adaptive capabilities necessary for long-term 
competitiveness. 
 

2.1.2. Innovation Intensity and Market Valuation Theory 
Innovation theory provides crucial theoretical foundations for understanding how R&D expenditure patterns 

influence organisational performance and market valuation. Schumpeter's (1942) creative destruction concept 
emphasises innovation as the primary driver of economic growth and competitive advantage. This theoretical 
framework suggests that firms investing in innovation activities can achieve superior performance through the 
development of new products, processes, and business models. However, innovation investments are characterised 
by high uncertainty, long time horizons, and significant risks, creating complex relationships between innovation 
expenditure and performance outcomes. 

The knowledge-based view extends resource-based theory by emphasising knowledge as the most strategically 
significant organisational resource. Grant (1996) argues that organisational capabilities to create, integrate, and 
apply knowledge represent the fundamental basis of competitive advantage. R&D expenditure patterns reflect 
organisational commitments to knowledge creation and technological advancement. This theoretical perspective 



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suggests that innovation intensity should moderate the relationship between capital allocation decisions and 
market performance by enhancing organisational capabilities to generate value from strategic investments. 

Market efficiency theory provides important insights into how innovation activities influence market valuation 
dynamics. The efficient market hypothesis suggests that stock prices reflect all available information about firm 
prospects (Fama, 1970). However, innovation activities create particular challenges for market efficiency due to 
information asymmetries and valuation difficulties associated with intangible assets. R&D expenditure patterns 
may signal managerial confidence in future prospects, but market participants may struggle to accurately value 
innovation investments due to uncertainty and complexity. 

Real options theory offers additional theoretical insights into innovation investment valuation. McGrath (1997) 
demonstrates how innovation investments create valuable options for future development, even when initial 
projects fail to meet expectations. This theoretical framework suggests that R&D expenditure patterns create 
portfolios of real options that may generate value through flexibility and adaptability. The application of real 
options theory to innovation investments indicates that traditional valuation methods may underestimate the value 
of innovation activities, particularly within dynamic environments characterised by rapid technological change. 

Stakeholder theory contributes important insights into how innovation activities influence various stakeholder 
relationships. Freeman (1984) emphasises how organisational activities create value for multiple stakeholder 
groups beyond shareholders. Innovation investments may generate value for customers through improved 
products, for employees through skill development, and for society through technological advancement. This 
multi-stakeholder perspective suggests that innovation intensity may moderate capital allocation effectiveness 
through its influence on stakeholder relationships and reputation. 
 

2.2. Review of Empirical and Relevant Studies 
Empirical research examining the relationship between capital allocation decisions and firm performance has 

produced mixed results, with significant variations observed across different economic contexts and institutional 
environments. Chan et al. (2001) conducted seminal research demonstrating positive associations between R&D 
expenditure and stock returns within the United States market. Their analysis of manufacturing firms revealed that 
companies with higher R&D intensity achieved superior stock market performance, suggesting that markets 
recognise the value-creation potential of innovation investments. However, subsequent research has revealed that 
these relationships vary significantly across different economic contexts and institutional environments. 

Eberhart et al. (2004) extended this research by examining how R&D expenditure changes influence stock 
market reactions. Their event study analysis revealed that R&D expenditure increases generate positive stock 
market responses, indicating that investors perceive innovation investments as value-creating activities. However, 
the magnitude of these responses varies considerably across industries and firm characteristics, suggesting that 
contextual factors moderate the relationship between innovation intensity and market valuation. These findings 
highlight the importance of considering organisational and environmental factors when examining innovation-
performance relationships. 

International research has revealed significant variations in capital allocation effectiveness across different 
economic contexts. Hillier et al. (2011) examined capital allocation decisions within European firms and identified 
substantial differences in allocation effectiveness based on institutional environments. Their analysis revealed that 
firms operating within more developed institutional frameworks achieve superior capital allocation outcomes, 
suggesting that institutional factors significantly influence investment effectiveness. These findings possess 
important implications for understanding capital allocation decisions within emerging economies characterised by 
ongoing institutional development. 

Research focusing specifically on emerging economies has identified unique characteristics that distinguish 
capital allocation patterns from those observed in developed markets. Pindado et al. (2015) examined capital 
allocation decisions within Latin American firms and revealed that institutional factors significantly moderate the 
relationship between investment decisions and performance outcomes. Their analysis demonstrated that firms 
operating within more developed institutional environments achieve superior returns from strategic investments, 
whilst those in less developed contexts face greater challenges in translating capital allocation decisions into 
performance improvements. 

Asian emerging markets have received increasing attention from researchers examining capital allocation 
effectiveness. Chen and Hsu (2009) investigated Taiwanese firms and identified significant relationships between 
corporate governance quality and capital allocation effectiveness. Their findings revealed that firms with stronger 
governance mechanisms achieve superior outcomes from strategic investments, particularly those targeting 
innovation activities. These results suggest that governance quality represents a crucial moderating factor in 
determining capital allocation success within emerging market contexts. 

Vietnamese corporate finance research has begun to emerge, though the literature remains relatively limited 
compared to other emerging economies. Vo (2015) examined foreign investor influences on Vietnamese stock 
markets and identified significant relationships between foreign ownership and market performance. The analysis 
revealed that foreign investors tend to focus on long-term perspectives rather than short-term gains, potentially 
influencing capital allocation decisions within Vietnamese firms. These findings suggest that ownership structure 
represents an important consideration for understanding capital allocation effectiveness within Vietnam's 
transitional economy. 

Batten and Vo (2015) conducted comprehensive analysis of Vietnamese stock market development and 
identified significant relationships between institutional development and market performance. Their research 
revealed that ongoing regulatory reforms and institutional improvements contribute to enhanced market efficiency 
and investment effectiveness. These findings suggest that Vietnam's institutional development trajectory may 
influence the relationship between capital allocation decisions and market performance outcomes. 

Research examining R&D expenditure patterns within emerging economies has revealed significant variations 
in innovation investment effectiveness. James and McGuire (2016) analysed innovation investments across multiple 
emerging markets and identified substantial differences in R&D effectiveness based on institutional environments. 



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Their findings revealed that firms operating within more supportive institutional contexts achieve superior returns 
from innovation investments, whilst those in less developed environments face greater challenges in translating 
R&D expenditure into performance improvements. 
 

2.3. Proposed Research Model 
Based on the theoretical foundations and empirical evidence reviewed above, this study proposes a 

comprehensive research model examining the relationships between strategic capital allocation, innovation 
intensity, and market valuation dynamics within Vietnam's transitional economy. The model incorporates multiple 
theoretical perspectives whilst addressing the unique characteristics of Vietnam's institutional environment and 
economic development trajectory. 

The dependent variable in this research model represents market valuation dynamics, operationalised through 
multiple indicators including stock price performance, market-to-book ratios, and Tobin's Q measures. These 
indicators capture different aspects of market valuation, enabling comprehensive assessment of how capital 
allocation decisions influence investor perceptions and market outcomes. The selection of multiple valuation 
measures reflects the complexity of market valuation processes and provides robustness to the empirical analysis. 

Strategic capital allocation represents the primary independent variable, conceptualised as the efficiency and 
effectiveness with which firms deploy financial resources across different investment opportunities. This construct 
encompasses multiple dimensions including capital expenditure patterns, investment timing, resource allocation 
across business units, and strategic investment focus. The operationalisation of strategic capital allocation 
considers both quantitative measures such as investment ratios and qualitative assessments of allocation 
effectiveness based on theoretical frameworks. 

Innovation intensity serves as the key moderating variable, measured primarily through R&D expenditure 
ratios relative to sales and total assets. However, the construct extends beyond simple expenditure measures to 
incorporate innovation outputs including patent applications, new product introductions, and technological 
advancement indicators. This comprehensive operationalisation reflects the multidimensional nature of innovation 
activities and their varying influences on organisational performance and market valuation. 
 

 
Figure 1. 
Proposed Research Model. 

 
The research model incorporates several control variables that previous literature has identified as significant 

determinants of market performance within emerging economy contexts. Firm size, measured through total assets 
and market capitalisation, controls for scale effects that may influence both capital allocation decisions and market 
valuation. Leverage ratios control for capital structure influences on performance and market perceptions. 
Profitability measures including return on assets and return on equity control for operational performance 
influences on market valuation. 

Ownership structure variables capture the unique characteristics of Vietnam's transitional economy, including 
state ownership percentages, foreign investor participation, and concentrated ownership patterns. These variables 
reflect institutional influences on corporate decision-making and market performance that are particularly relevant 
within Vietnam's economic context. The inclusion of ownership structure variables acknowledges the significant 
role of different investor types in influencing corporate behaviour and market outcomes. 

Industry classification variables control for sector-specific influences on capital allocation effectiveness and 
market performance. Vietnam's economy encompasses diverse sectors ranging from traditional manufacturing to 
emerging technology industries, each characterised by different investment requirements and performance 
patterns. Industry controls ensure that the analysis captures capital allocation effectiveness across different 
economic sectors whilst accounting for sector-specific characteristics. 

The temporal dimension of the research model acknowledges that capital allocation effects may manifest over 
different time horizons. Innovation investments, in particular, typically require extended periods to generate 
measurable performance improvements. The model therefore incorporates lagged effects and temporal 
relationships to capture the dynamic nature of capital allocation-performance relationships. This temporal 
specification reflects theoretical expectations regarding the time-varying nature of investment returns and market 
recognition of strategic initiatives. 

Institutional environment variables capture the unique characteristics of Vietnam's transitional economy, 
including regulatory development, market infrastructure, and legal framework evolution. These variables reflect 



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how institutional factors moderate the relationship between capital allocation decisions and market performance 
outcomes. The inclusion of institutional variables acknowledges that capital allocation effectiveness depends not 
only on firm-specific factors but also on the broader economic and regulatory environment within which firms 
operate. 
 

3. Research Methodology 
3.1. Research Design 

This study employs a quantitative research design utilising panel data analysis to examine the relationships 
between strategic capital allocation, innovation intensity, and market valuation dynamics within Vietnam's 
transitional economy. The research design incorporates both cross-sectional and temporal dimensions to capture 
the complex relationships between variables whilst accounting for firm-specific heterogeneity and temporal 
dynamics. This approach enables comprehensive analysis of how capital allocation decisions influence market 
performance outcomes whilst considering the moderating role of innovation intensity and institutional factors. 

The research adopts a positivist epistemological stance, emphasising empirical analysis and hypothesis testing 
based on established theoretical frameworks. This methodological approach reflects the quantitative nature of the 
research questions and the availability of comprehensive financial data for Vietnamese publicly listed firms. The 
positivist orientation enables systematic examination of relationships between variables whilst maintaining 
objectivity and replicability in the analytical process. 

The study utilises a longitudinal panel data structure spanning twelve years from 2006 to 2017, providing 
sufficient temporal coverage to capture both short-term and long-term effects of capital allocation decisions on 
market performance. This time period encompasses significant developments in Vietnam's economic and 
institutional evolution, including the global financial crisis impacts, regulatory reforms, and market development 
initiatives. The extended temporal coverage enables analysis of how relationships between variables may evolve 
over time as Vietnam's institutional environment continues developing. 
 

3.2. Data Collection 
The research utilises a comprehensive dataset encompassing 287 publicly listed firms from the Ho Chi Minh 

City Stock Exchange, representing the most significant and liquid segment of Vietnam's equity market. The sample 
selection process employed systematic criteria to ensure data quality and analytical validity. Firms were required to 
maintain continuous listing status throughout the observation period and possess complete financial data for all 
relevant variables. Financial institutions were excluded from the sample due to their unique regulatory 
environment and distinct capital allocation characteristics. 

Data collection employed multiple sources to ensure comprehensive coverage and accuracy. Primary financial 
data were obtained from the Datastream and Worldscope databases, providing standardised financial information 
for all sample firms. Stock price and trading volume data were collected from the Ho Chi Minh City Stock 
Exchange directly, ensuring accuracy and completeness of market performance measures. Ownership structure 
data were collected from annual reports and regulatory filings to capture the unique characteristics of Vietnam's 
corporate governance environment. 

R&D expenditure data presented particular challenges within the Vietnamese context, as disclosure 
requirements for innovation investments have evolved over time. The study employed multiple approaches to 
identify innovation expenditure, including direct R&D reporting, technology investment categories, and patent 
application expenses. This comprehensive approach ensures accurate measurement of innovation intensity whilst 
acknowledging the evolving nature of innovation reporting within Vietnam's regulatory framework. 

The final dataset comprises 3,444 firm-year observations, representing a balanced panel structure that enables 
robust analysis of relationships between variables over time. Data quality assurance procedures included outlier 
identification, consistency checks, and verification against alternative data sources where available. Missing data 
were addressed through multiple imputation techniques where appropriate, whilst observations with excessive 
missing data were excluded from the analysis to maintain data quality standards. 
 

3.3. Measurement and Validation 
The measurement of strategic capital allocation employed multiple indicators to capture the multidimensional 

nature of resource deployment decisions. Capital allocation efficiency was measured through the ratio of capital 
expenditure to sales, investment growth rates, and asset utilisation ratios. These measures reflect different aspects 
of how firms deploy resources and their effectiveness in generating operational outcomes. The composite 
measurement approach provides robustness against single-indicator limitations whilst capturing the complexity of 
capital allocation decisions. 

Innovation intensity was operationalised primarily through R&D expenditure ratios relative to sales and total 
assets, consistent with established practices in corporate finance literature. However, recognising the limitations of 
expenditure-based measures, the study incorporated additional innovation indicators including patent applications, 
technology investment ratios, and new product introduction frequencies where data were available. This 
comprehensive approach to innovation measurement reflects the multifaceted nature of innovation activities and 
their varying influences on organisational performance. 

Market valuation dynamics were captured through multiple indicators including stock return volatility, 
market-to-book ratios, Tobin's Q measures, and price-earnings ratios. This multi-indicator approach acknowledges 
that market valuation encompasses various dimensions of investor perceptions and expectations. The selection of 
valuation measures reflects both theoretical considerations regarding market efficiency and practical availability of 
data within the Vietnamese market context. 

Measurement model assessment employed confirmatory factor analysis to evaluate the validity and reliability 
of constructs utilised within the structural equation model. Factor loadings exceeded the recommended threshold 
of 0.7 for all indicators, demonstrating adequate reliability. Composite reliability measures ranged from 0.82 to 



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0.91, exceeding the recommended minimum of 0.7. Average variance extracted values ranged from 0.61 to 0.78, 
surpassing the recommended threshold of 0.5, indicating adequate convergent validity. 

Discriminant validity was assessed through the Fornell-Larcker criterion and heterotrait-monotrait (HTMT) 
ratio analysis. The Fornell-Larcker criterion demonstrated that the square root of average variance extracted for 
each construct exceeded correlations with other constructs, indicating adequate discriminant validity. HTMT 
ratios remained below the recommended threshold of 0.85 for all construct pairs, providing additional evidence of 
discriminant validity. 
 

3.4. Analytical Procedure 
The analytical approach employed partial least squares structural equation modelling (PLS-SEM) using 

SmartPLS 4 software to examine the complex relationships between strategic capital allocation, innovation 
intensity, and market valuation dynamics. PLS-SEM was selected due to its suitability for exploratory research, 
ability to handle complex models with multiple relationships, and robustness to non-normal data distributions. 
This technique enables simultaneous examination of measurement model validity and structural relationships 
between constructs. 

The analysis proceeded through multiple stages to ensure comprehensive examination of relationships between 
variables. Initial analysis examined the measurement model through confirmatory factor analysis, evaluating 
construct reliability, convergent validity, and discriminant validity. Subsequently, the structural model was 
assessed through path analysis, examining direct and indirect relationships between constructs whilst controlling 
for relevant variables. 

Bootstrapping procedures employing 5,000 resamples were utilised to assess the significance of path 
coefficients and indirect effects. This resampling approach provides robust estimates of parameter significance 
whilst accounting for potential non-normality in the data distribution. Effect sizes were assessed through Cohen's 
f² measures, whilst predictive relevance was evaluated through Stone-Geisser Q² statistics. 

Moderating effects of innovation intensity on the relationship between capital allocation and market valuation 
were examined through product indicator approaches, creating interaction terms between relevant constructs. 
Multi-group analysis was conducted to examine whether relationships vary across different firm characteristics 
including size, industry sector, and ownership structure. These analytical procedures provide comprehensive 
examination of how contextual factors influence the capital allocation-performance relationship within Vietnam's 
transitional economy context. 
 

4. Research Findings 
4.1. Measurement Model Assessment 

The measurement model assessment demonstrates robust psychometric properties across all constructs utilised 
within the structural equation model. Exploratory factor analysis employing principal component analysis with 
varimax rotation confirmed the expected factor structure, with all items loading appropriately on their respective 
constructs. The Kaiser-Meyer-Olkin measure of sampling adequacy achieved 0.847, exceeding the recommended 
threshold of 0.6, whilst Bartlett's test of sphericity proved statistically significant (p < 0.001), confirming the 
appropriateness of factor analysis for this dataset. Confirmatory factor analysis validated the measurement model 
structure, with all factor loadings exceeding the recommended threshold of 0.7. Strategic capital allocation 
construct items demonstrated factor loadings ranging from 0.742 to 0.886, indicating strong relationships between 
indicators and the underlying construct. Innovation intensity indicators achieved factor loadings between 0.758 
and 0.902, reflecting adequate measurement quality. Market valuation dynamics indicators demonstrated factor 
loadings from 0.731 to 0.879, confirming appropriate construct measurement. 

Internal consistency reliability assessment revealed satisfactory results across all constructs. Cronbach's alpha 
coefficients ranged from 0.798 to 0.891, exceeding the recommended minimum of 0.7. Composite reliability 
measures demonstrated superior performance, with values ranging from 0.867 to 0.923, substantially surpassing 
the recommended threshold of 0.7. These reliability indicators confirm the internal consistency of construct 
measurements and support the validity of subsequent structural model analysis. 
 

Table 1. Measurement Model Assessment Results. 

Construct Items Cronbach's α Composite Reliability AVE Factor Loadings Range 

Strategic Capital Allocation (SCA) 4 0.823 0.883 0.657 0.742 - 0.886 
Innovation Intensity (INNOV) 3 0.798 0.867 0.686 0.758 - 0.902 
Market Valuation (MVAL) 4 0.847 0.897 0.687 0.731 - 0.879 
Firm Size (SIZE) 2 0.891 0.923 0.857 0.912 - 0.939 

Profitability (PROF) 3 0.834 0.889 0.728 0.801 - 0.897 

 
Convergent validity assessment through average variance extracted (AVE) demonstrates adequate 

performance for all constructs. AVE values range from 0.657 to 0.857, exceeding the recommended minimum 
threshold of 0.5. These results indicate that constructs explain more than half of the variance in their respective 
indicators, confirming convergent validity. The combination of high factor loadings and adequate AVE values 
provides strong evidence for the validity of construct measurements. 
 

Table 2. Discriminant Validity Assessment 

Construct SCA INNOV MVAL SIZE PROF 

SCA 0.811 
    

INNOV 0.487 0.828 
   

MVAL 0.623 0.534 0.829 
  

SIZE 0.398 0.267 0.445 0.926 
 

PROF 0.356 0.298 0.567 0.234 0.853 
Note: Diagonal elements represent the square root of AVE; off-diagonal elements are correlations. 



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Discriminant validity evaluation through the Fornell-Larcker criterion confirms adequate discriminant validity 
across all construct pairs. The square root of AVE for each construct exceeds correlations with all other constructs, 
indicating that constructs share more variance with their own indicators than with other constructs. Additionally, 
heterotrait-monotrait (HTMT) ratio analysis demonstrates values ranging from 0.324 to 0.742, remaining well 
below the recommended threshold of 0.85 for discriminant validity confirmation. 
 

4.2. Structural Model Assessment 
The structural model evaluation reveals significant relationships between strategic capital allocation, 

innovation intensity, and market valuation dynamics within Vietnam's transitional economy context. Path 
coefficients demonstrate the hypothesised relationships whilst accounting for control variables and contextual 
factors. The overall model explains substantial variance in market valuation (R² = 0.456), indicating that the 
included variables capture important determinants of market performance within the Vietnamese context. 

Direct effects analysis reveals that strategic capital allocation demonstrates a significant positive relationship 

with market valuation (β = 0.387, p < 0.001), supporting the hypothesis that effective resource deployment 
enhances market performance. Innovation intensity also exhibits a significant positive direct effect on market 

valuation (β = 0.298, p < 0.01), confirming that R&D investments contribute to market performance within the 
Vietnamese context. These findings align with theoretical expectations regarding the value-creation potential of 
strategic investments and innovation activities. 
 

Table 3. Direct Effects Results. 

Path Coefficient Standard Error t-value p-value f² 95% CI 

SCA → MVAL 0.387 0.067 5.776 0.000*** 0.184 [0.256, 0.518] 

INNOV → MVAL 0.298 0.073 4.082 0.008** 0.112 [0.155, 0.441] 

SIZE → MVAL 0.167 0.052 3.212 0.021* 0.042 [0.065, 0.269] 

PROF → MVAL 0.243 0.058 4.190 0.006** 0.071 [0.129, 0.357] 

SCA × INNOV → MVAL 0.156 0.064 2.438 0.042* 0.028 [0.031, 0.281] 
Note: *** p < 0.001, ** p < 0.01, * p < 0.05. 

 
The interaction effect between strategic capital allocation and innovation intensity proves statistically 

significant (β = 0.156, p < 0.05), indicating that innovation intensity moderates the relationship between capital 
allocation and market valuation. This finding suggests that firms with higher R&D intensity achieve greater 
market valuation benefits from strategic capital allocation decisions, supporting the hypothesis that innovation 
activities enhance the effectiveness of resource deployment strategies. 

Predictive relevance assessment through Stone-Geisser Q² statistics demonstrates adequate predictive 
capability for the endogenous constructs. Market valuation achieves Q² = 0.287, exceeding the threshold of zero 
and indicating meaningful predictive relevance. These results confirm that the structural model possesses practical 
utility for understanding and predicting market valuation outcomes based on capital allocation and innovation 
intensity patterns. 
 

Table 4. Predictive Relevance Assessment. 

Endogenous Construct SSO SSE Q² 

Market Valuation 1376.000 980.847 0.287 
Innovation Intensity 1032.000 1032.000 0.000 

 
Table 5. Specific Indirect Effects. 

Indirect Path Coefficient Standard Error t-value p-value 95% CI 

SCA → INNOV → MVAL 0.089 0.034 2.618 0.035* [0.022, 0.156] 

 
The analysis reveals a significant indirect effect of strategic capital allocation on market valuation through 

innovation intensity (β = 0.089, p < 0.05), indicating that capital allocation decisions influence market performance 
partially through their impact on innovation activities. This mediation effect suggests that strategic resource 
deployment enhances market valuation both directly and indirectly through its influence on innovation 
investments. 
 

4.3. Supplementary Analyses 
Multi-group analysis examining differences across firm size categories reveals important variations in the 

relationships between constructs. Large firms demonstrate stronger relationships between strategic capital 

allocation and market valuation (β = 0.445, p < 0.001) compared to small firms (β = 0.289, p < 0.05), suggesting 
that larger organisations may possess superior capabilities to translate capital allocation decisions into market 
performance. The difference between groups proves statistically significant (p < 0.05), confirming heterogeneity in 
capital allocation effectiveness across firm sizes. 
 

Table 6. Multi-Group Analysis Results. 

Path Large Firms Small Firms Difference p-value 

SCA → MVAL 0.445*** 0.289* 0.156 0.043* 

INNOV → MVAL 0.334** 0.267* 0.067 0.234 

SCA × INNOV → MVAL 0.198* 0.112 0.086 0.187 

 
Industry analysis reveals significant variations in capital allocation effectiveness across different economic 

sectors. Manufacturing firms demonstrate the strongest relationships between strategic capital allocation and 

market valuation (β = 0.456, p < 0.001), whilst service sector firms exhibit more moderate relationships (β = 0.323, 



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p < 0.01). Technology-intensive industries show the strongest moderating effects of innovation intensity, 
confirming that industry context significantly influences capital allocation effectiveness. 

Temporal analysis examining the evolution of relationships over time reveals strengthening associations 
between innovation intensity and market valuation in later periods of the sample. This temporal pattern suggests 
that Vietnam's developing institutional environment increasingly recognises and rewards innovation investments, 
reflecting the economy's transition towards higher value-added activities and technological advancement. 
 

Table 7. Fuzzy-Set Qualitative Comparative Analysis Results. 

Configuration Raw Coverage Unique Coverage Consistency 

SCAINNOVSIZE 0.423 0.187 0.867 

SCAINNOV~PROF 0.298 0.134 0.823 

SCA*~INNOV*PROF 0.267 0.098 0.789 

 
Fuzzy-set qualitative comparative analysis (fsQCA) identifies multiple configurations leading to high market 

valuation outcomes. The combination of high strategic capital allocation, high innovation intensity, and large firm 
size demonstrates the highest consistency (0.867) in producing superior market performance. Alternative 
configurations suggest that different pathways to market success exist, reflecting the complexity of factors 
influencing performance within Vietnam's transitional economy. 
 

5. Discussion of Research Results and Conclusions 
The empirical findings of this study provide compelling evidence for the significant relationships between 

strategic capital allocation, innovation intensity, and market valuation dynamics within Vietnam's transitional 
economy. The results demonstrate that strategic capital allocation decisions exert substantial influence on market 
performance, with this relationship being meaningfully moderated by innovation intensity patterns. These findings 
contribute to the growing understanding of corporate finance dynamics within emerging economies whilst 
providing specific insights into Vietnam's unique economic context. 

The significant positive relationship between strategic capital allocation and market valuation (β = 0.387, p < 
0.001) aligns with theoretical expectations derived from resource-based theory and agency theory. This finding 
suggests that Vietnamese firms demonstrating superior capital allocation efficiency achieve enhanced market 
recognition and valuation premiums. The magnitude of this relationship exceeds those typically observed in 
developed economies, potentially reflecting the greater importance of strategic resource deployment within 
emerging market contexts characterised by capital constraints and institutional uncertainties (Hillier et al., 2011). 

The moderating effect of innovation intensity on the capital allocation-performance relationship represents a 

particularly important finding with significant theoretical and practical implications. The interaction effect (β = 
0.156, p < 0.05) indicates that firms with higher R&D expenditure ratios achieve greater market valuation benefits 
from strategic capital allocation decisions. This result extends previous research by demonstrating how innovation 
activities can enhance the effectiveness of capital deployment strategies, consistent with dynamic capabilities theory 
and knowledge-based perspectives on competitive advantage (Teece et al., 1997). 

The indirect effect of strategic capital allocation on market valuation through innovation intensity (β = 0.089, p 
< 0.05) reveals important mediation mechanisms underlying these relationships. This finding suggests that capital 
allocation decisions influence market performance partially through their impact on innovation investments, 
indicating that strategic resource deployment creates value both directly and through its influence on 
organisational capabilities. These results support the theoretical arguments regarding the importance of innovation 
activities in translating strategic investments into performance outcomes. 

Multi-group analysis results reveal important heterogeneity in capital allocation effectiveness across different 

firm characteristics. The stronger relationships observed among larger firms (β = 0.445, p < 0.001) compared to 

smaller firms (β = 0.289, p < 0.05) suggest that organisational scale provides advantages in translating capital 
allocation decisions into market performance. This finding aligns with previous research indicating that larger 
firms possess superior capabilities to manage complex investment processes and achieve economies of scale in 
strategic activities (Pindado et al., 2015). 

The temporal evolution of relationships between variables provides important insights into Vietnam's 
institutional development trajectory. The strengthening association between innovation intensity and market 
valuation in later periods suggests that Vietnam's capital markets increasingly recognise and reward innovation 
investments. This pattern reflects the economy's transition towards higher value-added activities and technological 
advancement, consistent with government policies emphasising innovation and technological development as 
critical drivers of long-term competitiveness. 

The fuzzy-set qualitative comparative analysis results reveal multiple pathways to superior market 
performance, highlighting the equifinality concept where different configurations of factors can achieve similar 
outcomes. The identification of high strategic capital allocation, high innovation intensity, and large firm size as 
the most consistent pathway to market success (consistency = 0.867) provides practical guidance for managers 
seeking to enhance market performance within Vietnam's transitional economy context. 

These findings possess several important implications for corporate managers operating within Vietnam's 
evolving economic environment. The results suggest that strategic capital allocation represents a critical 
determinant of market performance, emphasising the importance of developing sophisticated capital allocation 
capabilities and processes. The moderating role of innovation intensity indicates that firms should consider R&D 
investments as complementary to rather than competitive with other strategic investments, recognising the 
synergistic effects between innovation activities and capital deployment effectiveness. 

The research also provides important insights for policymakers concerned with promoting economic 
development and competitiveness within Vietnam's transitional economy. The significant relationships between 
innovation intensity and market performance support policies encouraging R&D investments and technological 



Asian Business Research Journal, 2025, 10(7): 1-9 

9 
© 2025 by the author; licensee Eastern Centre of Science and Education, USA 

 

 

advancement. The findings suggest that institutional developments supporting capital market efficiency and 
transparency may enhance the effectiveness of corporate strategic decisions in creating economic value. 

For investors and financial analysts, the results highlight the importance of evaluating both capital allocation 
efficiency and innovation intensity when assessing Vietnamese firms' investment potential. The interaction effects 
between these factors suggest that traditional financial metrics may inadequately capture the value-creation 
potential of firms demonstrating superior strategic capabilities and innovation focus. 

The study contributes to theoretical understanding of corporate finance within emerging economies by 
demonstrating how transitional institutional environments influence capital allocation effectiveness. The results 
extend previous research by revealing specific mechanisms through which innovation activities moderate capital 
allocation-performance relationships, providing novel insights into the dynamic capabilities perspective on 
competitive advantage. 

Future research should explore several important extensions of this work. Longitudinal analysis examining the 
persistence of capital allocation effectiveness over extended periods would provide insights into the sustainability of 
strategic advantages within Vietnam's evolving economic context. Cross-country comparative analysis including 
other emerging economies would enhance understanding of how institutional environments influence capital 
allocation dynamics. Investigation of specific innovation types and their differential impacts on capital allocation 
effectiveness would provide more nuanced insights into innovation-performance relationships. 

The research possesses certain limitations that should be acknowledged when interpreting the findings. The 
focus on publicly listed firms may limit generalisability to the broader Vietnamese corporate population, 
particularly smaller firms that may face different capital allocation challenges. The measurement of innovation 
intensity through R&D expenditure ratios may not fully capture all forms of innovation activities, particularly 
those not reflected in formal R&D reporting. The temporal scope of the analysis, whilst substantial, may not 
capture all aspects of Vietnam's ongoing institutional evolution. 

In conclusion, this study provides robust evidence for the significant relationships between strategic capital 
allocation, innovation intensity, and market valuation dynamics within Vietnam's transitional economy. The 
findings demonstrate that effective capital allocation represents a critical determinant of market performance, with 
innovation intensity serving as an important moderator enhancing allocation effectiveness. These results 
contribute to theoretical understanding of corporate finance within emerging economies whilst providing practical 
insights for managers, policymakers, and investors operating within Vietnam's dynamic economic environment. 
 

Acknowledgments: 
I would like to express my sincere gratitude to Dr. Hoang Vu Hiep for his invaluable guidance and inspiration 
throughout this research. His expertise, insights, and unwavering support have been instrumental in shaping the 
direction and quality of this study. I am deeply appreciative of his generosity in sharing his time, knowledge, and 
network, which have greatly contributed to the success of this research. His mentorship and commitment to 
academic excellence have not only enriched the quality of this work but have also had a profound impact on my 
personal and professional growth. 
 

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