VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY ------------------------ BUI THI MINH HUYEN DETERMINANTS OF CAPITAL STRUCTURE OF LISTED FIRMS IN THE PHARMACEUTICAL SECTOR IN VIETNAM MAJOR: BUSINESS ADMINISTRATION CODE: 8340101.01 RESEARCH SUPERVISORS: Prof. HIROSHI MORITA Assoc. NGUYEN VAN DINH Hanoi, 2020 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENTS ACKNOWLEDGEMENT. iii STATUTORY DECLARATION.
iv LIST OF TABLES. v LIST OF FIGURES. vi LIST OF ABBREVIATIONS.vii EXECUTIVE SUMMARY. viii CHAPTER 1: INTRODUCTION .3 Research Objects and Scope .1 Definition relating to capital structure .2 The theories about capital structure .3 The determinants affecting capital structure .26 CHAPTER 4: DATA ANALYSIS AND FINDINGS .1 Analyzing the pharmaceutical sector in Vietnam during the 10-year period .1 The characteristics of pharmaceutical sector in Vietnam .2 Current status of capital and capital structure of pharmaceutical listed firms .32 i LUAN VAN CHAT LUONG download : add luanvanchat@agmail.
Descriptive statistics of dependent variable. Descriptive statistics of independent variables .3 Testing the model .1 Original regression model. Correlation matrix and multicollinearity testing .5 Overcoming the Heteroskedasticity of the model .4 Result of the research and discussing them .5 Comparing factors affect to capital structure between companies listed on Hanoi Stock Exchange (HNX) and ones listed on Ho Chi Minh City Stock Exchange (HOSE). 46 CHAPTER 5: RESEARCH IMPLICATIONS AND RECOMMENDATIONS .1 Recommendations for the pharmaceutical listed companies in Vietnam .2 Recommendations for related parties .3 Limitation and the following research directions.
63 ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT I would like to express my sincere thanks to the Board of Management, professors, and teachers of Vietnam Japan University and Yokohama National University for facilitating and imparting knowledge to me to complete this graduation thesis as well as help me to have a solid portfolio for the future career. And in particular, I would like to send my deepest gratitude to my supervisors Prof. Hiroshi Morita and Assoc. Nguyen Van Dinh, who mentored, instructed, and imparted useful knowledge and ideas during the implementation and completion of this thesis.
Sincerely thanks to my family and friends for their support, convenience, and motivation in the past time. Although many attempts have been made to implement the research in the most complete way, the limitations of knowledge and experience will inevitably lead to certain shortcomings. I hope to receive more guidance and valuable comments from teachers to complete my thesis. Sincerely, Bui Thi Minh Huyen iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com STATUTORY DECLARATION I pledge that the thesis “Determinants of capital structure of listed firms in the pharmaceutical sector in Vietnam” is the work of the author.
The content is drawn from the learning process and the results of empirical research. The data used in the study period are true and have a clear origin. Research results have not been published in any previous scientific research. The thesis is conducted under the guidance of Prof.
Hiroshi Morita and Assoc. Nguyen Van Dinh. Sincerely, Bui Thi Minh Huyen iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF TABLES Table 3.1: Overview of asset structure of pharmaceutical firms .2: Overview of capital structure of pharmaceutical firms.3: Descriptive statistics of dependent variable .4: Descriptive statistics of independent variables .5:Requirements for companies listed on the HOSE and HNX stock exchanges. 47 v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF FIGURES Figure 1.1: Revenue of Vietnamese pharmaceutical sector (billion USD) .1: Original regression model .2: Correlation matrix of research variables .3: Regression model without “SIZE” or “TANG” variable .7: Overcoming the Heteroskedasticity of the model .8: Regression model of firms listed on HNX and HOSE stock exchanges 48 vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF ABBREVIATIONS Abbreviations Meaning AGE Firm age API Active Pharma Ingredient CA Current Assets CEO Chief Executive Officer CL Current Liabilities EBIT Earnings before interests and taxes GROW Growth opportunity HNX Hanoi Stock Exchange HOSE Ho Chi Minh City Stock Exchange LA Long-term Assets LD Long-term Debts LIQ Liquidity M&A Mergers and Acquisitions OLS Ordinary Least Square PLU Pluralist Executive PROF Profitability SIZE Firm size SMEs Small and Medium-sized enterprises TA Total Assets TANG Tangible Assets TC Total Capital TD Total Debt TE Total Equity USD United States Dollar VIF Variance – Inflation Factor VND Vietnam Dong vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com EXECUTIVE SUMMARY This research aims to study the factors influencing the capital structure of pharmaceutical companies listed on stock exchanges in Vietnam.
This study uses data from financial statements, annual reports, management reports of listed companies that publish data on the stock market during the period 2010-2019. The study used the Ordinary Least Square method to estimate the parameters of the model. The study used different independent variables including company characteristics (profitability, growth opportunity, tangible assets, liquidity, firm size, firm age) and corporate governance (pluralist executives). Research results show that profitability, tangible assets, and liquidity have a negative correlation with capital structure.
However, research also illustrates firm size, firm age and pluralist executives have a negative correlation with capital structure but they do not have statistical significance. In contrast, growth opportunities have a positive relationship with capital structure. Generally, the results are most consistent with previous studies on capital structure. In addition, the study also shows the direction and the level of the influence of the above independent variables on the capital structure of pharmaceutical companies listed on the Hanoi Stock Exchange and Ho Chi Minh City Stock Exchange are different.
Also, the study proposed some recommendations for pharmaceutical listed firms to get a reasonable capital structure as well as investors and related parties when they would like to invest in pharmaceutical listed firms in Vietnam. viii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1: INTRODUCTION 1.1 Research Motivations Enterprises need capital to operate which may be retained earnings, debt, and equity. The source of funds from debt can increase the value of the firm but using too much debt to finance investments, the company may have financial risks which can consequently lead the enterprise into bankruptcy. Moreover, an ideal combination of capital structure including debt and equity can also minimize the cost of capital and maximize the firm’s value.
Therefore, “capital structure decision is an important corporate policy that deals with the firm’s activities, with debts and equity” (Brounen et al. In fact, the capital structure will change depending on the characteristics of the situation of each enterprise, the area in which it operates, as well as the effects of macroeconomic fluctuations of the economy, culture, and religion. Rather than finding the optimal ratio of debt to equity, finance researchers are often interested in finding out the factors that influence the use of the financial leverage of the business. From the relationship between these factors and the capital structure that we can assess whether the decision to use the loan or the equity of the business is reasonable or not, then propose solutions to improve the efficiency of using financial leverage, maximizing asset value for businesses.
In recent years, the theory of modern capital structure has only been studied in developed countries but has not been paid much attention in developing countries. Mouamer (2011) also confirmed that “There is little work done on examining capital structure in emerging countries”. In Vietnam, those studies are almost researched at the general level for businesses, but not research much for specific industries, especially pharmaceuticals. 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Vietnam's economy has been growing in recent years, people's incomes have increased, however, Vietnam is facing an aging population as well as health problems arising from the environment and the process of industrialization.
This leads to an increased willingness to pay for medical services. Therefore, leading to the inevitable development of Vietnam's pharmaceutical industry. According to International Medical Statistics Health, in 2018, Vietnam was one of 17 countries ranked among the highest pharmaceutical growth groups (Pharmerging markets). According to Business Monitor International report “Vietnam pharmaceutical sector had revenue of USD 5.9 billion in 2018, an 11,7% increase from the previous year, which makes Vietnam become the second-largest medicine market in South East Asia”.
It once again confirms that the pharmaceutical sector not only an essential industry but also an emerging and growing industry in Vietnam in recent years.1: Revenue of Vietnamese pharmaceutical sector (billion USD) (Source: Business Monitor International Report 2018, Vietnam Business Monitor Report 2018) Currently, Vietnam's pharmaceutical industry has to import up to 90% of raw material (according to KIS Vietnam Securities Corporation, Pharmaceutical Industry Report (09/01/2019)). In order to avoid being dependent on exchange rates, some domestic 2 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com drug manufacturers in Vietnam are thinking of making Active Pharma Ingredient (API) by themselves, but API production infrastructure in Vietnam is not yet well developed, so it will require huge capital and technology investments. From the need for capital and technology of the pharmaceutical industry, in recent years, many domestic and foreign investors have invested in Vietnam's pharmaceutical industry. The appearance of new investors will affect the capital structure of the business and its operations, so Vietnamese pharmaceutical enterprises need to make wise decisions on the capital structure for sustainable development in the current competitive economic environment.
According to Vo (2017) “Vietnamese enterprises are in the process of financial liberalization, there are new policies that can affect the bond and equity markets in Vietnam, which can affect the capital structure of Vietnamese enterprises”. In recent years, there has been very little researches on the capital structure of Vietnamese pharmaceutical enterprises, so this research is very necessary. Therefore, based on the situations mentioned above, I chose the topic “Determinants of capital structure of listed firms in the pharmaceutical sector in Vietnam” to examine which factors and their levels affect to the capital structure of pharmaceutical listed firms in the Vietnam stock market helping financial planners, as well as enterprises, have a suitable view on opting for the optimal capital structure.2 Research Objectives This study aims to study the theory of capital structure, evaluate the status of the capital structure, and identify factors affecting the capital structure of pharmaceutical firms listed on the stock exchange in Vietnam. Then propose some recommendations for business managers, investors, and policymakers.3 Research Objects and Scope Research Objects: Capital structure and factors affect the capital structure of pharmaceutical listed firms in Vietnam's stock market.
3 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Research Scope: This research collects data and information of listed pharmaceutical firms in Vietnam in the period from 2010 to 2019.4 Research Questions Question 1: Do firm-specific factors affect the capital structure in listed pharmaceutical firms in Vietnam? Question 2: Is there significant difference in the impact weights among factors that influent the capital structure of Vietnam pharmaceutical listed firms? Question 3: Is there any difference in the factors affecting the capital structure of companies listed on the Hanoi Stock Exchange and ones listed on the Ho Chi Minh City Stock Exchange? Motivations lead to research question 3: In Vietnam, listing conditions are different between HNX and HOSE. Specifically, a company listed on HOSE must have a charter capital of VND 120 billion or more, while this capital on HNX is only from VND 30 billion. HOSE requires listed companies to have at least 2 consecutive years of profitability, while HNX does not require that. HOSE requires listed companies to publish debts to members of the board of directors, the board of managers, major shareholders, and related persons, meanwhile, HNX does not require.
Therefore, whether there is any difference in the capital structure between companies listed on the two stock exchanges HNX and HOSE or not, in order to give hints to stakeholders. Managers should choose which stock exchange to list on, and "should or should not" transfer between two stock exchanges.