tiểu luận kinh tế lượng factors affecting the capital structure of food companies listed on ho chi minh stock exchange

In fact, the capital structure will varydepending on the characteristics of each business enterprise, the sector in which itoperates, and the effects of macroeconomic fluctuations, cultu

FOREIGN TRADE UNIVERSITY

FACULTY OF INTERNATIONAL ECONOMICS

GROUP ASSIGNMENT – FINANCIAL ECONOMETRICS

-FACTORS AFFECTING THE CAPITAL STRUCTURE OF FOOD COMPANIES LISTED ON HO CHI MINH STOCK EXCHANGE

TABLE OF CONTENTS

ABSTRACT 4

INTRODUCTION 5

1 Rationale for the study 5

2 Research questions and objectives 6

3 Research subject and scope 7

4 Research methodology 7

5 The structure of report 7

SECTION 1: OVERVIEW OF THE TOPIC 9

1.1 Overview about the capital structure 9

1.1.1 Definition of capital structure 9

1.1.2 The roles of capital structure 9

1.2 The capital structure theories 10

1.2.1 Modigliani and Miller (M&M) theory 10

1.2.2 Agency cost theory 10

1.2.3 Trade-off theory 11

1.2.4 Pecking-order theories 12

1.3 Determinants of capital structures 13

1.3.1 Firm size 13

1.3.2 Growth opportunities 14

1.3.3 Profitability 15

1.3.4 Tangible fixed assets 15

1.3.5 Tax rate 16

1.3.6 Industry characteristics 16

SECTION 2: MODEL SPECIFICATION 17

2.1 Data collection 17

2.2 Data analysis 17

2.2.1 The dependent variables 17

2.2.2 The independent variables 17

3.3 Building the research model 21

3.4 Describe the data 22

3.4.1 Descriptive statistics 22

3.4.2 Correlation matrix 25

SECTION 3: FINDINGS AND RESULTS 27

3.1 Estimated models 27

3.1.1 OLS regression 27

3.1.2 REM and FEM regression 27

3.2 Testing the model’s defect 30

3.2.1 Heteroskedasticity test 30

3.2.2 VIF Test 30

3.3 Discussion on the estimated model 31

3.3.1 Profitability 31

3.3.2 Firm size 32

3.3.3 Tangible fixed assets 32

3.3.4 Growth opportunities 33

3.3.5 Corporate tax rate 34

3.3.6 Firm characteristics 35

3.4 Recommendations 35

3.4.1 Recommendations for the companies 35

3.4.2 Recommendations for the Government 37

REFERENCES 39

INDIVIDUAL ASSESSMENT 41

Capital structure is a financial concept that reflects the ratio between the loan andthe equity that the firm uses Determining an optimal capital structure is important inbusiness operations Since the optimal capital structure will help businesses minimizetheir weighted average cost of capital (WACC), thereby it can maximize the value oftheir assets In addition, the capital structure affects the profitability and business risk thatthe business may face Therefore, choosing a capital structure between the loan andequity plays a crucial role in financial management In fact, the capital structure will varydepending on the characteristics of each business enterprise, the sector in which itoperates, and the effects of macroeconomic fluctuations, cultural factors and religion.Rather than finding out what percentage of equity is optimal, financial researchers areoften interested in finding out what factors influence the decision to use the loan orfinancial leverage of the firm It is from the correlation between these factors and thecapital structure that we can evaluate whether the decision to use the loan or the equity ofthe business is reasonable or unreasonable Regardingly, the purpose of this paper is toexamine the factors affecting the capital structure of the food companies listed on Ho ChiMinh stock exchange Accordingly, data collection is conducted among 10 firms listed onHOSE The research findings revealed that the factors influencing on capital structure onthese firms include tangible fixed assets, firm size, profitability, growth opportunity andliquidity In specific, tangible fixed assets have the strongest impact and firm size has theweakest impact Based on that, the paper also proposes some recommendation andsuggestion to enhance the capital structure of these firms

1 Rationale for the study

Firms make their decisions to get the most out of the proportion they are using oftheir capital How to structure capital is the very first question that financial managers askthemselves before getting into any financial activity Capital structure is not onlyconcerned with discovering the right class of finance, but it is more than that; it focuses

on the optimal mix that should be created to maximize the shareholder’s wealth Inaddition, capital structure affects the profitability and business risks that businessesthemselves may encounter (Frank and Goyal, 2009) Therefore, choosing a capitalstructure between debt and equity plays an important role in financial management

In fact, the variance of capital structure depending on the characteristics of eachfirm, the sector in which it operates, as well as the effects of macro and micro-economicfactors Hence, instead of determining an optimal capital structure, the financial managersoften consider finding the influential factors to it, or in other words, the firms’ use offinancial leverage From the correlation between these factors and capital structure, wecan assess whether the decision to use the loan or equity of the enterprise is reasonable orunreasonable, the shortcomings and risks arising from it, and based on that, to proposesolutions to improve the efficiency of financial leverage and maximize asset value forbusinesses

Currently, there haven’t still not many studies related to the capital structure inequitized enterprises in Vietnam The key reason is that the problem of financialmanagement in many businesses has not been respected Besides, a large number ofcorporations have been equitized from state-owned enterprises, so they have alsoinherited the obligations and rights of the old company, and not considering about theefficiency of capital structuring However, in the context of Vietnam’s economicintegration, enhancing the efficiency of capital structure needs to be more concerned bybusinesses than ever

Food processing is one of Vietnam’s key economic sectors, contributing a large part

to the country’s GDP and economic growth According to the report of the VNCPA(2018), the business performance of food enterprises listed on the Ho Chi Minh StockExchange is not really effective Specifically, the average ROE of 10 listed companies in

2018 is 10.33%, ROA is 5.76% One of the main reasons for this situation is that thecapital structure of enterprises is unreasonable and does not use capital effectively Thiscauses a lot of trouble for food businesses in particular and other joint stock businesses ingeneral, especially in the context of volatile business environment during the recentyears

Therefore, it is significantly necessary to make the studies on the factors affectingthe capital structure and proposes the recommendations to enhance the efficiency ofcapital structure in these food companies This is the rationale for the author to choose the

research topic: Factors affecting the capital structure of food companies listed on Ho

Chi Minh stock exchange The author also expects that the research can contribute a part

into the financial management of enterprises in the industry, to help enterprises have amore general view on the policies of mobilizing capital as well as provide appropriatesolutions for enterprises, thereby contributing to raise efficiency of production andbusiness activities

2 Research questions and objectives

The main objective of this study is to investigate the determinants of capitalstructure (DER) as well as its impact food companies listed on Ho Chi Minh stockexchange And based on that, it also aims to propose suggestions and recommendation toimprove the capital structure in these firms and enhance their firm performance In order

to fulfil the above objective, the study will answer the research questions as followings:

 What are the factors affecting on the capital structure of food companies listed onHOSE?

 How these factors impact on the capital structure of the food firms listed onHOSE?

 What are the recommendations suggested for the food companies listed on HOSE?

3 Research subject and scope

Research subject: the factors influencing on capital structure of food companieslisted on HOSE

Research scope: In terms of space, the scope includes the food processing firmswhich are currently listed on Ho Chi Minh Stock Exchange Accordingly, there are total

16 firms selected in the research (HOSE, 2018) In terms of time, the researcher collecteddata in the period of 10 recent years from 2008-2018

5 The structure of report

The structure of study is organized into three main section as followings:

Section 1: Overview of the topic

The first section aims to provide literature reviews related to the research topics,including definitions, classifications, economic theories, scholars and research hypothesisused in this study

Section 2: Model specification

In this section, the author presents research methodologies to collect and analyzedata Furthermore, theoretical model specification and descriptive statistic of data is alsoprovided in this part

Section 3: Findings and Results

The final part is to demonstrate the results of estimated model, tests for model’spossible problems and correct them And based on findings and results, somerecommendations are also proposed

SECTION 1: OVERVIEW OF THE TOPIC

1.1 Overview about the capital structure

1.1.1 Definition of capital structure

Capital is one of the most important factors that can help businesses survive anddevelop This source of capital is mobilized by enterprises in two main methods are loansand equity The capital structure of an enterprise is the ratio of total debt (including short-term and long-term debt) to equity, in other words, capital structure relates to thedeciding sources to finance companies’ businesses Ordinarily, at the start-up of a firm,equity is used to run the business, since equity charges no fixed cost on the firm; on theother hand, as the firm grows, debt becomes a preferred choice of a firm’s capital, and inthe remainder of their life cycle, debt is preferred (Ross, 2002) The use of debt can comefrom the issuance of bonds or bills of exchange, while equity is divided into three types:retained earnings, preferred shares and common stock Each enterprise has its ownstructure depending on the decision of the corporate executives and this has a significantimpact on the cost of the enterprise In addition, the capital structure of an enterprise alsoaffects the return on equity (ROE) and the financial risks of the business

1.1.2 The roles of capital structure

All business activities of the enterprise cannot operate normally if the enterprisedoes not have the financial ability or the financial situation of the business has problems.The capital structure of an enterprise is the ratio between the use of equity and equity in

an efficient way to improve the business results of an enterprise In order to determinethis proportion appropriately, managers must consider and consider on a number offactors in order to maximize the benefits for shareholders The use of equity or debt is forthe purpose of financing the business of the business However, each component has itsown advantages and disadvantages when used Thus, analyzing the business activity of anenterprise in order to provide an optimal capital structure in specific circumstances is anurgent issue for financial managers

1.2 The capital structure theories

1.2.1 Modigliani and Miller (M&M) theory

Modigliani and Miller are the pioneers that conducted scientific study on capitalstructure area in 1958 and developed MM theorem (Hossain and Ali, 2012) According toModigliani and Miller (1958) under prefect market where there are no taxes, transactioncost, bankruptcy and agency cost; the firm’s decision and capital structure is independentfrom firm’s market value and cost of capital The scholars affirm that the firms should beunconcerned choosing between debt and equity financing in perfect capital market(Modigliani and Miller, 1958) There are three proposition states by Modigliani andMiller in MM theory The first proposition is the firm’s capital structure does not affectthe market value and average cost of capital (Abdul Jamal et al, 2013) The secondproposition is the firm’s leverage does not affect weighted cost of capital (Abdul Jamal et

al, 2013) The third proposition is the firm’s value does not affect by its dividend policy(Abdul Jamal et al, 2013) In year 1963, Modigliani and Miller modify MM theory byreflected on the cooperation tax and state that the firm can go for fully debt financebecause debt is tax deductible and debt can increase the firm value (Akbar and AhmadBhutto, 2012) Modigliani and Miller (1963) emphasis that debt finance will increasecorporate value because interest of debt is tax deductable while equity cost not taxdeductable

1.2.2 Agency cost theory

Jensen and Meckling are the pioneers developed agency cost theory and according

to them, an optimal capital structure can be determined by minimizing the agency cost(Moosa, Li and Naughton, 2011) Jensen and Meckling (1976) define agency cost as sum

of principle’s monitoring expenditure, agents bonding expenditure and the residual loss.Agency cost arises because of conflict of interest between shareholders and managers andalso due to separation management of firm and ownership (Abdul Jamal et al, 2013).There two types of conflicts: conflict between shareholders and manager and conflictbetween shareholders and bondholders (Jensen and Meckling, 1976) Since the managers

and shareholders try to take action in their own interest, managers might behave makefinancial decision that gives benefits to the managers but not maximize shareholderswealth (Abdul Jamal et al, 2013) According to Qiu and La (2010), the managers mightact in a different way under different capital structure The debt finance with interestpayments can reduce conflict between manager and shareholder (Buferna, 2005 cited inAbdul Jamal et al, 2013) The managers will try to operate the firms as efficient aspossible to meet the interest payment and try to maximize shareholders wealth becausethey worried about losing their job (Abdul Jamal et al, 2013) The second way to reduceconflict of interest between shareholders and managers is by increasing the equity holds

by the managers (Niu, 2008) Conflict between bondholders and shareholders arisebecause the shareholders decision to transfers the wealth from bondholders toshareholders (Niu, 2008) Convertible debt finance can reduce conflict betweenbondholders and shareholders because it has low agency costs compare to debt (Jensenand Meckling, 1976) According to Jensen and Meckeling (1976) optimal combination ofequity and outsource debt will decrease the agency costs

1.2.3 Trade-off theory

Trade off theory state that the firm’s optimal capital structure determined by off the benefit of debt finance with debt’s disadvantage (Hussain et al, 2015) Benefits ofdebt include tax shield, the reduction free cash flow, conflict between managers andshareholders and the disadvantages includes finance distress, cost associatedunderinvestment and assets substitution problem (Cotei, Farhat, and Abugri, 2011).Thetrade-off theory implies the firms to choose debt finance rather than equity until the point

trade-at which the bankrupt probability equal to advantage of using debt (Hossain and Ali,2012) Trade off theory suggest high risk organization should go for less debt compare tolow risk organization (Abdul Janal et al, 2013) The theory also states that firms that usemore tangible asset to operate should go for more debt finance because tangible asset canuse as collateral organization (Abdul Janal et al, 2013) Myers developed static trade-off

in 1984 and this theory state that higher profitability firms should have higher target debt

ratio and the firms should able to gain more debt without risking financial distress.Higher profitability firms required to have higher target debt ratio to ensure high taxsaving from debt, profitability of bankruptcy is low and higher over- investment (AbdulJamal et al, 2013) While, firms with high growth opportunity should use less debtfinance because more debt will cause loss value in financial distress (Niu, 2008)

Fisher et al developed trade-off theory dynamic version in 1989 and this theorysuggest that companies inactively accumulate profits and losses, allowing their debt ratiomove away from the target only if the cost of adjusting the debt ratio go over the cost ofhaving a sub optimal capital structure (Hovkimian and Tehranian, 2004) The dynamictrade off theory implies that firms gained high profitability in past are probable underlevered while firms gained losses are probable over levered This theory predicts thatnegative relationship between profitability and observed debt ratios but gives positiveresult on the profitability of debt versus equity and the negative relationship arise notbecause of profitability affect target leverage but it’s have an effect on deviation from thetarget (Hovakimian, Hovakimian and Tehranian, 2004) Therefore, the negativerelationship would not arise for firms that offset the deviations from the target byresetting their capital structure (Hovakimian and Tehranian, 2004)

1.2.4 Pecking-order theories

Myers and Majluf (1984) are the pioneers that explain financial behavior byincluded the private information known by the managers into capital structure model(Kjellman and Hansen, 1995) Pecking order theory and this theory assumes that financialresources preference ranking created by using information asymmetric between managersand shareholders (Leary and Roberts, 2010) The ranking begins with internal funding orretained earnings, followed by debt finance and then equity finance (Leary and Roberts,2010) Pecking order theory claims that the firms not necessary to follow target amountleverage and the firms should choose its leverage ratio based on its financing needs(Hossain and Ali, 2012) If the investors and lender are not well-known compare to themangers about the firm’s asset values and future prospect, mispricing debt and equity

might occur in the market (Kjellman and Hansen, 1995) If the firms are necessary issueequity to fund new investment project, Kjellman and Hansen (1995) state that under-pricing may be so severe that new investors might capture more than the net presentvalue of that project Thus, existing shareholders will earn net loss (Kjellman andHansen, 1995) The under investment can be prevented if the firms follows pecking ordertheory’s finance sources sequences (Kjellman and Hansen, 1995).

Pecking order theory suggests that firms should increase their ability to retainprofits over their life-cycle and reduce in depending on borrowing to fund investmentopportunities (Serrasqueiro and Nunes, 2012) Internal funding or retained have noadverse choice, debt have minor adverse choice problem and equity have major diversechoice problem (Frank and Goyal, 2003) This theory emphasis firms to use internalfunding because internal funding are less risky, less sensitive to mispricing and valuationerrors (Abdul Jamal et al, 2013) According to Niu (2008), internal funding or retainedearnings does not have flotation costs and no additional disclosure financial informationrequired such as information on firms’ investments opportunities and their potentialprofit If the firms going for external finance, the preference should follows thissequences: debt, convertible securities, preferred stock and common stock (Niu, 2008).Even though, both debt and equity have adverse selection risk premiere but equity havelarger adverse selection risk compare to debt (Frank and Goyal, 2003) Since equity ismore risky compare to debt, outside investors will demand for higher rate of return onequity (Frank and Goyal, 2003) Myers (1984) state that firms prefers to fund realinvestment by using less risky securities or bonds rather than equity

1.3 Determinants of capital structures

1.3.1 Firm size

Many authors have suggested that the leverage ratio may be related to firm size.However, there are conflicting results on the relationship between firm’s size andleverage The trade-off theory predicts that larger firms tend to be more diversified, lessrisky and less prone to bankruptcy Firms may prefer debt rather than equity financing for

control Control considerations support positive correlation between size and leverage.Thus, large firms should be more highly leveraged Some of the studies consisted withthe view of trade-off theory (Fischer et al., 1989; Chang and Rhee, 1990; Chen et al.,1998; Banerjee et al., 2000; Bevan and Danbolt, 2001; Fattouh et al., 2002; Padron et al.,2005; Gaud et al., 2005; Tomak, 2013) However, Titman and Wessels (1988), Ooi(1999), Chen (2003), Yolanda and Soekarno (2012) and Wahap and Ramli (2014) report

a contrary negative relationship between debt ratios and firm size Kale et al (1991),Wanzenried (2002) and Ghazouani (2013) find no significant effect of size on capitalstructure In the literature, the natural logarithm of net sales or total assets, average value

of total assets, total assets at book value and the market value of the firm were used asmeasure firm size (Sayilgan et al., 2006)

1.3.2 Growth opportunities

Jensen and Meckling (1976), Myers and Majluf (1984), and Fama and French(2000) argue that firms with high future growth opportunities should use more equityfinancing, because a higher leveraged company is more likely to pass up profitableinvestment opportunities The trade-off model predicts that firms with more investmentopportunities have less leverage because they have stronger incentives to avoidunderinvestment and asset substitution that can arise from stockholder-bondholderagency conflicts The trade-off theory predicts a negative relationship between leverageand investment opportunities Pecking order theory suggests also that a firm's growth isnegatively related to its capital structure Growth opportunities may be considered assetsthat add value to a firm, but cannot be collateralized and are not subject to taxableincome The agency problem suggests a negative relationship between capital structureand a firm's growth As a result, firms with high growth opportunities may not issue debt

in the first place, and leverage is expected to be negatively related to growthopportunities (Rajan and Zingales, 1995; De Miguel and Pindado, 2001; Chen and Jiang,2001; Bevan and Danbolt, 2001; Drobetz and Fix, 2003; Nguyen and Neelakantan, 2006).Some empirical studies confirm the theoretical prediction, such as (Kim and Sorensen,

1986; Titman and Wessels, 1988; Rajan and Zingales, 1995) report However, somestudies demonstrate a positive relation between growth opportunities and leverage(Titman and Wessels, 1988; Chang and Rhee, 1990; Banerjee et al., 2000; Fattouh et al.,2002; Schargrodsky, 2002).

1.3.3 Profitability

From the point of view of the trade-off theory, more profitable companies shouldhave higher leverage because they have more income to shield from taxes The free cash-flow theory would suggest that more profitable companies should use more debt in order

to discipline managers, to induce them to pay out cash instead of spending money oninefficient projects However, from the point of view of the pecking-order theory, firmsprefer internal financing to external So more profitable companies have a lower need forexternal financing and therefore should have lower leverage Most empirical studiesobserve a negative relationship between leverage and profitability, for example (Rajan –Zingales, 1995), (Huang – Song, 2002), (Booth et al., 2001), (Titman – Wessels, 1988),(Friend – Lang, 1988) and (Kester, 1986) In this study, profitability is proxied by return

on assets (defined as earnings before interest and taxes divided by total assets)

1.3.4 Tangible fixed assets

Most capital structure theories argue that the type of assets owned by a firm in someway affects its capital structure choice Titman and Wessels (1988) predict that the assetsinclude the ratio of intangible assets to total assets and the ratio of inventory plus grossplant and equipment to total assets There is a positive relationship between tangibilityand leverage and a negative relationship between intangibility and leverage The trade-offtheory predicts a positive relationship between leverage and tangible assets Tangibleassets normally provide high collateral value relative to intangible assets, which impliesthat these assets can support more debt Tangible assets reduce the cost of financialdistress Most empirical studies observe a positive relationship between leverage andtangibility (Jensen and Meckling, 1976; Titman and Wessels, 1988; Jensen et al., 1992;Rajan and Zingales, 1995; Chen and Jiang, 2001; Bevan and Danbolt, 2001) On the other

hand, agency theory predicts a negative relationship between tangibility of assets andleverage

1.3.5 Tax rate

Taxes and the costs of financial distress were the first major frictions considered indetermining optimal capital ratios (Berger et al, 1995) They also contend that sinceinterest payments are tax-deductible, but dividends are not, substituting debt for equityenables firms to pass greater returns to investors by reducing payments to thegovernment The trade-off theory predicts a positive relationship between firm leverageand effective tax rate As such, high tax rates increase the interest tax benefits of debt.The trade-off theory predicts that to take advantage of higher interest tax shields, firmswill issue more debt when tax rates are higher (Frank and Goyal, 2009) Debt isadvantageous for tax reasons The net tax advantage of debt is the difference between thecorporate tax advantage of debt and the personal tax disadvantage of debt (Dangl andZechner, 2004)

In contrast, from the pecking order theory vantage point, a negative relationship isexpected to subsist between firm-leverage and the effective tax rate All things beingequal, a higher effective tax rate also reduces the internal funds of profitable firms andsubsequently increase its cost of capital (Rasiah and Kim, 2011) As a result, anexpectation for the negative relationship between the effective tax rate and leverage ratio

is created within the framework of the pecking order model

1.3.6 Industry characteristics

Capital structure varies greatly among industries Kester (1986) found that thehigher the profitability sectors, the more likely it is to use less loans Some otherempirical studies also identify a statistically significant relationship between industryclassification and leverage, such as (Bradley et al., 1984), (Long – Malitz, 1985), and(Kester, 1986) It is shown that the leverage ratio in capital structure correlates negativelywith the frequency of bankruptcy in the industry Enterprises that generate stable cash

flows through the business cycle tend to have a higher financial leverage ratio In general,firms tend to focus closely on the sector’s debt ratio, which may reflect the fact that most

of the business risk a business faces is set by the industry For example, as Harris andRaviv (1991) claim, based on a survey of empirical studies: “Drugs, Instruments,Electronics, and Food have consistently low leverage while Paper, Textile Mill Products,Steel, Airlines, and Cement have consistently large leverage.” The industrycharacteristics are often expressed as the ratio of cost of goods sold and net revenue (TranHung Son, 2008)

SECTION 2: MODEL SPECIFICATION

2.1 Data collection

As mentioned in above, this study considers food processing companies listed on

Ho Chi Minh stock market, during the period 10 years 2008 - 2018 Although all of thestock companies are considered, the author only chooses the companies with fullinformation in some certain years In specific, there are 10 listed food companies onHOSE The total observations in a pool data collected are 106

2.2 Data analysis

2.2.1 The dependent variables

The debt ratio is calculated by:

DER = (total debt) / (total capital)This indicator shows how many copper coins are formed from the debt collection.The higher the ratio, the more likely it is for a business to use more debt

2.2.2 The independent variables

In studies of corporate capital structure in some countries with similar economicand political characteristics as Vietnam: Hossain and Ali (2008); Mutalib (2011);Quayyum (2013); Samuel G.H Huang and Frank M Song (2006) and PhD studies inVietnam such as Le Dat Chi (2013), Doan Phi Ngoc Anh (2010); Vu Thi Ngoc Lan

(2014), Tran Hung Son (2008), the authors find the variables of profitability, firm size,tangible fixed assets, tax rate and growth opportunities were used by researchers inempirical models of factors affecting capital structure, so the authors used these fivevariables in the regression model In addition, since the food industry is characterized byrapid growth rate and large working capital needs, so the author also chooses firmcharacteristics in the research model that affect the food industry.

2.2.2.1 Profitability (ROA)

Based on the pecking-order theory, businesses with high profitability will preferinternal financial sources rather than external ones Specifically, the internal source ofretained earnings will be used first, followed by new bonds issued Finally, new shareswill be issued as the last preferred source, if necessary Profitability is net income beforetax divided by net premium The perceived relationship between profitability andleverage is inversely proportionate This suggests that there exists a negative relationshipbetween profitability and capital structure This view is supported by many empiricalstudies conducted in different countries, including Hossain and Ali (2008); Mutalib(2011); Quayyum (2013); Le Dat Chi (2013)

The variable for profitability is ROA:

ROA = (Profit before tax and interest (EBIT)) / (Total assets)

Accordingly, hypothesis H1 is given as follows:

H1: There is a negative relationship between capital structure and profitability ratio.

2.2.2.2 Firm size (SIZE)

According to the tradeoff theory of capital structure, large-scale firms are generallyable to get more loans than small scale enterprises Specifically, in order to obtainexternal capital, small businesses bear higher costs than big ones due to asymmetricinformation Hence, big businesses have an advantage over small businesses whenaccessing capital markets, which indicates that there exists a positive relationship

between capital structure and company size This view is supported by many empiricalstudies conducted in different countries, including Huang and Song (2006), Doan PhiNgoc Anh (2010); Vu Thi Ngoc Lan (2014).

The variable for firm size is the SIZE:

SIZE = Net revenue

Accordingly, hypothesis H2 is given as follows:

H2: There is a positive relationship between capital structure and firm size

2.2.2.3 Tangible fixed assets (TANG)

Tangible fixed assets are considered as one of the important factors affecting thestructure of corporate capital because it acts as an assurance asset of the business tocreditors when borrowing Since the debtors cannot calculate the risks in the project, theyshould always need the property guaranteed by the business Thus, firms with a highproportion of tangible fixed assets are more likely to take out loans, especially when thecurrent bad debt situation plays a decisive role in the ability debt financing of thebusiness

The study by Wiwattanakantang in 1999 demonstrated that tangible fixed assetshave a positive impact on debt ratios The experiments of I Chakraborty (2010) have notyet come to a clear conclusion about the positive or negative impacts of tangible fixedassets on the debt ratio In Vietnam, there are some authors who have studied thisvariable such as Hossain and Ali (2008); Quayyum (2013); Huang and Song (2006);Shah & Khan (2007) and Vu Thi Ngoc Lan (2014)

TANG = (Fixed assets) / (Total assets)

Accordingly, hypothesis H3 is given as follows:

H3: There is a positive relationship between capital structure and tangible fixed assets

2.2.2.4 Growth opportunities (GROWTH)

Growth opportunities here are understood as the growth of total assets of thebusiness quarter after quarter According to the tradeoff theory, growth opportunities willlead the capital of the business to gradually shift to the use of debt because they need toreduce the problem of representation According to classification theory, enterprises willprioritize the use of internal capital as retained earnings before using external capital Inother words, the higher your growth potential, the less debt and equity you have Previousresearch has concluded that growth opportunities are inversely proportional to financialleverage, such as Huang and Song (2006); Mutalib (2011) However, some studies show

a positive correlation between growth opportunities and leverage, such as Vu Thi NgocLan (2014) Business growth opportunities are measured by:

GROWTH = (Expenditure for Fixed Assets Investment) / (Total Assets)

Accordingly, hypothesis H4 is given as follows:

H4: There is a negative relationship between capital structure and growth rate

2.2.2.5 Corporate tax rate (TAX)

Firms with high rates of pay are more likely to use more leveraged capital to makefull use of the tax shield However, excessive use of debt can sometimes lead to highinterest expenses and an increase in financial costs Some previous studies havementioned the actual tax rates, such as Huang & Song (2006), Hossain & Ali (2008) and

Le Dat Chi (2013) in Viet Nam Actual tax rates are measured by the ratio of the amount

of corporate income tax payable on pre-tax profit (EBT)

TAX = (Taxable) / EBT

Accordingly, hypothesis H5 is given as follows:

H5: There is a positive relationship between capital structure and corporate tax rates