Empirical study of relationship between capital structure and firm value, measured by abnormal returns of stocks listed on HOSE

Abstract

This thesis is an empirical study to detect the existence of abnormal returns in different leverage deciles. 347 observations taken from 148 non-financial firms listed on Hose are collected to examine the existence of abnormal returns. There are negative CARs existing in some leverage deciles and generally the higher leverage ratio is the more negative CARs would be. Also, this research detects the existence of abnormal returns in different leverages classes across the industries. Statically, there is no existence of CARs in any leverage deciles of basic materials, oil & gas, utilities, health care, and technology. Some leverage deciles of consumer goods, consumer services and industrials lead to the negative CARs. And only one consumer services decile whose average leverage is 24% yield a positive CAR. In addition, as CARs exist in some leverage deciles of entire sample, the linear regression is developed. And, the linear regression equation between CARs and leverage is: Y = -0.4335 + 0.2947*X or CARs = -0.4335 + 0.2947* leverage. So, the empirical results indicate that leverage ratio would be used to forecast the abnormal return of a stock. As a result, investor would base on leverage ratio to exclude some bad expected performance issues.