Determinants of capital structure : an empirical study of Vietnamese listed firms

Abstract

This study examines the factors that potentially affect the financial leverage of listed firms on Vietnamese stock exchanges, and identifies the key determinants of the capital structure of these firms. The paper also explores the capital structure theories and how they explain capital structure decisions of firms worldwide and in Vietnam. Based on a sample of 183 non-financial publicly-traded firms from 2009 to 2013, this study uses the estimation method with fixed-effects model (FEM) to deliver the most reliable factors, and a pooled OLS method to assess the impacts of industry classification. The initial nineteen explanatory variables represent the factors that potentially determine capital structure : business risk, profitability, firm size, growth opportunities, tangibility of assets, uniqueness of assets, taxes, non-debt tax shields, industry condition, stock market condition, debt market condition, and macroeconomic condition. This study identifies that the most reliable and important factors that determine the use of debt by Vietnamese listed firms are firm size (+), inflation rate (+) as a proxy for macroeconomic condition, tangibility of assets (+) , business risk (+) , stock market return (+) as a proxy for stock market condition ; followed by the moderately influential factors, including profitability (–), growth opportunities (–/+), industry mean leverage (+) as a proxy for industry condition, average lending rate (+/–) as a proxy for debt market condition, and uniqueness of assets (+). This study maintains that industry classification plays an important role in a firm’s leverage. There is strong evidence of a higher level of debt for firms belonging to Construction, Construction Materials, Real Estate industries and Mineral industries, followed by Manufacturing, Steel, and Plastics and Packaging industries. Whether or not firms belong in highly regulated industries also affects their capital structure.