(1)THE IMPACT OF FOREIGN OWNERSHIP ON CAPITAL STRUCTURE OF FIRMS LISTED ON HO CHI MINH STOCK EXCHANGE

HO CHI MINH CITY CAMPUS GRADUATION THESIS Major: International Finance THE IMPACT OF FOREIGN OWNERSHIP ON CAPITAL STRUCTURE OF FIRMS LISTED ON HO CHI MINH STOCK EXCHANGE Author: TRU

HO CHI MINH CITY CAMPUS

GRADUATION THESIS

Major: International Finance

THE IMPACT OF FOREIGN OWNERSHIP

ON CAPITAL STRUCTURE OF FIRMS LISTED ON HO CHI MINH STOCK

EXCHANGE

Author: TRUONG THI MINH NHAN Student ID: 1001036144

Class: K49CLC2 – C3 Supervisor: Tran Quoc Trung

Ho Chi Minh City, May 2014

List of abbreviation

List of tables and figures

INTRODUCTION 1

CHAPTER 1: LITERATURE REVIEW 4

1.1 Capital Structure 4

1.1.1 Relevant theories 4

1.2 Foreign ownership 15

1.2.1 Definition 14

1.2.2 Legal framework of foreign ownership in Vietnam 16

1.3 The impact of foreign ownership on capital structure 18

CHAPTER 2: THE IMPACT OF FOREIGN OWNERSHIP ON CAPITAL STRUCTURE OF FIRMS LISTED ON HO CHI MINH STOCK EXCHANGE 21

2.1 Research model 21

2.2 Variable description 24

2.3 Data collection 26

2.4 Research Findings 26

2.4.1 Descriptive statistics 26

2.4.2 Correlation analysis 28

2.4.3 The regression results 30

2.5 Discussion 33

CHAPTER 3: RECOMMENDATIONS FOR COMPANIES LISTED ON HOSE AND THE GOVERNMENT AND SUGGESTIONS FOR FURTHER RESEARCH 36

3.1 Recommendations for companies 36

3.1.1 Getting the optimal capital structure 36

3.1.2 Reducing the risk of bankruptcy 39

3.1.3 Improving corporate governance

3.2 Recommendations for the government and competent authorities 47

3.2.1 Attracting foreign investment into Vietnam Stock Market 47

3.4 Limitations and suggestions for advancement 57

CONCLUSION 59 REFERENCE

APPENDIX

No Abbreviation Explanation

Development

No Tables and Figure Page

1 Figure 1.1: The Modigliani and Miller theorem – Proposition I

2 Figure 1.2: The static trade off theory of capital structure 10

3 Table 1.1: Differences between the two main kinds of foreign

INTRODUCTION

1 The necessity for the study

In the world of increasing globalization, foreign investment is a trend for all companies over the world Being a strongly emerging developing economy, Vietnam has become an attractive market for investment inflows As a matter of fact, there has been a growing overseas cash flow into the country In recent years, foreign investment in the industrial sector in Vietnam has established the development and promoting economic growth In the few months between 2012 and early 2013, the total amount of foreign net purchase on the secondary market increased by nearly 20 times and the sector with overseas inflows owns the most dynamic growth rate Moreover, to be keep pace with the borderless trade as well as pave the way for foreign funds into domestic companies, Vietnam government has enacted The Law of Foreign Investment in Vietnam since 1987 Up to now, the law has been amended many times and the latest amendment is in the beginning of 2014

to extend the maximum rate of foreign ownership in domestic commercial bank From this, it is indicated that foreign investment not only contributes to the process

of integration with the world economy of Vietnam but also plays a very important role for our country's economy

In the other hand, most of the Vietnam enterprises previously are owned by the state and dependent on the funding from the government However, in the context of economic reform from the mid 80’s onwards, a number of enterprises were privatized and rapidly developed with the diversity in ownership structure such as private ownership, foreign ownership and joint-stock companies That is reflected by strong economic growth, the participation in the International Trade Organization (WTO) and the establishment of Vietnam stock exchange market in

2000 The prosperity of corporations depends greatly on the access to appropriate source of capital such as debt or equity, as well as determining the optimal capital structure Upon the advancement, Vietnam though is in lack of the diversity of financial channels and empirical researches which are consistent with the reality of capital structure so that they can support enterprises to make appropriate financing decisions

From the above reasons, it is essential to do an empirical research on the

impact of foreign ownership on capital structure in firms listed on Ho Chi Minh Stock Exchange

2 The research purposes

The purpose of this research is to study the impact of foreign ownership on the capital structure of firms listed on Ho Chi Minh Stock Exchange

3 The research object and scope

Object of the study: This study focuses on investigating the influence of foreign ownership over financial leverage Thus, the main objects of the study are rate of foreign ownership and leverage However, in order to reduce the bias of other factors on the leverage, we utilize four more variables which are hypothesized

to have relationship with leverage

Scope of the study: This study is conducted based on a panel data which is collected from 249 firms with foreign ownership listed on Ho Chi Minh Stock Exchange for the period from 2009 to 2013

4 The research methods

In order to achieve the objective of this study, the author has applied quantitative method approach Specifically, a panel data is created from the data of

249 public firms listed in HOSE covering the period from 2009 to 2013 which is collected from financial statements as well as the statistics of shareholders from a recognized website

A regression model is designed Both Pooled Ordinary Least Square and Panel data estimation method including fixed effects and random effects methods are applied with the support of Eviews software version 6.0 Then, Hausman testing is used to check the effectiveness between the two panel data methods

5 The structure of the research

Besides the introduction, conclusion and references, the main content of the research is structured with three chapters as follows:

Chapter 1: Literature review

Chapter 2: The impact of foreign ownership on capital structure of firms listed

on Ho Chi Minh Stock Exchange

Chapter 3: Recommendations for companies listed on HOSE and the Government and suggestions for further research

I would like to express my most sincere thanks to my supervisor, Master.Tran Quoc Trung, who wholeheartedly gave me useful pieces of advice and solutions to

my concerns over the period of my completion of this research Meanwhile, I would like to show my great gratitude to the lecturers at Foreign Trade University, Ho Chi Minh City Campus, who enthusiastically deliver the knowledge background and offer the opportunity to do this research

Due to the short duration for doing research and my limited ability, the research inevitably contains many shortcomings despite my every effort Therefore,

I would be greatly grateful if I could receive valuable comments from the supervisor and instructors for a better and more practical content

Ho Chi Minh City,10th May, 2014

Author

Truong Thi Minh Nhan

CHAPTER 1: LITERATURE REVIEW 1.1 Capital Structure

To maximize the shareholder’s value, each company has their own financing decision to choose between borrowing and equity In this very first section, it reviews the theories of capital structure as well as definition of foreign ownership employed in the study Also, the summary of relevant research on the effects of capital structure on capital structure is provided in the end of Chapter 1

1.1.1 Relevant theories

In general, there are many ways for a firm generating fund for its operation as well as business projects Concerning the source, financing activities are divided into internal funds and external channels

When the chief financial officer considers raising capital for company, the first source is internal source which comes from retained earnings That is profit after tax

of the corporation accumulated from year to year Thus, utilizing the available capital is advantageous because of its low cost The company does not bear the interest for creditors or pay out the dividend for shareholders

Regarding the external sources, borrowing and equity are two main ways for financing The former means loans from outside while the other refers to sell shares including common stocks or preferred stocks to get investment for the company However, each type of source has its own benefit and risk

As borrowing money, the company commits to pay an amount of interest periodically and make principle repayment at maturity However, the paid interest is tax deductible, resulting in lower cost of capital Lenders get their fixed return and have no additional income if the project is successful and money – making In other hand, there are some risks such as lower liquidity ratios and higher solvency indexes That is disadvantageous for the firm due to higher cost of borrowing In addition, the amount of borrowings is in priority to pay back in circumstance of bankruptcy

Notwithstanding, companies have limited liability It means that the promise

to repay the principle is not always kept If the firm is in deep water, it is allowed to default on debt and transfer their assets to the creditors

In addition, there exists a kind of debt that can be converted into equity called convertible bond A convertible bond provides its owner the option to change to a fixed number of shares When company’s share price increases significantly, the bond may be converted to get profit Conversely as the stock price falls, there is no obligation to turn the bond into equity Owing to that privilege the convertible bond

is sold at a higher price or enjoys a lower interest rate than ordinary ones

As a matter of fact, a company chooses to issue stocks for fundraising means selling its ownership Unlike debt, there are no principle and no interest while dividend is paid out according to corporate policy, business profitability and type of share Yet, paid dividend is not allowed to deduct from taxable income since it is calculated as an after tax payment

As known, the firm’s net worth is a sum of common stocks and preferred stocks Although preferred equity is considered to be less important than the other, there are certain particular situations in which it is a useful financing method such

as merging with other corporation Like debt, there is a predetermined payment of return regardless of the annual company bottom line and discretion of managers The company has rights not to pay the dividend but no dividend on common shares

is paid until that on preferred stocks is settled If the firm goes bankruptcy, the preferred stock holders take priority over the common share holder but queue after the lenders Moreover, it is not allowed to deduct dividends on preferred share from taxable income, which is one of the dominant deterrents for industrial companies to issue preferred (Brealey and Richard, 2001)

Other distinguishing character of preferred stock is limited voting rights This

is favorable method for company to do financing without distributing control with new stake holders

By and large, the combination between debt and equity that a company utilizes

to raise capital for their operation is capital structure The financial manager is responsible for mitigating the cost of capital and maximizing the value of company

by choosing a proper capital structure

However, principle–agent problem is worthy to consider The conflict interest between owners and managers often has impact on the financing decision Also, the

announcement of new share issued sends a bad signal to public about the profitability of business activities While borrowings and debt certificate issuance confirm the confidence in projects of company managers Besides high financial leverage is too risky because the great amount of interest payment will erode the bottom line This causes negative effect on financial situation of the company such

as liquidity, solvency and valuation ratios

The theory of the Modigliani and Miller’s (1958) “Irrelevance theory of capital structure” paved the way for other models of financial leverage of economists

Capital structure is the dominant controversies of scholars in modern corporate finance in the latter half of 20th century Up to now, there are four additional widely acknowledged theories, which are divergent from the assumption of perfect market applied by Modigliani and Miller The first is the trade-off theory which assumes that firms trade off the benefits and costs of debt and equity financing and find an

“optimal” capital structure after accounting for market imperfections such as taxes, bankruptcy costs and agency costs The second is the pecking order theory (Myers,

1984, Myers and Majluf, 1984) that argues that firms follow a financing hierarchy

to minimize the problem of information asymmetry between the firm’s insiders and the outsider’s shareholders

managers-In addition, in 1976, Jensen and Meckling developed a research about agency cost theory which has impact on corporate capital structure That explains the conflict interest of principle – agent resulting in the cost for firm to adjust the deviation between two parties including manager – equity holder and debt holder – share holder

Recently, Baker and Wurgler (2002) have suggested a new theory of capital structure: the “market timing theory of capital structure” This theory states that the current capital structure is the cumulative outcome of past attempts to time the equity market Market timing implies that firms issue new shares when they perceive they are overvalued and that firms repurchase own shares when they consider these to be undervalued Market timing issuing behavior has been well established empirically by others already, but Baker and Wurgler show that the

influence of market timing on capital structure is highly persistent

1.1.1.1 The Modigliani and Miller theory

The theory of modern corporate finance is pioneered with the Modigliani and Miller (1958) capital structure irrelevance proposition Before them, no theory of capital structure is generally acknowledged Modigliani and Miller initially hold the assumptions as followings

- Capital markets are perfectly competitive

- Investors have homogeneous expectation

- Riskless borrowing and lending

- No agency cost

- Investment decisions are unaffected by financing decisions

Modigliani and Miller (MM) theory includes the proposition I which proves the value of the firm is unaffected by its capital structure and the proposition II which explains the cost of equity increases linearly as a company increases its proportion of debt financing Both propositions are assumed to be excluded from taxes

Figure 1.1: The Modigliani and Miller theorem – Proposition I and II

(Source: Modigliani and Miller, 1958)

Their paper led subsequently to both clarity and controversy As a matter of theory, capital structure irrelevance can be proved under a set of restrictive assumptions

The 1958 paper stimulated serious research committed to relaxing the irrelevance as a matter of theory or as an empirical matter This research has shown that the Modigliani-Miller theorem fails under various circumstances The most commonly used elements are taxes, transaction costs, bankruptcy costs, agency conflicts, adverse selection, lack of separability between financing and operations, time-varying financial market opportunities, and investor clientele effects Alternative models employ other factors from this list Given the variety in ingredients, it is not surprising that many different theories have been proposed It is beyond the scope of this paper to cover all of these

As an empirical proposition, it is not easy to test the Modigliani-Miller irrelevance proposition With debt and firm value both plausibly endogenous and motivated by other factors such as profits, collateral, and growth opportunities, we cannot establish a testing model by regressing value on debt But the fact that fairly reliable empirical relations between a number of factors and corporate leverage exist, while not disproving the theory, does make it seem an unlikely characterization of how real businesses are financed

“While the Modigliani-Miller theorem does not provide a realistic description

of how firms finance their operations, it provides a means of finding reasons why financing may matter.” This argument provides a proper explanation of much of the theory of corporate finance Accordingly, it made such great impact on the initial development of both the trade-off theory and the pecking order theory

1.1.1.2 The trade off theory

The term trade-off theory is used by different authors to describe a family of related theories In all of these theories, a decision maker running a firm evaluates the various costs and benefits of alternative leverage plans Often it is assumed that

an interior solution is obtained so that marginal costs and marginal benefits are balanced

The original version of the trade-off theory grew out of the debate over the

Modigliani-Miller theorem When corporate income tax was added to the original irrelevance, this created a benefit for debt in that it served to shield earnings from taxes Since the firm's objective function is linear, and there is no offsetting cost of debt, this implied 100% debt financing

Several aspects of Myers' definition of the trade-off merit discussion First, the target is not directly observable It may be imputed from evidence, but that depends

on adding a structure Different papers add that structure in different ways Second, the tax code is much more complex than that assumed by the theory Depending on which features of the tax code are included, different conclusions regarding the target can be reached

Third, bankruptcy costs must be deadweight costs rather than transfers from one claimant to another The nature of these costs is important too Fourth, transaction costs must take a specific form for the analysis to work For the adjustment to be gradual rather than abrupt, the marginal cost of adjusting must increase when the adjustment is larger

This theory explains why the company with best business performance has the lowest debt indicators The firm makes less profit will be less funded from internal capital and has to participate in the loans In the long term, the value of the company lies in the investment decision and its activities As it is better to be the first option of pecking order, the company always tries to maintain financial slack, For example, the availability of financial resources (cash, liquid securities and other assets, and the ability to borrow) is ready to make investment strategies, although maintaining a conservative fiscal policy can make the conflict of interest between principal and agent more serious

When accumulated retained earnings are invested to opportunities which are not really good , the BOD may take detrimental actions to the interests of the owners and bringing particular benefits for themselves A typical example is the board of directors may use surplus funds to implement the non- acquisition - merger which does not bring value to the company, aiming to increase power and their paychecks Or the board might spend a wasteful or inefficient cumulative value of the owner Michael Jensen (1986) emphasizes : "The problem is how to pay for the

board of directors instead of the lower capital cost investment or squandered them

in the inefficient operation "

Conversely, capital structure employs a lot of debt, with fixed interest payment and principal repayment putting pressure on the management of BOD

in more effective way than the company's cash flow That helps regulate the BOD avoiding risky investment, improving in its performance and minimizing conflicts

of interest between managers and shareowners

Static trade-off theory

The static trade-off theory affirms that firms have optimal capital structures, which they determine by trading off the costs against the benefits of the use of debt and equity One of the benefits of the use of debt is the advantage of a debt tax shield One of the disadvantages of debt is the cost of potential financial distress, especially when the firm relies on too much debt

Already, this leads to a trade-off between the tax shield and the higher risk of financial distress But there are more cost and benefits involved with the use of debt and equity

Figure 1.2: The static trade off theory of capital structure

(Source: The capital structure puzzle, Myers, 1984)

One other major cost factor consists of agency costs Agency costs stem from conflicts of interest between the different stakeholders of the firm and because of

ex-post asymmetric information (Jensen and Meckling (1976) and Jensen (1986)) Hence, incorporating agency costs into the static trade-off theory means that a firm determines its capital structure by trading off the tax advantage of debt against the costs of financial distress of too much debt and the agency costs of debt against the agency cost of equity Many other cost factors have been suggested under the trade-off theory, and it would lead to far to discuss them all Therefore, this discussion ends with the assertion that an important prediction of the static trade-off theory is that firms target their capital structures, i.e if the actual leverage ratio deviates from the optimal one, the firm will adapt its financing behavior in a way that brings the leverage ratio back to the optimal level

- The Dynamic Trade-off Theory

Constructing models that recognize the role of time requires specifying a number of aspects that are typically ignored in a single-period model Of particular importance are the roles of expectations and adjustment costs In a dynamic model, the correct financing decision typically depends on the financing margin that the firm anticipates in the next period Some firms expect to pay out funds in the next period, while others expect to raise funds If funds are to be raised, they may take the form of debt or equity More generally, a firm undertakes a combination of these actions

An important precursor to modern dynamic trade-off theories was Stiglitz (1973), who examines the effects of taxation from a public finance perspective Stiglitz's model is not a trade-off theory since he took the drastic step of assuming away uncertainty Since firms react to adverse shocks immediately by rebalancing costlessly, firms maintain high levels of debt to take advantage of the tax savings Dynamic trade-off models can also be used to consider the option values embedded in deferring leverage decisions to the next period Goldstein et al (2001) observe that a firm with low leverage today has the subsequent option to increase leverage Under their assumptions, the option to increase leverage in the future serves to reduce the otherwise optimal level of leverage today Again, if firms optimally finance in periodical manner because of transaction costs, then the debt ratios of most firms will deviate from the optimum nearly all the time In the model,

the firm's leverage responds less to short-run equity fluctuations and more to run value changes

long-Certain ideas are fairly general in dynamic models The optimal financial choice today depends on what is expected to be optimal in the next period In the next period, it may be optimal to raise funds or to pay them out If raising new funds, it might be optimal to raise them in the form of debt or in the form of equity

In each case, what is expected to be optimal in the next period will help to pin down the relevant comparison for the firm in the current period

1.1.1.3 The pecking order theory

The pecking order theory does not take an optimal capital structure as a starting point, but instead asserts the empirical fact that firms show a distinct preference for using internal finance (as retained earnings or excess liquid assets) over external financing choice If internal funds are not enough to finance investment opportunities, firms may or may not acquire external financing, and if they do, they will choose among the different external finance sources in such a way

as to minimize additional costs of asymmetric information The resulting pecking order of financing is as follows: internally generated funds first, followed by respectively low-risk debt financing and equity financing

In Myers and Majluf model (1984), outside investors rationally discount the firm's stock price when managers issue equity instead of riskless debt To avoid this discount, managers avoid equity whenever possible The Myers and Majluf model predicts that managers will follow a pecking order, prioritizing using internal funds, then relying on risky debt, and finally resorting to equity In the absence of investment opportunities, firms retain profits and build up financial slack to avoid having to raise external finance in the future

The pecking order theory regards the market-to-book ratio as a measure of investment opportunities With this interpretation in mind, both Myers (1984) and Fama and French (2000) note that a contemporaneous relationship between the market-to-book ratio and capital structure is difficult to reconcile with the static pecking order model To the extent that high past market-to-book actually coincides with high past investment, however, results suggest that such periods tend to push

leverage lower

Empirical evidence supports both the pecking order and the trade-off theory Empirical tests to see whether the pecking order or the trade-off theory is a better predictor of observed capital structures find support for both theories of capital structure (Shyam -Sunder and Myers, 1999; Fama and French, 2002)

1.1.1.4 The agency cost of theory

An additional study on capital structure is the agency cost theory created by Jensen and Meckling (1976) They came up with a new explanation which is deviated from the M& M assumption Agency costs are the costs associated with the separation of owners and management Managers do not have ownership in the company so they are less likely to act at the shareholders’ best interest but their own well-being As being aware of the risk, stake holders take actions to alleviate the costs The appearance of a mechanism to address the difference in interest caused the agency cost There are three components of agency costs:

- Monitoring costs by the principle are the expense incurred to supervise the performance of managers as well as make reports to stake holders and pay salary to board of directors

- Bonding costs by the agent are the expense incurred by management to ensure the managers are acting at shareholder’s best interest

- Residual loss occurred as a loss of owners’ well-being due to a divergence in the agent’s decision

In the research, it is implied that strong corporate governance will reduce the agency cost and agency costs increase the cost of equity and reduce the value of the firm Also, it is suggested that the higher the use of debt relative to equity, the greater the monitoring cost of the firm and, therefore, the lower the cost of equity Apart from the divergent interest between manager and shareholder, the agent principle problem is also about the conflict of benefit between debt holders and equity holders

1.1.1.5 The market timing theory

The market timing theory of capital structure argues that companies time their equity issues in the sense that they issue new stock when the stock price is

perceived to be overvalued, and buy back its own shares when there is undervaluation Consequently, fluctuations in stock prices affect firm’s capital structures There are two versions of equity market timing that lead to similar capital structure dynamics

The first assumes economic agents to be rational Companies are assumed to issue equity directly after positive information publishing which reduces the information asymmetry problem between the firm’s management and stockholders The decrease in information asymmetry coincides with an increase in the stock price In response, companies create their own timing opportunities

The second theory assumes the economic agents to be irrational (Baker and Wurgler, 2002) Due to irrational behavior 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 require 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 admitted 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

1.2 Foreign ownership

1.2.1 Definition

Foreign ownership refers to the complete or partial ownership/control of a business in a country by individuals who are not citizens of that country, or by companies whose headquarters are not in that country

According to Clause 5 Article 3 of Investment Law 2005, foreign investors are organizations and individuals to do capital investment in Vietnam

Foreign investment in Vietnam is classified into two main types including foreign direct investment (FDI) and foreign indirect investment (FII) Based on Clause 2 Article 3 of Investment Law 2005, FDI is a form of investment in which investors provide capital and participate in the management of investment activities While FII is form of investment through the purchase of shares, stocks, bonds and other valuable papers, securities and investment funds through financial institutions

in which intermediate investors are not directly involved in the management of investment activities

Table 1.1: Differences between the two main kinds of foreign investment

FDI FII

Form of capital

investment

Capital contribution Loans

Purchase of stocks, bonds and valuable papers Via the investment funds Via the intermediary financial institutions

Form of

management

Direct involvement in investing activities

Indirect involvement in activities

(Source: Compiled by the author)

The forms of foreign indirect investment into Vietnam in accordance with Circular 05/2014/TT-NHNN are as follows:

- Capital contribution, purchase and sale of shares, share capital in Vietnam now which are unlisted and unregistered for trading on Vietnam's stock market and not directly involved in managing and operating business

- Capital contribution, purchase and selling shares of Vietnam enterprises in

Unlisted Public Company Market (UPCOM) as well as public stock market and not directly involved in managing and operating business

- Purchase and sales of bonds and other securities on the stock market in Vietnam

Purchase and sell other valuable papers in Vietnam dong by resident institutional entities which are allowed to issue on the territory of Vietnam

- Trust investment in Vietnam dong through fund management companies, securities companies and organizations which are permitted to engage in the investment trust under the provisions of the securities laws; investment trusts

in Vietnam dong through credit institutions and branches of foreign banks which are allowed to engage in the investment trust under the provisions of the State Bank

- Contribution of capital, capital transfer of foreign investors (not directly involved in the management) in securities investment funds and fund management companies under the provisions of the securities laws

- The indirect investment forms prescribed by law

1.2.2 Legal framework of foreign ownership in Vietnam

1.2.2.1 Requirement for foreign entities to contribute capital and buy stocks in Vietnam

- Foreign investor as organization

 Having an account opened at a commercial bank in Vietnam All purchases and sale of shares, capital transfer, collection and use of dividends, profit sharing, transferring money overseas and other activities related to business investment in Vietnam is conducted via this account

 Providing copies of the business registration certificate or other equivalent document to prove the legal status, certified by the competent authority of the country where the organization has been registered;

 Other conditions stipulated in the charter of the company that foreign investors contribute capital and purchase shares in compliance with the provisions of law

- Foreign organization as individual

 Having personal accounts opened at commercial banks in Vietnam All purchases and sale of shares, capital transfer, collection and use of dividends, profit sharing, transferring money overseas and other activities related to business investment in Vietnam is via this account

 Providing copy of a valid passport

 Other conditions stipulated in the charter of the company that foreign investors contribute capital and purchase shares in compliance with the provisions of law

1.2.2.2 Forms of capital contribution and stock purchase

- Capital contribution

 Foreign investors purchase the shares of a member of a limited liability company, contributing capital to limited liability company to become a new member of a limited liability company with two or more members or purchasing the entire charter capital of the owner of a limited liability company in order to become a new owner of a limited liability company member

 Foreign investors repurchase the shares of the limited partners in a partnership or making capital contribution to the partnership to become members of the new capital contribution

 Foreign investors as individuals purchase the shares of the partner in a partnership or making capital contribution to the partnership to become a new partner upon the approval of the members other partnerships

 Foreign investor acquires stake of private business owners or contribute capital together with business owners to convert private businesses into private limited liability company with two members or more and become member of a limited liability company with two members or more

 Foreign investors purchase shares in case where credit institutions transform the legal form into joint-stock credit institutions

1.2.2.3 Regulations on the proportion of capital contribution and stock ownership of foreign entities in Vietnam

Based on Article 7 of Decree on Foreign Investors' Purchase of Shares of Vietnamese Credit Institutions dated 01 March 2014, the shareholding percentage of foreign investors is regulated as follows:

 Shareholding percentage of a foreign individual shall not exceed 5% of charter capital of a Vietnamese credit institution

 Shareholding percentage of a foreign organization shall not exceed 15% of charter capital of a Vietnamese credit institution

 Shareholding percentage of a foreign strategic investor shall not exceed 20% of charter capital of a Vietnamese credit institution

 Shareholding percentage of a foreign investor and the concerned persons of such foreign investor shall not exceed 20% of charter capital of a Vietnamese credit institution

 Total shareholding level of foreign investors shall not exceed 30% of charter capital of a Vietnamese commercial bank Total shareholding level

of foreign investors at a Vietnamese non-banking credit institution shall comply with legislation applicable to public companies and listing companies

 Shareholding percentage of a foreign investor in a company other than credit institution shall not exceed 49% of charter capital

1.3 The impact of foreign ownership on capital structure

There are numerous researches on the influence of ownership over the choice

of capital structure with the different findings In this section, a review on the prior studies is classified based on the results

According to most previous studies, foreign ownership has a negative impact

on the leverage ratio of the company One of the typical studies that support this notion is the study of Li et al (2009) conducted in Chinese companies which are not listed on stock exchanges The author found that foreign ownership is strongly and

negatively associated with large firms’ access to long-term debt, while the effect of foreign ownership on small firms’ access to long-term debt is much smaller This suggests that small firms’ benefit from foreign ownership in their access to long-term debt The research paper of Huang et al (2011) also studied the same issue in China between 2002 and 2005 and achieved the same result with that of Li et al (2009)

Gürsoy Gurunlu (2010) argued that enterprises with high level of foreign ownership employ more borrowings than stocks because foreign investors help them approach to new cheaper loans As examining the impact of foreign investors

on the capital structure by using regression analysis with the data of non-financial companies on the Istanbul Stock Exchange from 2007 to 2008, Gürsoy Gurunlu (2010) concluded that foreign ownership makes significantly negative impact on the long -term financial leverage Because the companies often have enough internal generated funds rather go into more debt for capital expenditure

In contrary, as measuring the relationship of business in Australia in

2001-2009, Mishra (2012) concluded that foreign ownership has a positive correlation to the financial leverage of the business This seems contrary to the original predictions Authors suggest that firms with high leverage are less likely to attract investors because leverage is often used to measure the financial distressing Investors generally prefer to invest in enterprise with high market book as the stock with high market book value are often less risky Additionally, Hussain and Nivorozhkin (1997) reported the negative influence of overseas ownership on leverage ratio, which is same as the findings of Kocenda and Svejnar (2002) and Egger et al.(2010)

Meanwhile, Zou and Xiao (2006) and Huang and Song (2010) disagreed on the above assumption and found the fact that foreign ownership has no significant impact on the capital structure More specifically, Zou and Xiao (2006) believed that in emerging markets, foreign investors often face to the problem of asymmetric information more than those in other countries Therefore, it is inclined that foreign investors invest more capital in businesses using more debts than equity Also, in a study of ownership structures, capital structures and firm performance – an

implication on privatization of Vietnamese state–owned enterprises, the author pointed out that the capital structures are not correlation with ownership structure Furthermore, it is inferred that the correlation between leverage and the ratio of Dominant Outsider Ownership and Dominant Foreign Ownership actually reflects the relationship in which profitability is a mediator In the same issue, the study of P.D.Nam and L.T.P.Vy (2013) provides the positive relationship of foreign ownership and leverage ratio of Vietnamese listed companies The authors realized the foreign investors in Vietnam are prone to information asymmetry and tend to employ more debts for controlling agency problem

In greater involvement of the international activities and cost of debt financing, Singh and Neiadmalayeri (2004) found that internationalization leads to higher long term debt ratio and lower cost of capital That idea is supported by other authors Agmon and Lessard (1977), Fatemi (1984) and David M Reeb, Sattar A Mansi, John M Allee (2001) In the other side, the positive linear relation between level of internalization and cost of debt, considered as a barrier for firms to lever up (Mansi and Reeb, 2002) This result is in line with Lee and Kwok (1998)

To sum up, the empirical researches lead to different results about the relationship between foreign ownership and the ratio of debt employed in the enterprise In an emerging market like Vietnam, the overseas ownership is expected

to lower the leverage ratio in this study

In conclusion, this chapter presents five theories of capital structure beginning with M&M theory as a pioneer Following researches on financial leverage are pecking order theory, static and dynamic trade- off theory, market timing and agency cost theory

Then, the definition of foreign ownership in Vietnam is provided together with legislation for foreign investors which is newly amended in 2014 in next section Finally, the last part is a summary of previous studies on the impact of foreign ownership on capital and a theoretical prediction before analysis in Chapter 2

CHAPTER 2: THE IMPACT OF FOREIGN OWNERSHIP ON CAPITAL STRUCTURE OF FIRMS LISTED ON HO CHI MINH STOCK EXCHANGE

The former chapter provides a theoretical framework of capital structure and foreign ownership and empirical preceding studies on the relationship between two factors In this chapter, the impact of foreign ownership on corporate leverage in firms listed HOSE is analyzed in terms of quantitative method

There are four main sections in Chapter 2 Specifically, research model used in the study is presented in the first section 2.1 The next part 2.2 is to give a description of variables in the regression model Then, section 2.3 reviews the data collection Last but not least, research findings in section 2.4 focus on the descriptive statistics of collected data as well as regression analysis by three quantitative models And then result interpretation is presented in the last part of

section 2.4 before the chapter conclusion

2.1 Research model

As a procedure for the research, a detailed model is designed before collecting the available secondary data Descriptive statistics and regression analysis are utilized to figure out the influence of foreign ownership over capital structure in public companies in the period from 2009 to 2013 with the support of Eviews software version 6.0

Though the leverage ratio are regressed on the allocation of equity ownership for overseas entities, it should be employed some extraneous variables in so as to control the biased influence of other factors over capital structure As claimed in many studies on the determinants of capital structure, the additional explanatory variables are profitability, growth opportunities, tangibility and effective tax rate Descriptive statistics resulted from processed variables provides a general view of data including mean, maximum, minimum, average, sum and standard deviation Then, a table of correlation among variables is presented before running regression model

By and large, linear regression is applied to investigate how dependent variable changes if one explanatory variable varies for ceteris paribus assumption The general equation in linear regression is illustrated below

Y = β 0 + β 1 X i + ε i

The preceding studies provide various results of relationship between foreign ownership and financial leverage ratio In the Vietnam market, the use of debt increases the cost of financial distressing, we expect foreign investors to motivate the use of less debt and focus on equity, the study assumes that:

Hypothesis: There is an inverse relationship between foreign ownership and financial leverage in enterprises listed in Ho Chi Minh Stock Exchange

The full regression model for the empirical investigation in estimating the impact of foreign ownership on capital structure is given as follows:

LEV= β 0 + β 1 FO + β 2 ROA + β 3 GRO + β 4 TAX + β 5 TAN + ε

Where:

LEV: Leverage

ROA: Profitability

TAN: Tangibility

FO: Foreign Ownership

TAX: Tax rate

GRO: Growth opportunities

β0, β1, β2, β3, β4 and β5 are the coefficients of firm – specific variables

ε is error term

The data used for empirical study is formatted in the structure of panel data (multi-dimensional data array), containing observations and time series of the number of objects (the variables) This allows us to investigate the change of the variables in term of time period Panel data is the most effective when it is uncertain whether there is correlation among independent variables or not The panel data has many advantages compared with pooled data, integrating more information and partially overcomes the multi-co linearity problem

In the analysis of panel data, it is common to use two basic models: fixed effects model (FEM - fixed effects model) and random effects model (REM – Random effects models) - Kurt S (2012)

Fixed effects model (Least Square Dummy Variables)

This model holds the assumption that each individual’s intercept are time

invariant despite the difference in intercept across individuals The advantage of FEM is that it allows the individual specific effects are correlated with the independent variables However, FEM has some drawbacks such as:

- The number of unknown parameters increases with the number of sample observations

- The fixed effects estimator does not allow the estimation of the coefficients that are time-invariant

- Multicollinearity will probably happen if there are many variables in the model That might make it difficult to get precise estimation of one or more parameters

- Some problems with the error term

Random effects model (Error Components Model)

REM assumes that individual specific effects are uncorrelated with the independent variables The benefits of REM are:

- The number of parameters remains constant when sample size increases

- The derivation of efficient estimators that make use of both within and between (group) variations is applied

- It allows the estimation of the impact of time-invariant variables

In this study, we conducted the data processing by three estimation methods, which are Pooled OLS regression, fixed effects and random effects model to find out the relationship between the variables Of three methods, Pooled OLS often estimates the coefficients from the observations in regardless of the structure of data panel so the standard error of this method is usually not correct and the test (t-, F-, z-, Wald-) based on it has little confidence The standard error can be estimated by cluster-robust methods As a result, the ratios not only are skewed but also contradict each other because the variables ignored can be correlated with the other regresses Thus, it is more significant to apply the two latter methods in the test

Hausman Testing

The Hausman specification test compares the fixed versus random effects under the null hypothesis that the individual effects are uncorrelated with the other regressors in the model (Hausman 1978)

The basic difference between fixed effect and random effect model is fixed effects model is not assumed that there is no correlation between the variables, whereas the random effect assumed no correlation between the variables Fixed effect model using dummy variables, so it can significantly reduce the degrees of freedom and random effects model may be preferable However, in the case of correlated variables, the random effects model assumptions were not met, then the model will give biased estimates

To conduct the Hausman test, we have the hypothesis:

H0: The control variables and the explanatory variables are not correlated

The value is calculated:

W= (βFE – βRE)’[Var(βFE) – Var(βRE)]-1(βFE – βRE)

Where:

βFE: Vector of estimated coefficients of Fixed Effects Model

βRE: Vector of estimated coefficients of Random Effects Model

Var: The correlation matrix of estimated coefficients from two models

After testing, based on p-value, we come to conclusion whether the variables are correlated or not and which model is more appropriate

2.2 Variable description

The experimentation is conducted by dependent and independent variables The former is what the author predicts while the independent variables are used to make prediction

- Dependent variable

In the research, the capital structure is regarded as a dependent variable Corporate capital structure is the way companies do financing for their operation as well as asset purchasing by choice of borrowings and share capital (Broune and partners, 2006) Leverage is an indicator of capital structure, calculated by different formulas such as long term debts over total assets or short term debts divided by total assets In the scope of this model, the ratio of total debt to total asset is utilized

to perform how much borrowing is financed in corporate capital The total debt equals to the combination of short term and long term liabilities

𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 = 𝑇𝑜𝑡𝑎𝑙 𝑑𝑒𝑏𝑡

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

in regression model in this study ROA reflects how effectively the firm can produce profit from the assets and is computerized as follows

Regarding the prior studies, there exist different findings on the relationship between profitability and the level of debt in capital structure The pecking order theory explains the priority of using internal generated funds towards external borrowing because of the signaling to investors and the public as well as information asymmetry That indicates the inverse relation between profitability and leverage However, the idea of positive correlation between those two factors is proposed by many scholars (Jensen and Meckling, 1976; Myers, 1977; Harris and Raviv, 1990) One of them argues that if the effectiveness of corporate control enhances which forces firms to give cash out by borrowings leading to a positive correlation between profitability and leverage

investments with new equity capital (Magaritis and Psillaki, 2008)

from 2009 to 2013 witnessed the downward trend in Vietnam economy and turmoil

in stock exchange in particular In 5 year duration, Vietnam economy has been in progress to attract the attention from worldwide investors Thus, a research carried out on this period is needed to test the variation of factors

The data collection includes 245 firms which are partial owned by overseas investors Information is summarized from some widely-recognized websites of security firms in Vietnam including www.cophieu68.com.vn, www.tvsi.com.vn and www.fpts.com.vn

We further impose the following selection criteria:

- The firm is listed on only Ho Chi Minh Stock Exchange

- Firm has all available data for the variables used and in the specified period The indices are calculated after collecting the raw information in the audited financial statements and the report of foreign transactions The processed data is organized in panel data format containing all the cross-sectional and time series observations That is appropriate to deal with unobserved heterogeneity problem that often occurs in cross sectional data processing

2.4 Research findings

2.4.1 Descriptive Statistics

The descriptive statistics of six variables is demonstrated in Table 2.1 The sample of 245 companies listed on Ho Chi Minh Stock Exchange covers the period from 2009 to 2013 so there are 1225 observations in the sample The table presents the description of data including sum, minimum, maximum, mean and standard deviation

As can be seen from the table 2.1, the leverage ratio of firms listed on HOSE has the mean value of 0.5036 This points out that there are around 50.36 percent of total assets coming from borrowings and less than 49.64 percent from equity source Thus, it can be concluded that the company receiving overseas investment tends to use roughly the same debts as equity to finance for their activities in the 5 year period Leverage is ranged between the minimum of 0.0320 and the maximum of 0.966 with the standard deviation of 0.2105

The amount of shares owned by overseas investors is averagely 11.65%

relative to the total shares in circulation In additional, the foreign ownership lies in the range from 0.00% to 49.01%, which is in compliance with the government legislation of foreign investment

Table 2.1: Descriptive Statistics LEV FO GRO ROA TAN TAX Mean 0.5036 0.1165 0.4606 0.0774 0.2694 0.2067

(Source: Eviews output from data of sample companies)

Regarding the profitability of firms represented by ROA, the return on assets ratios has mean value of 7.74%, indicating that the companies made 7.74 percent of net income before interest and tax on total assets Besides, the profitability indicator

is from -31.72% to 95.21% with the standard deviation of 9.09% It can be implied that there is a wide variation in profit among companies in HOSE While some corporations can make a high return up to 95.21% others is in loss position in years The growth in revenues indicating how much sales increased in a year comparing to prior year, is from 22865.76 to -98.35 with the mean of 46.06 However there is a great dispersion in growth with the standard deviation of 6.66

To measure the tangibility of firms, the ratio of fixed assets relative to total assets is applied because fixed assets can be used as collateral in borrowing In case

of default, the lenders take the fixed assets instead of the principle The higher the tangibility is, the more money the firm can borrow and the more motivation to use debt as financing In the summary of descriptive statistics, this ratio has a mean value of 26.94% Moreover, the ratio of tangible assets is ranged between 0% and 97% with a standard deviation of about 21.38% indicating that the fixed assets out

of the total assets are dispersed widely upon the companies

The last variable in the regression model is tax rate, which is calculated by the ratio of tax relative to pretax net income Tax rate has the average value of 20.67% This means a company has to bear the tax rate of nearly 21% that is adjacent to the corporate tax rate regulated by the government until 2013 However, there exist extreme cases including the maximum of 292% and the minimum of -4.9% Firms vary significantly in annual effective tax rate with the standard deviation of 18.56%

In short, it is easily recognized that there has been such a great standard deviation in all factors That reveals the discrepancy in companies listed in Ho Chi Minh Stock Exchange

-0.0416(-1.4575)

0.0041 (0.1423)

The below table provides the information of correlation among variables which is processed by Eviews software 6.0 The coefficients among variables are revealed together with the significant level denoted by mark * and the t-statistics

value in the brackets Considering the relationship between the dependant and explanatory variables, foreign ownership, growth, ROA, tangibility are negatively correlated with the ratio of financial leverage in companies while tax is positively related to leverage

Based on pecking order theory, there must be an inverse relationship between leverage and profitability The correlation coefficient of -0.4762 is an expected result, revealing the consistency with the theory The more profitable a company is, the more potential to raise funds from retained earnings Likewise, the finding of negative correlation coefficient, namely -0.0259 between growth and leverage is consistent with trade – off theory A firm with future growth opportunities regarded

as intangible assets tends to use less debts because growth opportunities cannot be used as a security for a borrowing (Myers, 1977)

According to the stated hypothesis, there is an inverse relationship between foreign ownership and financial leverage The result of negative coefficient, -0.2062

is as same as expected

Besides, tax rate is inversely correlated with financial leverage In spite of being inconsistent with trade off theory, this finding is rational A higher tax rate motives the enterprise to use more debts because interest payment is tax deductible leading to less tax obligation

Besides, the correlation matrix presents the relationship among variables The relatively absolute value of correlation coefficients indicates no autocorrelation among independent variables Also, there is no signal of multicollinearity – two or more predictor variables are highly correlated Hence, it is possible to use these six factors in the regression model

2.4.3 The regression results

Although pooled OLS regression analysis shows result with significance level

of 1% but cannot explain the problems of endogeneity such as the unobserved heterogeneity, measurement error, simultaneity and so on Furthermore, endogeneity frequently occurs as analyzing the financial sector so we should conduct another analysis to provide the more significant results and overcoming the disadvantages of OLS analysis The method of panel data is utilized in the study As

stated above, with the source of the collected data, panel data provides more significant results and helping control the unobserved heterogeneity (Baltagi, 2005) Regression with panel data also helps to control the unobserved variables which are

of time-invariance Thus, two panel data models, namely fixed and random effects are used to monitor the unobserved effects and the statistical errors in measurement

Table 2.4: Regression result Dependent variable: Leverage Independent

variable Pooled OLS REM FEM

0.0204 (0.6677)

***

(17.5501)

-0.0073 (-0.5203)

-0.0117 (-0.8277)

According to the regression results in table 2.3, the correlation coefficient between FO and LEV is -0.1832 with a significance level of 1% regarding using OLS regression However, from the limitations of Pooled OLS method, we apply the panel data least square by testing the FEM and REM The results remained negative at the significance level of 1% and 10% respectively In addition, the R2 of FEM is 89.95% whereas that of REM is 11.3% According to the result of the Hausman test (p-value = 0.00 < 0.05), we conclude the fixed effects model is more appropriate than random effect model That means the proportion of foreign

ownership increasing by 1% will make the long term debt relative to the total assets decreases by 7.15% This finding is consistent with the expectation “There is an inverse relationship between foreign ownership and financial leverage in enterprises

listed in Ho Chi Minh Stock Exchange”

Moreover, the GRO variable is also significant at a high level of 1% when running the pooled OLS with the negative correlation coefficient However, at the significance level of 5%, the growth opportunity is positively correlated with the leverage in random and fixed effects models

Regarding the profitability symbolized by ROA ratio, at the significance level

of 1%, the ROA has negative relationship with the percentage of long term liabilities employed in the firm albeit different coefficient values in three models This is consistent with the pecking order theory In spite of an inverse correlation with the leverage ratio, effective tax rate variables and tangibility show insignificant coefficient

2.5 Discussion

Holding other explanatory variables constant, the increase of foreign ownership decreases the leverage ratio The outcome of the experiment proves that the foreign ownership has negative impact on the level of debt in capital structure The more shares undertaken by overseas investors, the less borrowing in capital structure is utilized This result supports the assumption that internationalization leads to higher agency costs and lower level of debt (Lee and Kwok, 1998) The finding is also consistent with the explanation presented by Gurunlu and Gursoy (2010) who argue that firms attracting foreign capital acquire sufficient internal funds and are averse toward more external financing to support their investment projects and Li et al (2009) who explains lower corporate taxes associated with foreign ownership lead to lower leverage, consistent with the trade-off theory Initially, the foreign investors tend to pour money into the large companies or those that remain a low leverage ratio Being highly leveraged is rather risky and it is likely that the firm cannot pay off the principle amount As a consequence, shareholders are who are in disadvantageous position because their capital turned into the assets will be deteriorated and collected by the lenders Besides, a high rate

of borrowing results in a huge amount of interest payment This reduces the net income which is partly distributed to the stakeholders as well as the retained earnings, which affects negatively the company position in the market That is the mechanism how the leverage ratio influences the choice of foreign investors

Besides, as a newcomer in Vietnam, foreigners are cautious and always keep

an eye on company as a shareholder despite being as majority or minority members They prefer the company to use the internally generated funds rather than external financing channels because of lower cost of capital The firms with low debt and high profitability attracting the overseas shareholders often rely on their self sufficient fund, known as retained earnings for capitalizing their projects Moreover, while the debt securities market in nation has not yet developed completely, the enterprises have no choice apart from bank loans In an emerging economy like Vietnam, potential risks in banking sector, the default risk, transaction costs as well

as inefficient legal system have accelerated the cost of borrowings Another choice

is to issue more stocks for capital so the ownership concentration is dispersed and the investors will be less powerful in companies or have to pay more to maintain the desired level of ownership

In the opinion of Magaritis and Psillaki (2001), the relationship between ownership structure and capital structure is of great importance as it underpins the the linkage between corporate governance and firm performance As the foreign shareholding is concentrated, the foreign investors will activate their monitoring roles in companies, improving the firm performance (P.D.Nam and H.T.P.Thao, 2013) When the CFO decides to go into debts, there exist some specified risks to shareholders Therefore, the foreign investors with controlling rights will strictly control the leverage ratio of the enterprise by many ways such as restrictive covenants for bond issuance, setting the ceiling percentage for bank borrowings and

so on The participation of institutional and individual overseas investors in the enterprise ownership will enhance the corporate governance, which set off the increasing agency cost due to asymmetric information Thus, the firms do not need

to rely on levering up to mitigate the interest conflict between principle and agent From this, it is less likely for the manager to take on more debts and it indicates a

linear decrease in debt employed as the foreign capital into the company goes up The negative relationship between profitability and the ratio of debts relative

to total assets is consistent with the pecking order theory and other prior studies including Myers and Majluf (1984); Rajan and Zingales (1995); Myers (2001); Qureshi and Azid (2006); Hassan and Butt (2009); and Sheikh and Wang (2011).Vietnam debt capital market has not developed and the companies especially SMEs have to rely on the bank loan for debt financing In developing countries, the interest rate includes a high mark up for default risks, the transactions cost and so

on, which prevents the firms from choosing bank lending as an effective financing channel for their projects A high interest payment can lower their profits, affecting the financial status and credit ratings Therefore, internal generated funds are often utilized to provide capital for company plans due to the low cost of capital

With respect to the insignificance of tangibility, it is note-worthy that the data regressed is collected in the period of 2009 – 2013, the global economy crisis Given the changes in economic environment and the government policies, the fact that tangible asset ratio can have no impact on the leverage in this period is acceptable From the descriptive statistics, it can be concluded that Vietnamese firms listed on HOSE have low fixed assets relative to total assets ratio, 26.94% in average According to trade off theory, the companies with high level of tangibility can get better access to loan as fixed assets can be used as collaterals Conversely, low tangibility means fewer borrowing opportunities Also, in the context of stagnant economic situation, the tangible assets such as real estates, inventory etc decline in valuation leading to higher default risks for lenders especially banking sector Thus, the banks tend to make corporate loans in reluctant and cautious manner which causes the insignificant correlation between tangibility and leverage

In addition, the effective tax rate has no significant association with the leverage which reveals the little impact of tax obligation on choice of capital structure In Vietnam the companies often do not take tax into consideration when thinking about debt financing And interest payment is not used as a mechanism to obtain the tax shield although the corporate tax rate in Vietnam in the 5 year period

is 25% much higher than some countries in the region This result is in line with the

idea proposed by Miller (1977); Fama and French (1998); Booth et al (2001); Miller (1977), and Rajan and Zingales (1995)

To sum up, Chapter 2 gives an insight into the relationship between the percentage of shares owned by foreigners and capital structure The sections present the designed regression model to exam the influence of foreign ownership over leverage using the sample of 245 public companies in Ho Chi Minh Stock Exchange

in 2009-2013 We utilize both pooled ordinary least square and panel data analysis

to get the optimal result It is concluded that leverage ratio and foreign ownership are significantly adversely correlated From the obtained findings, some recommendations for firms and the government will be given in the final chapter