The relationship between capital structure and financail performance case of chosen listed companies on HOSE

Abstract

With the purposes of studying capital structure of companies in Vietnam, the study used numbers of chosen companies listed on Ho Chi Minh Stock Exchange to explore the proportion of debt financing in capital structure and the relationship between the capital structure and financial performance. Capital allocation is critical for the companies since it illustrates how much companies’ financing relies on debt. The level of debt - leverage - could affect the value as well as the performance of the firm. As a result, the manager should be cautious in determining the amount of debt. The main finding of this study is to answer this aspect of financial decision. It is the relationship between capital structure and financial performance of a company, whether existing or not and in what way; and to figure out the optimal capital structure to maximize company’s performance. The data is taken quarterly from a group of firms listed on Ho Chi Minh Stock Exchange in the period of 3 years from 2009 to 2011. In order to analyze data, descriptive statistics, correlation and regression models are used to perform the data analysis. Through descriptive statistics and comparison between groups of companies, the results show that companies with low leverage perform better in comparison with companies having high leverage in aspect of financial performance. Moreover, linear regression outcomes indicate a weak-to-no relationship between capital structure and financial performance.