The Effects Of Financial Leverage On The Performance Of Joint Stock Commercial Banks In Vietnam

Abstract

The general purpose of this thesis is to research the effects of financial leverage on the financial performance of Vietnamese banks. There are two main theories that this article is based on to study financial leverage like previous research articles: the Trade-off theory and the Pecking order theory. A model to study the impact of financial leverage is also gradually developed, including three independent variables (Debt to equity, Debt to asset, and Interest coverage ratio). Data will be collected based on the secondary quantitative method and will include 24 joint stock commercial banks over 4 years from 2019 - 2022. The model will be run using descriptive statistics, Pearson's correlation, and regression analysis. The results show that the independent variables of financial leverage all have a significant relationship with the financial performance of banks. However, the results also found that there is not enough evidence for a significant relationship between the variables of financial leverage and Tobin's Q variable of financial performance. In summary, there are several issues where the abuse of financial leverage can lead to risks such as debt insolvency and bankruptcy. Therefore, several conclusions and recommendations have been made to help banks control the level of financial leverage at a safe level to create profits while avoiding risks