For the above metioned meaning, there should be am overall
1. Relevance of the study
assessment of the Vietnamese companies’ capital structure in order
The issue of determination of optimal capital structure at a
to understand the fundamental features of the firm’s financing
certain point of time has been a challenge for any company. In fact,
policy. The objective is not to see whether the firm’s existing capital
hardly anyone can solve the optimal capital structure problem.
structure is optimal or not, but to analyze the factors affecting the
Companies often determine a certain level (or a range) of target
Vietnamese companies’ capital structure, thereby helping the firm
capital structure before making the capital structure decision. In
making capital structure policy effectively in the coming time. In
order to estimate this target capital structure, the financial managers
spite of a number of studies on the firm’s financing policy
should specify the determinants of firm’s capital structure, based on
undertaken in developing countries such as China, India, Pakistan,
that the company’s target capital structure for each particular period
Thailand, the Central East European countries etc., few studies have
been carried out to investigate the factors affecting the firm’s capital
During the last decades, there have been many studies on the
structure in Vietnam.
firm’s capital structure. Most of the studies use modern theory
The topic “A study of the factors affecting the capital
models to explain the capital structure choice and provide empirical
structure of the companies listed on Vietnam stock market” was
evidence on the explainability of the models in practice. The object
chosen for this PhD thesis and is expected to fill the gaps in the
of study is the listed companies in developed countries that have
much similarity in institutional condition, particularly the US,
2. Research objectives and questions
Europe, Japan etc. Previous studies not only analyze the effect of
firm-specific factors, but also explore the impacts of the economic
environment and industry factors on the firm’s capital structure.
The negative impacts of the global financial crisis starting
The overall objective of the thesis is to determine the factors
affecting the capital structure of the companies listed on HoChiMinh
Stock Exchange and Hanoi Stock Exchane.
from 2008 have been the cause of the economic slowdown in
The specific objectives of the thesis include: (i) Analyse the
Vietnam ever since. Up to the now, the situation hasn’t completely
current status, characteristics, trend of changes in Vietnamese listed
got over, evidenced by high inventories and difficulties in raising
companies’ capital structure, (ii) Identify the company specific
funds of the companies. This situation leads to the fact that firm’s
factors affecting the capital structure of listed companies; (iii)
production is contracted and sunk, a number of companies have to
Evaluate the impact of the state ownership factor on the firm’s
cease the operation or even collapse. This is the time that companies
capital structure; (iv) Assess the impact of the listing of shares on
should have a comprehensive evaluation of their financial policy,
capital structure policy; (v) Demonstrate the significant differences
including the financing policy.
in capital structure between manufactoring and non-manufactoring
industries; (vi) Analyse the impact of managerial factors of the
The thesis focuses on investigating factors affecting the
Vietnamese companies on the capital structure; (vii) Propose the
capital structure of the companies listed on HoChiMinh Stock
solutions for the companies and recommendations to the government
Exchange and Hanoi Stock Exchange.
and regulatory bodies to improve the capital structure of listed
companies in Vietnam.
From the timeline aspect
The thesis analyses the impact of factors on the listed
companies’ capital structure over the last 6 years. The secondary data
In order to achieve the seven research objectives mentioned
was collected for the period from 2007 to 2012. Besides, the thesis
above, the thesis focuses on answering the following five research
also uses primary data collected from a survey of financial policy of
questions: (i) What are the main features of capital structure of
Vietnamse companies conducted in 2013.
Vietnam listed companies?; (ii) Can the Vietnamese companies’
4. Structure of the thesis
capital structure be explained by the capital structure theories?; (iii)
In addition to the introduction, conclusion, table of content,
How does the state ownership affect the capital structure policy?;
list of acronyms, list of tables, list of figures, list of references and
(iv) How does the share listing affect the firm’s capital structure?; (v)
appendix, the thesis is structured into 4 chapters as follows:
Does the companies in manufactoring industries use more debt and
others? (vi) How does companies adjust their capital structure policy
Chapter 1: Theoretical framework and literature review of
factors affecting company’s capital structure
since the global financial crisis; (vii) Beside the factors indentified
Chapter 2: Research methodology
by the theories, how does the managerial factors affect the firm’s
Chapter 3: Overview of listed companies and status of
capital structure of listed companies in Vietnam
3. Object and scope of the research
Chapter 4: Analysis of factors affecting capital structure of
listed companies in Vietnam
Object of the research
Object of the thesis is the firm’s capital structure and factors
Chapter 5: Solutions and recommendations to improve
affecting capital structure of the companies listed on the Vietnam
capital structure of listed companies in Vietnam
stock market. The listed companies are chosen as object of the study
5. New contribution of the thesis
because they represent the companies across different industries,
The thesis has new contribution to the literature of the
sectors in the economy and have the best environment to implement
factors affecting the capital structure of listed companies from both
the financial policy.
theoretical and practical perspectives, specifically:
Scope of the research
From the theoretical perspective:
From the geographical aspect
Previous studies mostly focus on the financing policy of
companies in developed countries. Recently, researchers tend to
expand the topic to the companies in developing countries, ussually
in big economies such as China, India, Thailand or transitional
countries in Central East Europe. In general, the research results are
THEORETICAL FRAMEWORK AND LITERATURE
inconsitent. Due to the limitation in data collection, there still few
REVIEW OF FACTORS AFFECTING COMPANY’S
studies on firm’s capital structure policy are undertaken in Vietnam,
Most of these studies uses the financial data of listed companies over
Basic concept of capital structure
a short time period. This thesis expect to provide an addtional
Company’s source of capital
empirical evidence on the capital structure policy of Vietnamese
companies, using both financial and non-financial data collected
22.214.171.124. Owner’s equities
from the listed company database and primary source of data
collected through company survey. In addition, the research model
Company’s capital structure
also supplements dummy variables that allow to evaluate the capital
Stephen A. Ross, Randolph W. Westerfield and Bradford D.
structure of companies with different ownership structures, stock
Jordan (2003) in “Fundamental of Corporate Finance” states that the
trading exchanges, business sectors, evaluate changes in the
firm’s capital structure or financial leverage is the specific mixture
companies’ capital structure before and after the financial crisis. The
of debt and equity that the firm uses to finance its business
thesis also analyses the impact of the managerial factors, including
management strategy, psychology, human resources and relationship
126.96.36.199. Capital structure measurement
network, which few earlier studies in developing countries account
a. Company’s capital structure measures
b. The book value based and market based capital structure
From the practical perspective:
188.8.131.52. Optimal capital structure
This thesis provides an overall assessment on the financing
The optimal capital structure is the mix of debt and equity
policy of the listed companies in Vietnam, thereby allowing the
that minimize the firm’s cost of capital, thereby maximizing its value.
policy maker to indentify the type of companies that need to be
The company’s capital structure, however, is affected by a
supported by the government, seeking for the solutions to help
number of factors which are not easy to indentify. Therefore,
companies undertaking their financing policy more effectively.
determination of optimal capital structure at a specific point of time
is still a challenge for companies as well as researchers. In fact it is
difficult to estimate a specific optimal capital structure and
companies ussually estimate a range of optimal capital structure
called target capital structure, based on that they make the capital
struture policy. At a certain point of time, a company has its own
of firm-level data
target capital structure level and the target level may change from
time to time.
184.108.40.206. Factors affecting the company’s capital structure
a. Company specific factors
capital structure as
b. Industry factors
c. Economic environment factors
Capital structure theories
of the impact of
on capital structure
Modigliani and Miller’s Capital Theory (M&M)
Agency Costs Theory
Pecking Order Theory
Diagram 2.1: Analytical framework
Literature review of factors affecting capital structure
1.3.1. Review of empirical studies around the world
1.3.2. Review of empirical studies in Vietnam
Empirical testing of impact of firm-specific factors on
(1) Factors relating to M&M Theory (1963) and Trade-off
(2) Factors relating to Agency Cost
(3) Influences of other factors
Data and sample
To test for the impact of the aboved mentioned factors on the
the capital structure of listed companies, the thesis uses balanced
panel data of companies listed on HoChiMinh Stock Exchange and
Hanoi Stock Exchange during the period from 2007 to 2012. These
companies are at different asset size, operating in different
businesses, and therefore are able to represent the whole companies
in the economy. The total research sample is 193 non-financial
Data are collected through online survey questionare. Of the
companies (including 90 listed on the Hanoi Stock Exchange and
500 email sent, 112 are responded, however 52 of the responded
103 listed on the HoChiMinh Stock Exchange) from 2007 to 2012.
results are excluded as the respondents are in unlisted companies, the
remaining 60 responses are valid.
Regression model: Based on the research questions, the
thesis use a multiple linear regression model described as follows:
αi + βjXjit + γ1GOV + δ1FLOOR + λ1MANU +
Research model and variables
The analytical method used is the ordinary least square
(OLS) for cross sectional data, the estimation function is as follows:
∆1YEARDUM + ɛit
yi = αi + βjXi + ɛit
The explained variables are also measured by: total debt,
Dependent variable is financial leverage measured by three
long-term debt ration and short-term debt ratio; explanatory variables
debt ratios: total debt ratio, long-term debt ratio and short-term debt
include the management variables and controlling variables.
ratio. Explanatory variables include effective tax rate, non-debt tax
shield, bankrupcy risk, business scale, profitability, asset tangibility,
business growth, liquidity, state ownership dummy, stock exchange
dummy, industry dummy and year of observation dummy.
OVERVIEW OF LISTED COMPANIES AND STATUS OF
CAPITAL STRUCTURE OF LISTED COMPANIES IN
Pooled Ordinary Least Square- Pooled OLS
Fixed Effects Model-FEM
Overview of listed companies in Vietnam
Random Effects Model-REM
Company reform and stock market development in
Descriptive statistics and correlation matrix
Empirical testing of the impact of the managerial factors
220.127.116.11. Company reform in Vietnam
The process of state-owned company reform has experienced
on capital structure
the phases of history and achieved a lot of positive outcomes of
(1) Factors relating to management strategy
which the most noted one is the synchoronous formation of
(2) Factors relating to psychology
regulation system creating legal framework for renovating,
(3) Factors relating to human resources
rearranging and restructuring of state-owned companies as well as
(4) Factors relating to relationship network
renovating of the government’s controlling mechanism at state-
Data and sample
18.104.22.168. Stock market development in Vietnam
Local institutional and individual investors are the major
a. Equity market
After 13 years of establishment and development, Vietnam’s
shareholders of the listed companies, holding approximately 78.19%
stock market has achieved significant growth rate. The stock market
of total number of shares outstanding. The government’s ownership
growth has created a channel for medium and long-term fund
is quite significant (14.05%); foreign investors hold nearly 7.78% of
mobilization in addition to the traditional form such as bank credit
the total number of listed companies’ shares.
and commercial credit.
c. Operating results
The operating results in recent years indicate a positive
b. Bond market
The Vietnam’s bond market is still immature and small in
signal of the economic recovery leading to the improved business
size, with total market capitalization account for 15% GDP. The
performance of the listed companies.
liquidity is low and the secondary market is inactive.
The capital structure of Vietnamese listed companies
The status of fundraising structure of listed companies
Features of listing companies
Listing the shares on stock exchanges allows the companies
Statistics show that, compared to listed companies around
to be able to raise long-term fund at lower cost, however the listed
the world, Vietnamese listed companies use relatively high debt ratio
companies must satisfy the information disclosure obligation to
with total liabilities account for 55% of the firm’s total assets, of
ensure that the investors are provided with sufficient, precise and
which debt account from 34-36%. It should be noted that most of the
updated information relating to the business operation of the
debt used by non-financial companies are short-term debt.
companies as well as the changes that may affect the share price.
Statistics on capital structure by sectors show different
Besides, the corporate governance requirements and standards for
fundraising structure across different areas of business. Companies in
listed companies are more stringent than that for non-listed
the fields of industrials, basic material, comsumer goods, real estate
companies, the issue of internal control and external supervision of
have highest debt ratio, whereas health care, comsummer service
listed companies is also highly regulated.
companies have the lowest level of financial leverage. For all the
Overview of listed companies in Vietnam
industries, short-term debt dorminates in total debt.
a. The number and scale of listed companies
At the end of 2013, the number of listed companies in
Evaluation of fundraising structure of listed companies
Vietnam’s stock market is 678, operating in different areas of
First, listed companies are able to diversify their sources of
business, with total market capitalization of 946 trillions dong,
fundraising and have more flexibility in raising funds. Second, listed
equivalent to 31% of GDP.
companies can raise funds at lower cost than that of the non-listed
b. Ownership structure
22.214.171.124 Drawbacks and reasons
126.96.36.199. Choosing the estimated models: OLS, FEM and REM
Firstly, compared to other companies around the world,
The Breusch and Pagan Lagrangian multiplier (LM test)
Vietnamese listed companies currently have high debt ratio;
shows that the Pooled OLS model is unsuitable. The Hausman test
Secondly,most of company’s borrowings are bank loans, which are
indicates that, for all the regression models of the three dependent
short-term and unstable, affecting the company’s long-term
variables, the Fixed Effect Model (FEM) is more efficient than the
irrational, not completely based on the company’s fund uses demand.
The above mentioned drawbacks are caused by the following
Random Effect Model (REM).
188.8.131.52. Tests for model specification
reasons: First, our economy heavily relies on the banking system
Results of this test show that VIF associated with all the
which is estimated to account for 80% of total assets of the whole
variables are less than 5. Therefore, there is little evidence of
financial system, the remainder are shared by the securities market,
multicollinearity between variables.
insurance companies etc. Second, the bond market is still immature
Serial correlation check
and unattractive to the investors, therefore, doesn’t play the
Using the Lagram- Multiplier test to check the serial
significant role in medium and long-term fundraising for the the
correlation for panel data, the results indicate the existence of serial
listed companies through debt instrument issuance. Third, though
correlation in all the three models.
stock market has experienced impressive development, the market is
Cross-sectional dependence check
still highly volatile and of low liquidity, especially after the big drop
The Pasaran CD test is employed to check whether the
since the global financial crisis. Fourth, due to the rapid increase in
residuals are correlated in the FEM. The testing results do recognize
the number of listed companies and the rapid growth of the stock
the cross-sectional dependence problem in all the three models.
market attracted attention, the market contains certain problems
when it faces difficulties such as the listed company’s corporate
The Modifed Wald test is implemented to check the
governance, information disclosure and risk management.
hetroskedasticity problem on the FEM and it is evidenced that there
exists the hetroskedasticity problem in all the three models.
ANALYSIS OF FACTORS AFFECTING CAPITAL
STRUCTURE OF LISTED COMPANIES IN VIETNAM
184.108.40.206. Regression results
This section presents the robust standard error estimates (by
fixing the model mispecification problems) for the fixed effect
Testing of factors affecting capital structure
models with depedent variables of total leverage (LEV), long-term
Testing of impact of company specific factors on capital
leverage (LLEV) and short-term leverage (SLEV) using STATA 11
explanatory power of the modern finance theory for capital structure
220.127.116.11. Robustness check of the results
Regression without the non-debt tax shield variable (ndts)
policy of Vietnamese listed companies is limited due to the fact that
Regression without the bankrupcy risk variable (zscore)
the capital structure of companies in Vietnam is remarkably different
Regression with interactive variables
from those in developed countries in that the short-term financing is
Basically, the estimation results support the findings from
dorminated and the the long-term debt is substantially low.
the initial model although the magnitude of the coefficients is
- The trade-off theory is unable to explain the capital
structure policy of listed companies in Vietnam.
- The pecking-order theory partly explains the listed
Testing of impact of managerial factors on capital
company’s capital structure, unlike the traditional pecking-order
This section presents the estimation results of the OLS
theory, the priority order when the listed companies raise funds is
regression model with dependent varibales of total leverage (LEV),
retained earnings- equities-debt.
long-term leverage (LLEV) and short-term leverage (SLEV).
Anslysis of the factors affecting capital structure
Table 4.12: Summary of analysis results
Sign of impact agrees with proposed hypothesis
The value of collateral
The manager’s profit
The manager’s risk prospensity
Network tie with banks
Network tie with other companies
Sign of impact disagrees with proposed hypothesis
- The listed companiess capital structure is affected by the
assymetric information between the companies and the lenders
Second, the state-owned companies are loosing their
advantages over companies owned by other economic sectors in
accessing bank loans.
For long-term debt only
For short-term debt only
For short-term debt only
For short-term debt only
Third, there is little evidence that more stringent listing
standards help to improve the long-term fundraising of the
companies listed on the stock exchange.
Fourth, the capital structure policy is also affected by the
For long-term debt only
For short-term debt only
managerial factors such as the company’s profit maximization
objective, manager’s risk prospensity, manager’s experience and the
network tie between the company and the bank and other companies.
For short-term debt only
Policy and managerial implication
Source: Stata Regression output
First, empirical results of analysis on factors affecting the
- The government and regulatory bodies must be aware of
capital structure is quite consistent with that of other research
the importance of supporting the listed companies to improve their
undertaken in other countries around the world, however, the
ability to access to formal sources of capital.
- The government should speed up the process of
rearranging, reorganizing, renovating, developing and increasing the
(1) The macroeconomic condition has been stable since
operation efficiency of the privatized companies to improve their
2012, evidenced by the stability of
- This study also implies the necessity of strengthening
listed companies’ information disclosure regulation.
(2) The banking system becoming more and more stable
with higher liquidity and lower risk.
- The stock exchanges should be restructured in the coming
time to support the listed companies’ fundraising.
(3) The stock market restructuring process has achieved
number of listed companies.
Second, the state-owned commercial banks account for more
transparency and build reliability of the public by satisfying
information disclosure requirement.
- Companies should evaluate the impact of the risk aversion
on firm’s business growth and development. Based on the nature of
than 50% of the credit market share, bank loans largely flow to the
big companies that have good relatioship with banks, the credit
product is not diversified.
Third, individual investors are the major participant, whereas
the area of business to decide whether they should maintain their risk
attitude and how the risk aversion may affect the company’s
institutional investors play a limited role on the securities market.
Fourth, the insufficient and limited legal framework causes
survival. This is especially important to the companies operating in
the fast growing and intensively competitive industries.
First, the government still holds a significant influence in a
- First, managers must be aware of the fact that, in order to
minimize the cost of capital, companies should improve corporate
price index, interest rate
difficulties and problems to fundraising activities.
- Companies should be aware of the benefit and importance
Fifth, the lack of normativenes in financial management in
of building a wide and strong network tie with lenders, business
Vietnamese listed companies may affect their capital structure
partners when they make capital structure dicision.
Solutions to improve capital structure of listed companies
Applying capital structure decision making model
SOLUTION AND RECOMMENDATION TO IMPROVE
CAPITAL STRUCTURE OF LISTED COMPANIES IN
Advantages and distadvantages to capital structure
should apply information technology in management, using
accounting softwares to update daily data
prospensity, control aversion
timerly data accessibility.
the willingness to
to ensure quick and
Second, beside the financial statement format as required in
Vietnamese Accounting Standard, the listed companies should more
clearly explained the “sensitive” indicators on the notes of the
the demand to use
growth/ profit maximization
Third, the listed companies should norminate information
disclosure personel or secretary devision responsible for the
following up of the company’s information disclosure rather than
the ability to raise
assign the chief accountants, chief finance officer or member of
board of management to be in charge of this job.
size, asset tangibility,
Improving the quality of corporate governance
- Increase the awareness of the importance of a sound
Diagram 5.1. Capital structure decision making model
corporate governance principles.
- Establish the company’s own corporate governance and
The thesis develops a model that can be used as a guideline
for making capital structure decision of listed companies in Vietnam.
- Strengthen the role of controlling board and internal
This model is built based on the results of multi-dimentional analysis
of the factors affacting the capital structure of listed companies in
management, the controlling board, the chief finance officer and the
accounting division in making financial decision in general, capital
structure decision in specific.
Diversifying the sources of fundraising and building
strong credit network tie
Improving accounting system and information disclosure
Recommendation to the government and regulatory
fundraising activities of the listed companies
First, the listed companies should organize its accounting
- Draft on amended Corporate Law should supplement the
division suitable to its management structure. In addition, companies
following issues : (1) Amend the regulation on joint stock company’s
Second, the government should quickly issue legal
capital to include a detail, clear and consistent definition of joint
stock company’s capital; supplement basic concepts of joint stock
framework that regulates the operation of the credit rating agency.
company’s capital, including charter capital and authorized share
Building credit rating system and developing the credit
capital; (2) Supplement current regulation on joint stock company’s
private placement to make it more simple and applicable; (3)
The government and local authorities should consider to
Supplement regulation to protect the right of minor shareholders.
- The government should have a decision to accept under the
par value share issuance as soon as possible.
The responsible authorities should closely control the
establish the rating agency and construct credit guarantee programs
to support companies, especially medium and small ones, in
fundraising. This measure helps to reduce information asymmetric
between the lenders (banks)/investors and companies, therefore
listed company’s fundraising activities with more stringent
reducing company’s cost of capital.
information disclosure requirement and supervise the company’s
Speeding up restructuring to improve performance of the
usage of funds etc.
privatized state-owned companies
- The key measure at the time being is to improve the
Pushing ahead financial liberalization
- Continue to liberalize the operation of financial institutions
on financial market.
transparency of the companies’ corporate governance and financial
- Speed up the process of commercial bank restructuring to
exploit financial potential of the economy.
- Accelerate the liberalization of commercial bank’s credit
- The government should continue to reduce its holding in
the companies operating in the areas that state controlling power is
Accelerating Vietnam’s securities market restructuring
management function at state-owned companies is a problem that
First, strongly upgrade the stock exchange listing standards.
needs to be solved in time to come.
Second, reorganize operation of the stock exchanges.
Third, amend regulations on foreign investment on stock
Strengthening supervision and sanction of information
- Clearly define functions, duties of the organizations and
To stimulate the development of corporate bond market in
the coming time, we should consider the following issues:
First, State Bank of Vietnam should maintain a stable level
of interest rates.
entities responsible for supervision of the listed companies’
- Create a procedure for strong coorporation between the
entities resposible for the supervision.
- Build the supervising criteria and process.
- Establish the mechanism of cheking, verifying information
to improve their capital structure. On the listed companies’ part, they
should establish a good foundation for financial management to
- Consider to increase sanction framework to prevent the
support the capital structure decision making. Companies should
taking advantage of information disclosure violation for personal
build their own capital structure decision making model suitable to
their specific condition. Macroeconomic policies by the government
and regulatory authorities should aim at (1) improving the legal
environment of the listed company’s fundraising; (2) developing the
Results of the thesis indicate that the capital structure of
capital markets to provide companies with another channel of
companies in Vietnam is remarkably different from those in
medium and long term capital mobilization and (3) strengthening
developed countries in that the short-term financing is dorminated
corporate transparency to reduce cost of funds.
and the the long-term debt is substantially low. This difference might
Due to the limitation of data collection, this thesis measures
limit the explanatory power of capital structure theory in Vietnam.
the company’s capital structure using accounting based value of the
Tax shield and bankrupcy cost are not the determinants of the
capital components rather than a market based value. Besides, there
company’s capital structure. Factors relating to the asymmetric
could be other factors that affect the capital structure of the
information between the company and lenders (banks) have a great
companies but are still not accounted for in the model. Therefore, a
impact on the listed company’s capital structure policy. Whereas, the
larger, comprehensive and detailed database is recommended to
company’s agency cost of equity does not significantly affect its
design new variables to reflect the effect of other qualitative factors
capital structure. In addition, the capital structure is also affected by
such as the corporate governance, the institutional and industy
the company’s managerial factors. Although the analysis results are,
influence. Also, other research methods could be applied that allow a
to some extent, consistent with that in other countries, the
more detailed evaluation about the capital choice decisions of the
explainability of the corporate finance theories for the Vietnamese
companies in Vietnam.
listed companies is limited due to the subjective reasons from the
company’s perspective and the objective reasons from the
perspective of the nature of the economic structure in the transitional
period and the status of development of Vietnam’s financial market.
Based on results from the analysis, the thesis has found the
solution to improve capital structure of the listed companies, and
moreover, proposes recommendations to the government and
regulatory authorities to create a favourable setting for the companies