Empirical test for Market timing theory of Capital structure in Vietnam

Abstract

This thesis aims at testing the effect of market timing on capital structure decisions in Vietnam by analyzing the sample of 138 IPO firms in Vietnam stock market within the period of 2006 to 2011. Data is collected in accordance with the regression models suggested by Baker and Wurgler (2002). The main measure is market-to-book ratio, which is expected to have negative relationship with leverage level and indicate the effect of market timing on financing decisions.

The analysis begins with the construction of correlation matrix to detect multicollinearity between independent variables. Figures show that there are weak correlations among those variables, which does not lead to multicollinearity problem. Hence, the regression model can be employed without any modifications. The result of the regression provides no evidence to support the proposition of market timing. Then further step testing for long-term impact of market timing on capital structure in Vietnam is unnecessary.

The study’s result contradicts prior research in developed countries. However, it can be explained in the Vietnamese context. Limitations and recommendations are also provided in an attempt to support further analysis in related topics and fields.