Capital structure and corporate financial performance evidence from southeast asian construction firms

Therefore, a factor considered that affects the development ability of the enterprise is the level of financial leverage; as well as the choice of debt structure or equity structure in t

Dissertation submitted in partial fulfillment of the

Requirement for the MSc in Finance

FINANCE DISSERTATION ON Capital structure and corporate financial performance: Evidence from Southeast Asian construction firms

DAO LE QUAN

ID No: 21071796 Intake 5

Supervisor: Dr Chu Khanh Lan

September 2022

2.3 Factors affecting Corporate financial performance 20

4.3 Research some specific countries 33

in the future Currently, there are many methods with different viewpoints to determine the value of enterprises such as: from the absolute valuation point of view, there is the discounted cash flow method or the asset method

Capital structure is an important issue for any business, no matter how large or small A company's capital finance structures the growth and formation of capital that a company can use to purchase assets and do business According to the equity relationship criterion, the capital structure component of a company usually consists of equity and debt capital Equity

is the amount of capital owned by the business owner; can be one or more people This is a very important source of capital for an enterprise, not only limited to the legal issue of establishing a business, but also demonstrating the financial autonomy of a company (Ajanthan, 2013) Equity usually consists of own capital and retained earnings For many businesses, the owner's equity is often not an abundant resource Therefore, many businesses often borrow money to operate, leading to an increase in liabilities On the other hand, raising more capital to raise equity from investors for many businesses is not always easy (Weill,

2008) The capital structure of an enterprise includes the structure of internal and external funding sources that the enterprise uses in the course of its operations

In general, the resource-based view of financial capital assumes that if a business is constrained by financial resources; then the balance of use of these resources has a great influence on output efficiency as well as financial efficiency to ensure business continuity Operating businesses are often limited in their ability to raise capital or use scale When a company increases its financial leverage; the company needs to develop a full scenario to pay its payables on time and if these obligations are not met, creditors can ask the company to go bankrupt Therefore, a factor considered that affects the development ability of the enterprise

is the level of financial leverage; as well as the choice of debt structure or equity structure in the business capital structure When considering the cost of financial distress from using debt, the trade-off theory also suggests that many potentially financially distressed firms will use less debt in their capital structure to avoid the risks and benefits of using debt makes sense only when the company has to meet its tax obligations In the case of companies, the tax benefits of increased business efficiency are not the main consideration The positive impact

of capital structure on a business is the financial flexibility to realize business opportunities as well as the certainty that there is less risk in the business owner's business as suggested by this theory

Many researchers construct optimal capital structures and prove the existence of this model through actual control processes The optimal capital structure is considered the efficient capital structure; minimize the cost of operating capital and mobilize the resources of the enterprise, while maximizing the value of effective use Therefore, optimal capital structure decisions have a strong impact on the success of a business (Zafar, Zeeshan and Ahmed, 2016) However, the huge challenge of building an optimal capital structure is not an easy task; when the capital structure of the business often changes over time due to changes in cash flow or business strategy Exactly how companies choose the amount of debt and equity in their capital structure is a mystery Is the business mainly influenced by the traditional capital structure in their industry or are there other reasons behind their actions? The answers to these questions are important, because the actions managers take will affect the company's performance, as well as how investors perceive the company

Many research models on capital structure have been carried out to find out how to support enterprises to operate effectively In particular, Vietnam's economy has many small and medium enterprises; even for many large enterprises, the main concern of business leaders is

to make a profit; or focus on effective business However, the profit goal is not always the top priority of the business (Almajali and Shamsuddin, 2020) Especially for many large-scale enterprises, the operating structure is complicated with many different activities and many affiliated enterprises Therefore, determining an optimal capital structure model is an important issue

In addition, an efficient capital structure often brings great competitive power to the business The Covid-19 pandemic has not only caused many impacts on human health and the social security situation of many countries around the world, but also left many heavy consequences for the world economy In practice, however, this outbreak can be viewed as a health check event for business enterprises (Zafar, Zeeshan and Ahmed, 2016) The volatility of macroeconomic indicators such as exchange rate, inflation, consumption output and other inputs This study was conducted to evaluate and analyze the impact of capital structure on the financial performance of construction companies listed on centralized stock exchanges in Southeast Asia; in which, this study selects countries including: Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam

1.1.2 Significance of research

Many models have been built to measure and predict factors affecting corporate financial performance Includes micro and macro factors There are also many studies evaluating the role and impact of capital structure on financial performance with many different factors Like Pecking Order, the MM theory or Trade-off theory has demonstrated the influence of Capital structure on the successful performance of the business Many experts assert that increasing financial leverage also increases the value of the business, but also exposes the business to more financial risk From theoretical as well as empirical studies, this paper will provide empirical evidence that capital structure has an impact on firm value in Southeast Asia as a whole This study aims to examine the impact of capital structure and financial performance

of active construction firms in Southeast Asia The selected companies are all listed with the database from 2015 to 2021 In a market economy, in addition to the goal of profit maximization, business managers also aim to maximize profits business value maximization (or owner value maximization) However, there are many factors that affect the value of a business, in which capital structure is an important factor with a large impact In this article, the author uses a linear regression model to determine the trend of impact of capital structure

on financial performance of enterprises; and at the same time determine the optimal capital structure of enterprises operating in Southeast Asia

1.2 Research objective

Many studies have shown a close relationship between the construction of an effective capital structure and the financial performance of the business A business that can raise cheap financing often has an advantage in operating costs, which in turn promotes better profit margins The effect of a company's capital structure on performance is well-documented A company with weak debt ratios and lack of financial flexibility may be sensitive to economic shocks Especially in the case that the company falls into the situation of using excessive financial leverage, it is also very difficult to borrow more money to cover costs The effect of capital structure on the business performance of companies is explained on the basis of the performance-based capital structure theory According to the traditional view of capital structure, firms using debt are more profitable than firms dependent on equity, since the cost

of equity is considered to be higher than the cost of equity possess in debt This is true in practice when using the return on equity (ROE) performance scale However, the financial risk and cost of capital also increase with heavy use of debt Therefore, the optimal capital structure is proposed from this point of view with the goal of minimizing WACC and maximizing the value of the firm This study then provides specific estimates of the optimal capital structure for firms in each country studied From there, evaluate and consider whether there is a difference between the capital structure in each country

1.3 Research subjects

The research object built and developed in this study is the listed construction companies on stock exchanges in different countries in Southeast Asia The information collection period spans from 2018 to 2021 All research companies obtained information from their annual reports and audited financial statements Factors to be considered include specialized financial accounting information and financial ratios; to serve the calculation of the research model In addition, the research subjects were omitted financial institutions; such as commercial banks, investment banks, insurance companies or finance companies due to their more specialized capital structure features than the rest of the market

1.4 Research scope

Therefore, the main research object analyzed and evaluated is the capital structure of the enterprise and financial performance of construction companies In particular, the research sample includes construction companies listed on the stock exchanges of 9 countries in Southeast Asia Basically, these stock markets are all major stock markets in the region and have a relatively long history of development compared to other countries No finance

company; such as banks, insurance companies and finance companies, are included in this analysis because the capital structure and business characteristics of these institutions are relatively different from the study population as a whole In addition, the construction companies that collected the information were all companies that ensured business continuity during the study period; i.e weeding out the companies that went bankrupt or closed on the centralized stock exchange As well as removing companies that have been delisted or converted from public companies to private companies Construction enterprises that do not publish financial statements for two years or more are considered failures, as they are required

by law to disclose reports

1.5 Research questions

The main issues studied in this study are presented in an overview through the research questions Research questions are formulated and formulated according to a basic process: identifying relevant factors and issues to be researched, building an in-depth analysis and evaluation framework, making development judgments suitable to research situation There are four key questions in this study:

- Practical application of Capital Structure and practical lessons from effective capital structure implementation

- The Impact of Capital Structure and Financial Performance of companies listed on concentrated stock markets in some countries in Southeast Asia?

- How to build an effective Capital Structure to promote the financial performance of enterprises?

- Is there a difference in the effective capital structure between the countries studied?

1.6 Research structure

This section describes the evolving structure of this study Content includes the list of chapters and the contents of the displayed chapters In detail, there are five main chapters in this study:

CHAPTER 1: INTRODUCTION

This section provides an overview of the research area and the important issues analyzed Specific factors include research overview, research scope and target analysis object and significance of the study; and then provide contributions and conclusions for the purpose of this study The research question is brief and focused on the research problem Research methods are approached to be used in the most effective way to solve research problems

Finally, this section outlines the overall structure of the study and introduces the subsections that follow

CHAPTER 2: LITERATURE REVIEW

All theoretical and conceptual frameworks are provided in this chapter Specifically, the research model will be shown to indicate the hypothesis with a theoretical basis for each structure This section provides brief but comprehensive summaries of previous studies with a unified research theme The issues developed in this chapter include providing an overview of the theories of optimal capital structure and the role, significance, and practical application of capital structure management The contents of previous studies are evaluated and summarized

in the most objective way; It also outlines the results and limitations of those studies Finally, the study offers perspectives for overcoming those limitations and building on the successes

of previous studies Furthermore, this section presents an underlying theoretical framework to help shape the underlying issues that this study focuses on The literature review focuses on the years close to when this study was developed Finally, the study builds a theoretical basis and a standard framework for the model that this study develops

CHAPTER 3: METHODOLOGY

This chapter covers how this study was conducted In more detail, the author's method of forming the survey to collect data, selected samples and data analysis will be presented in this chapter This study was built to evaluate the interrelated factors as well as the interaction between these factors The main content of this chapter is the research methods used in the analysis of this study In which research methods are carried out are analytical techniques and other evaluation procedures This study uses both qualitative and quantitative research methods In which, the quantitative method uses an econometric model to evaluate the interaction between the research variables in the model In addition, this section develops the analytical database as well as the data collection process The collected data is then evaluated for data authenticity to eliminate inaccuracies or conflicts in the database Data analysis and evaluation is performed afterwards with the goal of confirming the accuracy of the model

CHAPTER 4: DATA ANALYSIS AND RESULTS

From the results of analysis and research in chapter 3, the author will give some results and discuss the results in this chapter First, the author will confirm the results with other studies

in the past to point out differences or similarities between this study and previous research Then, all the research questions will be answered and given some impact on the businesses and countries studied Then, according to the research results, some recommended or

suggested actions to make the companies perform better will be provided In addition, this study also provides assessments of capital structure differences between the countries studied

CHAPTER 5: CONCLUSION

The main purpose of this chapter is to summarize all the research processes, summarizing what has been archived by this research Besides, this chapter points out the main contributions of the study as well as points out some limitations that can be improved in future studies

1.7 Contribution of the research

This study shows which capital structure factors have an impact on the financial performance

of the research firms listed on centralized stock exchanges in Southeast Asia From there, this study provides assessments and solutions to build an effective capital structure for typical enterprises in each different country; including Vietnam, Singapore, Thailand and Indonesia

1.8 New findings of research

This study does not stop at assessing how capital structure affects the financial performance

of listed companies; but also goes further in studying the optimal capital structure according

to the theories of efficient capital structure In addition, this study also provides an assessment

of the capital structure differences of different countries

Chapter 2: Literature review

2.1 Capital structure theories

The study "Theory unrelated to capital structure" by Modigliani and Miller (1958) posed the problem of bringing the theory of corporate capital structure into a research area in financial economics Three major theories of capital structure emerged that became distinct from the Perfect Capital Markets Assumption under which the "Relational Model'' was operating The first is the Trade-Off Theory which assumes that firms accept the trade-offs of the benefits and costs of debt and equity financing with the introduction of a supposedly

"optimal" capital structure after accounting for market imperfections such as taxes, bankruptcy costs, and agency costs This is followed by pecking order theory (Myers (1984); Myers and Majluf (1984)) which argues that firms rely on a financial hierarchy to minimize the problem of information imbalance between managers company with insiders and

outsiders Baker and Wurgler (2002) put forward a new theory of capital structure that is

"market time theory of capital structure" According to this theory, the current capital structure is the result of past accumulation in order to time the market It is conceivable that some companies issue new shares when they find the business is overvalued and companies buy back joint ownership when they think they have been bought at a lower valuation

The business finance theory of Modiglian and Miller (1958) proposed irrelevant capital structure It can be said that, before Modiglian and Miller, there was no one or generally accepted theory about capital structure The two researchers assumed that the company had a specific expected cash flow When a business decides to choose a certain ratio of debt and equity to finance its business, all this is about dividing cash flows among investors Then, these assumptions about the company as well as the investor have equal access to the financial markets The investor can create any leverage on his own that is not provided, or the investor can remove any leverage that the company assumes but does not want Therefore, the firm's leverage has no effect on the market value of the firm This study is a foreshadowing of unrelated capital structure, which has caused a lot of controversy In theory, capital structure irrelevance can be demonstrated under a wide range of circumstances There are essentially two types of unrelated capital structure proposals The non-arbitrage proposal indicates an investor's arbitrage setups with independent firm value retention In addition to Modigliani and Miller, the studies of Hirshleifer (1966) and Stiglitz (1969) also make important contributions to this price arbitrage proposition In addition, the second-person unrelated proposal suggests that "the investment policy of a company and the payment of dividends will not affect the current price of the stock nor the profitability of the company as a whole and shareholders (Miller and Modigliani, 1961) Thus, in perfect markets, neither capital structure nor policy decisions have much effect on firm profitability 1958 has been the impetus for various papers to be seriously studied to prove its irrelevance

However, Modigliani and Miller also have gaps in their research because different factors also affect capital structure Common factors such as taxes, transaction fees, bankruptcy fees, conflicts, adverse selection, market opportunities These are imperfect markets that partly make the Modigliani-Miller theorem invalid successful The funding and investment lobes over time and customer effects Therefore, there are alternative models that incorporate different factors to overcome these limitations

Research by Harris and Raviv (1991) has shown that debt and endogenous firm value that are rational and driven by different factors can cause so many variables to occur and we cannot

establish a single study Test the structure of the theory by regressing the value of debt But in fact there is a fairly reliable empirical relationship between a number of factors and the firm's leverage, and the firm that is actually financed

2.1.1 The trade-off theory

Trade-off theory is used by researchers to describe a family of related theories The trade-off here is when a company makes a decision that evaluates different fees and benefits and substitutes an alternative leverage plan The researchers assume that the best solution is to strike a balance between marginal costs and marginal benefits

After the controversy over the Modigliani-Miller theorem, the trade-off theory has been put forward and scrutinized (Iqbal et al., 2012) The early trade-off theory is said to have emerged after the MM theorem debate When MM's irrelevance theorem is added to the corporate income tax factor, this benefit is preferred to debt and tax income protection Alternatives such as leveraged plans will be considered as managers conduct various cost and benefit analyses After the study, it was suggested that there should be a solution to achieve an internal balance between costs and marginal benefits

Static trade-off theory

The optimal capital structure is to trade off the cost of debt and equity for the benefit of the company The benefit of debt is the advantage of the debt tax shield In addition, the downside

of debt is the potential cost of financial risk, especially in a company with too much debt The tax-deductible ability of payments is the benefit of debt, and this drives the adoption of debt

on companies The increase in debt entails the creation of debt-free tax protections (DeAngelo

& Masulis, 1980) as well as personal taxes (Miller, 1977) Some studies by Titman and Wessel (1988), Opler & Titman (1996), Adedeji (2002), Fama & French (2002) and Chen (2004) all tested the following model:

In which, Dit is the dependent variable representing the debt ratio in a certain year t of a particular company i, W represents the vector of the explanatory variable and eit is the error term The basis of the analysis of asymmetric information, taxes, and conflicting variables is the imperfect analysis of the market Previous studies on the static equilibrium theory have produced mixed results Some studies suggest that target leverage does not have much effect

on a firm's financials so this is not so important Titman and Wessels (1988), Rajan &

Zingales (1995) and Fama & French (2002) suggest that firms with high profitability tend to borrow less This assertion contradicts the realistic trade-off prediction that highly profitable firms should borrow more to reduce tax liabilities Graham's (2000) study, on the other hand, shows that large firms with higher returns than they intend to use debt judiciously An example for a business with high profits but maintaining a zero debt policy is Microsoft Surveys by Graham & Harvey (2001) show that the degree of softness of the target leverage

as well as the speed of adjustment for the target leverage is slow (Jalilvand and Harris, 1984; Fama & French, 2002) The main determinant of market leverage is when firms rely on capital structure but fail to offset the effects of positive stock returns and prior stock returns (Welch, 2004) In contrast, many studies support the trade-off theory and the role of leverage (Marsh, 1982; Hovakimian, Opler & Titman, 2001; Korajczyk & Levy, 2003; Hovakimian, 2004; Hovakimian & Tehranian, 2004) The trade-off theory in leverage decisions considers the importance of different factors in order to find out the influence of companies on previous stock price movements Most companies will not be enthusiastic about their financial policy but when it comes to targeted leverage, they will buy back their securities Marsh, 1982; Hovakimian, Opler & Titman, 2001; Korajczyk & Levy, 2003; Hovakimian, 2004; Hovakimian & Tehranian, 2004)

2.1.2 Pecking order theory

The pecking order theory does not take the optimal capital structure as a starting point, but instead asserts the empirical fact that firms show a distinct preference for the use of internal finance (such as retained earnings or excess liquid assets) versus external financing If internal funds are not sufficient to finance investment opportunities, companies may or may not obtain external financing, and if they do, they will choose among different sources of external financing in such a way as to minimize the additional cost of asymmetric information The following costs essentially reflect the "Premium lemon" (Akerlof, 1970) that outside investors claim risk of failure for the average firm in the market The resulting financing order is as follows: funds are created internally first, followed by corresponding low-risk debt financing and equity financing In the Myers and Majluf (1984) model, outside investors rationally discount a company's stock price when managers issue equity instead of risk-free debt To avoid this discount, managers avoid Equity whenever possible The Myers and Majluf model predicts that managers will follow an order, using up internal funds first, then using risk debt, and finally using equity In the absence of investment opportunities, companies retain profits

and build slack financing to avoid having to raise external financing in the future matching theory considers the market-to-book ratio as a measure of investment Opportunity With this interpretation, both Myers (1984) and Fama and French (2000) Note that the contemporary relationship between market-to-book ratio and capital structure is difficult to reconcile with the static pecking order model Static iteration also shows that periods of high investment opportunity will tend to push higher leverage toward debt capacity To the extent that past market-to-book highs do indeed coincide with past highs in Investments, however, the results show that such periods tend to push leverage lower209 Empirical evidence supports both pecking order and trade-off theory Empirical tests to see whether surgical command or trade-off theory is a better predictor of structurally observed capital find support for both theories

Order-2.1.3 The agency theory

Agency theory is currently being studied by researchers based on the existing roots in economic theory to conduct research in a number of different fields Examples are research on organizational behavior (Eisenhardt, 1985), Household business (Tsai et al., 2006), Marketing (Bergen et al., 1992), Law related studies (Lan and Heracleous, 2010), accounting (Reichelstein, 1992) and Healthcare (Jiang et al., 2012) The agency theory is studied around the main influencing factors (study of the main actors) or the governance profile (based on positivism) In essence, this theory emerges from the study of Eisenhardt (1989) presenting an economic view of risk sharing between principal and agent Each side will have a different solution because the approach is not the same (Jensen & Meckling, 1976) In order to achieve the common goal that the principal wanted to share the risk because the principal had certain responsibilities for management and implementation This cooperative behavior is regulated

by the head with the expectation of better results (Barnard, 1938) There is concern, however, when the focus of the agency problem lies in the self-seeking behavior that may prevent some agents from acting in the common interest of their owners (Burnham, 1941) From the principal's point of view, this issue has posed a need to redefine agency costs (Fama, 1980) When the relationship is specifically defined, agency costs must be explicitly disclosed to the principal In addition, when the agent acts contrary to the agreement, it may cause the principal to bear more risks This also contributed to the first organ problem forming

The second agency problem directly stems from the first Agency theory denotes that when agents have equity in the firm, they are more likely to embrace the actions desired by

principals as those of their own (Fama & Jensen, 1983) Eisenhardt (1989) went further to theorize that when those actions are outcome-based, the agent is more likely to behave in the interest of the principal However, if a perceived inequity exists, agents are likely to engage in self-interested behaviour When the agent engages in self-interested behaviour, information asymmetries are created where the principal is unable to properly monitor agent behaviour The measurability of outcomes (Anderson, 1985) thereby becomes elusive, leading to another problem – monitoring agent behaviour Based on the research and nature of the two issues mentioned above about agents, governance mechanisms to help regulate risk and monitor the behavior of factors are essential It is these mechanisms that contribute to corroborating the views of agency theory

From the research results, two main points of view in agency theory have been shown that are the main agent and agency theory (based on positivism) Modern research has also shown possible risks: risk-sharing and agent monitoring The main link between the two is the difference in risk sharing that creates information asymmetries This has had a significant impact on the agent's ability to monitor behavior Due to the nature of risk sharing, it is difficult to create an ideal contract that benefits both parties, either perceived or actual Agency theory (aggressive) is often only concerned with important governance mechanisms that limit the negative self-serving behavior of agents (Eisenhardt, 1989) Those mechanisms were originally thought to be the source of the desired link between the principals and agents' goals, but research by Dalton et al (2007) still cast doubt on the effectiveness of this mechanism In order to be able to solve the litigation difficulties, historical analysis of the main background contributed to the development of agent theory Although research has now focused on this issue (Bendick son et al., 2016), some historical influences have not been verified such as: The Foundations of Max Weber and Herbert Simon, The Great Recession world (1930) and Berle's studies of managerial causes, Barnard and Follett's Collaboration, the Chicago School and the development of the "neoclassical economy" theory (see Figure 1 for a more overview of these platforms)

2.1.4 The market timing theory

The capital structure market timing theory argues that companies time their equity issues in the sense that they issue new shares when the share price is considered overvalued and buy back their own shares at a low valuation Therefore, the volatility of stock prices affects capital structure firms There are two versions of stock market timing that follow similar structural dynamics The first assumes that economic agents are rational Firms are said to issue equity directly after actively releasing information which reduces the problem of asymmetry between firms

The first assumes economic agents to be rational Companies are assumed to issue equity directly after a positive information release which reduces the asymmetry problem between the firm’s 319 management and stockholders The decrease in information asymmetry coincides with an increase in the stock price In response, firms create their own timing opportunities The second theory assumes the economic agents to be irrational (Baker and Wurgler, 2002) Due to irrational behaviour there is a time-varying mispricing of the stock of the company Managers issue equity when they believe its cost is irrationally low and repurchase equity when they believe its cost is irrationally high It is important

to know that the second version of market timing does not require that the market actually be inefficient It does not ask managers to successfully predict stock returns The assumption is simply that managers believe that they can time the market In a study by Graham and Harvey (2001), managers admited trying to time the equity market, and most

of those that have considered issuing common stock report that "the amount by which our stock is undervalued or over- valued" was an important consideration This study supports the assumption in the market timing theory mentioned above which is that managers believe they can time the market, but does not immediately distinguish between the mispricing and the dynamic asymmetric information version of market timing Baker and Wurgler (2002) provide evidence that equity market timing has a persistent effect on the capital structure of the firm They define a market timing measure, which is a weighted average of external capital needs over the past few years, where the weights used are market to book values of the firm They find that leverage changes are strongly and positively related to their market timing measure, so they conclude that the capital structure of a firm is the cumulative outcome of past attempts to time the equity market

Market timing theory (MTT) which was proposed by Baker & Wurgler in 2002, states that the market existing situation is the main consideration for the firm’s capital structure (use of debt and equity) This is to say that firms do not normally concern about financing with debt

or equity but they prefer the type of funding which at that very moment appears to be greater valued by financial markets Briefly, firms decide on the most effective and efficient alternative based on the current condition in the credit and equity market (Huang & Ritter, 2009) Firms issue new shares when stock prices have high value and repurchase shares or issue debt when stock prices have low value (Baker & Wurgler, 2002) Therefore, fluctuations in the market play a role in choosing a capital structure This highlights that during a favorable and healthy market or before a crisis when assets are overvalued firms are

motivated to issue equity and have a lower level of debt Moreover, market timing theory also assumes that during or after the crisis when firms’ assets are undervalued or debt cost is low, firms are more likely to increase the leverage (Frank & Goyal, 2003) Thus market timing theory believes that a negative relationship exists between leverage and firm performance before a financial crisis and a positive relationship exists during the crisis and a negative relationship continues after the crisis up to a half-decade due to the adverse effect of the crisis

on financial markets

2.2 Corporate financial p erformance

Corporate performance or business's performance is an economic category that currently has many heterogeneous views, researchers from different perspectives and scopes give a different perspective on this category Efficiency means the most effective use of economic resources to satisfy human needs and desires According to this approach, two characteristics

of the efficiency category have been identified: the optimal use of resources and the purpose

of the activity However, this approach has not yet led to a way to determine performance in general and business performance in particular According to Adam Smith, Efficiency - The result achieved in economic activity, is the revenue from the consumption of goods With this approach, determining the efficiency in the operation of the business is purely based on whether the product is sold or not This view has not clearly defined efficiency and business results without taking into account the cost factor to achieve that business effect There should

be a clear distinction between performance and business results Business results are only a formal expression that economic activity is obtained, but how that result is produced, and at what cost is the concern of economists, it represents the quality of business results and amount of activity Thus, economic performance must be an economic quantity that compares the results obtained with the costs incurred Specifically, business results are what an enterprise achieves after a certain period, which is quantified by indicators such as consumption output, revenue, market share , while business performance reflects the level

of use of resources, calculated as the ratio between the results and the costs spent to achieve that result

According to Haršányová, aňová & Čambál (2016), Business performance is not just a comparison between input costs and the results received at the output; Business performance

is understood first as the completion of the goal, if the goal is not achieved, it cannot be effective and to accomplish the goal we must use resources like Thus, in this view, efficiency

is associated with a certain goal and the intelligent use of resources Following the same point

of view, Suchánek & Částek (2019) put forth the view: "The highest expression, the focus of business performance is profitability, so the analysis of business performance must focus on analyzing the profitability of resources used for business activities However, profitability can only be achieved when an enterprise has good operational capacity, demonstrated through the effective management and use of its resources Therefore, in order to fully evaluate business performance, it will include analysis of two contents: performance analysis and profitability analysis Author Klaus et (2022) said that: "Business Performance of an enterprise is an economic category that reflects the relationship between the business results obtained by the enterprise and the costs or resources spent to achieve that result Business efficiency is determined by specific economic indicators, reflecting the comparative ratio between indicators reflecting business results achieved with criteria reflecting costs or used resources into production and business in order to achieve the enterprise's goals” Thus, it can be seen that there are many views on the category of business Performance and how to determine the business efficiency of an enterprise

From a financial perspective, the maximum goal of an enterprise is to maximize the value of the enterprise on the basis of respecting the law and performing social responsibilities well Therefore, a business with high business efficiency will create an increase in enterprise value

in the long run on the basis of effective use of the enterprise's resources To achieve the goal

of maximizing corporate value, businesses must continuously improve business performance Therefore, business Performance is also reflected in the rate of return on working capital in relation to the cost of capital: This means that for every dollar of capital spent, the enterprise tries to get a high profit based on the acceptable risks Therefore, a business with good business performance is one that generates a higher rate of return on capital than the cost of capital In other words, the enterprise has a positive economic value added (EVA) The manifestation of a business with good business performance with positive EVA is the

sustainable long-term increase in corporate value For listed companies, this is reflected in the long-term increase in stock prices on the stock market in a sustainable way

There are many perspectives on corporate financial performance According to Kusumawardani et al (2021) Corporate financial Performance refers to the efficiency of mobilizing, managing and using capital in the business process According to Weston & Nnadi (2021) Financial Performance is the efficiency of capital mobilization Meanwhile, the Performance of capital management and use belongs to business efficiency Either way, they all reflect the relationship between the economic benefits received by the business and the costs the business has to pay to get that economic benefit The nature of corporate finance is the monetary relationships directly associated with the organization and work of mobilizing, distributing, using and managing capital in the business process The financial performance of the business is an issue of concern to both internal and external investors as well as stakeholders Indeed, through the assessment of financial performance, investors will be in the right direction to make reasonable investment decisions as well as take appropriate steps to adjust capital sources

2.3 Factors affecting Corporate financial performance

Financial performance is efficiency related to return on equity According to the author, the ratio of return on equity (ROE) is used to measure the financial performance of the enterprise

In his research project, the author uses "Return on Equity (ROE)" to measure corporate financial performance Besides, a number of research projects on business performance of construction, seafood, tourism, but also use the dependent variable "Return on equity" Here, the author would like to introduce the research works of domestic and foreign authors, which are the basis for the author to continue research: Weixu (2005), the research results show that: Debt ratio (D/E) has a positive impact on financial performance of companies listed on the Shanghai Stock Exchange at the ratio low debt and negative impact at high debt ratio Financial performance is not strongly correlated with long-term debt ratio Firm size variable (SIZE) has a strong positive effect on financial performance The growth rate variable (GROWTH) has no impact on financial performance Besides, the research results of Tran Thi Hoa (2006) show that the return on assets (ROA), debt-to-equity ratio (D/E), profitability Economic performance of assets (RE), working capital turnover ratio are four factors that positively affect the financial performance (ROE) of commercial enterprises in Da Nang city

The research results of Kim & Suh (2021) show that debt ratio has a positive impact on financial performance when the debt ratio is at an average level Research by Daniel, Siddiqui

& Shawar (2019) shows that the rate of return on sales, the efficiency of asset use, and financial leverage all have a positive influence on the return on equity ownership of enterprises in the industry of Romania In 2010, the authors Onaolapo and Kajola conducted a study on “Factors affecting business performance and corporate financial performance” of 30 non-financial companies listed on the Nigerian stock exchange from 2001 to 2007 Research results show that: The ratio of debt and fixed assets has a negative impact on ROA and ROE; Asset turnover, company size, growth rate, year of establishment have a positive impact on ROA and ROE Industry-specific factors such as alcohol, food and beverage, tobacco, and construction industry have strong impacts on ROE Doan (2010) researched "Factors affecting financial structure and financial performance: approach by path analysis" with data collected from financial statements of 428 enterprises listed on two stock exchanges in Ho Chi Minh City and Hanoi from 2007 to 2009 Research results have shown that: Business efficiency, business risk, asset structure are related is inversely related to financial structure while firm size is positively related to financial structure Research results also show that both business performance and financial structure have a positive impact on ROE

From an overview of the world's authors on the factors affecting corporate financial performance, the summary is as follows: The factors affecting financial performance listed by the authors are: enterprise size, growth rate, debt-to-equity ratio, asset turnover, fixed asset ratio, and ratio Importance of export revenue, business operation time, ratio of selling and administrative expenses, etc These factors can serve as a basis for the author to conduct research to analyze the influencing factors at South-east Asia firms

2 4 Leverage

Leverage is a relatively commonly used term in the financial industry Financial leverage is the ability to use borrowed capital out of a company's total capital to increase its return on equity or earnings per share (Liargovas & Skandalis, 2012) Financial leverage is the combination of liabilities and equity in operating the financial policies of an enterprise It will thrive in businesses with a higher proportion of liabilities than equity Conversely, it will be low when the proportion of liabilities is smaller than the proportion of equity Businesses often use debt to cover the shortfall in capital Also looking to increase return on equity or earnings per share Financial leverage is seen as a tool to promote after-tax profits from owners' equity, and it is also a tool to inhibit that increase (Chen, 2020) The success or failure

all depends on the ingenuity of the investor when choosing a financial structure, the ability to increase profits is the desire of the owner The business also uses financial leverage as the shield earned by interest payable is considered a reasonable expense and is deducted from the taxable income of the business That will help reduce the amount of corporate tax payable and increase profits Using financial leverage brings profits to businesses, but still carries great risks The choice of capital is also very careful because if you borrow money quickly with high interest rates, profits will decrease At the same time, unfortunately, if there is a risk, the high interest rate will make investors suffer So businesses should choose banks that have preferential loan programs (Meta, 2015)

2.5 Leverage and Corporate financial performance

From a financial perspective, one of the important factors to evaluate the business performance of an enterprise is profit after tax and the growth rate of profit after tax Therefore, business owners often pay special attention to each dollar of capital they invest in the business, and how much profit after tax is generated (Jumono et al, 2016) The purpose of using financial leverage is to increase ROE - return on equity can also be understood as adding value to existing investors as well as increasing attractiveness for investors potential investment, thereby increasing the value of the business The ROE formula can be adjusted as follows (Jumono et al, 2016):

ROE = [BEP + *(BEP – r)] * (1-t)

BEP: Economic Return on Assets (BASIC EARNING POWER)

D: Loan capital (DEBT)

E: Equity (EQUITY)

r: Loan interest rate

t: Corporate income tax rate

Since (1-t) is constant, the return on equity will depend on the BEP, r and D/E ratios From the above formula, there will be 3 cases:

Case 1: BEP > r, when the enterprise uses more debt, the larger the D/E ratio, the higher the return on equity It can be understood that when the business is efficient, financial leverage will amplify the return on equity

Case 2: BEP < r, when the enterprise uses more debt, the larger the D/E ratio, the lower the return on equity That is, when the business is not efficient, financial leverage acts in the direction of reducing the return on equity

Case 3: BEP = r, the more debt the business uses, the larger the D/E ratio but does not change the return on equity The use of financial leverage does not change the rate of return on equity

Liargovas & Skandalis (2012) used company-level panel data to empirically investigate the impact of leverage and other important variables on the financial performance of firms in the Greek economy in the period 1997-2004; a period that combines a number of years before and after the formation of the Economic Monetary Union (EMU) The study examines the impact

of leverage combined with other strategic determinants on firm's financial performance in the case of industrial enterprises that must survive in the eurozone and market environment market of 300 million consumers The results show that leverage in tandem with exports, location and investment significantly affects a company's performance in a relatively small market, which is inevitably under intense competitive pressure out across Europe

Ahmad et al (2017) used research data of all businesses on Krachi stock exchange in Pakistan, research data was used in the period from 2005 to 2011 Results of linear regression analysis The calculation has shown the negative impact of leverage on the financial performance of the business Specifically, the indicators to measure the financial performance of the business include Return on total assets, Return on equity, Earnings per share In addition, the study also considers the impact of macro variables including: gross domestic product and interest rates The study found a very small relationship of macro variables Managers are advised to improve economic performance based on competitive advantages in the market rather than on fluctuations in the economy

2.6 Previous studies in South East - Asia

There have been many previous studies on the influence of capital structure on business performance of enterprises Haron (2017) relied on data from three Southeast Asian countries: Singapore, Thailand and Malaysia Data for all three countries have come to the same conclusion that capital structure is still without clear theoretical and empirical explanations Research shows that the same research model but different financial leverage will give different results At the same time, each enterprise in a country tends to choose different leverage ratios depending on the needs and financial capacity of the business Besides, macro policies on economic development are also the driving force to increase the use of leverage for business activities When the government has programs to support interest rates, businesses tend to use more debt and vice versa Another study Haron, (2011) studied the target capital structure and the determinants of the capital structure of enterprises in Southeast

Asia through a dynamic framework The effects of determinants on corporate capital structure

in countries have been analyzed by the author Research results show that in each region and different companies, there will be different capital structure choices The study's findings contribute to strong evidence on the target capital structure of firms in Southeast Asia The study confirms that the capital structure of the company depends not only on the unique characteristics of the enterprise but also on the institutional and corporate governance environment in which the enterprise operates

Šoja & Vulic (2021) argues that the relationship between capital structure and business performance is an interesting research topic for researchers, especially in developing markets The study has searched for the relationship between business performance and ownership structure of private and state-owned enterprises in several Southeast Asian countries including: Singapore, Thailand, Myanmar, etc focus and return on assets ratios, return on assets, earnings per share and net profit and data used from 2012 – 2020 Research results answered two hypotheses, The first is whether there are differences in performance statistics between public and private firms The second hypothesis focuses on the higher profit margins

of private enterprises than state-owned enterprises The analysis shows that business results of enterprises depend on their ownership structure and that private enterprises use resources more efficiently than those with state budget capital Another study Khamis, Elali & Hamdan (2015) investigated the relationship between a firm's financial performance and firm ownership structure The research sample was used in 422 enterprises on the stock exchange

of Thailand in the period 2007 - 2011 The study used different aspects of ownership structure, two different measures of financial performance, ROA and Tobin's Q Another objective of this study is to understand ownership structure patterns in the ThaiLand market Research results show a contradiction in the impact of ownership structure on financial performance, through both ROA and Tobin's Q ratios

Tri & Thai (2020) investigates the determinants of capital structures of listed firms in Southeast Asia, including Vietnam, Thailand, Indonesia, Malaysia, the Philippines and Singapore, between 1995 and 2014 Based on the most up-to-date data from Thompson Innovation, we employ feasible generalised least squares (FGLS) to test funding behaviours

of individual countries and the whole region Empirical evidence supports neither the pecking order theory nor the trade-off model as the best-fit framework to understand the capital structures of firms in Southeast Asia, though the trade-off model has more precise predictions

of the data than the pecking order model Besides, the outcomes demonstrate that

understanding firm nationality is necessary to determine countries' conventional corporate capital structure models

According to Agung & Rida (2020) Capital structure is increasingly important in determining the optimal combination of funding for investment needs that can increase firm value from profitability The study aims to examine the effect of capital structure on profitability of electricity companies in Southeast Asia The study used multiple regression model represented by pooled least square to calculate 48-panel data from the annual financial report during the time period of 2009-2016 We utilized short-term debt to total assets (STD), long-term debt to total assets (LTD), total debt to total assets (TD), and debt to equity ratio (DER)

as proxies of capital structure (independent variables) Operating income margin (OIM), return on asset (ROA), and return on equity (ROE) were the profitability proxies (dependent variables) Firm size and firm age were used as control variables in the study The results of this study indicate that STD and LTD have a negative relationship that consequently has significant effect on LTD and OIM Other than positive and negative relationships between the capital structure (TD and DER) and profitability, this study also finds that TD and DER have positive significant influence on OIM and ROE, but have negative insignificant relation with ROA Thus, it is necessary to optimize the capital structure by adjusting the target of capital structure that can provide a balance on the marginal cost and marginal benefit

Thus, there have been many previous studies on the influence of capital structure on corporate financial performance However, each study selected different variables and produced different research results due to the characteristics of the markets selected in the study In addition, different study time periods also affect the study data and produce different results

2.7 Proposed model

Through previous studies, the author proposes the following research model:

Chapter 3: Methodology

3.1 Research design

This research paper is designed according to the logical sequence of an academic text First, the author identifies the urgent problem of the related topic, from which, the research questions will be raised After that, a theoretical overview, including the theoretical framework and background related to the research problem will be presented The next part of this paper will be called the methodology section Therefore, the author will present how the research was conducted, as well as the method of data collection and analysis for this research content

Figure: Research design

With Data Analysis, the author will delve into the output analysis of data collected and processed through data analysis software such as Excel, SPSS From the results obtained, the author will conclude the findings and discuss the results Research questions will also be clarified in this presentation and recommendations will be made after the discussion The last part is the conclusion for the study In addition to summarizing the research content, this conclusion also provides limitations as well as implications for future studies

3.2 Research methodology

Quantitative research in this study aims to quantify the relationships between research factors; including: Liquidity, Leverage, Asset Utilization, Firm Size and Age to ROE and ROA of construction companies in Southeast Asia Quantitative research investigates the significance

of relationships through the analysis and quantification of the collected data; through mathematical statistical analysis tools Data sources were collected from current study participants through sampling methods, both online and in person

Samples for quantitative methods should have a high degree of objectivity and an efficient data investigation process that is consistent with the research objectives In which, the number

of survey samples is very large; It is possible that some observations are skewed in value and the effect is too large for the entire population The expected number of samples to be collected will be 400 construction enterprises at 4 stock exchanges in Southeast Asia The conclusions made by this method are mainly based on arithmetical factors from which to

Introduction (Significance of the

topic) Literature Review

Methodology

Data Analysis

Findings and Discussion

Conclusion

analyze the logical ability in the conclusion compared to objective reality The conclusions must ensure the necessary logic, statistical significance and unbiased in the observed sample The sample observed in the study was designed to be representative of the entire population Finally, the data orientation carried out in this study was mainly quantitative Quantitative research is a popular and widely applied method in the research world

3.3 Research process

The research process is not a linear one, in that the author does not need to complete step one before moving on to step two or step three At the same time, the author does not need to stop writing until all the references have been collected Therefore, the following research process should be considered as a guideline to follow as a work through the article The author can review the steps as many times as needed to create a finished product

Figure: Research process

First, the author decides on the topic, or looks closely at the topic assigned Second, the topic

is narrowed down to narrow the search parameters When an author decides on a topic, he usually starts out big and has to narrow his focus; the author moves from a general topic, to a more limited one, to a specific focus or problem the reader does not want to skim the subject; they want access to some new knowledge and deeper understanding of the subject matter For that, details are essential The third step is to do background research, or advance research Start by finding out what the author knows about the topic, then fill in any gaps the author may have about background knowledge by looking at more general sources Once the author knows the basics of the topic, start investigating that background information for potential sources of conflict There seems to be disagreement on specific aspects of the subject The author will then create a research question Once the author has narrowed down the topic to manageability, it's time to create research questions on the topic Create open-ended, thought-