Determinants of capital structure of the food and beverage enterprises listed on Vietnam''s stock market 2022

Determinants of capital structure ,of the food and beverage enterprises, listed on Vietnam''s stock market 2022

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HO CHI MINH CITY

-

LE NHAT MINH ANH

DETERMINANTS OF CAPITAL STRUCTURE OF THE FOOD AND BEVERAGE ENTERPRISES LISTED ON

VIETNAM’S STOCK MARKET

GRADUATION THESIS MAJOR: FINANCE AND BANKING

Ho Chi Minh,2022

THE STATE BANK OF VIETNAM MINISTRY OF EDUCATION AND TRAINING

BANKING UNIVERSITY HO CHI MINH CITY

-

LE NHAT MINH ANH

DETERMINANTS OF CAPITAL STRUCTURE OF THE FOOD AND BEVERAGE ENTERPRISES LISTED ON

VIETNAM’S STOCK MARKET

GRADUATION THESIS MAJOR: FINANCE AND BANKING

SUPERVISOR NGUYEN THI NHU QUYNH, PHD

Ho Chi Minh,2022

COMMITMENT

The author commits an honorary statement about your scientific thesis, specifically

as follows:

Full name of the author: Lê Nhật Minh Anh

Born on October 2nd, 1998 in DaNang, Viet Nam

Hometown: DaNang, Viet Nam

Currently, last year student majoring in Finance and Banking, at Banking

University Ho Chi Minh City

While studying at Banking University Ho Chi Minh, the author declares that

The thesis: Determinants of the capital structure of the Food and Beverage listed on Vietnam‘s stock market

Major in: Finance - Banking

Science supervisor: Nguyễn Thị Như Quỳnh, PhD

This thesis has never been submitted anywhere else before The thesis is the author's own research work The research results are reliable, in that there are no previously published contents or contents made by others except for cited sources fully in the thesis

Ho Chi Minh City, 11 April 2022

The Author

Lê Nhật Minh Anh

ACKNOWLEDGMENT

First of all, the author would like to thank the Banking University of Ho Chi Minh City and the teachers who enthusiastically helped with knowledge, taught and imparted valuable knowledge as well as necessary documents for the author's work qualified to complete this thesis

In particular, I would like to express my deep gratitude to my supervisor, Ms.Nguyen Thi Nhu Quynh, PhD for her attention, guidance and meticulous guidance so that I could complete my thesis in the best way

Finally, I would like to thank my family, brothers and sisters, and friends who wholeheartedly cared and created the best conditions for the author to complete this graduation thesis

However, due to the limited expertise and knowledge of the research area, this thesis still contains many errors The author is looking forward to receiving the comments of the teachers so that I can complete the thesis better

The Author

Lê Nhật Minh Anh

ABSTRACT

The purpose of this thesis is to investigate determinants that affect the capital structure of the food and beverage (F&B) companies listed on the Vietnam Stock Exchange Thereby offering some recommendations to support F&B firms improve their capital structure suitable for their business activities Data was collected from the audited financial report of 34 the F&B enterprises listed on Vietnam‘s stock collected from the published annual financial market from 2009 to 2020 and were analyzed by using Stata.14 software Thesis using Feasible Generalized Least Squares (FGLS) regression models to ensure the effectiveness of the chosen models The dependent variable is financial leverage The thesis uses eight independent variables are firm size, profitability, tangibility, growth opportunity, tax, non-debt tax shield, liquidity, and uniqueness of products The research results show that firm size has a positive effect on the financial leverage; while profitability, tangibility, non-debt tax shield, liquidity, and uniqueness of products have a negative effect on the financial leverage The two remaining factors such as growth opportunity and tax affect financial leverage but the coefficient of regression

is not statistically significant in the study model

TÓM TẮT KHÓA LUẬN

Mục đích của bài khóa luận là nghiên cứu các yếu tố ảnh hưởng đến cấu trúc vốn của các doanh nghiệp ngành F&B niêm yết trên Sở giao dịch chứng khoán Việt Nam Qua đó đưa ra một số khuyến nghị nhằm hỗ trợ các doanh nghiệp F&B cải thiện cơ cấu vốn phù hợp với hoạt động kinh doanh của mình.Nghiên cứu sử dụng

dữ liệu tại các báo cáo tài chính đã kiểm toán của 34 doanh nghiệp F & B được niêm yết trên thị trường chứng khoán của Việt Nam được trong giai đoạn từ năm

2009 đến năm 2020 và được phân tích bằng phần mềm Stata.14 Bài khóa luận này

sử dụng mô hình hồi quy Feasible Generalized Least Squares (FGLS) để đảm bảo tính hiệu quả của các mô hình đã chọn Biến phụ thuộc là đòn bẩy tài chính Tám biến độc lập là quy mô doanh nghiệp, khả năng sinh lời, tính hữu hình, cơ hội tăng trưởng, thuế, lá chắn thuế không nợ, tính thanh khoản và tính độc đáo của sản phẩm Kết quả nghiên cứu cho thấy quy mô doanh nghiệp có ảnh hưởng tích cực đến đòn bẩy tài chính; trong khi khả năng sinh lời, tính hữu hình, lá chắn thuế không nợ, tính thanh khoản và tính độc đáo của sản phẩm có ảnh hưởng tiêu cực đến đòn bẩy tài chính Hai yếu tố còn lại như cơ hội tăng trưởng và thuế không ảnh hưởng đến đòn bẩy tài chính vì chúng không có ý nghĩa thống kê trong mô hình nghiên cứu

CONTENT

ACKNOWLEDGMENT ii

ABSTRACT iii

TÓM TẮT KHÓA LUẬN iv

LIST OF ABBREVIATIONS 1

LIST OF TABLE 2

CHAPTER 1 INTRODUCTION 3

1.1 REASONS FOR CHOOSING THE TOPIC 3

1.2 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS 5

1.2.1 General objective of research : 5

1.2.2 Specific research objectives: 5

1.2.3 Research question: 5

1.3 OBJECTS AND SCOPE OF RESEARCH 6

1.3.1 Research subject: 6

1.3.2 Research scope: 6

1.4 METHODOLOGY 6

1.5 MEANING OF THE THESIS 7

1.5.1 Theoretical meaning 7

1.5.2 Practical meaning 7

1.6 STRUCTURE OF THE TOPIC 7

CHAPTER 2 THEORETICAL BACKGROUND AND LITERATURE REVIEW 9

2.1 OVERVIEW OF CAPITAL STRUCTURE 9

2.1.1 Definition of capital structure 9

2.1.2 Meaning of capital structure in business 9

2.1.3 Measure capital structure of the enterprise 10

2.2 THEORETICAL BACKGROUND OF CAPITAL STRUCTURE 11

2.2.1 Modigliani & Miller's Theory (M&M theory) 11

2.2.2 The trade-off theory 13

2.2.3 Pecking order theory 14

2.2.4 Market time theory 15

2.2.5 Agency costs theory 17

2.3 DETERMINANTS OF A ENTERPERISE‘S CAPITAL STRUCTURE 18

2.4 OVERVIEW OF PREVIOUS EMPIRICAL STUDIES 21

2.4.1 Foreign researches 21

2.4.2 Domestic researches 23

Summary of chapter 2 31

CHAPTER 3 METHODOLOGY 32

3.1 RESEARCH PROCESS 32

3.2 RESEARCH MODEL 33

3.3 RESEARCH HYPOTHESES 36

3.4 RESEARCH METHODOLOGY 40

3.5 DATA 43

Summary of chapter 3 44

CHAPTER 4: RESEARCH RESULT ANALYSIS 45

4.1 DESCRIPTIVE STATISTICS OF VARIABLES 45

4.1.2 Correlation analysis of variables 46

4.2 REGRESSION MODEL RESULTS 47

4.2.1 The model chosen 47

4.2.2 Test results 48

4.3 RESEARCH RESULTS DISCUSION 52

Summary of chapter 4 55

CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS 56

5.1 CONCLUSION 56

5.2 RECOMMENDATIONS 57

5.3 THESIS LIMITATIONS AND RESEARCH DIRECTION 59

5.3.1 Limitations of the thesis 59

5.3.2 The research direction 60

Summary of chapter 5 61

REFERENCES 62

APPENDIX 1 65

APPENDIX 2 67

LIST OF ABBREVIATIONS

LIST OF TABLE

Table 2 1 Summary of relevant empirical studies 25

Table 3 1 The research process……… 33

Table 3 2 Summary the determinants of capital structure 38

Table 4 1 Descriptive statistics……… 45

Table 4 2 Correlation matrix 46

Table 4 3 Results of using VIF to test multicollinearity 47

Table 4 4 Test results using OLS, FEM, REM 48

Table 4 5 The result of F-Test 50

Table 4 6 The result of Hausman Test 50

Table 4 7 Test results using GLS model 51

CHAPTER 1 INTRODUCTION

Chapter 1 identifies the research problem as the factors affecting the capital structure of the F&B enterprises listed on Viet Nam's stock market Accordingly, the author presents the necessery of topic; subjects, objectives, scope, metholodogy

of research

1.1 REASONS FOR CHOOSING THE TOPIC

In the current process of international economic integration and development deepening, the problem of determining an optimal capital structure is one of the important financial tasks of corporate financial managers Because the optimal capital structure will help the business minimize the cost of capital and thereby maximize the asset value of the shareholders of the business In addition, the capital structure also affects profitability and business risks that the firm itself may face (Frank and Goyal, 2009) Therefore, businesses are required to face how to use debt and equity effectively to minimize risks for the business because the use of debt is like a double-edged sword If the appropriate financial structure is not built,

it can reduce the competitiveness of enterprises, not realize the goal of value enhancement, and also lead to higher financial distress costs if the debt is used too much

Among the listed companies in Vietnam, food and beverages (F&B) companies have grown in no time and played a significant role in satisfying the increasing demand of Vietnamese residents and exports According to survey results

of Business Monitor International Ltd (BMI), the full consumer spending of all sales channels was over VND 2,800 trillion within the period 2010-2018, within which consumption expenditure of F&B reached the best level compared to other categories, accounting for 22.3% of total household expenditure (World Bank, 2019)

F&B companies in Vietnam recognized the importance of creating a method to extend equity capital and make momentum for business scale development still as step by step liberalising international trade However, they're managing lots of

difficulties, especially within the end of 2019, the government has implemented new regulations on drunk driving and taxation on alcohol, resulting in severe effects

on cash flows management of those who provide food and drinks services and products

Currently, the capital structure within the F&B industry shows that about 60%

of companies use a mix of debt and equity, while cases of excessive debt and use of debt exist Using an excessive amount of debt financing can increase financial exhaustion and reduce the firm‘s ability of to borrow (Addae et al., 2013)

non-In addition, debates about whether investors should use long-term investment within the F&B industry or keep a portfolio of various stocks in several industries are continuing, resulting in the necessity to research more on capital structure of firms Capital structures is known as corporate financing decisions because enterprises can finance their operations using debts, equity or a mix of those two sources (Brealey et al., 2009)

Therefore, so as to develop stably and sustainably, F&B enterprises have to founded an inexpensive capital structure to market the efficiency of capital structure, helping businesses maximize corporate value, this is often called the optimal capital structure (Nirajini & Priya, 2013) Companies operating within the same industry have an equal level of operational risk and, therefore, have similar optimal capital structures (Morri & Cristanziani, 2009)

Currently, over the wolrd, there are a large number of studies study the factors affecting the capital structure of enterprise such as Huang & Song (2006); Sarah & Mahmoud (2019); Jie Lin (2019) However, these studies are usually for businesses

in developed countries such as the US, UK, China In Vietnam, researchers usually

do the research for all general businesses (Vo (2016); Nguyen et al (2020); Tran & Bui (2021); B.V.Thuy (2020)) and they do not seem to be interested in specific industries such as F&B Thus, because of the lack of relevant empirical studies in building up optimical capital structure of F&B firms in Viet Nam, specially the F&B industry contribute quite large to the overall growth of the country in recent

years, the author decided to choose the topic "DETERMINANTS OF CAPITAL

STRUCTURE OF THE FOOD AND BEVERAGE ENTERPRISES LISTED

ON VIETNAM’S STOCK MARKET" as the graduate thesis The research results

are used to strengthen recommendations proposed to support these companies improve their capital structure suitable for their business activities

1.2 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS 1.2.1 General objective of research :

The general objective of research is to analyze the determinants of the capital structure of the F&B companies listed on Vietnam‘s Stock Exchange From the research result, the thesis proposes some recommendations to improve the capital structure suitable for their business activities

1.2.2 Specific research objectives:

To achieve the above general objectives, the thesis solves the following specific objectives:

- Determining the factors affecting the firm‘s capital structure

- Measuring the influence of factors affecting the capital structure of F&B industry enterprises listed on Vietnam's stock market

- Based on the research results, propose some recommendations to support F&B companies listed on the Vietnam Stock Exchange improve their capital structure suitable for their business activities

1.2.3 Research question:

To achieve the above objectives, the thesis needs to address the following research questions:

- What factors affect the capital structure of enterprises?

- How do these factors affect the capital structure of the F&B industry enterprises listed on the Vietnamese stock market?

- Which are recommendations to support F&B companies listed on the Vietnam Stock Exchange improve their capital structure suitable for their business activities?

1.3 OBJECTS AND SCOPE OF RESEARCH

Research period: From 2009 to 2020, the author chooses this period to perform the research because this is the stage in which the thesis can collect the data that the thesis needs, and at the same time this is the period when the Vietnamese economy has many fluctuations such as the post-financial crisis period (2010-2012), the period of economic recovery and growth as well as the period when businesses have to face the Covid-19 epidemic

1.4 METHODOLOGY

The research is completed based on the information and databases learned from previous research frameworks, and at the same time combines the use of the quantitative and quanlitative methods to achieve the research objectives:

The author uses the regression technique on panel data with Pooled OLS, and FEM, REM models to estimate the regression equations and choose a suitable model Then, the author performs the multicollinearity and variance test with the Likelihood Ratio test, Hausman test and Heteroskedasticity test After the tests, if the model has problems of heteroskedasticity and multicollinearity, the research will use the Generalized Least Squares (GLS) estimation to overcome these issues of the model selected as the result for the study

1.5 MEANING OF THE THESIS

1.5.1 Theoretical meaning

The research topic contributes to systematizing the theoretical basis of determining the factors as well as their levels affecting capital structure, thereby serving as the basis and reference for the application of analysising capital structure for other businesses

1.5.2 Practical meaning

Based on the research results, the essay helps interested people have an overview of the capital structure situation of F&B companies listed on the Vietnam Stock Exchange, know the factors and the degree of influence of those factors on the capital structure of those enterprises, thereby proposing some recommendations

to help enterprises build a capital structure suitable to their business activities

1.6 STRUCTURE OF THE TOPIC

In addition to the introduction, conclusion, table of contents and list of

references, the thesis consists of 5 chapters:

Chapter 1 Introduction

The content of Chapter 1 identifies the research problem as the factors affecting the capital structure of the F&B enterprises listed on Viet Nam's stock market Accordingly, the author presents the reasons for choosing the topic, research subjects, research objectives, research scope, research methods, research contributions and research structure in detail in Chapter 1

Chapter 2 Theoretical background and empirical researches

Chapter 2 presents the concepts related to the research problem such as (1) the concept of capital structure; the meaning of the capital structure of the firm, influencing factors and the level of them affecting capital structure of firm; (2) theoretical background; and (3) relevant empirical studies from abroad to Viet Nam

to identify research gaps, thereby presenting dependent and independent variables which are applied to assess the impact of factors affecting capital structure of the F&B enterprises listed on Vietnam's stock market

Chapter 3 Methodology

Chapter 3 presents research methods in order of steps from the data

collection method and data processing method Accordingly, by approaching the

panel data regression model, the thesis proceeds to describe the selected variables

and data processing steps

Chapter 4 Research results

Chapter 4 presents the quantitative analysis steps applied to the secondary

data set with observed samples collected, including descriptive statistics; correlation

coefficient analysis; multicollinearity test; Serial correlation test, and

Heteroskedasticity test, explaining the result Finally, the author will use the FGLS

(Feasible Generalized Least Squares) method to overcome the defects of the model

to ensure the effectiveness of the selected model as the result of the study

Chapter 5 Conclusion and recommendations

Based on the theoretical background, relevant empirical studies and research

results, chapter 5 makes conclusions about the influencing factors and their

influence on the capital structure of enterprises The F&B industry is listed on the

Vietnam Stock Exchange and proposes some recommendations to help businesses

improve capital structure suitable to their business operations Finally, the author

presents minor limitations in the thesis and directions for further research

CHAPTER 2 THEORETICAL BACKGROUND AND LITERATURE

REVIEW

Chapter 2 presents the concepts related to the research problem such as (1) the concept of capital structure; the meaning of the capital structure of the firm, influencing factors and the level of that factors affecting capital structure of firm; (2) theoretical background; and (3) relevant empirical studies from abroad to Viet Nam to identify research gaps, thereby presenting dependent and independent variables which are applied to assess the impact of factors affecting capital structure

of the F&B enterprises listed on Vietnam's stock market

2.1 OVERVIEW OF CAPITAL STRUCTURE

2.1.1 Definition of capital structure

There are many definitions of capital structure: Some authors define a firm's capital structure as a mix of debt and equity used to finance production and business activities (Damodaran, 2011) According to Ahmad et al (2012), capital structure is the ratio between debt and equity in the total capital of an enterprise to finance production and business activities As defined by Ross et al (2008), the capital structure of a firm, also known as financial leverage, is the combination of the use

of debt capital and equity in a certain ratio to finance business activities

In general, the authors' concept of capital structure has almost no big difference Specifically, the ratio of debt to capital to finance production and business activities Therefore, in order to agree on the concept, in this thesis, capital structure in enterprises is understood: The proportion of debt in total assets to finance production and business activities of the enterprise

2.1.2 Meaning of capital structure in business

In any enterprise, capital is invested in the production and business process

in order to increase profits and increase the value of the enterprise The mobilization

of capital on the one hand just meets the capital needs for production and business,

on the other hand, enterprises can bear financial risks Therefore, to be able to mobilize, manage and effectively use their capital, reduce financial risks and cost of

capital, enterprises must determine for themselves a reasonable capital structure The tool that corporate financial managers cannot help but pay attention to when deciding the capital structure of enterprises is financial leverage

Using financial leverage properly will increase profits for businesses significantly On the contrary, enterprises will have to bear unavoidable risks The optimal capital structure involves a trade-off between the firm's costs and benefits Debt financing creates tax shields for businesses and reduces the dispersion of management decisions Debt costs have a significant impact on business operations, even leading to the closure of businesses

Equity financing does not create a cost of capital for the enterprise However, shareholders can interfere in the operation of the enterprise High expectations on production and business activities of investors also create considerable pressure on managers An appropriate capital structure is an important decision for all businesses not only because of the need to maximize benefits from individuals and organizations related to the business and its operations but also by the impact of the decision This affects the business capacity of enterprises in a competitive environment

2.1.3 Measure capital structure of the enterprise

The capital structure reflects the long-term financing policy of the enterprise,

so when analyzing capital structure, it is necessary to consider the ability of the enterprise to use its own capital or to use capital from outside the enterprise There are many indicators reflecting this ability, the choice of which criterion depends on the meaning that the indicator brings to the user and is suitable for the objectives to

be considered Some commonly used metrics are:

Debt to Total Equity = Liabilities/Total Equity The debt ratio reflects how much of a business's total capital is its liabilities,

or in other words, what percentage of its assets is formed by its liabilities

Debt to Equity Ratio = Liabilities/Equity

The debt-to-equity ratio, also known as debt leverage, represents the level of

a debt security by equity, reflecting the financial autonomy, financial capacity and proactive ability of the enterprise on business capital

2.2 THEORETICAL BACKGROUND OF CAPITAL STRUCTURE

The relationship between capital structure and factors affecting capital

structure can be explained through theories of capital structure as follows

2.2.1 Modigliani & Miller's Theory (M&M theory)

The capital structure theory was first proposed by Franco Modigliani and Merton Miller in "Cost of capital, corporate finance and investment theory" published in American Economic Review, 1958 According to Modigliani & Millers (1958), in perfect capital market conditions, the value of a business is independent of its capital structure, and there is no optimum capital structure for a particular business However, the MM theory's perfect market assumptions such as

no transaction costs, no taxes, symmetric information, and equal borrowing and lending rates are inconsistent with real-world operations real world In their follow-

up study, in 1963 and 1977, Modigliani and Miller extended their assumption by including corporate income tax and personal income tax factors in their research model

M&M theory is stated under two propositions: the first proposition deals with the enterprise value, the second ones deals with the cost of capital And both these propositions are considered in the two cases with income tax and without an income tax

The case of without income tax:

M&M theory (1958) is built on the assumptions of perfect capital markets:

- No corporate income tax and no personal income tax

- No transaction fees

- No bankruptcy costs and financial distress costs

- Both individuals and companies can borrow or lend at the same interest rate With the above assumptions, the M&M theory states as follows:

The first proposition: under the tax-free condition, the value of the leveraged firm is equal to the value of the unleveraged firm, meaning, under the tax-free condition, the value of the leveraged and unleveraged firm is the same, so the debt/equity structure has no effect on firm value According to this proposition, an enterprise cannot change the total value of its securities by dividing its cash flows into different streams: the value of the business is determined by its real assets, not

by the evidence securities issued by the enterprise Thus, there is no optimal capital structure and the firm cannot increase its value by changing its capital structure

The second proposition: the required return on equity, or the expected rate of return on the common stock of a leveraged firm, increases with the debt/equity ratio, as measured by the market value of the debt market, i.e required return on equity is positively related to leverage or debt ratio

The case of income tax:

The assumption that there is no income tax is inconsistent with reality Indeed, in fact, there are always market imperfections such as taxes, information asymmetry, etc Therefore, Modigliani and Miller continued to study the impact of taxes on capital structure and published research "Corporate income tax and cost of capital" in American Economic Review, 1963 This study examines the effect of corporate income tax on the relationship between capital structure and firm value

- The first proposition: In the case of income tax, the value of the leveraged firm is equal to the value of the unleveraged firm plus the present value of the tax shield

- Second proposition: In the case of taxes, the required return on equity is positively related to the degree of leverage or debt ratio

Thus, according to Modigliani and Miller, in the case of taxes, the value of the firm will increase and the average cost of capital will decrease as the firm increases its use of debt However, in fact, many businesses grow well but instead of having a capital structure with a maximum debt ratio to take advantage of the tax shield, they

do not use debt or use debt at a very low level

Some other studies argue that in fact, the value of the firm will not infinitely increase when the debt ratio increases, because when the debt ratio increases, it will occur a type of cost, called financial distress costs, and as a result, reduce the value

of the leveraged firm According to these studies, the debt ratio will increase to a point where the costs of financial distress will exceed the benefits of the tax shield, and then the value of the leveraged firm begins to decline At that point, called the optimal capital structure point, the value of the firm is maximized and the average cost of capital of the firm is minimized As the firm continues to increase its use of debt, the firm will pass the optimal point, where the value of the firm begins to decrease and the average cost of capital begins to increase

2.2.2 The trade-off theory

The trade-off theory proposed by (Kraus & Litzenberger, 1973) presents the view that managers believe they will find an optimal capital structure to maximize firm value An optimal leverage ratio is a balance between the benefits and costs of debt Where the benefit of debt is the benefit from the tax shield of interest The potential costs of debt include the cost of financial distress and the agency cost between owners and creditors The content of the capital structure trade-off theory

is expressed through the following formula:

Value of leveraged firm = Value of unleveraged firm + Present value of tax shield – Present value of financial distress cost

The trade-off theory predicts that firms with more tangible assets and high taxable income have high debt ratios, and firms with larger sizes and more liquidities will have higher debt ratios While companies are riskier, more intangible assets have to rely more heavily on equity In terms of profitability, the trade-off theory predicts that more profitable firms should increase debt financing and more taxable income will be deductible, hence higher debt ratios will be predicted According to the capital structure trade-off theory, firms with high growth opportunities should borrow less because it is more likely to lose value during a financial crisis

However, the limitation of the trade-off theory is that it cannot explain why some very successful firms in the industry have very little debt and no tax shield despite very high operating income It is this limitation that is the premise for another capital structure theory to emerge: the pecking order theory

2.2.3 Pecking order theory

One of the issues that quite affect the capital structure of enterprises Business is information asymmetry (asymmetrical) between managers and investors Managers are often more aware of the true value and risks of a business than outside investors and thus influence a manager's funding decisions Myers (1984) began to study the pecking order theory to explain the priority order between sources of capital when businesses need to raise capital

The pecking order theory also makes important contributions to the modern theoretical system of capital structure when empirical studies show that businesses,

in general, depend a lot on internal capital and debt, but cannot explain the case when many businesses s have issued shares when they can completely borrow This aspect led to the birth of later modern capital structure theories

An important premise of this theory is that: Outside investors and managers have the same source of information about the enterprise - called information symmetric In practice, however, managers often have much better information than outside investors - this is known as asymmetric information These sources of information will more or less affect the capital structure of enterprises Also according to Myers and Majluf (1984), information disparity will cause equity to be misvalued in the market, which can lead to the loss of appreciation of existing shareholders' assets If a company finances new projects by issuing shares, these stocks will typically be undervalued because management may not be able to convey all the bright prospects to potential investors power As a result, outside investors cannot distinguish between good projects and bad projects, so they see the issue of new shares as a bad signal and they demand compensation for the investment value As a result, enterprises can only issue shares at a low price

According to Myers (1984), managers tend to issue shares when the firm is overvalued and vice versa to borrow when it is undervalued Besides, enterprises also mobilize equity from outside when the cost of financial distress is high, and vice versa, enterprises will borrow when the cost of financial distress is low Enterprises can issue debt or equity to finance new investments provided that the debt is secured by assets and profits (Shyam-Sunder and Myers, 1999) Therefore, investors when investing in debt are less exposed to errors in the valuation of enterprises and the disclosure of debt problems will easily have the effect of reducing stock prices compared to the disclosure of equity possess

One of the contributions of the pecking order theory is the explanation of how cash flow affects capital structure Accordingly, if the endogenous capital source is not guaranteed, enterprises will use debt Conversely, if the firm has a larger endogenous cash flow relative to its investments, the firm will use less debt Enterprises can use this excess cash flow to pay down loans or buy treasury shares, and this will increase the debt ratio

2.2.4 Market time theory

According to market timing theory, capital structure emerges as a cumulative result of past efforts to determine the "right" timing of capital markets to issue debt

or equity This theory of capital structure does not appear to be consistent with other theories of capital structure

There are two versions of the market timing theory that lead to two different capital structure models The first is the model of Myers and Majluf (1984) with rational investors and managers and the cost of adverse selection varying between firms and across time In line with these studies, Korajczk (1991) finds that firms are more inclined to issue shares after disclosing information, as this can reduce information asymmetry At the same time, Bayless and Chaplinsky (1996) find that equity issuance often occurs around times when the announcement effect is relatively smaller To interpret the results of this study, transient fluctuations in the market-to-book ratio must measure changes in adverse selection

The second version of market timing theory involves investors (or managers) being irrational and mispricing (or perceived mispricing) changing over time Managers issue stock when they believe its cost is reasonably low and buy back stock when they believe its cost is unreasonably high The market/book value ratio

is known to be negatively related to future stock returns and extreme M/B values are relevant to forecasters La Porta extremist (1997) If managers are trying to exploit extreme projections, net issuance will be positively related to the M/B ratio

It is important to note that the second version of the market timing theory does not require a truly efficient market It does not require managers to successfully predict stock returns The overriding premise is simply that managers believe they can correctly time the market In a survey by Graham and Harvey (2001), CFOs admit

to trying to time the market, and two-thirds of those who have considered an equity issue report that ―shares are determined how high or low the price is‖ is an important consideration The evidence from this survey supports the core hypothesis of the market timing theory mentioned above, that managers believe they can "correct" market timing but do not distinguish between pricing erroneous and asymmetric information in versions of market timing theory

The evidence supporting the mispricing version is that when long-term returns for stocks are low, shares are often issued, and long-term returns are high, shares are often repurchased The magnitude of these effects suggests that managers are generally successful at forecasting capital market timing For example, Loughran and Ritter (1995) show that the unusual long-term returns of equity issuers, a measure of the magnitude of taking advantage of mispricing, are an order

of magnitude larger than the announcement of a stock issue – a measure of the existence of information asymmetry The evidence in the study by Baker and Wurgler (2000) suggests that, in general, equity issuers can determine the "right" timing of the cost of capital

In summary, much evidence suggests that market timing is an important factor in financial decisions in practice Other explanations cannot be completely

disproved, but some empirical evidence suggests that leverage emerged as a result

of past efforts to "right" time capital markets

2.2.5 Agency costs theory

Agency theory was first introduced by Jensen and Meckling (1976) Jensen and Meckling (1976) argue that, if the manager is not the sole owner of capital in the enterprise, then agency cost is an unavoidable cost Asymmetric information between managers and owners of the business gives rise to costs called agency costs In the interest of managers, they may not make decisions or make decisions that may hurt the business without trying to increase the value of the business If equity is issued, the manager's interest will decrease, so managers tend to want to enjoy the benefits The benefits that managers want to enjoy are the costs and losses that owners have to bear To limit these risks, business owners need to monitor and manage their activities by their interests These costs are called agency costs, including the owners‘ control the costs; compliance costs of the manager; the portion of the utility that is diminished due to the difference between managers' actual decisions and owners' utility maximization decisions (Fama, 1980)

The better the business is managed, the lower the agency‘s cost of equity One way to reduce agency costs is to increase the use of debt As the proportion of debt increases, managers will have to be more cautious in their decisions to borrow new debt and use capital, making them more effective at managing the business (Ozkan, 2001) can predict the behavior of managers when the market is operating efficiently The price of new shares will therefore be reduced by taking into account agency costs In this case, the owner would prefer to use borrowed capital rather than equity capital Fama (1980) argues that the agency cost of equity is negligible because, in a well-functioning capital market, there is pressure to force managers to represent the interests of outside shareholders

When taking out a loan, there may be a conflict of interest between the creditor and the manager and thus agency costs Debt is an incentive for managers

to invest in projects with great benefits but at the same time high risks, increasing

the possibility of failure If successful, the creditor will not be able to share the profits, but if it fails or goes bankrupt, the creditor will have to bear additional risks

As debt increases, interest rates will increase to compensate for the probability of bankruptcy At this point, the agency cost of debt includes the opportunity cost of the impact of debt on the investment decisions of managers, the cost of control and enforcement of creditors and managers; costs related to bankruptcy and restructuring

Thus, both debt and equity capital generate agency costs and should consider the trade-off between the two types of costs when choosing the optimal capital structure The agency cost theory states that the agency cost of equity has a positive relationship with the debt ratio, while the agency cost of debt has a negative relationship with the financial leveragethe of enterprise

STRUCTURE

Size of company (SIZE)

Under the trade-off theory, firm size is positively related to debt, because large firms typically have low bankruptcy risk and low bankruptcy costs In addition, large firms have low agency costs of debt, low control costs, less information disparity, and have less variable cash flows, have easier access to credit markets, and use more debt to benefit more from the tax shield than smaller firms, according to the agency cost theory From these arguments, the study suggests that firm size has a positive relationship with financial leverage, which is also consistent with the results of research in the world such as Huang and Song (2006) and Jie Lin (2019) ), Khaki and Akin (2020) and the results of domestic studies such as Hung and Cuong (2020), Dung and Thanh (2021)

Profitability (ROA)

Profitability is one of the indicators reflecting the performance of an enterprise, but the correlation between profit and financial leverage is not consistent According to the pecking order theory, Myer (1984) argues that if a

company is efficient, it tends to prefer using internal funds rather than external sources of capital In addition, profitable companies do not like to raise more equity

in order to avoid dilution of ownership Therefore, the relationship between debt and profitability is negative, and there are empirical researches that support the theoretical forecast of such a negative connection However, based on the trade-off theory, with the benefit of the tax shield, it is assumed that operating companies should be profitable borrow more, other things being equal, so they take advantage

of the tax shield more At this time, the relationship between debt and profit is positive

Tangibility (TANG)

The capital structure of businesses is importantly influenced by tangible fixed assets According to the agency cost theory, the agency cost of debt arises when contrasted to the transfer of risk, assets from creditors to shareholders, therefore tangible fixed assets are the guarantee for borrowers acquiring a loan to decrease risk Furthermore, due to the knowledge gap, physical fixed assets are employed as collateral for borrowing, therefore enterprises with more tangible fixed assets have greater borrowing conditions, according to the pecking order hypothesis According to Huang and Song (2006), there is also a positive association between physical fixed assets and financial leverage Thus, research and theories both suggest that financial leverage and tangible fixed assets are positively correlated

Growth opportunity (GROWTH)

Growth opportunity is usually used to reflect the revenue growth rate of enterprises According to the agency costs theory, enterprises with prospects for future growth often like using equity financing to invest than borrowing Because according to Myers (1984), if a company has high financial leverage, the shareholders of the company tend not to invest much in the company's projects because the profits from these investments will be beneficial to creditors rather than

to shareholders Such costs are substantial, and if so, high-growth companies with

many profitable projects often rely more on equity than debt Therefore, financial leverage has an inverse relationship with growth opportunities However, the pecking order theory also suggests that higher growth increases the demand for funds, which can be obtained through external debt financing, so that there is a positive relation between growth opportunities and leverage

Non-Debt Tax Shield (NDTS)

According to second proposition of Modigliani and Miller theory, they argues that profitable firms use interest payments on debt and depreciation expenses

as a tax shield, so that firms with high debt ratio gain more advantages from tax shields Since the tax advantage of debt financing decreases with long term

of debt, leverage is negatively associated with tax shield, but positively associated with short-term debt In contrast, the trade-off theory focused on costs of bankruptcy and financial distress that reduce the tax benefit of debt

Liquidity (LIQID)

There is a mixture outcome in terms of the effect of liquidity on the capital structure choice of firms Based on the pecking order theory, there will be a negative relationship between liquidity and financial leverage because according to the theory, highly liquid enterprises will have more liquid assets to use for the purpose of borrowing for investment for their projects, therefore, liquidity is inversely proportional to debt Many studies have also shown an inverse relationship between liquidity and short-term leverage of firms such as Aamer

Shahzad et al (2019), Khaki and Akin (2020), Jie Lin (2020), in developed countries show that the liquidity of enterprises is inversely proportional to financial leverage However, Others argue that a positive association between debt ratios and company liquidity should exist since firms with higher liquidity ratios may need to take on more debt in their capital structure to satisfy obligations in the short term

Uniqueness (UNI)

The capital structure of different industries differs significantly Titman (1988) discovered that more lucrative industries tend to employ less debt The leverage ratio in capital structure is inversely connected with the frequency of bankruptcy in the industry, according to several previous studies Financial leverage ratios are higher in businesses that generate consistent cash flows throughout the business cycle In general, businesses pay special attention to the debt ratio of their industry, which may reflect the fact that the industry in which they operate determines most of the business risk they face A company with a capital structure that is significantly different from the industry average will need to have a risk differential relative to the risk of the industry average

2.4 OVERVIEW OF PREVIOUS EMPIRICAL STUDIES

2.4.1 Foreign researches

Huang and Song (2006) studied the factors affecting the capital structure of 1,000 enterprises on the Chinese stock market Using OLS regression method and Tobit'Q model, the research results show that while firm size, tax shield, fixed assets are positively correlated with the debt ratio of enterprises, the business industry of Firms and profits have a negative relationship with the debt ratio In addition, for Chinese enterprises, the enterprise ownership structure also affects the capital structure of enterprises

In Chang et al.(2009) study of the determinants of capital structure choice using structural equation modeling (SEM), Titman and Wessels (1988) They applied the Multiple Indices and Multiple Causes (MIMIC) model, with refined indices, to a composite sample for the period 1988-2003 and found more

convincing results than those previously reported by Titman and Wessels obtained With capital structure measured simultaneously by the ratios of long-term debt, short-term debt, and convertible debt to the market value of equity, their results suggest that growth is an important determinant of equity and different measures result in different signs of the loadings of growth and profitability For example, the growth has a negative effect on leverage when we measure it with the market-to-book assets ratio, while positive if it‘s measured with market-to-equity ratio Similar results are obtained with measures of profitability When the profitability is measured as operating income divided by total assets, it has negative effect on leverage, but it has positive effect on leverage if it is measured as operating income divided by total sales In addition, their results also support the opposite relationship between the collateral value, volatility, non-debt tax shields, uniqueness of assets and debt ratios

In a study on the determinants of capital structure of public companies listed

on Stock Exchange of Malaysia, Singapore and Thailand from 2004 to 2013, M'ng

et al.(2017) shows that the size of the enterprise and the financial leverage with a one-year lag have a positive impact on the capital structure of enterprises in all three countries Tangible fixed assets have a positive effect on capital structure in Malaysia and Singapore, but the effect is not significant in Thailand Inflation positively affects the capital structure of Malaysia and Thailand but has a negligible effect on the capital structure of Singapore Profitability has a negative impact on the capital structure of enterprises in Malaysia and Singapore, but the effect is not significant in Thailand Depreciation of fixed assets has a negative effect on capital structure in all three countries

Sarah ALmuaither, Mahmoud Marzouk (2019) used the data of 329 financial firms for the period between 2009 and 2017 with aims to identify the firm-specific determinants of capital structure in the Gulf Cooperation Council (GCC) countries, namely Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the United Arab Emirates A number of regression models are employed on The findings

non-indicate that size, tangibility, and growth opportunities have positive impact on leverage; but profitability, age, financial constraints, liquidity, and government ownership affect the leverage negatively

Khaki and Akin (2020) determine the factors affecting the capital structure of

329 non-financial enterprises listed in the Gulf Cooperation Council (GCC) countries, namely Bahrain, Kuwait, Qatar, Oman, and Saudi Arabia - United Arab Emirates and the United Arab Emirates for the period from 2009 to 2017 The results show that firm size, tangibles, and growth opportunities have a positive impact on leverage On the other hand, profitability, age, financial constraints, liquidity and government ownership negatively affect leverage In addition, operational risk, institutional characteristics have a small influence on leverage in the general model for the region

With sample data collected from 25 companies in the Indian cement industry, during the period of study 2003-2011 By using the combined regression model (OLS) and panel regression (fixed effect GLS and random effect), the research results of April Bhattacharjee, Mihir Dash (2021) show that the financial leverage of firms was significantly positively related to the collateralizable value of assets, significantly negatively related with size and profitability, and not significantly related with non-debt tax shield and growth

2.4.2 Domestic researches

Research by Doan (2010) was distributed using the trail analysis system supported data from financial statements for 3 times (2007-2009) of 428 listed companies on the stock exchange to spot the factors that affect the profitable structure and financial performance The research results show that the establishment size factor includes a positive relationship with the profitable system

In contrast, the factors like business effectiveness, business threat, and asset structure have a negative association for financial structure

Vo Xuan Vinh (2016) used a comprehensive dataset of enterprises listed on the Ho Chi Minh City securities request from 2006 to 2015 in explaining capital

structure He considered a large number of enterprises attributes variables similar as asset growth, rate of tangible means, profit, establishment size and liquidity and find that the determinants of capital structure are different for colorful capital structure measures For illustration, growth occasion measure measure are positive but not significant all told regressions for both long- term and short- term influence; tangible means measure is positive and significant in regression explaining long- term influence but negative and significant in retrogression explaining short- term influence; establishment size measure is positive and significant in regression of future debt, while negative in retrogression of short term debt; profitability measure are negative and significant in retrogression explaining short- term debt and thus the rate of short- term to long- term influence; liquidity portions are negative and significant briefly term influence while positive but insignificant in future influence

Phan (2016) also studied the impact of capital structure on the business results of industrial enterprises The author uses ROA and ROE as a dependent variable representing business results, the independent variables are capital structure, firm size, growth rate, structure of tangible fixed assets, risks in firm‘s business, state ownership and Tobin‘s Q First of all, the research uses least squares OLS method to estimate the model Next, with panel data, the estimation method is used for FEM and REM The study then used the Hausman appropriate model and draw conclusions Estimated results show that the opposite effect of capital structure factor on business results of enterprises is very solid and statistically significant This result is consistent with many other studies such as Zeitun, Tian, and Keen (2007), Trinh and Nguyen (2013) This means that enterprises in the sample observed that the increase in debt will reduce the performance

Hung and Cuong (2020), using data from 30 pharmaceutical enterprises listed on on Vietnam's securities request within the period 2015-2019, have shown that the financial influence rate, long- term asset rate and debt-to- means rate have positive relationship with firm performance, meanwhile the self- financing affects negatively to the return on equity

Le Tham Duong et al (2020) conducted a study on the factors affecting capital structure for 52 food companies listed on the Vietnamese securities request supported financial statements from 2011 – 2018 Exploration shows that the profitability of food businesses, the rate of fixed means to total means and thus the age of enterprises contains a negative influence on capital structure In contrast, size and rate are two factors that have a positive influence on capital structure Furthermore, commercial profit improvement does not affect capital structure opinions of food businesses

However, these studies have different conclusions Thus, further research is needed to condense the idea of the capital structure of enterprises in several fields within the Vietnam request typically and within the F&B industry

The following table 2.1 focuses on synthesizing and summarizing empirical studies about factors affecting the capital structure of enterprises in domestic and oversea countries around the world

Table 2 1 Summary of relevant empirical studies

of capital structure:

Evidence from China

1200 Chinese-listed companies

1994 -

2003

OLS regression method and Tobit'Q model

Firm size, tax shield, fixed assets are positively correlated with the debt ratio of enterprises

The business industry of firms and profits have a negative relationship with the debt ratio

Chang et al

(2009)

Determinant

s of capital structure choice: A

351 industries based on four-digit

Using structural equation modeling

Growth is an important determinant of equity and different measures result

in different signs of the

structural equation modeling approach

SIC code during 1988–

2003

(SEM), the Multiple Indices and Multiple Causes (MIMIC) model

loadings of growth and profitability For example, the growth has a negative effect on leverage when

we measure it with the market-to-book assets ratio, while positive if it‘s measured with market-to-equity ratio Similar results are obtained with measures of profitability When the profitability is measured as operating income divided by total assets, it has negative effect on leverage, but it has positive effect on leverage if it is measured

as operating income divided by total sales M'ng et

al.(2017)

The determinants

of capital structure:

Evidence from public listed companies

in Malaysia,

911, 7761 and 5841, companies listed respectivel

y on the Bursa Malaysia, Singapore

Regression estimation method for panel data

The research found that profitability has a significant negative influence on capital structure for Malaysia and Singapore but is

insignificant for Thailand While firm size has a significant positive

Singapore and

Thailand

Stock Exchange and the Stock Exchange

of Thailand from 2004

to 2013

influence on capital structure for all countries

In addition, their findings also suggest that the tangibility of assets has a significant positive influence on capital structure for Malaysia and Singapore while

insignificant for Thailand The depreciation of total assets indicates a negative influence on capital

structure across all the three countries

Evidence from the UK

100 financial firms for the period between

non-2008 and

2016

Regression estimation method for panel data

The findings indicate that size, tangibility, and growth opportunities have positive impact on leverage; but profitability, age, financial constraints, liquidity, and government ownership affect the leverage negatively

Khaki and

Akin (2020)

Factors affecting the capital structure:

New

329 financial firms during

non-2009 -

Regression estimation method for panel data

The results show that firm size, tangibles, and growth opportunities have a positive impact on leverage On the other

evidence from GCC countries

2017 hand, profitability, age,

financial constraints, liquidity and government ownership negatively affect leverage

25 cement companies from 2003

to 2011

Regression estimation method for panel data and FGLS method

The research results show that the financial leverage

of firms was significantly positively related to the collateralizable value of assets, significantly negatively related with size and profitability, and not significantly related with non-debt tax shield and growth

Doan (2010) Impact of

capital structure on financial performance

of enterprises after privatization

in Vietnam

428 companies listing on Vietnam stock exchanges during 2007-2009

Regression estimation method for panel data

The author found that the establishment size factor includes a positive relationship with the profitable system In contrast, the factors like business effectiveness, business threat, and asset structure have a negative association for financial structure

Regression estimation

The growth factor are positive but not significant

structure in emerging markets:

Evidence from Vietnam

than 300 firms listed

on the Ho Chi Minh City stock exchange for the period from 2006

to 2015

method for panel data

all told regressions for both long- term and short- term influence; tangible is positive and significant in regression explaining long- term influence but negative and significant in retrogression explaining short- term influence; firm‘s size is positive and significant in regression of future debt, while negative

in retrogression of short term debt; profitability measure are negative and significant in retrogression explaining short- term debt and thus the rate of short- term to long- term influence; liquidity are negative and significant influence while positive but insignificant in future influence

30 pharmaceutical enterprises listed on

Regression estimation method for panel data

The author found that the financial influence rate, long- term asset rate and debt-to- means rate have positive relationship with

of Vietnamese Listing Pharmaceutical

Enterprises

on Vietnam's securities

in the period 2015-2019

firm performance, meanwhile the self- financing affects negatively to the return on equity

Le Tham

Duong et al

(2020)

Nhân tố ảnh hưởng đến cấu trúc vốn của doanh nghiệp ngành thực phẩm trên thị trường chứng khoán

52 food firms listed

on the Vietnames

e securities request supported financial statements from 2011 – 2018

Regression estimation method for panel data, and using GLS method

Exploration shows that the profitability, tangibility and age of enterprises have a negative influence

on capital structure Size and growth rate have a positive influence on capital structure

Furthermore, profitability does not affect capital structure opinions of food businesses

SUMMARY OF CHAPTER 2

In chapter 2, the thesis has systematized the theoretical basis and relevant empirical studies in the period from 2009 - 2020, including the concept, the meaning of capital structure for enterprises and determinants affecting the capital structure of F&B firms listed in Vietnam's stock exchange In the framework of the research content of chapter 2, the thesis also introduced the criteria used by the researchers to serve as the general regression model for the population of the factors that affect the firms' capital structure According to the theory (M&M theory, The trade-off theory, Pecking order theory, Market time theory and Agency costs theory) and relevant empirical studies at home and abroad, the determinants that affect the firms' capital structure are also analyzed and synthesized In which, (1) Firm‘s size (SIZE); (2) Profitability (ROA) ; (3) Tangibility (TANG) ; (4) Growth opportunity (GROWTH); (5) Tax (TAX) ; (6) Non-Debt Tax Shield (NDTS); (7) Liquidity (LIQID); (8) Uniqueness (UNI) are factors recognized by empirical studies on factors affecting capital structure in countries around the world (Huang and Song (2006), Chang et al.(2009), Vo Xuan Vinh (2016), Khaki and Akin (2020), Le Tham Duong et al (2020))