IwouldliketothankallmycolleaguesinVCSC,forsupportingmeingettingdataforther esear ch .IalsothanktomyISBclassmate,fortheirkindlysupportandassistanceduringthislastyear... 3.2.1 CapitalStruc
ResearchBackground
Capital structuredecisionsplaya pivotal rolein maximizing the performanceoffirmanditsv a l v e C a p i t a l s t r u c t u r e i n v o l v e s t h e d e c i s i o n a b o u t t h e c o m b i n a t i o n o f t h e v a r i o u s sourceo f f u n d s , a firmu s e s t o f i n a n c e i t s o p e r a t i o n s a n d c a p i t a l i n v e s t m e n t s T h e s e sourcesincludetheu s e oflongtermde b t fi nance,shortt e r m debtfinancecalleddebtf i n a n c i n g , preferredstockandcommonstockalsocall edequityfinancing.
ModiglianiandMiller(1958)werethefirstauthorswhodevelopedcapitalstructuret h e o r y whic hsuggestthatintheperfectcapitalmarketfinancingstrategiesdonotaffectt h e valueoft hefirm,butlatertheyarguethatfirmvaluecanbeincreasedbychangingthecapitalstruc turebecauseoftaxadvantageofdebts(ModiglianiandMiller,1963).Inr e c e n t decadesth ecapitalstructurehasbecomeoneofthemostinterestingissuesinthec o r p o r a t e financ eliterature.Sincethen,manyresearcherfollowedModiglianiandMiller’spathtodevel opnewtheoryondebtpolicyoffirms.However,theseattentionsl e d t o d e v e l o p t w o m a i n c a p i t a l s t r u c t u r e t h e o r i e s : t h e s t a t i c t r a d e - o f f t h e o r y a n d t h e p e c k i n g - o r d e r theory.
Accordingtothestatictrade- offtheory,anoptimalcapitalstructureexistsforfirmthatcanbereachedbyconducti ngabalancebetweenbe n e f i t s (interesttaxshields)andthe c o s t o f f i n a n c i a l d i s t r e s s ( b a n k r u p t c y a n d agencyc o s t s ) o f d e b t s (Myersa n d M a j l u f , 1 9 8 4 ) Raj anandZingales,1995;Wald,1999;Shyam-
SunderandMyers,1999;Bootheta l , 2001;FamaandFrench,2002;HuangandSong,2006; TangandJang,2007;K a r a d e n i z etal.,2009andChakraborty,2010).Usingthisoptim alcapitalstructure,thev alue o f t h e f i r m co u l d b e i n c r e a s e d d u e t o i t s l o w e s t c o s t o f c a p i t a l ( T a n g a n d J a n g , 2007;Karadenizetal.,2009).
Myersa n d M a j l u f ( 1 9 8 4 ) d e v e l o p e d t h e p e c k i n g o r d e r theoryasana l t e r n a t i v e tot h e s t a t i c trade-offtheory.Peckingordertheory,incontrasttostatictrade- offtheory,assumesthatthereisnoanoptimalcapitalstructureforafirm.Accordingtothistheo ry, sincethereisanasymmetricinformationbetween managersandinvestors,therefor etominimizet h i s a s y m m e t r i c i n f o r m a t i o n firmsp r e f e r t o f i n a n c e u s i n g r e t a i n e d e a r n i n g s , d e b t andequityrespectively(Myers,1984;MyersandMajluf,
1984;RajanandZingales,1 9 9 5 ; Wald,1999;Boothetal.,2001;FamaandFrench,2002; HuangandSong,2006;T a n g andJang,2007;Karadenizetal.,2009;Chakraborty,2010).
Althoughoverthelastdecadesmanys t u d i e s havebeenconductedtoexaminethesuperiority ofpeckingordertheory comparetostatictrade- offtheory,bu tthereportedr e s u l t s arec o n t r o v e r s i a l Famaa n d F r e n c h (2 00 2) re ve ale d t h a t n o n e of t h e s e t h e o r i es w o u l d berejected.Furthermore,Myers(2003)argue sthattheefficiencyo f capitalstructuretheoriesisbasedo n c o n d i t i o n s w h i c h a r e d i f f e r e n t f r o m o n e f i r m t o a n o t h e r ( H u a n g andSong,2006).
Thet he or ies sh o w t ha tt h e u se o f financial l eve ra ge t o g r o w f ast er, b r i n g i n g i nh i g h e r profitsforshareholdersisrequired.However,inVietnam,thefinancialimbalanceoccur si n a l o t o f b u s i n e s s i n t h e p a s t years,w h e n t h e e c o n o m y felli n t o d i f f i c u l t i e s A s S o n (2012)s a i d , t h e d e b t - t o - e q u i t y r a t i o o f l o c a l firmsi s a s mucha s 1 2 0 % , v e r s u s t h e r eg io n a l averag eof45%.Thisisanalarmingfigure;aratioofover60%alreadyposesr i s k ofbankruptc yifthemarketdevelopmentsareunfavorable.Thequestioniswhethertheincreaseofdebti nfluencesthefinancialperformanceofthebusiness?
San(2002)fo cused onasingleindustrysector(tourism)inasinglelocality(ThuaThienHu eP r o v i n c e ) , whilstNguyenandRamachandran(2006)focusedonsmallandmedium- sizeenterprises( S M E s ) only.Byc o n t r a s t , V u ( 2 0 0 3 ) analyzedc o m p a n i e s l i s t e d t h e mains t o c k exchange.Althoughtheyarefarlessnumerousthanunlistedcompani es(mostoft h e latterareSMEs),listedcompanies account foralargershare ofec onomicactivity T h e r e f o r e , itisimportanttoexploretherelationshipbetweenca pitalstructureandfirmperformanceinVietnamesemarket.
Researchobjective
ThisstudyaimsatexaminingtherelationbetweenCapitalStructurewhichisindicatedbyTotaldebt ratioandthemanufacturingFirm’sPerformance;includingGrossprofitmargin(GPM),Retu rnonAssets(ROA),ReturnonEquity(ROE)andTobin’sQovert h e period2007- 2011inHochiminhStockExchange(HSX).Moreover,Iwillexaminesomeotherfa ctorswhichhaveinfluencesonthisrelationshipsuchas:Firm’sage,Size,O w n e r s h i p andDifferentindustries.
- Toevaluate d i f f e r e n t impactsof c a p i t a l structure o nf ir m performance wit hthedifferentfirm’scharacteristic.
Researchquestions
Outlineofthereport
- Introduction:introduceresearchbackground,researchproblem,researchobj ectiveandresearchquestion.
- Literaturereviews:introducetheVietnameconomicoverviewandreviewtheoriesa swellasempiricalevidentwhichconcernwithresearchtodevelopther e s e a r c h hypothes is.
- Researchmethodology:introducesresearchvariablesandprovidesgeneralidea o f researchprocessinclude:methodtocollectandanalysesdata,introduces a ndr e p o r t s theresearchprocesstogetherwiththeanalyzedresultsofpilotsurvey.
VietnamEconomicoverview
Afterimplementingthe“DoiMoi”(ReformPolicy)in1986,Vietnamimplementedmanyreformp o l i c i e s s u c h a s e q u i t i z a t i z i n g t h e statec o n t r o l l e d c o m p a n i e s , r e f o r m i n g t h e b a n k i n g system,liberalizingtheinterestrate,establishingstockmarketsandopeningtheec onomytof o r e i g n i n v e s t o r s Manyl a w s a l s o h a v e b e e n newlyc r e a t e d o r r e v i s e d i n o r d e r t o s u p p o r t c o m p a n i e s i n suchn e w e n v i r o n m e n t Althought h e f i n a n c i a l en v ir o n men t ofthelistedcompaniesinVietnamhasimprovedbecause oftheeconomicreform,manyproblemsremainneedtobesolved.First,inmanyequitiz edstate controlledcompanies,thegovernmentremains asacontrollingshareholderandstillhasas t r o n g impactonthefirm’sactivities.Thesecompa niesmayhavemoreadvantagesthano t h e r c o m p a n i e s ( I n t e r n a t i o n a l F i n a n c e C o r p o r a t i o n , 2 0 1 0 ) S e c o n d , a l t h o u g h t h e f u n c t i o n s ofthestatebank(centralba nk)andcommercialbanksareseparated,andtheinterestratesareliberalized,thefivebig statecontrolledorstate- controlledcommercialb a n k s l e n d m o r e t h a n h a l f o f t h e d o m e s t i c demand.
T h u s , c o m p a r e d w i t h t h e o t h e r companies,s t a t e - c o n t r o l l e d c o m p a n i e s mayhave a p r i o r i t y accesst o b a n k l o a n s ; s u c h loansdonot necessarilyconsidereconomicrationality(Akiba,2010).
Duringthehoteconomydevelopment,thecompanywasborrowingmassivelyfrommanyd i f f e r e n t sources.Sonow,theweightedaveragedebt-to- equityr a t i o inbookvalueg leaned fromt h e s e c o n d q u a r t e r f i n a n c i a l s t a t e m e n t
12 s o f 6 4 7 n o n - f i n a n c i a l c o m p a n i e s l i s t e d onthetwoboursesofVietnamisamongtheworld’shighest,upto1.53.Thisratioi s sohighcomparedtoothereconomies,bothdevelopedandemerging.F orexample,theratio oftheU.Slistedcompanieswas1.2in2011andChinesefirms1.06.Vietnamese
0 50 100 150 200 250 businesseshaveincreasedfinancialleveragesince2007.Theirdebtratioswerealreadyath i g h l e v e l s intheearly2000s.Theratiosofaccountspayabletoequityof114companieslistedonth eHochiminhStockExchangeaveragedoutat1.2in2007(Thanh,2012).Int h i s r e p o r t T h a n h a l s o c i t e d t h e Q 2 f i n a n c i a l s t a t e m e n t s o f l i s t e d firmss h o w i n g t h a t construction a n d r e a l e s t a t e a r e t h o s e s u f f e r i n g t h e h i g h e s t r a t i o s o f d e b t t o equity,a t above2 0 N on - f in anc ia l companieshave ana v e r a ge r a t i o o f 153%,ene rg y 144%and c o n s u m p t i o n g o o ds 8 0 % , t h e l o we s t R e m a r k a b l y , t h e r a t i o o f Stateg r o u p s an d corporation sr e a c h e s over 1.73, higher than the average1.5 oflistedc o m p a n i e s ingeneral.
SharingT h a n h ’ s v i e w , S o n ( 2 0 1 2 ) s a i d “ T h e f i n a n c i a l w e a k n e s s o f Vietnames ecompaniesi s a l a r m i n g ” T h e d e b t -to- equityr a t i o o f l o c a l firmsi s a s mucha s 1 2 0 % , v e r s u s t h e r e g i o n a l a v e r a g e o f
TheoryaboutCapitalstructureandFirm’sPerformance
Modiglianiand Miller’stheory
SinceModiglianiandMillerpublishedtheirseminalpaperin1958,capitalstructurehasg e n e r a t e d greatinterestamongfinancialresearchers.Theyarguedthatinefficientmarket sthedebt- equitychoiceisirrelevanttothevalueofthefirmandbenefitsofusingd e b t s w i l l c o m p e n s a t e w i t h d e c r e a s e o f companiess t o c k P r i o r t o M M theory,c o n v e n t i o n a l p e r s p e c t i v e b e l i e v e d thatu s i n g financial leveragei n c r e a s e s c o m p a n y ’ s v a lu e Inthisrespect,thereisanoptimizedcapitalstructurethatminimizescapital costs.
Inasu bse que nt pa per, Mo d i g l i a n i a n d Miller( 19 63 )e ased the con di ti on san d s howedthatundercapitalmarketimperfectionwhere interestexpenses aretaxded uctible,firmv a l u e w i l l i n c r e a s e w i t h h i g h e r f i n a n c i a l l e v e r a g e M o d e l s b a s e d o n i m p a c t o f t a x , suggestthatprofitablecompaniesshould havemoredebts thesefirmshave moreneedfort a x managementincorporation’sprofit.However,increasingdebtresultsinani ncreasedp r o b ab i l it y o f bankruptcy.Hencea c c o r d i n g t o t h i s theory,t h e f i r m w i t h h i g h e r d e b t s h o u l d performbetter,butthatlevelofdebthastobalancebankruptcycostsan dbenefitso f debtfinance.
Trade-offtheory
Trade-offtheoryassumes thatfirmsoptimallybalancethe costs ofdebt, e.g., distress riska n d b a n k r u p t c y frictions w i t h t h e be n e f i t s, t y p i c a l l y taxs a v i n gs , b u ta l s o managementd i s c i p l i n e a n d o p t i m a l s c a l e Firmsa r e e x p e c t e d t o movet o w a r d s t a r g e t l e v e r a g e a n d d o e s theirmarginalfinancingaccordingly,althoughtimetheirtransact ionsduetocostsofa d j u s t m e n t s Inadynamicsetting,firmsseetheirtargetsdevelopoverti meandconsider today’sa d j u s t m e n t s t h r o u g h n e w f i n a n c i n g o r p a y o u t s a l s o inl i g h t e x p e c t e d f u t u r e optimalleverage.
AgencyissuesarerelevantinanyfinancingdiscussionandtheseminalpaperisJense na n d Meck li ng (1 97 6) Theydevelopa t he or y based on agencycostsi nst ru ct ur es w it h separationbetweenownershipandmanagementa n d a s w e l l a s o u t s i d e l e n d e r s Theyp o s t u l a t e th at conflicts between sh a r e h o l d e r sa n d managersoc c u r since ma nagersholdl e s s t h a n o n e h u n d r e d p e r c e n t o f t h e r e s i d u a l c l a i m I n t h e s e c a s e , b e c a u s e o w n e r s h i p (shareholders)an dc on tr ol ( m a n a g e me n t ) of fi rm s l i es w it h d i f f e r e n t pe op le, managersarenotmotivatedtoapplymaximumeffortsandaremoreinte restedinpersonalgainsorp o l i c i e s thatsuittheirowninterestsandthusresultsinthelosso fvalueforthefirmandharmshareholdersinterests.Therefore,debtfinanceactasacontrollingtoolt orestricttheo p p o r t u n i s t i c b e h a v i o r for personalgainbymanagers.Itreducesthefreecashflows witht h e firmbypayingfixedinterestpaymentsandforcesmanagerstoavoidnegativei n v e s t m e n t s andworkintheinterestofshareholders.Soaccordingtothistheory,thefirmw i t h higherde btshouldperformbetter.
Peckingordertheory
Peckingordertheorypredictsthatduetotheinformationasymmetrybetweenafirmando u t s i d e investorsregardingtheactualvalueofbothcurrentoperationsandfuturepr ospe cts,outsidecapitalwillalwaysberelatively costly comparedtointernalfundsande q u i t y moresothandebt.Outsideinvestorswill,asdescribe dbyAkerlof(1970),requirea compensationfortheirexpectedinformationaldisadvantage.
MyersandMajluf (1984)arguethatinformationasymmetrywillleadtoamispricingof afirm’sequityinthemarketplace.Awareoftheresultingdilutionofcurrentshareholders’a c t u a l values,firmsmaynotraisenewequityevenforprojectswithpositivenetpresentv a l u e s , o f t e n d e n o t e d t h e “ under-investmentp r o b l e m ” Theyp r e d i c t t h a t f i rms will choosetofinancenewinvestmentsinwayswhichminimizethisproblemandthusavoidn e w equityissues.
Myers(1984)extendsthistheoryintoa’peckingorder’theoryoffinancing.Thistheoryp r e d i c t s t h a t t h e e x i s t e n c e o f a s y m m e t r i c i n f o r m a t i o n w i l l l e a d a f i r m t of i r s t l y u s e r e t a i n e d e a r n i n g s a n d f u n d s f r o m c u r r e n t o w n e r s , t h e n risk- freed e b t a n d f i n a l l y riskyd e b t beforeeventuallyraisingnewequityfromoutsideinvestors.
Adevelopmentinthisarea,HalovandHeider(2004),takesamoresophisticateda p p r o a c h totheissueofasymmetricinformationbyseparatinguncertaintyfromrisk.Thep a p e r isprimar ilyempirical,butnovelinthattheyfindthatfirmsprefertoissueequityw h e n riskmattersre lativelymoreanddebtotherwise.Theirargumentisthatbyissuinge q u i t y ratherthand ebt,riskyfirmsavoidtheadverseselectioncostsofdebt.BergerandU d e l l (1998)applya r ela te d approach tothei s s u e of c r e d i t availability forsmall- andm e d i u m sizedcompanies,discussinghowtheopaquenessoffirmsimpactsthe relevantlendingassessmenttechnology.
Peckingordertheorypredicts marginalfinancingflows,buthasnoviewsastoovera lloptimalcapitalstructure.Itishardnottoassumethatextremelyhighorlowleveragewillh a v e toi mpactmarginalfinancing,butthisisoutsidethepeckingordertheory.
Theinformationasymmetryandsignalingtheory
Thei nf or ma ti on as ym met ry theoryofc a p i t a l str uc tu re isc re di ted t o th ewo rk o f R o s s (1977).He positsthatfirmmanagerspossessmoreinformationaboutthefuture p r o s p e c t s ofthefirmthanthemarket.Thereforemanagement’schoiceofcapitalstructure m a y providethemarketwithsignalsofa firm’sfutureprospects.Increasingleveragewouldsigna ltothemarketthatafirm’smanagersareconfidentaboutservicingt h e i n t e r e s t c h a r g e , a n d a r e h e n c e c o n f i d e n t a b o u t t h e f u t u r e p r o s p e c t s o f t h e f i r m T h e r e f o r e ani nc reas e i n l eve ra ge w o u l d in cre aset he val ue o f t h e fi rm si nce i n v e s t o r s wou ld deemthistobeapositivesignalofthesizeandstabilityoffuturecash-flows.
FamaandFrench(1988)disagreedwiththisnotion, arguingthatmore profitablef irmstendtohavelowerlevelsofdebt.Inthiscaseincreasingdebtwouldsignalpoor futurepr ospect sforthefirm,sincefutureearningswillbe impactednegativelydue tocashflowb e i n g u s e d tos e r v i c e d e b t , r e d u c i n g t h e a m o u n t o r m o n e y a v a i l a b l e t o f u n d f u t u r e d ev el o p m en t R a j u a n d Roy( 2 0 0 0 ) e s t a b l i s h t h a t t h e v a l u e o f a v a i l a b l e i n f o r m a t i o n contributingtofirmprofitabilityishigher forlargercompaniesandishigherforDifferentindustriessectorsw h e r e t h e r e i s i n t e ns e c o m p e t i t i o n T h e r e f o r e t h e r e l e a s e o f c r e d i b l e informationbym a n a g e r s a f f e c t s t h e p e r f o r m a n c e o f a f i r m a n d h a s a n i m p a c t ont h e perceptionsheldbytheexternal marketaboutafirm.
Theimpactoffirm’scharacteristics
Firm’sAge
Agecouldactually helpfirmsbecomemo ree ff ic ie nt O v e r time,firmsdiscover wha ttheya r e g o o d a t a n d l e a r n h o w t o dot h i n g s b e t t e r ( A r r o w , 1 9 6 2 ; J o v a n o v i c , 1 9 8 2 ; Er i cso n andPakes,1995).Theyspecializeandfindwaystostandardize,coor dinate,ands p e e d uptheirproductionprocesses,aswellastoreducecostsandimprovequality.TherelevantliteraturegoesbacktoSmithandRicardo.O l d age,however,mayals omakeknowledge,abilities,andskillsobsoleteandinduceorganizationaldecay(AgarwalandGort,1996and2002).Onepossiblereasonisthatsuccessinducesfirmstoc odifytheirapproach throughorganizationandprocesses,aregulationthatcanbecomecapillaryo ver time.Thisbehaviorseemsincreasinglytoentanglefirmsinstructuralandprocess- relatedrigiditiesthataredifficulttodiscard(Leonard-
Barton,1992)andthat couldcausecompaniestosuccumbtoSchumpeter’s“perennialgaleof creativedestruction.”
Itcouldalsobethatolderfirmsareincapableofsolvingcollectiveactionproblems.Asinth ecaseofnations(Olson, 1982),firmsmightincreasinglybecomeorganizationsofr ent- seekingfactionsastheygetolder.Onbalance,itisthereforeunclearwhetheragingh e l p s firm sprosperorwhetheritdoomsthem.
FirmSize
Thesizeofafirmaffectsperformanceinmanyways.Keyfeaturesofalargefirmareitsd iv erse c apabilities,theabilitiestoexploiteconomiesofscaleandscopeandthef o r m a l i z at i o n o f p r o c e d u r e s T h e s e c h a r a c t e r i s t i c s , bymakingt h e i m p l e m e n t a t i o n o f o p erat io n s moreeffective,allowlargerfirmstogeneratesuperiorperformancerelativeto smallerfirms(Penrose,1959).Alternativepointsofviewsuggestthatsizeiscorrelatedw i t h mar ketpower(Shepherd,1986),andalongwithmarketpowerx- inefficienciesared e v e l o p e d , l e a d i n g t o r e l a t i v e l y i n f e r i o r p e r f o r m a n c e (
L e i b e n s t e i n , 1 9 7 6 ) Titmana n d Wessels(1988)assertthatlargerfirmsaremorediversi fiedandarethereforelesssusceptibletobankruptcythansmaller firms.RajanandZing ales(1995)alsoholdthat t h e r e i s a p o s i t i v e r e l a t i o n s h i p b e t w e e n f i r m s i z e a n d l e v e r a g e A l t h o u g h , theoryi s eq uivo cal ont h e pr eci se relations hipbe tw eens ize andpe rf or ma nc e, i t’ s moreli ke ly afirm’ssizeisexpectedtohaveaposi tiveinfluenceonfirm’sperformance.
Ownership
Therearemanyl i s t e d companiesofwhichthegovernmentbecamethecontrollingstockholde randinfluencedcompanyactivitiesafterstate- ownedcompanieswe re St at e controlled.Thesecompaniesaredefinedasstate- controlledcompanies,whichhavecloserrelationsw i t h s t a t e - o w n e d b a n k s t h a n o t h e r companiesa n d s t a t e - o w n e d c o m m e r c i a l banksm a y n o t b e n o r m a l e x t e r n a l c r e d i t o r s o f s t a t e - c o n t r o l l e d c o m p a n i e s , a n d t h e i r m o n i t o r i n g a c t i v i t i e s m a y b e l e s s s t r i n g e n t t o w a r d s t a t e - c o n t r o l l e d c o m p a n i e s T h e s e accordsw i t h Nguyena n d R a m a c h a n d r a n
Withregardt o g o v e r n m e n t o w n e r s h i p i n f l u e n c e s o n f i r m p e r f o r m a n c e , l i t e r a t u r e suggeststhatgovernmentsarel i k e l y topayattentiontopoliticalgoalssuchasoutput p r i c e s andemploymenthighlightingthefact thatgovernment ownership areno nprofit- maximizingownersandaretherefore expectedtobelowperformersintermso f c o n v e n t i o n a l performancem e a s u r e s (Laffonta n d T i r o l e 1 9 9 3 ; S h l e i f e r a n d V i s h n y 1 9 9 7 ) F r o m t h e s e a r g u m e n t s , i t ’ s e x p e c t e d a d i f f e r e n t r e l a t i o n s h i p b e t w e e n c ap i t al structureandperformanceofthefirmwithdifferenceowne rship.
Differentindustrialsectors
SchwartzandAronson’s(1967)researchconcludesthatthecapitalstructuresoffirmsindif fer en t industriesaredifferentfromeachother.Theyinferthatcapitalstructureinan
D i f f e r e n t i n d u s t r i e s i s influencedbyo p e r a t i o n a l r i s k a n d a s s e t s t r u c t u r e Theya l s o indicateth atthec a p i t a l structureinspecificD i f f e r e n t i n d u s t r i e s sectorsovertimeisdynamic,g i v e n a f i r m ’ s p u r s u i t t o maximizev a l u e Barclay,S m i t h , a n d Watts( 1 9 9 5 ) f i n d tha tleverageishighforregulatedfirmsandfirmsinlow-techindustries,andislowi n h i g h - t e c h i n d u s t r i e s J e n s e n and
Meckling( 1 9 7 6 ) s t a t e t h a t industriesinwhicho p p o r t u n i t i e s f o r a s s e t d i s t r i b u t i o n a r e morelimited,w i l l h a v e h i g h e r l e v e l s o f d e b t T h e r e f o r e , theindust riessectorisexpectedtohaveanimpactoncorporateperformancealso.
Empiricalevidences
Someempirical s t u d i es havebeenfoundapositive r ela ti on betweenfinancingc hoices a n d firmperformance:RodenandLewellen(1995)examinesthecapitalstru ctureof48US firmsd u r i n g t h e p e r i o d 1 9 8 1 -
1 9 9 0 a n d r e v e a l e d a p os i t i v e r e l a t i o n b e t w ee n p r o fi t ab i l it y andcapitalstructure. SimilarresultsweredocumentedbyChampion(1999)a n d Goshetal.
(2000).HadlockandJames(2002)suggestcorporationswithhighlevelofp r o f i t a b i l i t y us e h i g h l e v e l o f d e b t s I n t h e o t h e r w o r d s , theysh o w a p o s i t i v e r e l a t i o n bet ween perf ormanceandcapitalstructure.Abor(2005)reportsapositiverelationbetweencapitalstru cture,whichmeasuredbyshort-termandtotaldebt,andperformanceo v e r theperiod1998- 2002intheGhanaianfirms.BergerandBonaccorsidiPatti(2006)p r o v i d e thesameresul ts.Finally,ArbabiyanandSafari(2009)investigatetheeffectsofc a p i t a l structureonp rofitabilityusing100Iranianlistedfirmsfrom2001to2007.Theyfo u n d short- terma n d totaldebtsarepositivelyr e l a t e d toprofitability(ROE)whileindicatea negativere lationbetweenl o n g - t e r m d e b t s a n d R O E Saedia n d M a h m o o d i ( 2 0 1 1 ) examinet h e r e l a t i o n s h i p b e t w e e n c a p i t a l s t r u c t u r e a n d f i r m p e r f o r m a n c e T h e st u d y usesf o u r p e r f o r m a n c e measures( i n c l u d i n g RO A , R O E , E P S a n d T o b i n ’ s Q ) a s d e p e n d e n t v a r i a b l e a n d t h r e e c a p i t a l s t r u c t u r e s ( i n c l u d i n g l o n g - t e r m d e b t s h o r t – termd e b t andtotaldebtration)asindependentvariable.Thestudyindicatedthatfirmp e r f o r m a n c e s , whichismeasuredbyEPSandTobin’sQ,issignificantlyandpositivelya ssociatedw i t h c a p i t a l structure,whilereporteda negativerelationbetweencapitalstructur eandROA,andnosignificantrelationshipbetweenROEandCapitalstructure.
Bycontrast,severalscholars revealedanegativerelationbetweencapitalstructu reandf i r m performance.Inthisline,Kester(1986)found anegativerelationbetw eencapitalstructureandperformance(profitability)intheUSandJapan.Similarresultswerer e p o r t e d byF r i e n d andL a n g ( 1 9 8 8 ) , T i t m a n a n d W e s s e l s ( 1 9 8 8 ) f r o m t h e USf i r m s , RajanandZingales(1995)intheG-
Ina d d i t i o n , W i w a t t a n a k a n t a n g ( 1 9 9 9 ) r e p o r t e d a n e g a t i v e r e l a t i o n b e t w e e n b o o k a n d marketleverageandROAfrom270Thaifirms.HuangandSong(2006)founda negativec o r r e l a t i o n betweenleverageandperformance(earningsbeforeintere standtaxtototalassets)i n t h e C h i n a f i r m s B o o t h e t a l
( 2 0 0 4 ) , Ka ra den ize ta l.
( 20 09 ) indicate t he samef i n d i n g s R e s e a r c h P r a t h e e p k a n t h ( 2 0 1 1 ) analyzedt h e c a p i t a l s t r u c t u r e a n d i t s impacto n f i n a n c i a l performancec a p a c i t y d u r i n g
2 0 0 5 t o 2 0 0 9 o f B u s i n e s s c o m p a n i e s i n S r i L a n k a T h e r e s u l t s showntherel ationshipbetweenthecapitalstructureandfinancialperformanceisn eg at ive Oneofthe mostrecent,Abul(2012)inhisstudyoftheengineeringsectorofPakistanshowthat financialleveragehas a s i g n i f i c a n t l y negativer e l a t i o n s h i p withthe f ir m perfor mancemeasuredbyReturnonAssets(ROA),GrossProfitMargin(GPM)andT o b i n ’ s Q.Ther elationshipbetweenfinancialleverageandfirmperformancemeasuredbythereturnonequ ity(ROE)isnegativebutinsignificant.Assetsizehasaninsignificantr e l at i o n sh i p w i t h t h e f i r m p e r f o r m a n c e measuredbyRO A a n d GPMb u t n e g a t i v e a n d si g n i f i can t relationshi pexistswithTobin’sQ
Severalstudiesshoweitherpoorornostatisticalrelation betweencapitalstructur eandperformance(TangandJang,2007;Ebaid,2009).Ebaid(2009)investigatestheimpactofc a p i t a l structurechoiceonperformanceof64firmsfrom1997to2005intheEgyptianca pitalmarket.Heemploysthreeaccounting- basedmeasures;includingROA,ROEandg r o s s profitmargin,andconcludescapitalstru cturechoices,generally,hasaweak-to-noimpactonfirmperformance.
TranDinhKhoiNguyen andNeelakantanRamachandran10(2006), conducted astudytitled “CapitalStructureinSmallandMedium- sizedEnterprises:TheCaseofVietnam”.I t w a s f o u n d t h a t f i r m s i z e a n d l e v e l o f bu sinessr i s k h a v e a s i g n i f i c a n t a n d p o s i t i v e relationshipw i t h a l l measureso f c a p i t a l s t r u c t u r e T h e s t r o n g e r i t s r e l a t i o n s h i p w i t h a b a n k b e c o m e s , t h e l a r g
Ins u m m a r y , t h e r e s u l t s o f e x a m i n i n g t h e r e l a t i o n s h i p b e t w e e n f i n a n c i n g c h o i c e s a n d performancearemixedandthequestionof capitalstructure’simpactonperformancestillh o l d s wellandempiricalstudycontinues.
Hypothesesdevelopment
AccordingtoalmosttheoriesImentionaboveinclude:MMtheory,Trade- offtheory,P e c k i n g ordertheory,Theinformationasymmetryandsignalingtheorythefirmwith h i g h e r debtshouldperformbetter,butthatlevelofdebthastobalancebankruptcycostsa n d benef itsofdebtfinancebecauseanincreaseindebtlevelwillalsoincreasetheprobabilityofthefirm’sba nkruptcy.Whileinsomelastyears,Vietnamesefirm’sdebtr a t i o isinanalarmingsituation(Son,2 012),soIexpectanegativerelationshipbetweenleverage(DR)andfirmperformance.Thefollowin ghypothesiswillbetested:
H1:A firm’scapitalstructure(Debtratio)has a negativeandsignificantimpacto n itsGrossProfitMargin
H2:A firm’scapitalstructure(Debtratio)has anegativeandsignificantimpacto n itsReturnonEquity
H3:A firm’scapitalstructure(Debtratio)has a negativeandsignificantimpacto n itsReturnonAsset
H4:A firm’scapitalstructure(Debtratio)has a negativeandsignificantimpacto n itsTobin’sQratio
Datacollection
Thes o u r c e s o f d a t a f o r t h i s s t u d y comem a i n l y froma numbero f s e c o n d a r y s o u r c e s, m o s t l y online,includingtheHochiminhStockExchange.Extensiveusehasbeenmadeofa n n u a l reportsandfinancialstatements.This s t u d y i s b a s e d o n t h e f i n a n c i a l d a t a f r o m 2007-
Ourdatasetincludethedataof96manufacturingcompaniesin5years,whichwereclassifiedintw oways:
Thedataonlyavailablewhenthatcompanywaslisted,sowecantakeallthedatafor96companiesin2 011,butthecompanies’dataavailablein2010,2009,2008,and2007are
Variableofresearch
CapitalStructure(IndependenceVariable)
Therea r e v a r i o u s measureso f l e v e r a g e , w h i c h c a n b e c l a s s i f i e d a s a c c o u n t i n g b a s e d measures,market-valuemeasuresandquasi-market valuemeasures. Theliteratureshowsa numbero f measureso f c a p i t a l s t r u c t u r e s u c h a s A b o r ( 2 0 0
5 a n d 2 0 0 7 ) a n d E b a i d ( 2 0 0 9 ) usedthethree(shortterm,longtermandtotaldebt)totot alassetsasmeasuresoff i n a n c i a l leverage.
In thisstudyIusethemostimportantmeasureofcapitalstructure:TheDebtratio,whichi s defineda stotaldebtdividedbytotalequity:
Firm’sperformance(Dependencevariable)
Themostcommonlyusedperformancemeasureproxiesaregrossprofitmargin(GPM),r e t u r n onassets(ROA)andreturnonequity(ROE).Theseaccountingmeasuresr e p r e s e n t i n g t h e f i n a n c i a l r a t i o s fromb a l a n c e s h e e t a n d incomes t a t e m e n t s h a v e b e e n used bymanyresearcherss u c h as:GortonandRosen(1995),andAng,Colean
23 dLine(2000),KubenRayan(2008),Ebaid(2009),ArbiyanandSafari(2009),SaediandMa hmoodi(2011),Abul(2012)…)
Besidesthat,thereareothermeasuresofperformancecalledmarketperformancemeas ures.Oneofthesemeasureswhichusedtomeasurefirm'svalueinmanystudiesisT o b i n ’ s
Sothat,theproxyforfirmperformanceinthisstudyis:GPM,ROE,ROAandTobin’sQ.
Thegrossprofitmargin(GPM)isameasureofthegrossprofitearnedonsales.The g r o s s pr of it m a r g i n co ns ide rs t h e firm'scos to f g o o d s so ld, b u t doesn o t i n c l u d e o t he rc o st s Itisdefinedasfollows:
Return onassets(ROA)isameasureofhoweffectivelythefirm's assetsarebeingusedtogenerateprofits.Itisdefinedas:
Returnonequity(ROE)isthebottomlinemeasurefortheshareholders,measuringthep r o f i t s earnedforeachdollarinvestedinthefirm'sstock.Returnonequityisdefinedasf o l l o w s :
Tobin’sQwasintroducedbyTobinasanappropriateperformancemeasurein1969andi s defin edasfollows:
Controlvariable
AsmentionedintheHypothesisdevelopment,Iexaminedtheimpactoffourcontrolled v a r i a b l e : F i r m size,FirmAge,OwnershipandDifferentindustriessector:
- Differenti n d u s t r i e s s e c t o r : Thed u m m y variable t a k e s t h e v a l u e 1 i f t h e f i r m i s Lighti n d u s t r y ( I n c l u d e : B e v e r a g e , F o o d p r o d u c t , F a r m i n g & F i s h i n g , C l o t h i n g & A c c e s s o r i e s ) andHeavyindustry
(Include:HeavyConstruction,Steel,SpecialtyChemicals,F u r n i s h i n g s , B u i l d i n g M a t e r i a l s & F i x t u r e s , E l e c t r i c a l Components& E q u i pment,Pharmaceuti cals&medicalequipment)takesthevalue0.
RegressionMethod
Becauseo f t h e n a t u r e o f d a t a s e t , i n w h i c h v a r i a b l e c h a n g e overtimes o p a n e l d a t a methodologyisadopted,andtheusefulsoftwareforpaneldataanalysis,S TATAwereu s e d inthisstudy.Besidesthat,weneedtocontroltheeffectofownershipand differentindustriessectors– thetimeinvariantvariables,whichareabsorbedbytheinterceptinthef ix ed effectsmodel(Kohle r,Ulrich,&Kreuter,2009)sotheRandomeffectsmodelmayb e chosen.Ontheotherhand,theun derlying assumptionsofrandomeffectsmodelisthatt h e εiisarandomdrawingfromamuchlargerpopula tion(Gujarati,2003),whileinthisc a s e , we t a ke a l l t he m a n u f a c t u r i n g c o m p a n ie s i n H S X, s o s u p p o s e t h a t i t ’ s a r a n d o m sampleisnottenable.
Pooled regressionmodel: In thismodel,approachis to disregardthespaceand timed i m e n s i o n s ofthepooleddataandjustestimatetheusualOLSregression.Thatis,st ack thea l l o b s e r v a t i o n s f o r e a c h c o m p a n y o n e o n t o p o f t h e o t h e r , thusw e h a v e a l l 3 9 2 o bserv at ion s foreachofthevariablesinthemodel.
Randomeffectsmodel:Thebasicideaisthesameasfixedeffectsmodelbutinsteado f treating β1asfixed,weassumethatitisarandomvariable.
Anda f t e r t h a t , t h e H a u s m a n t e s t w i l l b e r u n t o t e s t w h e t h e r t h e p r e f e r r e d modelisr an d omeffectsmodelorthealternativefixedeffectsmodel(Greene,2008)
Modelofstudy
DRisCapitalstructure(Debt- ratio)Z isthe controlled–variable. βiiarethecoefficientsoftheexplanatory and controllablevariables,respectively.i s theerrorterm.
Conceptualframework
Descriptive Statistics
Manufacturing Heavyindustry Lightindustry Statecontrolled Non-
Variable Mean Std.Dev Mean Std.Dev Mean Std.Dev Mean Std.Dev Mean Std.Dev.
Table1reportssummarystatisticsforthevariablesusedinthestudy.TheaverageGrossprofitmarginofthemanufacturingsectoris5.26% ,ReturnonAssetsforthesampleasawholeis10.96%,whiletheaverageReturnonEquityisabout17.02%.T h e Three accountingmeasuresofperformanceshowthatVietnamesecompanieshaveaverylowaccountingperformance.Whilethemeasureof market performance,Tobin’sQ is 129.69%,shows a high
28 percentageofperformancecomparedwitht h e accountingmeasures.Thehighratiosforthemarketperformancemeasurescouldbe asaresultoftheincreaseinfirms' sharepriceandequitywithoutanyincreaseintherealactivitiesperformanceofthefirms.Thelowerreturnsmayalsobea f f e c t e d byfirms'leverage.
Theaverage totaldebttototal equityforthesampleasa wholeisabout127.32%,lowerthanresult ofThanh(2012),153%,i t canbeexplainedthatourdataiscollectedinHSXonlyandexcludeconstructionandrealestatecompanieswithv eryhighdebtratio,andtheperiodoftimeisdifferenttoo,sowecansaythat2012firm’sdebtratioishigherthanthepastyears.
Comparedebtratioofstatecontrolledfirmandnonstatecontrolledfirm,wecanseethatstatecontrolledusemoredebtthannonstatecontr olledfirm,140%comparewith106.21%.Itisconsistentwiththeliteraturethatstate- controlledcompaniesh e l d anadvantageouspositionforreducingtheagencycost,accompaniedwithtappingborrowedfu nds.Thisbringsaboutt h e s u s p i c i o n t h a t s t a t e - c o n t r o l l e d l i s t e d c o m p a n i e s maintainedt h e p r i v i l e g e tob o r r o w e a s i l y f r o m t h e s t a t e - c o n t r o l l e d b a n k s , evenaftertheywereformallyprivatizedandlistedonthestockmarkets.
Withthedifferentindustriesclassification,theresultshowsthatheavyindustryusesmoredebtthanlightindustryandthed i f f e r e n c e issignificant.Itisreasonablebecauseheavyindustryneedsmoredebtforinitiation,factory,equipmentandeventinventorythanli ghtindustrydoes.
Tobin’sQ o f h e a v y i n d u s t r i a l firmsi s l o w e r t h a n l i g h t i n d u s t r i a l firms,1 2 2 % v e r s u s 1 3 6 % M e a n w h i l e, samet r e n d h a p p e n s toothermeasurements(ROA,ROE,GPM).Itisalsoshowedthatthereisnosignificantdifferencebetwee nheavya n d lightindustrysector.
DR GPM ROA ROE TQ
Besidesthat,figure2showmoreinformationaboutthedatawehave:thatmarketvaluerea ched itshighestvaluein2007,inthebloomingyearof,whichknownasthegoldenag eo f s t o c k market( 2 0 0 6 , 2 0 0 7 ) B u t i n 2 0 0 8 , u n d e r c r u c i a l i m p a c t o f t h e w o r l d ’ s financial crisis, started f r o m U S A , V N -
I n d e x d e c r e a s e d , consequentlymarketv a l u e (measuredthroughTobin’sQ)offir msdroppedsignificantly.Aftersignsofrecoveryin2 0 0 9 , Tobin’sQcontinuouslydec reasedinnext2years,2010and2011becauseofthed e c r e a s e ofstockmarket.Whiledebt isnotchangesomuchbuthaveatrendofincreasing.
Thec o r r e l a t i o n matrixf o r t h e v a r i a b l e s i s r e p o r t e d i n T a b l e from2 t o 6 i n o r d e r t o examinet h e c o r r e l a t i o n b e t w e e n t h e e x p l a n a t o r y v a r i a b l e s , i n m a n u f a c t u r i n g firm,2 typesofmanufacturingsector:heavyversuslightindustryand2kinds ofownershipfirm.
Ther e s u l t s s h o w t h a t t h e r e i s a n e g a t i v e r e l a t i o n s h i p b e t w e e n D e b t R a t i o a n d F i r m performanceincludingaccountingmeasures:GPM,ROA,ROEandMarketp erformance
GPM ROA ROE TQ DR SIZE AGE industries Owner-ship
GPM ROA ROE TQ DR SIZE AGE Owner-ship
GPM ROA ROE TQ DR SIZE AGE Owner-ship
Table5:CorrelationMatrixofthe ExplanatoryVariables ofstate-controlled Companyduring2007-2011
Table6:Correlati onMatrixofthe ExplanatoryVari ables ofnon state- controlled Companyduring2 007-2011
Howev er, n um ber sar e small,meaningt his relat ionisw e akandit
31 s s i g n i f i c a n c e willbetestedinnextsessions.Thecorrelationsbetweensize,ag e,industries,s t a t e c o n t r o l l e d a n d c o m p a n i e s ’ p e r f o r m a n c e s a r e q u i t e s m a l l N e v e r t h e l e s s , itmaysug gestapositiveeffectofsizeonGPM,ROA,ROEandTQ.
Comparingbetweenlightindustryandheavyindustry,thecorrelationsarenot extremelyd i f f e r e n t exceptGPMandDR.Thatis,DRhasalargereffe ctonGPMinlightindustrythaninheavyindustry.Thereasoncanbethe differenceincostofgoodssoldbetweentwoindustries
Regression
GPM ROE ROA Tobin'sQ variables Pooled RE FE Pooled RE FE Pooled RE FE Pooled RE FE
***Significantat1%level,** Significantat5%level,and*Significantat10% level.
Overall,t a b l e 7 s h o w s a n e g a t i v e impactofd e b t r a t i o o n firm’sperformancew i t h a l l r e g r e s s i o n method,b u t mores i g n i f i c a n t withaccountingmeasure compare tothemarketmeasure Sowemayconcludethatdebtratioha sanegativeimpactonfirm’sperformance.However,wehavetogodetailandchooseamostreliabilityresultofregression.
Ast h e re s u l t s o f Hausmant e s t, t h e r a n d o m e f f ec t s modelw i l l b e choset o r e g r es s t h e relationshipof d e b t r at io an d t h e f ir mp er fo rm an ce wh ic h measurebyGPMa n d R
Ast h e r e s u l t o f R a n d o m e f f e c t s model,a t s i g n i f i c a n t l e v e l α = 5%t o t a l d e b t t o t o t a l equityratiohasanegativerelationshipwithGrossProfitMargin,thepooledregr essionmodelshowsthesameresults atsignificantlevelα%.Sowecanconclud ethatafirm’sc a p i t a l s t r u c t u r e ( D e b t r a t i o ) h a s a n e g a t i v e a n d s i g n i f i c a n t i m p a c t o n i t s G r o s s P r o fi t Marginorhypothesis1isaccepted.
TherelationshipofDRandROEisnegativeandsignificantatα=1%orwecansayitsig n if i can t a t a l l l e v e l w i t h b o t h R E a n d F E ; n e g a t i v e a n d s i g n i f i c a n t a t α = 5 % w i t h po oled regressionmodel.Sowecanconcludethatafirm’scapitalstructure(Debtrati o)hasanegativeandsignificantimpactonitsROEorhypothesis2isaccepted.
TherelationshipofDRandROAisnegativeandsignificantatα=5%astheresultsofR a ndomeffects model;negativeand significantat α=1%with pooled regressionmodel,n e g a t i v e a n d i n s i g n i f i c a n t w i t h F i x e d e f f e c t model.S o w e c a n c o n c l u d e t h a t a firm’sc a p i t a l structure(Debtratio)hasanegativeandsignificantimp actonitsROEorhypothesis3isaccepted.
Differentwiththreeaccountingmeasures,theresults ofregressionofDR with Tobin’s
Qs h o w s a n e g a t i v e b u t i n s i g n i f i c a n t w i t h b o t h R E a n d FEw h i l e s h o w a n e g a t i v e a n d significantat10%with pooledregressionmodel.Sowecanconcludethatafirm’scapitalstructure(Debtratio)hasanegati vebutinsignificantimpactonitsTobin’sQandcan’ta c c e p t thehypothesis3.
Overallf o u r c o n t r o l v a r i a b l e s h o w a mixedr e s u l t o f r e l a t i o n s h i p w i t h f i r m ’ s performance,itmaysignificantornotbutwiththesametrendasthetheories:TheFirm’ss i z e s h o w a p o s i t i v e b u t i n s i g n i f i c a n tw i t h G P M a n d T o b i n ’ s Q w h i l e p o s i t i v e a n d significantatα= 10 %, α= 1% in ther ela ti on sh ip ofD R and RO E, ROA Firm’sage sh owapositivebutinsignificantintherelationshipofDRandROE,ROAwhileitshowsa positivean dsignificantatα = 10%,α=1%with
GPMandTobin’s.Ownershipdummysh o w s t h e p o s i t i v e i m p a c t o n f i r m ’ s p e r f o r m a n c e s h o w s t h e p o w e r o f t h e s t a t e - ownedcompaniesi n V i e t n a m , w h e r e t h e markete c o n o m y h a s n o t r e a l l y d e v e l o p e d a n d t h e i n f l u e n c e ofgovernmentonthedevelopmentandcompetitivenessofthec ompanywhichw a s e x p r e s s e d bye x c l u s i v e , p r e f e r e n t i a l p o l i c i e s i s very h i g h Whilet h e i n d u s t r i a l d u m m y (hereisstandforlightindustrial)showsthepositiveimp actonfirmperformance,i t meanst h a t p r o d u c t i o n a n d b u s i n e s s a c t i v i t i e s o f l i g h t i n d u s t r i a l f i r m a r e b e t t e r t h a n heavy industrial
Conclusions
Thisstudyexaminestheimpactofcapitalstructure,whichmeasuresbyonlyoneindicator- t o t a l d e b t tot o t a l equity,o n c o r p o r a t e p e r f o r m a n c e i n H o C h i M i n h s t o c k ex c h an g e , inwhichwecontroltheeffectoffirm’ssize,firm’sage,industrialsectorsando w n e r s h i p intheperiod2007-2011.
Anunbalancedpanelof97companiesarestudiedinthispaperandreportthatafirm’sc ap it al s t r u c t u r e w a s f o u n d t o h a v e a s i g n i f i c a n t a n d n e g a t i v e i m p a c t o n t h e f i r m ’ s performancemeasuresintheaccountingmeasures–
ROE,ROA,GPMandnegativebutinsignificantinthemarketmeasure–Tobin’sQ.
Controlvariabless h o w mixedr e s u l t so f r e l a t i o n s h i p w i t h firm’sperformance,i t may s i g n i f i c a n t ornotbutwiththesametrendasthetheories:Firmsizewasfoundtohaveap o si t iv e i mp act on af ir m’ s pe r f o r m a n c e , as l a r g e firmshav e l o w ba nk ru pt cy cost s.I n other w o r d s , b a n k r u p t c y c o s t s i n c r e a s e s a s f i r m s i z e d e c r e a s e s a n d , h e n c e b a n k r u p t c y c o st s negativelyaffectsafirm’sperformance.Andfirm’sagehaveap ositiveaffecttoo,s o oldagecompanies willperformbetterthantheyoungerone.Bec ausetheolderone havemoreexperienceandp r e s t i g e inthemarketsoitcanbemanagedmoreefficiencya n d getmorepreferentialtreatmentfromtheirsupplieraswellaspartner.
Besidet h a t t h i s s t u d y a l s o s h o w t h e samer e s u l t s o f T h a n h ( 2 0 1 2 ) a b o u t d e b t r a t i o i n V i et n a m i n thepastyears,thatVietnamesefirmsareusinganunbalancefinancialleverag ewithabigamountofdebtwhilestatecontrolledusemoredebtthannonstatecontroll edfirmandheavyindustryusesmoredebtthanlightindustryandthedifferenceissignificant.Theseresultsareconsistentwiththeories.
Implication
Theresultofthisstudyshowsthatthereisanegativerelationshipbetweendebtratioandfirm’sp erformance.However,thisfindingshouldbeinterpretedwithcautionbecauseoft h e charac teristicofVietnamesecompanies.Infact,theyhavealargeamountofdebtint h e i r capital structurecomparedtoothersindevelopedcountries.Thiscreatesfinanciald i s t r e s s thatworsenscompanies’performances.Therefore,itisrecommendedthatVietnames efirmscanreducetheirdebtratioinordertoincreaseprofitabilityespeciallyaccounting measuresuchasGrossProfitMargin,ReturnonEquityandReturnonAsset.
Limitationsandrecommendations
2011).Itthereforedoesnotrepresenttimeperiodsbeyondthis.Soint h e futureresearc hweshouldenlargethetimeperiod,sayfrom2000–2011
ItwillfocusoncompanieslistedontheHSXonlyandthereforedoesnotrepresentcompaniesli stedonHanoiStockexchange(HNX)orunlistedcompanies.Sowec a n a l s o c h o s e s o m e companiesi n H N X a n d somei n H S X , a n d i n c r e a s e t h e sampl esize.
Thisst u d y useonlyonei n d e p e n d e n t v a r i a b l e t o measurec a p i t a l s t r u c t u r e , t o t a l d e b t tototalassetwhile–theimpactoflong-termandshort-termdebtratioweren’t analyzed.It’squiteimportantbecauseitcanexistsomedifferencesintheuseof s h o r t - t e r m orlong-termdebtbetweendifferentindustriessectors.
Becauset h e d a t a t a k e f r o m t h e Bloombergterminal,w h i c h t o o k d a t a w h e n a c o m p a n y waslistedsotheymissthepreviousperiodwhilesomeofVietname ses o u r c e likecophieu68.com, thedata canbe availableformuchmoreyears,but notreliability.Howeveritmeansthatwecancollectastrongbalancepaneldata,sothattheresultwillbemoreaccurate.
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NO TICKER COMPANYNAME INDUSTRY LISTED
28 SCD ChuongDuongBeveragesJointStockCom pa ny SoftDrinks 2006 1952
68 RDP RangDongPlasticJoint-StockCompany Containers&Packaging 2009 1960
Source SS Df MS Numberofobs = 392
GPM Coef Std.Err t P>t [95%Conf Interval]
Obspergroup: min = 1 between=0.1543 avg = 4.1 overall=0.0544 max = 5
Waldchi2(5) = 19.62 corr(u_i,X)= 0(assumed) Prob>chi2 = 0.0015
GPM Coef Std.Err z P>z [95%Conf Interval]
_cons -0.207 0.0864 -2.4 0.016 -0.3767209 -0.0378627 sigma_u 0.033 sigma_e 0.159 rho 0.042 (fractionofvarianceduetou_i)
Fixed-effects(within) regression Numberofobs = 392
Obspergroup: min = 1 between=0.0011 avg = 4.1 overall=0.0003 max = 5
GPM Coef Std.Err t P>t [95%Conf Interval]
_cons 0.200 0.4247 0.47 0.639 -0.6361457 1.035426 sigma_u 0.101 sigma_e 0.159 rho 0.286 (fractionofvarianceduetou_i)
Source SS df MS Numberofobs = 392
ROE Coef Std.Err t P>t [95%Conf Interval]
B=inconsistentunderHa,efficientunderHo;obtainedfromxtregT e st : H o : d i f f e r e n c e incoefficientsnotsystematic chi2(3)=(b-B)'[(V_b-V_B)^(-1)](b-B)=1.04
Random-effectsGLSregression Numberofobs 392G r o u p variable:CO Numberofgroups = 96
1min between=0.1592 avg = 4.1 overall=0.0975 max = 5 corr(u_i,X) =0(assumed)
ROE Coef Std.Err z P>z [95%Conf Interval]
Fixed-effects(within)regression Numberofobs 392G ro u p variable:CO
=1min between=0.0126 avg = 4.1 overall=0.0168 max = 5
Source SS Df MS Numberofobs = 392
ROE Coef Std.Err t P>t [95%Conf Interval]
B=inconsistentunderHa,efficientunderHo;obtainedfromxtregT e st : H o : d i f f e r e n c e incoefficientsnotsystematic chi2(3)=(b-B)'[(V_b-V_B)^(-1)](b-B)=4.77
ROA Coef Std.Err t P>t [95%Conf Interval]
Waldchi2(5) = 9.82 corr(u_i,X)= 0(assumed) Prob>chi2 = 0.0805
ROA Coef Std.Err z P>z [95%Conf Interval]
ROA Coef Std.Err t P>t [95%Conf Interval]
HausmanTest sqrt(diag(V_b- V_B)) S.E. b=consistentunderHoandHa;obtainedfromxtreg
B=inconsistentunderHa,efficientunderHo;obtainedfromx tr eg
Source SS df MS Numberofobs = 392
TQ Coef Std.Err t P>t [95%Conf Interval]
= 1 min between=0.0698 avg = 4.1 overall=0.0271 max = 5
Waldchi2(5) = 6.94 corr(u_i,X)= 0(assumed) Prob>chi2 = 0.2249
TQ Coef Std.Err z P>z [95%Conf Interval]
Fixed-effects(within)regression Numberofobs = 392
= 1 min between=0.0402 avg = 4.1 overall=0.0018 max = 5
Waldchi2(5) = 43.05 corr(u_i,Xb)= -0.9873 Prob>chi2 = 0
TQ Coef Std.Err t P>t [95%Conf Interval]
(b) (B) (b-B) sqrt(diag(V_b-V_B)) fixed random Difference S.E.
B=inconsistentunderHa,efficientunderHo;obtainedfromxtregT e st : H o : d i f f e r e n c e incoefficientsnotsystematic chi2(3)=(b-B)'[(V_b-V_B)^(-1)](b-B)0.81