The impact of financial leverage on stock returns of construction firms listed on Vietnam's stock market
Abstract
The main objective of this study is to examine the influences of leverage on stock returns in Vietnam’s market. The sample used in this study consists of secondary data from 96 non-financial firms of construction industry listing in Hanoi Stock Exchange and Ho Chi Minh Stock Exchange from 2008 to 2019 considering three factors in Fama-French Model as explanatory variables. Moreover, due to the feature of research period, study also taking the economic conditions as recession and recovery period into consideration. After conducting several diagnostic tests and control for heteroskedasticity and autocorrelation, Feasible Generalized Least Squares (F.GLS) model is chosen for estimating panel data in this study. The empirical results observe that from 2008 to 2019 financial leverage is proven to insignificantly affect stock returns of construction enterprises listing in Vietnam’s stock market. Besides, Fama-French Three-Factor Model is also proven to work well in the case of construction sector in Vietnam with the positive correlation of all three factors to returns from stock investment. Among three factors, market risk premium is proven to have a stronger effect on return. Finally, stock return is observed to be higher in the recovery stage from 2014 to 2019 than the recession stage from 2008 to 2013.