Capital structure and firm performance of listed companies in Vietnam

Abstract

Capital structure decisions have been the most significant decisions to be taken by any

business organization for maximization of shareholders wealth and sustained growth. The

study examines the relationship between capital structure and firm performance of 200 listed

firms on the HOSE for a period of five years from 2008 to 2012. This study employed panel

data analysis by using fixed-effect estimation. Empirical result shows that the listed firms on

the HOSE employ mostly short-term liabilities to finance their operations. According to the

results, all measures of firm performance are found to have a significant and negative impact

on all measures of firm capital structure. This result is contrary to the predictions of trade-off

theory but consistent with the pecking order theory. The result also reveals that firm size has

a positive and significant impact on the leverage, tangible asset is negative and significantly

related to STDTA and TDTA, growth opportunity variable has a negative and significant

coefficient with LTDTA and TDTA, the inflation rate has a negative effect on TDTE, the

coefficient of asset specificity is negative and significantly related to all measures of leverage

(except STDTA). There appears two interesting findings are that TDTA of the parent

companies has a negative impact on TDTA of their affiliated companies and two measures of

firm performance (ROA and ROE) of the parent companies have a significantly positive

impact on two measures of firm performance (ROA and ROE) of their affiliated companies.

Keywords: capital structure, firm performance, parent company, affiliated company, listed

firm, Ho Chi Minh Stock Exchange, panel data, fix-effect model.