THE FINANCIAL UNIVERSITY OF FINANCE – MARKETING BANKING AND FINANCE DEPARTMENT ESSAY CORPORATE FINANCE 2 Topic CAPITAL STRUCTURE Instructor guide DR NGUYEN MINH PHUC Section class 2111702036502 Cl.
Trang 1THE FINANCIAL UNIVERSITY OF FINANCE – MARKETING
BANKING AND FINANCE DEPARTMENT
-ESSAY CORPORATE FINANCE 2
Topic:
CAPITAL STRUCTURE
Instructor guide: DR.NGUYEN MINH PHUC
Section class: 2111702036502
Class: CLC_19DTC02
First and last name: NGUYEN BAO CUNG NGHI
Student code: 1921006309
HO CHI MINH CITY, DECEMBER 2021
Trang 2I INTRODUCTION 2
II SUMMARISE THE PAPERS THAT INVESTIGATED THE DETERMINANTS THAT AFFECT CAPITAL STRUCTURE 2
1 The concept of structural capital: 2
2 What are the factors that affect capital structure? 2
3 Several other factors affect the volts structure: 4
III SUMMARISE THE PAPERS THAT INVESTIGATED THE IMPACTS OF CAPITAL STRUCTURE 4
IV THE VIETNAMESE COMPANIES’S CAPITAL STRUCTURE 7
Request 7
V CONCLUSION 8
References: 8
Trang 3I INTRODUCTION.
One of the themes that has attracted the attention of experts in the enterprise finance sector for decades is the relationship between capital structure theory and enterprise performance Determining a reasonable capital structure for a business is very difficult because there are many different factors that govern: the situation of each business, the field in which the business operates as well as the effects of changes in the business environment As a result, it is critical to analyze the relationship between the capital structure and the efficiency of the firm by establishing and maintaining an appropriate structure that would promote efficiency and maximize shareholder assets, which is always the primary goal of corporate governance
II SUMMARISE THE PAPERS THAT INVESTIGATED THE
DETERMINANTS THAT AFFECT CAPITAL STRUCTURE.
1 The concept of structural capital:
Capital structure is a financial concept that reflects the ratio of debt capital to equity assets used by the business Determining an optimal capital structure is important in business operations, optimal capital structure will help businesses minimize the
weighted average cost of capital (WACC), and there by maximize asset value of
corporate shareholders
2 What are the factors that affect capital structure?
The following article is based on three studies on factors affecting capital structure
of enterprises: “Các yếu tố ảnh hưởng đến cấu trúc vốn của doanh nghiệp nhà nước sau
cổ phần hóa trong thời kỳ hội nhập”(1)-ThS.Phạm Thị Diệu Linh (2017), “Các nhân tố ảnh hưởng tới cấu trúc vốn của các doanh nghiệp niêm yết trên thị trường chứng khoán Việt Nam”(2)-Nguyễn Thị Hà Thanh (2021), “Nhân tố ảnh hưởng đến cấu trúc vốn của các công ty sản xuất thương mại Việt Nam”(3)-Nguyễn Thị Thúy Hạnh (2020) The
studies are based on many different fields, measures, countries,…in general, the basic factors affecting capital structure are as follows:
2.1 Profitability.
It will affect corporate capital structure For the study of article (3), the author
presents previous studies that show a negative effect on capital structure of the company Again, profitability will have a password system for large finance, the larger the
Trang 4business, the more inclined to use borrowed capital in total assets The first solution is that the higher the rate of return, the lower the production risk of the specified capacity
is However, according to the theory of order classification, firms increase the use of capital while using loan cards and issuing shares are given priority last When compared with inefficient companies, profitable businesses will have more money, so they will make the most of this internal capital
2.2 Enterprise size.
Company size is one of the factors affecting the level of debt use According to the equilibrium theory, financial leverage and firm size have a positive correlation because the firm is large and diversified in its portfolio of activities bankruptcy risk is lower when compared to smaller firms Larger companies have an advantage when it comes to collaborating with financial institutions when compared to smaller companies
Transaction costs will be reduced when businesses buy and sell a number of goods and services in exchange Also, loan interest rates will tend to be higher for small businesses This also indicates that a possible solution here is that small businesses should place a high ratio of short-term debt instead of long-term debt
2.3 Tangible assets.
Tangible assets characterize the company's willingness to mortgage before loans Myers (1984) asserts that there is a link between tangible assets and financial leverage because of the fact that firms with a lot of collateral will have a low rate of asymmetric information problem It is obvious that if the company has multiple mortgage loans, the borrower's risk related to the cost of the loan will also be reduced The more fixed assets
a Vietnamese company has, the more long-term debt it has and the less short-term debt Huang and Song (2006) again show that the relationship between tangible assets and financial leverage is negative
2.4 Growth rate.
When the growth rate is higher, financial leverage tends to decrease Then, the enterprise will issue many shares instead of taking out debt to minimize the sharing of benefits between shareholders and creditors Besides, the growth rate is a stealth factor, which will only increase the value of the company but will not be significant when the company faces bankruptcy costs Therefore, according to the equilibrium theory, due to bankruptcy costs, firms with high growth rates tend to decrease financial leverage
Trang 5However, some researchers have shown that high growth rates lead to increased
financial leverage As evidenced by the fact that companies with high growth rates are said to have good health in the loan market and easy access to loans
2.5 Corporate tax rate.
Tax rate is a macro factor affecting the capital structure of enterprises When faced with high corporate tax rates, businesses will tend to borrow more to take advantage of the tax shield That is explained because the debt-to-equity ratio is the cumulative result
of many years of operating with separate assessments while there is a possibility of loss from tax revenues generated year after year In line with that argument, my research
mainly shows that the impact of corporate tax rates includes the existence of tax shields and investment taxes The author concludes that corporate tax rate has a positive effect
on financial leverage
3 Several other factors affect the volts structure:
These are the most basic factors that most Vietnamese businesses will encounter
when it comes to factors affecting corporate capital structure In addition, there are a few other common factors that vary by industry: loan interest rate, corporate liquidity, non-debt,…
III SUMMARISE THE PAPERS THAT INVESTIGATED THE IMPACTS OF CAPITAL STRUCTURE.
We will learn about the impact of capital structure on the situation of Vietnamese enterprises today Today's businesses are very diverse, so capital structure will also
affect each field differently through the following research papers:
1 “Tác động của cấu
trúc vốn đến hiệu quả hoạt động kinh doanh của các doanh nghiệp trong ngành năng lượng niêm yết trên thị trường chứng
- The authors have conducted empirical research on
34 energy enterprises listed on Vietnam's stock market, learn the effects of capital structure on business
performance based on the following three hypotheses: financial leverage, the ratio of short-term and the ratio
of long-term debt to total assets
- From the research results, the author has clarified the
Trang 6khoán Việt
Nam”-TS.Trần Trọng
Huy-Nguyễn Thị Ngọc
Hân (2020)
impact of the independent variable on the business performance of the enterprise as follows:
+ Group of explanatory variables: includes variables representing enterprise capital structure (TDR, LDR, SDR) The research results show that short-term debt/total assets (SDR), long-term debt/total assets (LDR), total debt/total assets (TDR) have a negative impact on business performance business The research results are quite consistent with the actual situation in Vietnam's energy industry
+ Group of control variables: Firm size (SIZE) and liquidity ratio (LIQ) have a positive impact on business performance Tangible assets (TANG) and growth (GROW) have a negative impact on business performance The author also gives some recommendations on capital structure for enterprises in the energy sector
2 “Phân tích tác động
của cơ cấu vốn đến
hiệu quả hoạt động
của các công ty cổ
phần trên địa bàn tỉnh
Thừa Thiên
Huế”-Trần Thị Bích Ngọc,
Nguyễn Việt Đức,
Phạm Hoàng Cẩm
Hương (2017)
- Joint-stock companies in Hue with the characteristic
of moderate capital will avoid raising capital from outside The authors make the following research hypothesis: debt usage, the size of the firm, growth opportunities, asset structure affect business
performance
- The results from the fit model after overcoming the defects show that capital structure is an important factor, negatively affecting all three indicators representing the performance of joint-stock companies in Hue ROA, EPS are positively affected by the size of the business ROE, ROA are negatively affected by growth
opportunities and corporate asset structure Managers should consider reducing the debt ratio in the company's capital structure
Trang 7- These companies also need to make better use of the advantages of the size of the business because the size of the business positively affects the performance of the business Managers need to pay attention to balance the interests of owners and creditors when making
investment decisions to avoid reducing the company's performance The management of the company must improve the efficiency of long-term asset use in order to improve earnings per share and thereby increase the value of the company's shares
3 “Đánh giá cấu trúc
vốn của các công ty
ngành thực phẩm
niêm yết trên Sở Giao
dịch chứng khoán
TP.Hồ Chí
Minh”-ThS.Trần Đức Tuấn
(2021)
- In order to inherit the research problems of corporate capital structure rotation, this study examines the factors affecting capital structure for food industry enterprises listed on HOSE
- The author uses a research method using secondary data published in audited financial statements, annual reports of 20 food joint stock companies in the period 2017-2020
- The research shows that the capital structure of food industry companies is affected by the following factors: enterprise size, profit margin and liquidity Firm size has
a positive impact on capital structure, profitability ratio and liquidity have the opposite effect Because of the most benefits of using financial leverage, most businesses and companies in the food industry use debt
in their capital structure to finance production and business activities In order to increase corporate value, food joint stock companies should perform well the following contents: strictly control the debt ratio;
develop mechanisms and policies to be more careful when investing and organize regular supervision of financial activities; improve the efficiency of business
Trang 8capital, towards building the optimal capital structure.
IV THE VIETNAMESE COMPANIES’S CAPITAL STRUCTURE.
- The capital structure of firms is influenced by common factors such as profitability, size, assets, growth rate, and tax rates For example, a business using debt must pay the cost of using debt These costs are calculated after tax, so if a family's policy is
appropriate, the business will use debt because the real interest that the business has to pay after tax is very low
- In addition, I also see a number of other factors that also affect capital structure such as industry characteristics, loan interest rates, corporate liquidity, etc According to
a survey of companies on the Vietnam stock market, the user group includes industries such as real estate, information technology, and mining
- In terms of investment activities, it is developed with a large capital of thousands
of billions of dong in the public investment sector and state-owned enterprises In the early days of establishment, it was difficult for private enterprises to get bank loans due
to scarcity
- In Vietnam, despite outstanding development, the capital market still has many challenges that need to be solved for more sustainable development such as: the prospect
of economic recovery still contains many potential risks; the scale is still quite small compared to other countries in the region and lacks stability; products are few, not
diversified; transparency is limited; the lack of credit rating agencies increases lending costs and reduces the ability to raise capital
- The overall goal of deciding on a financing option is to achieve the lowest cost of capital Target capital structure is the structure that a business often uses when deciding
to add business capital
- In short, in a financial system based on the banking system and the stock market which has not yet developed stably, Vietnamese enterprises need to have a long-term vision by building their own target capital structure but must flexibly take advantage of market opportunities to mobilize resources cheapest capital
Request
- Clearly define your capital goals
Trang 9-When raising capital, it is necessary to assess the market, clearly consider the strengths and weaknesses of the business
-When businesses raise a lot of debt capital, there must be many assessments to reduce risks
-Determine the capital structure including financial leverage and the following criteria: the largest EPS, the smallest cost of capital, the largest profit
V CONCLUSION.
In the market mechanism and integration period, capital structure is very important
it affects the stability of the business Get as much capital as possible, but it is more important with that amount of capital that the enterprise allocates to which stages with a reasonable proportion and promotes efficiency fruit In other words, if the business has capital it's not enough, it is important to use that capital to meet business requirements and improve the efficiency of capital If the enterprise has a reasonable capital structure,
it will not only decide to use capital effectively but also save capital in the production and business process
References:
1 ThS.Phạm Thị Diệu Linh (2017), “Các yếu tố ảnh hưởng đến cấu trúc vốn của
doanh nghiệp nhà nước sau cổ phần hóa trong thời kỳ hội nhập”, Tạp chí công thương.
2 Nguyễn Thị Hà Thanh (2021), “Các nhân tố ảnh hưởng tới cấu trúc vốn của các
doanh nghiệp niêm yết trên thị trường chứng khoán Việt Nam”, Tạp chí tài chính.
3 Nguyễn Thị Thúy Hạnh (2020), “Nhân tố ảnh hưởng đến cấu trúc vốn của các công
ty sản xuất thương mại Việt Nam”, Tạp chí khoa học.
4 TS.Trần Trọng Huy-Nguyễn Thị Ngọc Hân (2020), “Tác động của cấu trúc vốn đến hiệu quả hoạt động kinh doanh của các doanh nghiệp trong ngành năng lượng niêm
yết trên thị trường chứng khoán Việt Nam”, Tạp chí công thương.
5 Trần Thị Bích Ngọc, Nguyễn Việt Đức, Phạm Hoàng Cẩm Hương (2017), “Phân tích tác động của cơ cấu vốn đến hiệu quả hoạt động của các công ty cổ phần trên địa
bàn tỉnh Thừa Thiên Huế”, Tạp chí khoa học và quản lý kinh tế.
6 ThS.Trần Đức Tuấn (2021), “Đánh giá cấu trúc vốn của các công ty ngành thực phẩm niêm yết trên Sở Giao dịch chứng khoán TP.Hồ Chí Minh”, Tạp chí tài chính
Trang 107 Nguyễn Đình Luận (2017), “Cơ cấu vốn của doanh nghiệp Việt Nam trong thời kỳ
hội nhập: Nhận định và khuyến nghị”, Tạp chí UEF.
HẾT