1 BANKING ACADEMY INFORMATION RESEARCH RESULTS OF RESEARCH 1. General information: - Topic name: Capital Structure and Its Determinants: Evidence from Vietnam. - Name of student: 1. Nguyen Gia Tan – 21A4010507 – K21CLCC 2.
Le Duc Viet – 21A4011018 – K21CLCA 3. Nguyen Xuan Thu – 21A4020544 – K21CLCD 4. Dang Quang Minh – 21A4030322 – K21CLCE - Majors: Finance Year: 3 Year of training: 3 - Instructor: PhD Nguyen Thi Le Thanh – Head of Auditing Department (Banking Academy) 2. Topic goal: + Determinants of capital Structure of Vietnamese-listed firms on the stock market.
+ Forming calculation methods, financial-related ratios to finalize statistical results. + Proxy variables will show a positive or negative impact on capital structures like theoretically predicted signs in Table 2. Consequently, the two variables representing the Non-debt tax shield have a negative effect on the firm’s leverage and are different from the predicted signs. Novelty and creativity: Choosing evidence from Vietnam because the institutional environment for Vietnamese firms has some salient features, is divergent concerning high–developed countries where the state still maintains its controlling right in a large number of major firms.
Instead of just considering the impact of financial ratios, research has not only changed how impacts are calculated but also identified the debt maturity structure calculated based on the 17014125830421000000 2 book value and market value of equity. Synonymously, the collection of big data and updating it in the recent 4 years from 2017 to 2020, has influenced the outcome of the factors affecting financing decisions in developed capital markets in Vietnam. Research results: The study proves that Vietnam has 2 outstanding and different characteristics compared to developed countries, so Vietnam has a different institutional structure compared to those countries. In addition, the results also show that the variables D/TA, NDTs and Industry have a positive effect on financial leverage, from which we see that businesses need a large amount of money to buy shares to implement their projects.
Therefore, they borrow from banks to meet their capital needs, so loans account for the majority of capital structure of Vietnamese enterprises. Contribution in terms of socio-economic, education and training, security, defenestrate own and applicability of the topic 6. Scientific publication of students from the research results of the topic (specify the name of the journal if any) or comments and assessments of the institution that applied the research results (if any) May 19, 2021 Students are mainly responsible for the implementation of the topic (Sign and write full name) 3 The instructor's remarks regarding the scientific contributions of the students who have made the document (the instructor records this section): May 19, 2021 Instructor (Sign and write full name) 4 BANKING ACADEMY INFORMATION ABOUT STUDENTS RESPONSIBILITIES FOR IMPLEMENTATION OF THE TOPIC I. STUDENT SUMMARY: Full name: Nguyen Gia Tan Date of birth: June 24, 2000 Birthplace: Ha Noi Student code: 21A4010507 Class: K21CLCC Course: 5 Major: Finance Address: No.18, 88 Lane, Hoang Nhu Tiep Street, Bo De Ward, Long Bien District, Ha Noi Phone No: 0868235837 Email: ntan980@gmail.
LEARNING PROCESS (student performance from year 1 to now) *First year: Finance Major: Finance Study result: System 10: 7.04/4 Summary of results: Good *Second year: Finance Major: Finance Study result: System 10: 7.02/4 Summary of results: Good 5 * Third year: Finance Major: Finance Study result: System 10: 8.26/4 Summary of results: Very good May 19, 2021 Students are mainly responsible for the implementation of the topic (Sign and write full name) 6 DECLARATION OF AUTHORSHIP We hereby declare that this thesis was carried out by ourselves under the guidance and supervision of PhD Nguyen Thi Le Thanh; and that the work contained and the results in it are true by the author and have not violated research ethics. The data and figures presented in this thesis are for analysis, comments, evaluation and are consistent with the reality of Vietnam by our work and have been duly acknowledged in the reference part. In addition, other comments, reviews and data used by other authors, and organizations have been acknowledged, and explicitly cited. I will take full responsibility for any fraud detected in my thesis.
Banking Academy is unrelated to any copyright infringement caused on our work (if any). Author Leader 7 ACKNOWLEDGMENT We sincerely thank the instructors and teachers in the Accounting-Auditing Department of Banking Academy for creating the best conditions for us to carry out this research. Specifically, we would like to express our sincerest gratitude to the businesses for which the author has removed conditions, surveys and other experts in related fields, who contributed extremely valuable and reliable knowledge, for the author to be able to complete our research. Author Leader 8 CONTENTS DECLARATION OF AUTHORSHIP.
8 LIST OF TABLES. 11 INFORMATION RESEARCH RESULTS OF RESEARCH. Theories on the determinants of the capital structure. Model Based on Trade-off theory.
Trade-off hypothesis. Interaction of Investment and Capital Structure. Signaling with Proportion of Debt. Models Based on Managerial Risk Aversion.
The measurements of capital structure. The Determinants of Capital Structure. DATA AND METHODOLOGY. The Empirical Model.
Conclusions and discussions. Limitations and future directions. 64 LIST OF PUBLISHED PAPERS BY AUTHOR. 85 10 LIST OF TABLES Comparison of Agency Models Based on Table 1 Manager-Shareholder Conflicts Table 2 Variables Definitions Table 3.1 Data Description of Variables Table 3.2 Correlation matrix Regression result and Test result Table 3.14 11 ABBREVIATIONS NPV Net present value M&M The Modigliani-Miller theorem SSC State Security Commission of Vietnam OLS Ordinary least squares GLS Generalized least squares SEM Structural equation modelling FEM Fixed effect model REM Random effect model LM Lagrange multiplier test LD Book long-term debt TD Book total debt ratio TL Book total liabilities MLD Market long-term debt MTD Market total debt ratio MTL Market total liabilities CA Collateral Asset ROA Rate of return 12 ETR Effective Tax Rate NDTs Non-debt tax shield DTA Depreciation and amortization divide by total asset LnS Natural logarithm of Total asset GTA Growth AES Administrative expense scaled by Sales SES Selling expense scaled by Sales 13 STRUCTURE AND ITS DETERMINANTS: EVIDENCE FROM VIETNAM INTRODUCTION In recent decades, financial decisions and their link with optimal risk exposure are central to the financial welfare of the firms (Leland, 1998).
A false decision about the capital structure may lead to financial distress and eventually to bankruptcy. The management of a firm sets its capital structure depending on attributes that determine the various costs and benefits associated with debt and equity financing. Therefore, selecting capital structure plays a vital role in maximizing the firm value and resorting to various means of external funding. The majority of the capital structure paper, however, has focused on understanding the driver that influences corporate financing behaviour in United States firms; while few existing papers have been done to further knowledge of capital structure within developing countries (Chen, 2004).
Thus, this paper aims to provide the empirical results of capital structure decisions in the Vietnamese context where its practice is unclear and controversial. The institutional environment for Vietnamese firms has some salient features and is divergent concerning high–developed countries. First, Vietnam is in a transitional period from a command economy to a market economy. Second, the state still maintains its controlling rights in a large number of major firms.
It is not difficult to understand that Vietnam has institutional structures different from high–developed countries. For instance, in the context of the M&M model, a firm’s capital structure is not affected by tax authorities because the state or government is the owner of firms or banks (Huang and Song, 2006). Furthermore, state-owned enterprises are often not value – maximisers; firm size (proxy for bankruptcy cost), tangible assets (collateral) and even profitability, may not affect their capital structure. Controlling right firms belonging to the state, on the other hand, will be less likely to run into the financial crisis than are their counterparts whose controlling shareholders are individuals or private institutes.
With such salient 14 features, this paper will provide empirical results to explain whether the factors that affect financing decisions in developed capital markets have similar effects in the Vietnamese context. The modern theory of capital structure has significantly developed. Since Modigliant and Miller's paper issued in 1958, many researchers have followed and extended this literature to explain capital structure choice as well as providing empirical support to model's applications among different companies and countries in the world (Fama and French, 2002; Booth et al., 2001; Harris and Raviv, 1991; Myers, 1984; DeAngelo and Masulis, 1980; Myers, 1977). With the numerous theoretical studies, however, two widely acknowledged dimensions are aligned with capital structure decision, which is the static trade-off hypothesis, and the pecking order theory.
Theoretically, the trade-off model, initially introduced by Modigliant and Miller (1958), had strong assumptions that in a perfect capital market, there are neither tax, agency costs nor transaction costs and the capital structure decision has no effect on the value of the company. In addition, due to deductive interest from taxable profits, thus cost of debt is less than the cost of equity, which implies that firms may have an incentive to use debt rather than equity, and increase firm value by altering their capital structures (Modigliani and Miller, 1963). According to trade-off theory, any increase in the level of debt causes an increase in bankruptcy, financial distress and agency costs, which lead to a decrease in firm value (Harris and Raviv, 1991). Hence, there always exists an optimal debt level of the firms (Miller, 1977), achieved by establishing equilibrium between the value of interest tax shield and various bankruptcy or financial embarrassment.
On the other hand, the pecking order theory, first suggested by Myers and Majluf (1984), based on asymmetry information creates a hierarchy of cost in the use of external financing. This asymmetric information cost also refers to a term known as “lemon premium” that external investors generally have less information than insiders (Akerlof, 1970), thus common stocks would be undervalued by the market. Moreover, the financing cost that produces pecking order behaviour includes the transaction costs related to new 15 issues and the costs that arise due to management’s superior information about the firms’ prospects and the value of its risky securities (Myers, 1984). Hence, it is argued that firms prefer to retained earnings (internal equity) as their main source of funds for investment, then by less risky debts and last comes risky external equity financing (Myers and Majluf, 1984).
As a result, variation in a firm’s leverage is driven not by optimal capital structure and benefits of debt, but rather by the firm’s net cash flows (Fama and French, 2002). Although Modigliani and Miller’s original article is released more than five decades, the theoretical debate is still centred on the importance of testing which hypothesis, trade- off static or pecking order, is more relevant in explaining firms’ financing behaviour. Titman and Wessels (1988), show that the theoretical research has been lagged by attempting to test various models, including all hypotheses jointly in the empirical model. Instead, by viewing the theories as contending hypotheses, the pecking order theory is more likely to have greater time–series explanatory power than the trade-off theory (Shyam-Sunder and Myers, 1999).
On the other hand, Shyam-Sunder and Myers’s paper may generate misleading inferences when evaluating plausible patterns of external financing and neither the pecking order nor static trade-off model is assessed in empirical results (Chirinko and Singha, 2000). Indeed, Fama and French (2002) point out that none of the pecking order and trade-off models can be rejected and they both play an important role in explaining a firm’s financing behaviour. Furthermore, variables in one model can also be classified as other models; thus, providing the distinguishing between these two different models is unnecessary (Booth et al. From this, a sub-stream of papers provides the empirical tests and numerous variables in these two models can be used interchangeably (Chen, 2004; Deesomsak et al., 2004; Huang and Song, 2006; Delcoure, 2007).