MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY TRUONG THI KIM NGAN IMPACT OF CAPITAL STRUCTURE ON PERFORMANCE OF LISTED MATERIAL MANUFACTURING ENTERPRISES IN VIETNAM MASTER THESIS Major: Banking - Finance Code: 8 34 02 01 Ho Chi Minh City – 2023 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY TRUONG THI KIM NGAN IMPACT OF CAPITAL STRUCTURE ON PERFORMANCE OF LISTED MATERIAL MANUFACTURING ENTERPRISES IN VIETNAM MASTER THESIS Major: Banking - Finance Code: 8 34 02 01 MENTOR: ASSOC. LE PHAN THI DIEU THAO Ho Chi Minh City – 2023 i DECLARATION OF AUTHENTICITY This thesis is the author's own research, the research results are authentic, in which there is no previously published content or the content done by others except the citations cited in the thesis. I declare that all statements and information cited in this thesis are true, accurate and correct to the best of my knowledge and belief. I am fully responsible for the thesis’s authenticity.
Ho Chi Minh City, February 25th, 2023 Student TRUONG THI KIM NGAN ii GRATEFULNESS Firstly, in order to complete this graduation thesis, I would like to express my deep gratitude to mentor Associate Professor Le Phan Thi Dieu Thao who has guided me from writing outline, enthusiastically giving feedback, encouraging and following the plan to ensure that the thesis is completed in a best and timely manner. Next, I would also like to express my sincerest thanks to all the lecturers of Banking University of Ho Chi Minh City for imparting valuable knowledge to me during the course so that I have a good foundation in order to complete the graduation thesis. Finally, it is indispensable to the enthusiastic support from my friends and family who always accompany and facilitate to perform the graduation thesis perfectly. During implementing the thesis, due to some limitations in knowledge and experience, it is impossible to avoid shortcomings.
Therefore, I am very grateful to receive advice and suggestions from teachers and friends to help me complete the graduation thesis. Once again thank you. Ho Chi Minh City, February 25th, 2023 Student TRUONG THI KIM NGAN iii ABSTRACT Title: Impact of capital structure on performance of listed material manufacturing enterprises in Vietnam. Abstract: The thesis analyzes the impact of capital structure on performance of listed material manufacturing enterprises in Vietnam.
Secondary data is extracted from annual reports, financial statements of listed material manufacturing enterprises selected as a sample for the 10-year period from 2012 to 2021. FGLS estimation method combined with matrix correlation is used to test the influence of the explanatory variables on the dependent variable. The impact of capital structure including the short-term debt ratio, the long-term debt ratio on performance is measured by return on average assets (ROA), return on average equity (ROE), in addition, the thesis also uses additional control variables such as enterprise size (SIZE) and revenue growth (GROWTH). Regarding the level of influence, the impact of short-term debt ratio on performance is a non-linear relationship.
For long- term debt, because most enterprises use a very small ratio of long-term debt, only about 10%, the increase in long-term debt also has an impact on financial performance but follows a linear relationship. For two control variables are firm size and revenue growth. Both of these variables show a positive impact on financial performance. Therefore, creating better profitability than other businesses.
Keywords: Capital structure, short-term debt ratio, long-term debt ratio. iv ABBREVIATIONS LIST Abbreviations Meaning FEM Fixed effect model GLS Generalized least square HoSE Ho Chi Minh Stock Exchange Pooled OLS Pooled ordinary least square REM Random effect model ROA Return on asset ROE Return on equity WACC Weighted average cost of capital v TABLE OF CONTENTS DECLARATION OF AUTHENTICITY. iii ABBREVIATIONS LIST .iv LIST OF TABLES. vii LIST OF CHARTS.
viii CHAPTER 1 : INTRODUCTION. The necessity of the research. Research subjects and scope. 6 CHAPTER 2 : THEORETICAL AND EMPIRICAL RESEARCHES.
Theory of capital structure. Trade-off theory. Pecking order theory .29 CHAPTER 3 : RESEARCH METHOD. Description of variables in the research model.
Theoretical research model. Data analysis sequence. Regression Model Selection. Model’s deficiencies test.
Model’s deficiencies remedy .46 CHAPTER 4 : RESEARCH RESULTS AND DISCUSSIONS. The impact of short-term debt on ROA. The impact of long-term debt on ROA. The impact of short-term debt on ROE.
The impact of long-term debt on ROE .84 CHAPTER 5 : CONCLUSION AND POLICY RECOMMENDATION. Recommendations on capital structure for enterprises. Recommendations for relevant organizations. Limitations of the topic.
x vii LIST OF TABLES Table 3.1: Description of variables in the research model .1: Descriptive statistics of variables .2: Correlation between variables .3: Correlation between variables (after adjustment) .4: Model regression results of short-term debt for the ROA .5: Model’s selection for short-term debt on the ROA .6: VIF test result for short-term debt on the ROA .7: Heteroskedasticity test result for short-term debt on the ROA .8: Auto-correlation test result for short-term debt on the ROA .9: FGLS regression model for short-term debt on the ROA .10: Regression results for long-term debt on the ROA .11: Model’s selection for long-term debt on the ROA .12: VIF test result for long-term debt on the ROA .13: Heteroskedasticity test result for long-term debt on the ROA.14: Auto-correlation test result for long-term debt on the ROA .15: FGLS regression model for long-term debt on the ROA.16: Model regression results of short-term debt for the ROE .17: Model’s selection for short-term debt on the ROE .18: VIF test result for short-term debt on the ROE.19: Heteroskedasticity test result for short-term debt on the ROE .20: Auto-correlation test result for short-term debt on the ROE .21: FGLS regression model for short-term debt on the ROE .22: Regression results for long-term debt on the ROE .23: Model’s selection for long-term debt on the ROE .24: VIF test result for long-term debt on the ROE .25: Heteroskedasticity test result for long-term debt on the ROE .26: Auto-correlation test result for long-term debt on the ROE .27: FGLS regression model for long-term debt on the ROE .28: Overall comparison results .83 viii LIST OF CHARTS Chart 4.1: Average rate of return over 10 years .2: Average debt ratio over 10 years. Introduction Capital structure decision is one of the essential decisions of every enterprise. One of the key issues of capital structure is determining the optimal structure to achieve good performance. Capital structure decisions must be made well before the company is incorporated or when there is a capital requirement to meet the cost needs.
The CFO of a company must analyze the cost and profit factors of various sources before choosing the best one, the optimal capital structure or the capital structure that reduces the cost for the business. Therefore, capital structure decision is an ongoing process and must be done whenever the company has capital requirements for projects. The capital structure is said to be optimal once it maximizes the market value of the firm (Chadha and Sharma, 2015). Capital structure is the combination of debt and equity that a company uses to finance its business (Damodaran, 2001).
In the capital structure decision, the term financial leverage is mentioned. Financial leverage is the ratio between debt and equity, indicating the relationship between borrowed funds and owners’ equity in a firm’s capital structure (Chadha and Sharma, 2015). The owner has a commitment to the company in the belief that the company will grow in the near future. In contrast, creditors do not have a solid and long-term commitment because they are more interested in paying their debt on time.
CFOs will want to invest cash in future projects to generate better returns, while shareholders are more interested in paying regular dividends (Chadha and Sharma, 2015). The impact of decisions on capital structure will help enterprises to cope with the harsh competitive environment to finance the company’s assets (Zuraidah et al. Thus, the basic objective of capital structure optimization is to decide the proportions of debt and equity in order to maximize corporate value, improve business performance, and at the same time minimize the average cost of capital (Yu-Shu et al. 2 Capital structure has an influence on the performance of enterprises and has been researched by domestic and foreign authors.
Some of the foreign studies can be mentioned are Mireku et al (2014); Ramachandran and Candasamy (2011); Olokoyo (2013); Sheikh et al (2013); Pouraghajan et al (2012); Gill, Biger and Mathur (2011); Margaritis and Psillaki (2010). Meanwhile in Vietnam, assessing the impact of capital structure on the performance of enterprises is studied by many authors Nguyen Thi Thanh Vinh (2021); Tran Thi Kim Oanh and Hoang Thi Phuong Anh (2017); Doan Vinh Thang (2016); Quang et al (2014). The necessity of the research Theoretically, capital structure reflects the ratio of debt to equity that the business is carrying. Prior studies focused on looking at factors affecting the capital structure of enterprises, making comments on the ratio between debt capital and equity or the ratio of short-term and long-term debt.
Theoretically, researchers have shown that a reasonable capital structure will contribute to increasing profits and increasing enterprise value. However, what capital structure is reasonable in the economic environment in Vietnam has not been clarified. Therefore, it is necessary to have an overall picture of the common types of capital structures currently applied by Vietnamese enterprises and specific to an industry. In terms of economic practice, firstly, materials are inputs for all production industries as well as having spillover effects, positive impacts promoting the development of many industries, such as: manufacturing, information technology, electronics, chemicals, high-tech industries, products for agricultural, forestry, fishery, livestock production, etc.
Secondly, the self-production for domestic production has also contributed to reducing the import of raw materials from other countries and optimizing investment costs in the production of some industries. Thirdly, in general, the production capacity and quality of our country’s material industry is still limited. The localization rate of production of materials for the manufacturing industry is still low, such as cast iron materials (under 30%); aluminum material, copper material (about 5%); chemicals for the plastic and rubber 3 industries still have to import up to 70%; raw materials for the textile industry have to be imported nearly 90% of fabrics, 80% of yarns;. Based on the practices and recent researches, the thesis decided to choose the topic “Impact of capital structure on performance of listed material manufacturing enterprises in Vietnam”.
This study provides both theoretical and practical significance to know which factors in capital structure affect enterprises’ performance in order to make rational decisions about capital structure. With the ultimate goal is to help businesses get the right strategies to maximize their value with the minimal capital cost. Research objectives The thesis aims to determine the impact and degree of impact of capital structure on the performance of listed material manufacturing enterprises in Vietnam from 2012 to 2021. In which, to achieve the above purpose, the thesis will accomplish 3 specific objectives, (i) determine the factors in capital structure that affect the performance of listed material manufacturing enterprises in Vietnam; (ii) examine the impact of capital structure factors on the performance of these firms; (iii) then make recommendations to improve the efficiency in the operation of Vietnamese enterprises in general.
Research questions Based on the purpose set out above, the study will make 3 corresponding questions to solve 3 specific objectives, (i) What factors in capital structure affect performance of listed material manufacturers in Vietnam? (ii) How do capital structure factors affect the performance of these firms? (iii) Determine the optimal capital structure based on the quadratic research model? (iv) What solutions will help improve performance in business activities of Vietnamese enterprises.