Proceedings the second international conference on the sustainable economic development and business management in the context of globalisation(SEDBM 2019) international conference 2019 volume 1

The determinants of capital structure are factors affecting firm financial leverage, including firm profitability, size, growth rate, fixed assets, liquidity, interest coverage and state

ON THE SUSTAINABLE ECONOMIC DEVELOPMENT AND BUSINESS MANAGEMENT

IN THE CONTEXT OF GLOBALISATION

(SEDBM 2019) Volume 1

INTERNATIONAL CONFERENCE 2019

FINANCIAL PUBLISHING HOUSE

PROCEEDINGS

THE SECOND INTERNATIONAL CONFERENCE

ON THE SUSTAINABLE ECONOMIC

DEVELOPMENT AND BUSINESS MANAGEMENT

IN THE CONTEXT OF GLOBALISATION

(SEDBM 2019)

Volume 1 INTERNATIONAL CONFERENCE 2019

Dear Friends and Colleagues,

We are pleased to welcome you to the 2nd International Conference: “Sustainable Economic

Development and Business Management in The Context of Globalisation” (SEDBM 2019).

The 2nd International Conference SEDBM 2019 brings together the world-leading experts in finance, accounting, audit, economic and business administration, serving as a point of convergence for researchers, practitioners and policymakers to meet, share and exchange their ideas The

2nd International Conference SEDBM 2019 will strive to offer not only plenty of networking opportunities, providing you with the opportunity to interact with the leading researchers from both academia and universities, but also an environment to engage in stimulating discussions about research topics and practices We are especially honoured to have:

Associate Professor Simone Domenico Scagnelli - School of Business and Law, Commerce

Discipline, Edith Cowan University, Australia.

PH.D., Senior Lecturer Jaime Yong, Course coordinate for Finance, School of Business and

Law, Edith Cowan University, Australia.

We are indebted to members of the Organizing Committee for their support to make this International Conference a great success

We wish you all an intellectually stimulating and productive conference!

On behalf of the Organizing Committee,

Nguyen Trong Co

PRESIDENT OF ACADEMY OF FINANCE

Assoc Prof Nguyen Trong Co is the President of Academy of Finance He has been working for the Academy since his graduation and in different positions such as lecturer, Head of Financial Analysis Department, Deputy Head of Human Resources Department before becoming Vice President of the Academy He was nominated as the President of Academy of Finance in 2014 and has been in that position to present

He is the Editor-in-Chief of the Journal of Finance and Accounting Research, Vice President

of the Scientific Board of Finance Research and member of the Scientific Board of Banking Research

He was awarded the honor membership of FCPA Australia

Assoc Prof Nguyen Trong Co is the author/co-author of more than 21 valuable textbooks and reference books such as “Financial Analysis”, Finance Publishing House, 2017; “Auditing Management and the use of Mineral Resources for Sustainable Development in Vietnam”, Finance Publishing House, 2016, etc

He has completed and published more than 20 research projects covering a wide range of research topics such as corporate finance, public finance and technological market, etc He has also published more than 70 articles in both local and international journals

SCHOOL OF BUSINESS AND LAW, COMMERCE DISCIPLINE,

EDITH COWAN UNIVESITY, AUSTRALIA

Dr Scagnelli got awarded his Ph.D in 2005 from the University of Turin, in Italy, with a thesis focussing on the accountability and measurement issues of Management Information Systems.Prior to joining ECU as Associate Professor, Dr Scagnelli was Associate Professor at the Department of Management, University of Turin, Italy, and was the Head of International Relations and Director of the International Bachelor in Business & Management

From 2012 to 2018, he was also Adjunct Professor of Financial & Managerial Accounting at ESCP Europe, one of the top Business Schools in the World

Dr Scagnelli’s research has been mostly in Accounting, with a particular focus on Corporate Social Responsibility He has presented at leading international conferences and published in scholarly international journals such as the Australian Accounting Review, Corporate Social Responsibility and Environmental Management, and Pacific Accounting Review His international research partnerships span the countries of Italy, UK, Germany, Russia, Australia and Japan, where has obtained a number of research grants.He has also supervised research students to completion

at the PhD level

Dr Scagnelli has also developed an extensive experience in the industry Prior to joining Academia, he was associate partner at a leading Italian Law and Accounting firm, providing advisory services to national and multinational companies in the Automotive, Aerospace and ICT industries

COURSE COORDINATOR FOR FINANCE, SCHOOL OF BUSINESS AND LAW,

EDITH COWAN UNIVESITY, AUSTRALIA

Jaime started as a sessional academic at ECU, Perth Institute of Business and Technology and Curtin University She has been with ECU on a full-time basis since 2009 and has been granted the Award of Excellence in Postgraduate Teaching in 2013

Her research focus is on direct and securitised real estate investments in Australia and implications on portfolio choices In addition, her research areas and interests may also include: commercial real estate, index construction, real estate investment trusts (REITs), asset pricing, and portfolio allocation

Over the past decade she has taught economics and finance units at both the undergraduate and postgraduate level

Currently, Dr Jaime Yong is also a member of the Financial Services Institute of Australasia (FINSIA)

1 DETERMINANTS OF CAPITAL STRUCTURE OF LISTED CONSTRUCTION FIRMS IN VIETNAM

Ngo Thi Kim Hoa 5

2 Growth and Market Share Matrix, CEO Power, and Firm Performance

Abey Gunasekarage, Luong Anh Hoa, Thanh Tan Truong 20

3 TAX MANAGEMENT WITH E-COMMERCE ACTIVITIES IN VIETNAM UNDER THE LEGAL VIEW

Le Thi Thanh, Tran Thi Thu Huong 22

4 IDENTIFY CROSS-BORDER TAX ARBITRAGE OF MULTI-NATIONAL ENTERPRISES IN GLOBAL BUSINESS CONTEXT

Nguyen Van Hieu 31

5 ELECTRONIC TAX PAYMENT THROUGH VIETNAM NATIONAL SINGLE WINDOW

Nguyen Thi Thuong Huyen, Nguyen Tran Hieu 36

6 Evaluating the credibility of sustainability reporting for global companies

Imane Allam 47

7 CURRENT STATE AND DIGITAL FUTURE OF VNPT’S FINANCE AND ACCOUNTING SYSTEM

Vu Thuy Linh, Nguyen Minh Dzung 59

8 INNOVATION OF PUBLIC DEBT AUDITING OF SAV CONTRIBUTING TO THE SUSTAINABILITY OF VIETNAM’S PUBLIC FINANCE

Nguyen Huu Hieu 68

9 BLOCKCHAIN IN BANKING AND FINANCE - THE GAP BETWEEN RESEARCH AND IMPLEMENTATION

Vu Thi Vinh, Hoang Lan Huong 76

10 Using artificial neural network in financial heath prediction: envidence from Vietnamese manufacturing companies

Pham Thi Hoai Thu, Tran Doan Hieu, Tran Son Ninh 84

11 LOGISTICS DEVELOPMENT SOLUTIONS IN MARINE ECONOMY IN QUANG NINH PROVINCE

Luong Quang Hien, Nguyen Trong Tuan, Do Xuan Hien , Vuong Thanh Tu 92

12 TOWARDS SUSTAINABLE DEVELOPMENT - THE GOAL OF VIETNAMESE BANKING SECTOR

Trinh Thanh Huyen 103

13 FACTORS IMPACT ON AUDIT FEE: CASE IN VIETNAM

Le Quang Dung 111

14 DO PHARMACEUTICAL COMPANIES LISTED ON VIETNAM STOCK EXCHANGE HAVE OPTIMAL CAPITAL STRUCTURE?

EVIDENCE FROM THRESHOLD REGRESSION MODEL

Dam Thanh Tu, Bui Thi Ha Linh 116

15 AN APPLICATION OF SINGLE INDEX MODEL IN RISK MEASUREMENT ON VIETNAMESE STOCK MARKET

Nguyen Thu Thuy, Dinh Thi Hai Phong 123

16 FINTECH AND FINANCIAL INCLUSION IN VIETNAM

Bui Thanh Huyen 135

17 YOUNG CONSUMERS AND THE WILLINGNESS TO PAY FOR ECO-FRIENDLY APPAREL

Pham Thi Cam Anh, Le My Huong, Ngo Manh Tuan 144

18 A LITERATURE REVIEW ON WORKING CAPITAL MANAGEMENT EFFICIENCY AND SOME IDEAS FOR FUTURE RESEARCH

Ta Đinh Hoa 157

19 INDUSTRY 4.0’S IMPACT ON THE ACCOUNTING AND AUDITING PROFESSION AND EDUCATION IN VIETNAM

Giang Thi Xuyen 166

20 PROFESSIONAL ETHICS OF ACCOUNTING - AUDITING WITH SUBSTAINABLE ECONOMIC

DEVELOPMENT AND BUSINESS MANAGEMENT

Ly Lan Yen 176

21 HUMAN RESOURCE DEVELOPMENT OF BANKING SECTOR IN THE CONTEXT OF INDUSTRIAL REVOLUTION 4.0

Nguyen Huu Tan, Nguyen Thu Thuong 182

22 SUSTAINABLE DEVELOPMENT OF POSTS AND TELECOMMUNICATIONS INDUSTRY OF VIETNAM IN GLOBALIZATION

Ngo Tien Dung, Tran Phuong Lien, Nguyen Mai Phuong 187

23 IMPACT OF BLOCKCHAIN TECHNOLOGY TO FIELD ACCOUNTING AND AUDITING

Duong Thi Quynh Lien 191

24 ESTABLISHING WASTE AUDIT PROCESS IN VIETNAMESE ENTERPRISES TOWARDS TO SUSTAINABLE DEVELOPMENT

Thi Tam Le, Thi Mai Anh Nguyen 196

25 REVIEWING LITERATURE ON EXPLORING WOMEN’S PARTICIPATION AND TRANSITION INTO FORMAL EMPLOYMENT:

CASE STUDIES IN REGIONAL INDONESIA

Endah Prihatiningtyastuti 204

26 THE STRUCTURE AND ADMINISTRATION OF THE GREEN CLIMATE FUND AND ITS IMPLICATION ON DEVELOPING COUNTRIES

Mohammad Zulfikar Ali 215

27 MACROECONOMIC ENVIRONMENT - AN ANALYSIS FOR VIETNAM AND SOME AEC MEMBERS IN FDI ATTRACTING

Cao Phuong Thao 225

28 CORPORATE SOCIAL RESPONSIBILITY (CSR) TOWARD EMPLOYEE SATISFACTION OF TEXTILE MANUFACTURERS IN VIETNAM

Do Thi Phi Hoai, Do Khac Huong 235

29 INFORMATION AND COMMUNICATION TECHNOLOGY ADOPTION BY WOMEN ENTREPRENEURS IN INDONESIA

Maya Irjayanti, Linley Lord, Kerry Pedigo, Niki Hynes 244

30 VIETNAMESE FAMILY FIRMS’ FINANCING DECISIONS: WHAT ARE DIFFERENCES FROM NON-FAMILY FIRMS?

Trang Tran 256

31 SOLUTIONs FOR SUSTAINABLE DEVELOPMENT OF THE PRIVATE ECONOMY IN VIETNAM IN GLOBALIZATION CONDITIONS

Nguyen Anh Tuan, Dong Thi Phuong Nga 268

32 DEVELOPING SHARING ECONOMY IN VIETNAM

Tran Phuong Anh .278

33 DIAGRAM OF CIRCULAR FLOW BETWEEN ECONOMIC AND NATURAL SYSTEMS - MEASURING SUSTAINABILITY OF AN ECONOMY Nguyen Thi Thuy Huong 284

34 KNOWLEDGE SPILLOVERS: A REVIEW OF EMPIRICAL STUDIES

Pham Thi Thanh Hoa, Nguyen Truong Giang 292

35 INDUSTRIAL PARKS AND ECONOMIC ZONES DEVELOPMENT TOWARDS SUSTAINABILITY IN VIETNAM

Vu Viet Ninh, Tran Thi Phuong Mai 307

36 IMPACT OF FOREIGN DIRECT INVESTMENT ON ENSURING ECONOMIC SECURITY OF BAC NINH PROVINCE IN THE NEW SITUATION Luong Quang Hien, Nguyen Huyen Trang, Luong Thi Minh 313

37 DEVELOPING A SUSTAINABLE ECONOMY AND BUSINESSES IN THE CONTEXT OF THE DIGITAL ECONOMY

Ngo Thi Thu Hong, Le Thi Yen Oanh 322

38 THE IMPACTS OF FOREIGN DIRECT INVESTMENT ON THE ENVIRONMENT IN VIETNAM AFTER MORE THAN THREE DECADES OF

INNOVATION AND NEW ISSUES

Tran Phuong Thuy, Tran Thu Hoai 331

39 ATTRACTING FOREIGN DIRECT INVESTMENT ON AGRICULTURE SECTOR IN VIETNAM IN THE CONTEXT

OF THE FOURTH INDUSTRY REVOLUTION

Pham Thi Kim Len 342

40 PROMOTING FLEXIBLE WORKING ARRANGEMENTS FOR WORKING PARENTS UNDER VIETNAM

LABOUR LAW - REGULATING THE UNREGULATED

Hoang Phuong Anh , Vu Ngoc Quynh 346

41 COMPLETING THE STATE BUSINESS REGULATIONS IN VIETNAM LAW ON ENTERPRISES 2014

BY MEANS AND INTERNATIONAL ECONOMIC PRINCIPLES

Pham Thi Hong Nhung, Bui Phuong Thao 357

42 STARTING A BUSINESS IN VIETNAM UNDER THE IMPACT OF THE FOURTH INDUSTRIAL

REVOLUTION - THE OPPORTUNITY AND CHALLENGE

Hoang Thi Hong Hanh, Nguyen Chi Thien, Hoang Thi Hong Dao 364

43 ATTRACTING FDI FOR LOW-CARBON GREEN GROWTH IN VIETNAM

Hoang Phuong Anh, Ngo Thi Kim Hoa 372

44 SUSTAINABLE DEVELOPMENT IN GLOBALIZATION CHALLENGES TO VIETNAM

Nguyen Ho Phi Ha, VuThi Phuong 385

45 UTILIZING AUTOMATION MARKETING IN NEW DIGITAL MARKETING STRATEGY FOR VIETNAMESE ENTERPRISES

Dang Huong Giang 394

46 THE IMPACT OF THE INTERNAL FACTOR TO THE PROFITABILITY OF SMALL SCALE SECURITIES

COMPANIES - VIETNAMESE CASE STUDIES

Nguyen Le Cuong, Nguyen Phuong Anh 405

47 ENVIRONMENTAL ACCOUNTING AT VIETNAMESE ENTERPRISES IN THE TREND OF GLOBALIZATION

Nguyen Ba Linh, Nguyen Ba Minh, Le Vu Thanh Tam 414

CONSTRUCTION FIRMS IN VIETNAM

ABSTRACT: The study aims to identify the capital structure determinants of the listed construction firms

in Vietnam The determinants of capital structure are factors affecting firm financial leverage, including firm profitability, size, growth rate, fixed assets, liquidity, interest coverage and state ownership The study

is based on a data of 74 listed construction firms in the Hanoi and Ho Chi Minh Stock Exchange over the period 2014-2018 It is found that listed construction firms in Vietnam have high level of financial leverage and mainly rely on short-term debts The study also found that profitability, the level of investment in fixed assets, liquidity and interest coverage negatively affect the firms’ total leverage whereas firm size, growth and state ownership positively affect the firm’s total leverage In other words, firms with high profitability, high liquidity, high interest coverage ratio and high level of investment in fixed assets, tend to use less debt and vice versa In addition, large and high growth firms still are more leveraged and state-controlled enterprises rely on external debt rather than equity, especially short-term debt.

Keywords: capital structure, leverage, capital structure determinants, construction firms.

1 INTRODUCTION

Vietnamese economy has experienced dramatic changes in recent years and one of the most important industries in the economy is the construction sector The development of Vietnam’s construction enterprises has created a great contribution to the growth and development of the country’s economy Capital structure is not a new topic and study on capital structure is very necessary for corporate governance, because capital structure has a significant impact on the performance, existence and development of firms At present, the financial market in Vietnam has developed a lot compared to the past Although the development of Vietnamese financial market is still at a nascent stage, it has created a capital supply to meet the needs of production and business activities of enterprises including construction businesses However of looking at the balance sheets of Vietnamese construction firms, it can be seen that the proportion debt is extremely high There is mainly short-term debt whereas the proportion of long-term debt is zero or very small number The capital structure with very high leverage level is questionable because it can create

a high level of financial risk Thus, this paper studies the capital structure determinants of listed

1 Academy of Finance, 58 Le Van Hien Street, Duc Thang Ward, Bac Tu Liem District, Hanoi 100000 Email: ngothikimhoa@ gmail.com

construction firms in Vietnam to examine what factors influencing their capital structure and how these factors affecting the firms’ capital structure The study findings are expected to support the firm financial managers in adjusting the financing policies to determine appropriate capital structure choice, in order to improve the firms’ performance To do so, the paper employs panel regression methods to analyze the determinants of capital structure of 74 construction firms listed

on the Hanoi and Ho Chi Minh Stock Exchange for the period 2014-2018 The rest of the paper is organized into three sections: section 2 reviews the empirical literature on capital structure; section

3 describes methodology used in the study including the hypotheses, data and the econometric models utilized; section 4 discusses the results and provides conclusion of the research

2 LITERATURE REVIEW

Since Modigliani and Miller’s theory of capital structure laid the groundwork for the capital structure theory, there has been a large number of researches on firm capital structure and capital structure determinants

Research on the factors affecting the capital structure of enterprises has been carried out very early in developed economies Some works of authors in the US are: Titman and Wessels (1988) with 469 enterprises in the period 1976-1982; research by Frank and Goyal (2009) with the data of

50 years from 1950 to 2003 Results from the research of Titman and Wessels show that firm size, transaction costs and business characteristics have a significant impact on firm capital structure, while factors such as the interest tax shield and growth rate have no relation to the capital structure

In their research, Frank and Goyal looked at the impact of many factors including profitability, firm size, growth, taxes, asset structure, risk, and inflation, and found a statistically significant impact

of growth rate, asset structure, profitability, inflation rate on the capital structure of enterprises In addition, Rajan and Zingales (1995) studied the factors affecting capital structure in G7 businesses (USA, Japan, France, Italy, UK and Canada), showing the strong positive relationship between firm leverage level and firm size, the proportion of fixed assets and growth rate, while firm leverage level is negatively related to profitability and growth

In developing economies, there are also a lot of researches on the capital structure determinants Huang and Song (2002) studied 1,000 listed enterprises in China during the period

of 1994-2000 The research results show that capital structure is positively related to firm size, the proportion of fixed assets and profitability, while there is a negative relationship with taxes The author also argued that trade-off theory is better than pecking order theory in explaining the capital structure of Chinese enterprises This result is also similar with research in Libya of Buferna et al (2008) The study was conducted by Salwani (2015) and colleagues considering factors affecting capital structure of 106 listed manufacturing enterprises in Malaysia in the period of 2003-2012, found that the proportion of fixed assets and size have a positive impact on debt ratios while profitability and liquidity have a negative effect on debt ratios Mashar and Nasr (2010) studied

in Pakistan enterprises found that fixed assets and profitability have a negative relationship with capital structure; while size, growth and taxation have a negative relationship with the capital structure of enterprises Nunkoo and Boateng (2010) studied the factors affecting the capital structure of businesses listed on the Toronto stock exchange in the period 1996-2004, found the

inverse relationship of growth rate, firm size and the capital structure, and a positive relationship between profitability, fixed assets and the capital structure.

In Vietnam, capital structure determinants are also concerned by many authors Most common factors in international empirical literature such as profitability, size, fixed assets and growth, are applied in studies for Vietnam market The results from the studies vary among researches Nguyen and Ramanchandran (2006) studied the factors affecting the capital structure of small and medium enterprises in Vietnam, with a sample of 558 enterprises in 1998-2001 The results show that the level of debt usage of these businesses is positively related to growth, business risks, firm size and relationship with banks At the same time, the study pointed out the negative impact of investment

in fixed assets with capital structure and did not find a statistically significant impact of profitability

on the level of debt usage In line with this research, Doan Ngoc Phi Anh (2010) studied the factors affecting the capital structure and the impact of capital structure on the performance of enterprises with a sample of 428 listed companies in Vietnam, and found a statistically significant impact of profitability factors, business risks, asset structure and firm size on capital structure In addition, Nguyen Thi Hang and Rern Jay Hung (2016) studied capital structure determinants of 420 non-financial enterprises listed on Vietnam’s stock market in the period 2010-2014 The study found the positive effects of growth and firm size, but the negative effect of profitability, business risk, current solvency and non-debt tax shield on capital structure Furthermore, Nguyen Thi Thuy Dung et al (2014) found that Vietnamese enterprises mainly use short-term loans, profitability and liquidity have a negative impact on capital structure while the growth rate and state ownership have a positive impact on the debt ratio of enterprises Le Trung Thanh (2017), studied the factors affecting the capital structure of listed companies in Vietnam, using data related to 228 enterprises listed on Ho Chi Minh Stock Exchange in period 2010-2014 The results of the study indicate that pecking order theory explains the behavior of Vietnamese enterprises’ decision making on capital structure The author concluded that large-scale and high-growth enterprises often use more debt

Le Dat Chi (2013) studied 178 non-financial enterprises listed on Hanoi Stock Exchange (HNX) and Ho Chi Minh City (HOSE) in the period of 2007-2010 The results find factors affecting capital structure, including: macro factors (tax rates, inflation), internal factors (profitability, market to book ratio), business factors and governance behavior The author also pointed out that tax factors, industry leverage, and managerial behavior have a positive effect on the debt ratio, while inflation, the market value ratio on the book price, the ROA have the opposite effect

To sum up, studies of the capital structure determinants in different economies considered similar factors, but the empirical results were very different Most of the studies look at the impact

of factors on capital structure and the explanatory variables often focus on internal factors such

as size, asset structure, profitability, liquidity, etc Some studies concerned about explanatory variables of macro factors such as interest rates, taxes and inflation In fact, the empirical studies

in Vietnam have just been conducted in recent years and the number of research is small, so the implementation of quantitative research is necessary to contribute results for comparison and development of quantitative research in Vietnam With the specific characteristics of a regulated market economy and the development of construction firms in Vietnam, the research of the capital structure determinant is appropriate and topical

on capital structure In contrast, according to the pecking order theory, profitability has a negative

effect on capital structure According to pecking order theory, the source of internal capital (retained

earnings) is considered the most preferred capital of enterprises Businesses with high profitability often use more retained earnings to reinvest and use less debt In empirical studies, a number of studies have found that profitability has a positive effect on firms’ leverage, such as those by Buferna (2008), Nunkoo and Boateng (2010) However, a large number of studies found the opposite effect

of profitability on firms’ leverage, including Fama and French (2002), Rajan and Zingales (1995), Huang and Song (2010), Salwani (2015), Le Dat Chi (2013), Doan Ngoc Phi Anh (2014), etc

Hypothesis H2: Firm size has a positive effect on the capital structure of Vietnamese listed construction firms.

It can be seen that large enterprises are more likely to have access to loans than small businesses Banks and credit institutions prefer to provide loans to large businesses because of their solvency, creditworthiness, and transparency in their financial information Looking at the results from empirical studies, firm size also has a positive impact on the firm’s level of debt use For example, in the research of Nguyen and Ramachandran (2006); Buferna (2008), Le Trung Thanh (2017)

Hypothesis H3: The growth rate of an enterprise has a positive effect on the firm’s capital structure.

According to the pecking order theory, the growth rate has a positive effect on the level of corporate debt use Firms with high growth rates often maximize the use of retained earnings to reinvest, and to meet the demand for development, they tend to use additional loans

According to the results of empirical studies, some studies show the opposite relationship of the growth rate with the debt ratio, but the result is often found in developed economies, such as the research of Rajan and Zingales (1995), Wald (1999) At the same time, numerous studies in developing economies have shown a positive relationship of firm growth with the level of debt use, for example Chen (2004); Nguyen and Ramachandran (2006); Delcour (2007) and some studies in Vietnam such as Le Trung Thanh (2017), Le Thi Kim Thu (2012)

Hypothesis H4: The degree of investment in fixed assets has a positive effect on the capital structure of the business.

The higher the level of enterprises’ investment in fixed assets, the more likely it is to use debt Generally, the more fixed assets an enterprise has, the better it is able to mortgage assets, the more collateral available for loans and the easier it is to access loans

According to the study of some authors, the level of investment in fixed assets has a positive impact on the firms’ leverage, such as: Rajan and Zingales (1995), Frank and Goyal (2009), Huang and Song (2012), Cortez and Susanto (2012), Salwani (2015), Buferan (2008) Other authors have found a negative relationship, such as Nguyen and Ramachandran (2006).

Hypothesis H5: Liquidity has a negative effect on the capital structure of the business.

Liquidity represents the level of guarantee for short-term debts by current assets of the company Enterprises with high liquidity ratio are rated by banks or credit institutions for their safety and easier to get loans However, according to pecking order theory, enterprises with high liquidity often prefer internal capital over debt, in other words, liquidity has opposite impact on the firms’ leverage There are many empirical studies also showing this negative relationship, such

as those of Paudyal and Pescetto (2004), Kabir and Nguyen (2008), Salwani (2008), and Nguyen Thi Thuy Dung el (2014)

Hypothesis H6: Firms with high interest coverage ratio have higher debt ratio than firms with low interest coverage ratio.

Interest coverage ratio provides information on the firms’ ability to generate profit before tax and interest to cover interest expenses Businesses with hight interest coverage ratio are more likely to access loans because they have a higher level of trust and appreciation of their ability to repay debts from banks and credit institutions

Hypothesis H07: State-owned firms are more leveraged than non-state-owned firms.

In Vietnam, state-owned enterprises are more likely to have access to loans than businesses that do not have state capital or have a small portion of state capital The fact is that the financial market in Vietnam is not really developed and the state still holds dominant capital of enterprises

in key industries The positive effect of the state’s ownership level on the capital structure is a fairly appropriate hypothesis Some empirical studies also show this relationship, such as that of Nguyen Thi Thuy Dung et al (2014)

3.2 Model specification

In this study, three variables are used to measure capital structure of firms, those are total leverage (total debt to total assets ratio), short-term leverage (short-term debt to total assets ratio) and long-term leverage (long-term debt to total assets ratio) Factors affecting firms’ capital structure include profitability, firm size, firms’ growth, firms’ level of investment in fixed assets, liquidity, interest coverage ratio and level of state ownership

Model 1: Determinants of firms’ total leverage

TDTAit = α + β1 PROFITit + β2 SIZEit + β3GROWTHit + β4 FATAit + β5 CRit + β6ICRit +

β7STATEi + εit

Model 2: Determinants of firms’ short-term leverage

SDTAit = α + β1 PROFITit + β2 SIZEit + β3GROWTHit + β4 FATAit + β5 CRit + β6ICRit + β7STATEi + εit

Model 3: Determinants of firms’ long-term leverage

LDTAit = α + β1 PROFITit + β2 SIZEit + β3GROWTHit + β4 FATAit + β5 CRit + β6ICRit +

β7STATEi + εit

Table 1: Measurement of variables

Total leverage (Total debt to total asset ratio) TDTA Total debt/Total assets

Short-term leverage (Short-term debt to total

Long-term leverage (Long-term debt to total

Independent Variables

assett-1

0 = Non-state-owned (State capital is < =50%)

Table 2: Data Descriptive Statistic

Variable Obs Mean Std Dev Min Max

Source: Result from STATA 12

Table 2 presents statistic information of data including 370 observations of 74 listed construction firms over a 5-year period from 2014 to 2018 It can be seen that the mean of to tal debt to total assets ratio (TDTA), short-term debt to total assets ratio (SDTA) and long-term debt to total assets ratio (LDTA) are 0.67, 0.57 and 0.10 respectively It illustrates that many construction firms in the research sample have a high level of financial leverage and the proportion of short-term debt is high compared to the proportion of long-term debt

Table 3: Correlation Coefficents between Variables

* indicates significance at the 1% level

** indicates significance at the 5% level

Source: Peason Correlation Coefficents between variables from STATA 12

Table 3 provides the correlation coefficient between variables The correlation coefficient between two variables provides information on the degree of strength or weakness in the relationship

of interaction between the two variables This section focus on the relationship of independent variables with dependent variables

Relationship between independent and dependent variables TDTA:

Variables that are negatively related to total leverage (TDTA) include: Liquidity (CR), level of investment in fixed assets (FATA), profitability (PROFIT) and interest coverage (ICR)

In particular, the relationship of liquidity and total leverage is quite strong at the significane level of 1%

Variables that are positively related to total leverage (TDTA) include: Firm size (SIZE), growth rate (GROWTH) and state ownership (STATE) The size of the business and the level of State ownership have a positive relationship with total leverage at a high level of significance 1% This shows that the large enterprises and high growth enterprise are more leveraged and the state-owned enterprises use more debt than the non-state-owned enterprises

Relationship between independent and dependent variables SDTA:

The variables having a negative effect on the use of short-term debt (SDTA) include: profitability (PROFIT), firm size (SIZE), growth rate (GROWTH), level of investment in fixed assets (FATA), liquidity (CR), interest coverage (ICR) In particular, the impact of liquidity and the level of investment in fixed assets on short-term leverage are quite strong at a high significance level of 1% It can be said that firms with high liquidity and high proportion of fixed assets, use less short-term debt At 1% significance level, the higher the growth rate of the business, the less the use of short-term debt

State ownership (STATE) has a positive relationship with SDTA at significance level of 1% This shows that the enterprises that have the dominant capital contribution of the State, the higher the level of short-term debt is used

Relationship between independent and dependent variables LDTA:

The independent variables that have a negative impact on the level of long-term debt use (LDTA) include: profitability (PROFIT), current ratio or liquidity (CR), ability to pay interest (ICR), however the relationships are not strong

Variables that have a positive impact on LDTA include: firm size (SIZE), growth rate (GROWTH), level of investment in fixed assets (FATA) and state ownership (STATE) The variables SIZE, GROWTH, FATA have relatively significant impact at a high significance level of 1%, showing that firms with high growth rate, large size and large investment in fixed assets prefer to use long-term debt In addition, state-owned firms also use more long-term debt than non-state counterparts

3.4 Research methodology

Quantitative research method is used to find empirical evidence on the factors affecting the capital structure of listed construction firms in Vietnam The regression methods on the panel data are used that include Pooled OLS (Pooled Ordinary Least Square), FGLS (Feasible Generalized Least Squares), FEM (fixed-effect model) and REM (random-effect model)

Hausman test

In order to select the type of panel estimator (FEM or REM), Hausman test is applied The difference of these two estimation models depends on the difference in the assumptions made when constructing these two models With the FEM, it is assumed that the independent variables and errors are correlated with each other, while the REM assumes that there is no correlation between independent variables and errors (Greene, 2007)

The Hausman test for 3 models are applied on the research data using STATA12, the P values

of model 1, 2 and 3 are 0.000, 0.000 and 0.4331 respectively Thus, with the Hausman test results for models 1 and 2, at the 5% significance level, there is a rejection of the null hypothesis, the FEM model option will be better than the REM model to conduct regression for models 1 and 2 Meanwhile, the Hausman test results for model 3 accept the null hypothesis, which supports the REM model

Table 4: The Hausman test

is less than 10 Therefore, it is concluded that there is no multi-collinearity problem in the models

Table 5: VIF coefficients of independent variables

To test for autocorrelation, the Wooldridge Test is used According to the results from Table

6, the P value of the models 1, 2 and 3 are all 0.0000, less than 0.05 Thus, null hypothesis is rejected, proving that there is an autocorrelation between variables in all three models

Table 6: Wooldridge test for autocorrelation in panel data

In order to test for the problem of heteroscedasticity in model 3, the White test is conducted

The test result with P value is 0.0000, proving that the model has heteroscedasticity problem.

Table 7: Testing for heteroscedasticity Model 1

Source: Heteroscedasticity test - STATA 12

To sum up, all three models have problems of autocorrelation and heteroscedasticity, therefore FGLS method is implemented to overcome these defects Regression results are shown in the following table:

Table 8: Econometric Results Model 1

Dependent variable

TDTA

Model 2 Dependent variable

SDTA

Model 3 Dependent variable

*, ** and *** indicate significance level of 10%, 5% and 1%

Source: Regression results from STATA12

3.5 Results and Discussion

All three models have Prob> chi is 0.0000, proving that the models are suitable and have good explanations Model 1 provides information about the impact of factors (profitability, firm size, growth rate, level of investment in fixed assets, liquidity, interest coverage, the level of ownership

of the state in businesses) on Vietnamese listed construction firms’ total leverage, while model 2 and model 3 study the impact of those factors on the firms’ short-term and long-term leverage

Impact of profitability (PROFIT):

Regression results of models 1 and 2 show that at 1% and 5% significance level, the profitability

of businesses has a negative effect on the firms’ total leverage and short-term leverage From model 3, profitability also negatively affects the firms’ long-term leverage, but this effect is not statistically significant It can be seen that, listed construction firms with high profitability, tend to use less debt and less short-term debt The result is consistent with the pecking order theory, which concerns about the information asymmetry affecting investment decisions and financing decisions

of businesses The firms’ managers usually have an information advantage over outside investors Therefore, new investors often require a higher rate of return when businesses want to raise capital

by issuing securities, and this makes share issuing become more expensive Thus, when businesses have high profitability, businesses often prefer to use the internal capital source (retained earnings) for reinvestment rather than using debt securities and loans Also, issuing common stock is the last choice This result is in line with most previous studies, both in developed and developing economies such as research of Rajan and Zingales (1995), Huang and Song (2002), Salwani (2015), Le Dat Chi (2013), Doan Ngoc Phi Anh (2014), Nguyen Thi Thuy Dung et al (2014) It is concluded that the results for the impact of profitability on capital structure are in line with hypothesis H1

Impact of firm size (SIZE):

The regression results show that firm size has a significant impact on the capital structure of construction firms Firm size positively affects the firms’ total leverage and long-term leverage, but negatively affects the firms’ short-term leverage In other words, large construction firms usually have higher leverage than small construction firms and they prefer to use long-term debt rather than short-term debt This result supports the viewpoint of trade-off theory when it is assumed that large-scale enterprises have more economic advantages, greater information transparency and easier access to loans rather than small businesses According to trade-off theory, large-scale businesses often have a lower risk of bankruptcy than small businesses do Large companies also have the advantage of cooperating with financial institutions compared to small businesses because transaction costs will often decrease when businesses buy and sell a large number of goods and services and loan interest rates tend to decrease when the size of loans and the frequency

of transactions is large This result is similar to the result from research of Buferna (2008), Salwani (2015) and Le Trung Thanh (2017) Thus, it is found that hypothesis H2 is true for Vietnamese listed construction firms

Impact of growth rate (GROWTH):

The effect of the growth rate on the capital structure is statistically significant at 1% Growth rates have a positive effect on the firms’ total leverage and long-term leverage, but have a negative

effect on short-term leverage This indicates that high growth firms still rely on debt and they prefer to use long-term debt rather than short-term debt This result is consistent with pecking order theory Companies with high growth rates are generally well appreciated by investors, banks and credit institutions, making it easy to access loans These businesses also tend to use long-term loans to invest in development and maintain high growth opportunities in the future The similar results are also found in other studies, for example: Nguyen and Ramachandran (2006), Le Thi Kim Thu (2012), Le Trung Thanh (2017) Thus, the finding is in line with hypothesis H3.

Impact of investment in fixed assets (FATA):

This is the factor that has the strongest impact on the capital structure of Vietnamese listed construction firms with a high statistical significance level of 1% According to model 1, the level

of investment in fixed assets inversely impact the firms’ total leverage This shows that firms with high level of investment in fixed assets, is less likely to use debt This result is in line with the past results of several researches such as Nguyen and Ramachandran (2006); Biger, Nguyen and Hoang (2008) Also, model 2 result shows that the level of investment in fixed assets has a negative impact on the use of short-term debt Enterprises with little investment in fixed assets often have a high proportion of short-term debt In contrast, model 3 result shows a positive effect of the level

of investment in fixed assets on long-term debt use In other words, businesses with high levels of fixed asset investment often have high long-term debt to total assets ratio Enterprises with high value of fixed assets will have many collaterals and mortgages for loans, thus having a higher chance of accessing long-term loans It can be seen that businesses that invest less in fixed assets will tend to use more debt, and mainly use short-term debt Thus, the result shows that hypothesis H4 is true for long-term leverage but not true for total leverage and short-term leverage

Impact of liquidity (CR):

The result presents that liquidity has a negative effect on the firms’ total leverage at a high level of significance 1% Therefore, the enterprises with high liquidity, tend to use less debt This result is consistent with the pecking order theory, which suggests that enterprises with high current ratio are often prefer to use internal capital (retained earnings) for reinvestment rather than capital borrowed from outside This result is also found in some previous studies such as Nguyen Thi Thuy Dung et al (2014), Salwani (2015)

According to the regression results of models 2 and 3, liquidity has a negative effect on the firms’ short-term leverage, but has a positive effect on long-term leverage Enterprises with high current ratio often have higher proportion of long-term debt than short-term debt in the capital structure Generally, enterprises with high liquidity are better evaluated by banks and credit institutions when considering loan projects Thus, quantitative results support the hypothesis H5

Impact of interest coverage (ICR):

The result finds the inverse relationship between interest coverage and the firms’ total leverage and long-term leverage This shows that enterprises with high ability to pay loan interests have low debt usage However, the impact of this factor on capital structure is very small The regression results did not find a statistically significant effect of firms’ interest coverage on short-term leverage It can be said that quantitative results negate the hypothesis H6

Impact of ownership level on enterprises (STATE):

The regression results show the state ownership has positive influence on the firm’s total leverage and short-term leverage but has no statistically significant impact on long-term leverage

It means that state-owned firms are more leveraged than non-state-owned firms and they prefer

to use short-term debt This is also very understandable, in Vietnamese economy, the State is still holding key sectors, including construction industry, and enterprises with dominant capital contribution of the State often have advantages in mobilizing loan capital Research by Nguyen Thi Thuy Dung et al (2014) also found a positive relationship between the state ownership and capital structure Thus, quantitative results are in line with the hypothesis H7

3.5 Conclusion

This paper explores the determinants of capital structure of 74 Vietnamese listed construction firms during the period 2014-2018 The determinants of three different measure of firm leverage (total leverage, short-term leverage and long-term leverage) are profitability, firm size, growth rate, level of investment in fixed assets, liquidity, interest coverage and the level of state ownership From the analysis, it is presented that the listed construction firms in Vietnam have high level

of leverage and there is a high level of short-term debt usage It is also found that the level of investment in fixed assets has the strongest impact on the firms’ leverage, followed by the firms’ liquidity The factor that has the least impact is the ability of enterprises to pay interest on loans (interest coverage ratio) In addition, the regression results found the negative effect of profitability, the level of investment in fixed assets, liquidity and interest coverage on firms’ capital structure

In contrast, firm size, growth rate and state ownership have a positive effect on capital structure Enterprises with large scale, high growth rate and dominant capital contribution of the State often have more advantages when mobilizing loans, reflecting a fact in Vietnam

Considering the impact of the factors on the firms’ short-term and long-term leverage, it is found that the level and direction of the impacts are different for short and long-term leverage Particularly, profitability has the negative effect on the firms’ short-term leverage and has no impact

on long-term leverage Meanwhile, factors such as firm size, growth rate, level of investment in fixed assets, liquidity have a negative impact on the firms’ short-term leverage, but have positive impact on long-term leverage The factor of liquidity has a negative effect on long-term leverage but has no impact on short-term leverage Also state ownership has a positive impact on short-term leverage but has no impact on long-term leverage

It is concluded that the decision to raise capital and select the capital structure of the Vietnamese listed construction firms can be explained by both pecking order theory and trade off theory

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on Ho Chi Minh stock exchange”, master thesis, Da Nang University, 2012)

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nghiệp niêm yết trên thị trường chứng khoán Việt Nam”, Luận án kinh tế, Trường Đại học

Kinh tế quốc dân, Hà Nội, 2014

23 (Duong Thi Hong Van, “Study factors affecting capital structure of listed firms in Vietnam stock market”, Phd thesis, National Economics University, Hanoi, 2014)

AND FIRM PERFORMANCE

ABSTRACT: A firm’s performance is influenced by the vision of its CEO, who is responsible for the overall

operations of the institution The personal traits and philosophies of the executives who have making authority play an influential role when they evaluate alternative decision choices Being the architect of the firm’s overall strategy, a powerful CEO could exert a substantial amount of influence on the decision-making process of the firm, which, in turn, could affect its future performance Consequently, the question of whether the existence of a powerful CEO is beneficial, or detrimental, to firm performance has been a subject of considerable debate in the literature, with the evidence pointing to both positive and negative effects Although the agency theory argues that CEO power could exacerbate the conflict of interest between investors and management, the managerial ability theory proposes that CEOs should be entrusted with decision-making authority to make strategic decisions under the condition of internal and external uncertainty It is also claimed that whether CEOs use their power for the benefit of the firm, or to accumulate personal gains, depends on the product market conditions faced by the firm In this context,

decision-a firm’s life cycle position could contextudecision-alise the impdecision-act thdecision-at CEO power hdecision-as on firm performdecision-ance Therefore, in the current study, we argue that, to better understand the CEO power-firm performance relationship, the influence of CEO power on firm performance needs to be analysed in the context of

a firm’s position in the business life cycle, as presented in the Boston Consulting Group (BCG) matrix The chosen Australian setting offers a good research scenario in which to analyse the CEO power-firm performance relationship from the perspective of the BCG framework.

We first constructed a CEO power index for each ASX-listed firm on an annual basis for the period 2001-2015 We use eight CEO and governance characteristics to capture the four dimensions of CEO power, including structural power, ownership power, expert power, and prestige power In contrast to the evidence uncovered in a number of previous studies, we find that CEO power is uneconomically and insignificantly related to firm performance when a firm’s growth and market share is not controlled for However, interesting results emerge when companies are allocated to four quadrants (star, cash cow, question mark, and dog) based on the BCG matrix We report that, compared with their dog counterparts, CEO power has a more pronounced positive and significant influence on both financial and return

1 Monash University, Australia

2 Curtin University, Australia, corresponding author, email: hoa.luong@curtin.edu.au

3 RMIT University, Australia

performances in the star (high-growth/high market share) and question mark (high-growth/low market share) firms Conversely, a significant negative influence was uncovered for the return performance of cash cow (low-growth/high market share) firms This main finding remains robust after addressing issues such as industry concentration, sample stickiness, and endogeneity However, the introduction of a two- strike rule curtailed the ability of CEOs in cash cow firms to use the power entrusted in them for personal benefits

We find that the power entrusted in value-creating CEOs of star and question mark firms is rewarded with significantly higher market valuations compared with the value allocated to CEO power of dog firms On the other hand, the power entertained by value-destroying CEOs of cash cow firms is allocated significantly lower market valuations Taken together, the findings of our study show that the implications

of relevant theories on the relationship between CEO power and firm performance needs to be assessed

by considering a firm’s position in the business life cycle.

UNDER THE LEGAL VIEW

Le Thi Thanh 1

ABSTRACT: For sustainable economic and business development in the context of economic

globalization with the 4.0 revolutions, e-commerce is increasingly playing an important role, contributing with increasing proportion to the state budget However, in Vietnam at present, tax management for e-commerce activities still faces many difficulties and inefficiencies, creating inequality among business entities One of the reasons is that e-commerce law and tax administration law for e-commerce activities are inadequate as well as not strictly implemented This paper studies in a comprehensive manner and suggest feasible solutions

Keywords: Tax administration; e-commerce; digital economy, law on tax management with e-commerce

activities

1 INTRODUCTION

Commercial activities are activities for profit purposes, including goods sale and purchase, services provision, investment, trade promotion and other profitable activities Unlike traditional commerce, e-commerce is characterized by technology-based and internet-based platforms The rapid growth of e-commerce contributes to the socio-economic development and creates more revenue for the state budget However, in the context of digital economy, new models of e-commerce continues to appear with many types of participants and complex activities, requiring suitable legal framework to adjust

Entities conducting commercial activities in general and e-commerce activities in particular are obliged to pay taxes to the state budget In order to implement the fairness in fulfilling tax obligations between traditional commerce and e-commerce activities, the tax management on e-commerce activities must be increasingly strengthened

1 Academy of Finance, 58 Le Van Hien Street, Duc Thang Ward, Bac Tu Liem District, Hanoi 100000 Email: lethithanh@hvtc edu.vn Tel: +084912006503

2 Banking Academy of Vietnam, 12 Chua Boc Street, Quang Trung Ward, Dong Da District, Hanoi 100000 Email: tranhuong@ hvnh.edu.vn Tel: +084988913831

E-commerce, that is a business based on digital platform, in many forms such as buying and selling goods, providing services via social media, television, websites with new forms of payment, has increasingly developed Determining the right nature of transactions, the right legal events for tax calculation and management is not small challenges in many countries around the world, including Vietnam

E-commerce makes trade transactions (including trade in goods and services) between entities (firms and firms, firms and consumers) easier and closer, regardless of national borders Currently, many corporations with many e-commerce business models in the world have run business in Vietnam, such as Google, Yahoo, Facebook, Grab, Traveloka, Booking, As a result, e-commerce activities has become more developed and difficult to manage, especially on tax management E-commerce has some special features such as the scale, borderless, digital platforms, resulting in higher possibility to change, conceal, and delete transaction data It could lead to differences between tax administration for e-commerce activities and for traditional commerce activities Thus, the law on tax administration for e-commerce must conform to the nature of these activities However, in Vietnam, the current law system for e-commerce and tax administration for e-commerce has not met the requirements of development, especially in the context of globalization

It is a new problem that past researches have not mentioned This paper has studied this problem

to find out solutions to create a suitable legal environment for developing e-commerce in Vietnam and increase revenues for the state budget

2 CURRENT SITUATION OF LEGISLATION ON TAX MANAGEMENT FOR E-COMMERCE ACTIVITIES IN VIETNAM

Tax administration in general and tax administration for e-commerce in particular must be governed by law In Vietnam, the law on tax administration for e-commerce has gradually been improved and promoted its role in reality It is the legal basis for collecting taxes from e-commerce business entities, making an important contribution to ensuring revenue for the state budget It is also a legal basis for handling entities that violate tax laws For example, the Hanoi Tax Department has requested an individual who has over 80 billion dong revenue from Youtube, Google to perform tax obligations

The current legal documents have many provisions that create not only a legal basis for the development of e-commerce but also a legal framework for effective tax management, such as implementation of e-commerce contracts, data messages, electronic signatures, authentication of electronic signatures, customs procedures in e-commerce, tax declaration and management for e-commerce

However, there are also problems in the current legal system of tax administration for e-commerce in Viet Nam It lacks appropriate regulations to meet practical requirements in the context of 4.0 revolution and integration

Firstly, the legal system on e-commerce is still inadequate and insufficient to determine tax obligations of e-commerce business entities

Many e-commerce relations have not yet been regulated by law Some regulations are general;

others are mentioned in different legal documents leading to conflict For example, according to the

Commercial Law 2005, in commercial activities, data messages that meet the prescribed technical conditions and standards are legally valid as documents; or the display and introduction of goods and services on the internet are also considered to be the form of display and introduction of goods and services However, how the data messages meet the conditions, technical standards is a problem Lack

of legal regulations governing e-commerce makes the entities participating in commercial relations and state agencies, including tax authorities, lack the legal basis when performing their functions

Furthermore, the e-commerce legal system has not really met the requirements of trade integration, not really been compliant with the Model Law on e-commerce of the United

Nations Commission on International Trade Law - UNCITRAL Therefore, it creates inequality between domestic entities and foreign business entities Specifically, foreign corporations such as Grab, Google, Facebook, Agoda, Traveloka may run cross-border business in Vietnam, while Vietnamese laws still lack many regulations to adjust

Lack of comprehensive legal system for e-commerce Such as:

- The law on e-contracts (legal value, effective time, certification ) is incomplete, making it difficult for e-commerce activities and for determining the legal events that incur tax obligations

- The law on digital signatures, electronic documents, and electronic evidences are inadequate and cause disputes

- Laws on tax, tax administration, accounting, auditing, disputes resolution, handling of violations for e-commerce activities in the digital economy are also limited In fact, tax revenue has been lost for the state budget or not be managed, leading to some prohibition regulations that are contrary to the adjustment principle of the law on commercial activities in general, and e-commerce activities in particular

- The legal framework for digital banks has not met the requirements for e-commerce

Secondly, there are not enough legal bases for tax administration on e-commerce activities

Regulations on Vietnam’s economic sector codes are incomplete, causing difficulties in business registration Under the Enterprise Law, corporations have right to run business in all

sectors that are not prohibited by Law But when individuals and organizations register their business on digital platforms, it is almost difficult The identification and classification of industries and industry codes as currently in Vietnam are no longer suitable for e-commerce Vietnam lacks regulations on business lines and defining the nature of e-commerce activities Therefore, it is difficult for tax authorities to determine tax obligations for individuals and business organizations that do not yet have economic sector codes For example, there is an argument over whether the business of transporting passengers via electronic contracts is a business of transporting technology taxi or is the contracting transportation business When the legal nature of business activities has not been determined, the determination of tax obligations and tax administration will be difficult

There are not enough regulations to force e-commerce entities to use electronic invoices

Although the Law on Electronic Transactions, Law on Accounting, Law on Tax Administration, Decree on E-commerce, the Decree provides for electronic invoices when selling goods and

services, The Decree which details the implementation of the Law on Electronic Transactions on digital signatures and digital signature authentication services have provisions on e-invoices, these regulations lack details and sanctions to perform Therefore, many business entities are using paper invoices for e-commerce transactions, making it difficult for tax administration On the other hand, there is no specific and compulsory regulation to connect the electronic invoice system

of enterprises with the tax authorities, leading to difficulties to determine the exact revenue of e-commerce business entities, causing loss of tax revenue

Besides, there are not enough regulations on payment methods and control of cashflows

of e-commerce activities Payment of goods and services in e-commerce activities is made by many different methods, such as online payment via accounts at commercial banks, electronic wallets and cash In Vietnam, many e-commerce transactions use cash to make payments, making

it impossible for tax authorities to manage For transactions that are paid through bank accounts,

it is not easy for tax authorities to manage the cash flow and identify e-commerce activities due to the conflict between regulations in Law on Credit Institutions and the Law on Tax Administration

In details, the Law on Credit Institutions shows that credit institutions including commercial banks have to keep the confidentiality of customers’ information, commercial banks must not provide information related to customers’ accounts, customers’ property transactions So it is not convenient for tax authorities to obtain sufficient information about e-commerce transactions through commercial banks although the Tax Administration Law defines duties of commercial banks As a result, commercial banks in Vietnam only provide information on account transactions and assets of taxpayers to tax authorities when they violate laws, commit a fraud

On the other hand, there are not enough regulations to force server providers to supply information about businesses operating websites doing e-commerce activities It results in difficulties for tax authorities to control tax obligations of these entities

Thirdly, there are many violations in the process of tax law and tax administration for e-commerce implementation

In the general trend of the world, e-commerce activities in Vietnam are increasingly developing, making a significant contribution to the state budget Tax administration for e-commerce has been improved, and total state revenue from e-commerce has been increasing However, the situation

of tax revenue loss from e-commerce activities in recent years is still quite serious, due to many reasons including the awareness of law enforcement

- Many organizations and individuals doing e-commerce activities do not register their business (do not register enterprises, cooperatives or business households), especially entities operating based on online advertising or selling goods via social networks They do not register their business so they do not perform tax registration, tax declaration and payment

- Many e-commerce businesses do not issue sales invoices (especially for individual customers), do not declare revenue, income and expenses, or declare lower revenue in order to not pay taxes or reduce tax obligations For instance, there are cases where a business buys or sells

“virtual” money or items in games or leases online advertising applications without declaring, calculating and paying taxes

- For tax authorities, the determination of e-commerce entities’ tax obligations is mainly based

on sales invoices and payment transaction contents, while the business entities that do not issue invoices or issue incorrect invoices or receive payment in cash are popular Other cases that payment

is done via commercial banks without registration to tax authorities have also caused tax losses A part of responsibility belongs to buyers who buy goods and services without invoices and pay in cash

- Contractor tax management and tax administration with cross-border transactions are not effective, such as online hotel reservation services, online travel These businesses do not have a representative offices/ branches in Vietnam and also have not registered business in Vietnam So it

is very difficult for tax administration

The challenge from these shortcomings is to find suitable solutions not only to create a favorable environment for e-commerce development but also to foster tax management and limit tax loss

3 RECOMMENDATIONS TO FOSTER TAX MANAGEMENT FOR E-COMMERCE ACTIVITIES IN VIETNAM UNDER LEGAL PERSPECTIVES

Firstly, creating a favorable legal environment for the development of e-commerce.

It is necessary to amend the Commercial Law and promulgate the E-commerce Law Although the Law on Foreign trade management 2017 has been amended and supplemented a number of provisions in the Commercial Law 2005, only provisions on international trade are amended Commercial Law, which has been enacted since 2005, has many inadequacies that are required to be amended and supplemented, especially for e-commerce activities It is suggested

to review the legal system governing e-commerce relations based on the characteristics of these activities, practices in Vietnam, the requirements of trade integration and the Model Law of

UN Commission on International Trade Law in e-commerce Then, regulations, which are no longer appropriate, should be revised, supplemented to adjust e-commerce relations by law The e-commerce relations that have been governed by the Civil Code Law and others should not be regulated by the Commercial Law It is essential to look at international treaties on trade (including e-commerce) (such as international treaties on international trade, 1980 Convention

on international sales contracts, CPTPP, and other FTAs on international trade) to adjust and supplement accordingly

It is suggested that Vietnam should enact E-commerce Law that is legal document promulgated

by the National Assembly in order to promote sustainable development of e-commerce For details, the Commercial Law could be revised to only stipulate the principles for e-commerce The Law on E-commerce should clearly define e-commerce contracts, show the differences with public administrative transactions, or ordinary civil transactions in the narrow sense In particular, regulations on defining digital signatures and authenticating digital signatures, e-invoices should also be mentioned to replace the current decrees and documents on these issues It could solve inadequacies in the current legal system The issuance of the E-commerce Law requires studying and applying the Model Law of UNCITRAL on e-commerce These include sample rules for recognizing the legal value of data messages, ensuring that electronic transactions are acknowledged

as legally valid to guarantee the legitimate rights and benefits of parties Besides, these also

contain forms of expression of data messages, electronic signatures, conditions to ensure safety of e-signatures, obligations of signatories and parties accepting e-signatures, e-signature recognition; legal value of the data message (as valid as the text, as the original, and as evidence ), handling violations of E-commerce Law, disputes and settlement of disputes in e-commerce

In addition, Vietnam has been a member of the 1980 Convention on International Trading Contracts, so Vietnamese laws should be adjusted regarding provisions on procedures for signing contracts (including electronic contracts), legal protections for international goods trading contracts In fact, many countries issue laws on e-commerce based on the concepts and basic principles of the UNCITRAL E-commerce Law model such as United State, Canada, Singapore, South Korea, Australia, New Zealand, Japan, Thailand, China On the basis of the current Civil Code Law, UNCITRAL’s Law Model on e-commerce and international treaties to which Vietnam

is a member, E-commerce Law needs to specify e-commerce contracts, not only in accordance with the nature of e-commerce but also ensuring the legitimate rights and interests of parties in the integration context It should be a legal basis for state management on e-commerce

Secondly, perfect the tax law and tax administration law system for e-commerce activities.

E-commerce activities are very difficult to check and control because it is difficult to identify, easy to access but easy to delete and change E-commerce activities are carried out through information technology such as mobile phones, computers, at anytime, in anywhere and with anyone while information about buyers and sellers are not displayed In fact, Vietnamese tax administration regulations are still inadequate, requiring further improvement to ensure the equality between parties and tax revenue for state budget Improving tax laws and tax administration laws for e-commerce is required to create a clear legal basis to identify the right legal events that have tax obligations in Vietnam There could be transactions of services and intangible assets across borders arising in a digital economy Moreover, it is necessary to determine exact tax bases like revenue, expenses, profits and income generating sources

Regulations on business registration should be improved to create more conditions for

organizations and individuals conducting e-commerce activities to exercise their business rights and obligations That is a basis for tax administration It is suggested that when an organization or individual registers an e-commerce business without business code, the law offers a separate code

to register while waiting for the appropriate new code to be issued

Concretize the Law on Tax Administration 2019, effective from July 1, 2020

This Law has many appropriate provisions for e-commerce activities’ tax administration However, there are many regulations that need to be studied in order to be specific by the Government’s Decrees, the Circular of the Ministry of Finance In details, according to Article 27, Article 35 and Article 42 of the Law on Tax Administration 2020, commercial banks providing services in foreign countries without permanent establishments in Vietnam, and Vietnamese customers are subject to declare and pay tax for e-commerce and digital- based transactions However, this Law does not specify which cases could be applied, which one of three above entities is responsible for tax declaration and payment, which entities implements procedures for

tax exemption or reduction under the agreements on avoidance of double taxation if all of the above entities are obliged to declare and pay taxes? Clause 3, Article 27 defines the obligations of commercial banks including deducting and making tax payment of organizations and individuals

in foreign countries who conduct e-commerce activities and generate income in Vietnam Clause 6, Article 35 states that when the Vietnamese party pays for organizations and individuals conducting cross-border business activities based on digital intermediaries that are not present in Vietnam, tax codes of these parties must be used to deduct and pay taxes on behalf Clause 4, Article 42 shows that for e-commerce business, digital -based business and other services performed by foreign suppliers without permanent establishments in Vietnam, these suppliers are obliged to direct or authorize tax registration, declaration and payment in Vietnam Tax administration must be based

on transparent and specific legal provisions

Complete the Law on electronic payment for e-commerce in order to enhance tax administration efficiency

Based on the current regulations on payment in commercial trade, it is necessary to review regulations and study carefully international judicial resources on electronic payment

in e-commerce, complete the regulations on electronic payment to ensure smooth, quick, and transparent payment It is required to make payment through commercial banks or other payment intermediaries with specific provisions and provisions for integrated utilities of electronic payment for e-commerce transactions

In order to implement Article 27 of the Law on Tax Administration 2019 regarding the duties and powers of commercial banks, it is necessary to continue building and perfecting the legal regulations, creating a legal basis for operations of digital banks, meeting to apply e-payment requirements in e-commerce, amending and supplementing relevant legal documents such as the Law on Credit Institutions So commercial banks can perform the task of providing information

on taxpayers’ account numbers

Furthermore, Point b, Clause 5, Article 15 of the Law on Tax administration 2019 requires the State Bank of Viet Nam to build and to develop the national e-commerce payment system and integrated utilities to be used for e-commerce models To implement this regulation, it is necessary to complete and supplement a number of provisions in the Law in the State Bank of Vietnam and relevant legal documents to clarify what the national e-commerce payment system

is, how it works, how to integrate electronic payment The commercial bank’s obligation is to provide account numbers that are used to pay for electronic commerce transactions Therefore, tax authorities could identify entities that buy, sell and provide e-commerce services Besides, it is required to gradually eliminate the method of cash payment

Complete regulations on electronic invoices, electronic documents, authentication of electronic documents in electronic payment for e-commerce activities

Improving tax laws and tax administration law for e-commerce must be implemented with the continued improvement of accounting, auditing and other relevant laws regarding documents for e-commerce It is required to use electronic invoices and specific sanctions on e-commerce