MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY HO QUYNH BAO TRAN THE IMPACT OF CAPITAL STRUCTURE ON FINANCIAL EFFICIENCY OF JOINT STOCK COMMERCIAL BANKS I[.]
MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY HO QUYNH BAO TRAN THE IMPACT OF CAPITAL STRUCTURE ON FINANCIAL EFFICIENCY OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM GRADUATION DISSERTATION MAJOR: FINANCE - BANKING CODE: 7340201 HO CHI MINH CITY, 2018 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY HO QUYNH BAO TRAN THE IMPACT OF CAPITAL STRUCTURE ON FINANCIAL EFFICIENCY OF JOINT STOCK COMMERCIAL BANKS IN VIETNAM GRADUATION DISSERTATION MAJOR: FINANCE - BANKING CODE: 7340201 SUPERVISOR MA TRAN KIM LONG HO CHI MINH CITY, 2018 ABSTRACT Author Tran, Ho Quynh Bao Title The impact of capital structure on financial efficiency of Joint Stock Commercial Banks in Viet Nam Language English Instructor Long, Tran Kim The research presents the experiment on the impact of capital structure on financial efficiency of Joint Stock Commercial Banks in Vietnam The main objective of this study is to determine the overall effect of capital structure on the performance of these banks, establishing the existential relationship between the choice of capital structure of firms and the return on equity owned.Quantitative analysis of this thesis uses sample consisting of 28 Joint Stock Commercial Banks from 2010 to 2017 Research model makes use of panel data and regression made in methods: Pooled Ordinary Least Square (OLS), Fixed Effects Model (FEM), Random Effects Model (REM) and Generalized Least Squares (GLS) Empirical results indicates there is negative relationship between deposits ratio and financial efficiency – represented by ROE, ROA, the reason behind this is that the stagnation of capital mobilization, speaking in another way, because of the asymmetrical development of capital mobilization and credit activities, the more mobilizing capital the banks get, the more inefficiency they perform Moreover, the study also finds out that the ratio of outstanding loans to total assets and financial performance have positive relationship, which reflects the current situation of Joint Stock Commercial banks that it is essential to speed the credit activity up, utilizing maximum the capital mobilization Therefore, a number of recommendations are introduced to promote the financial performance of these banks iii DECLARATION OF AUTHENTICITY I hereby confirm that I am the sole author of the written these here enclosed and I have compiled it in my own words With my signature, I confirm that I have documented all methods, data and processes truthfully I have mentioned all people who were significant facilitators of the work I declare that all statements and information contained herein are true, correct and accurate to the best of my knowledge Ho Chi Minh City, December 24, 2018 Ho Quynh Bao Tran ACKNOWLEGEMENTS First and foremost, I would like to express my sincere gratitude to my advisor Mr Tran Kim Long for his continuous support of my study, for his patience, motivation, enthusiasm and immense knowledge He has given me all the freedom to pursue my research, while silently and non-obtrusively ensuring that I stay on course and not deviate from the core of my research His guidance helped me all the time of writing this thesis I could not have imagined having a better advisor and mentor for my study Next, my acknowledgement would be incomplete with thanking the biggest source of my strength, my family I thank them for putting up with me difficult moments and guiding me to follow my dream of taking this degree This would not have been possible without their unwavering and unselfish love and support given to me all the times Finally, best regards to my lecturers, my friends and BUH for their sharing and support throughout my Bachelor program TABLEOF CONTENTS ABSTRACT i DECLARATION OF AUTHENTICITY ii ACKNOWLEGEMENTS iii LIST OF ABBREVIATIONS viii LIST OF TABLES ix CHAPTER 1: INTRODUCTION 1.1 Motivation 1.2 Research goal 1.3 Research questions 1.4 Research subject and scopes 1.5 Methodology 1.6 Research contribution 1.7 Research outline CHAPTER 2: LITERATURE REVIEW 2.1 Definitions 2.1.1 Capital structure 2.1.2 Financial performance 2.1.3 The performance of Joint Stock Commercial Banks 2.2 Theoretical background 10 2.2.1 Capital Structure Theories of Modigliani and Miller (M&M) 10 2.2.2 Trade-off theory of Capital structure 11 2.2.3 Pecking Order Theory 11 2.2.4 Agency Theory 12 2.3 Previous studies on the relationship between capital structure and financial efficiency 13 Conclusion of chapter 16 CHAPTER 3: RESEARCH DESIGN 17 3.1 Research methods 17 3.2 Data collecting and processing method 17 3.3 Measurement of research variables 17 3.3.1 Dependent variables 17 3.3.2 Independent variable 18 3.3.3 Other controlling variables 18 3.4 Research model 19 3.5 Hypothesis 19 3.6 Research procedure 21 3.6.1 Descriptive analysis 21 3.6.2 Variance Inflation Factor test 21 3.6.3 Stage of regression models 22 Conclusion of Chapter 24 CHAPTER 4: EMPIRICAL RESULTS 25 4.1 Descriptive statistics 25 4.2 Correlation Matrix and multicollinearity VIF 26 4.3 Regression results 28 4.3.1 Testing conformability of Pooled OLS, FEM, REM models 28 4.3.2 Choosing the best fitted model 28 4.3.3 Other relevant tests 29 4.4 Regression result 31 4.5 Discussion about research results 32 Conclusion of Chapter 36 CHAPTER 5: CONCLUSION AND RECOMMENDATIONS 37 5.1 Conclusion 37 5.2 Recommendations 38 5.2.1 Solutions to improve business performance from the perspective of capital structure 39 5.2.1.1 Steady increase in payables 39 5.2.1.2 Enhancing the efficiency of credit operation 41 5.2.2 Support solutions group 44 5.2.2.1 Financial solutions 44 5.2.2.2 Personnel solutions group 47 5.2.2.3 Technological solutions group 48 5.2.2.4 Management solutions group 50 5.2.2.5 Constructing and complete the legal enviroment 51 5.2.2.6 Assist banks to carry out M & A activities 51 5.2.2.7 Supporting for the process of restructure and modernizing the banking system 52 5.2.2.8 Promulgate regulations guiding the accounting according tointernational accounting standards 52 5.2.2.9 For the State bank 53 5.3 Limitations of the thesis 54 5.4 New approaches in the future 54 REFERENCES 56 APPENDIX 60 APPENDIX 68 LIST OF ABBREVIATIONS JSCBs Joint Stock Commercial Banks FEM Fixed Effect Model REM Random Effect Model OLS Ordinary Least Square VIF Variance Inflation Factor GLS Generalized Least Squares NPL Non-performing Loan SBV State bank of Vietnam SMEs Small and medium enterprises ADI Association of Deposit Insurers ROE Return on Equity ROA Return on Assets M&A Mergers and Acquisitions ... structure on financial efficiency of Joint Stock Commercial Banks in Vietnam The main objective of this study is to determine the overall effect of capital structure on the performance of these banks, ... basis on capital structure, financial efficiency of JSCB - Assessing the capital structure and financial performance of JSCBs in Vietnam Identifying the factors influencing the capital structure. .. structure and the impact of capital structure on the financial performance of JSCBs - Proposing some solutions focusing on capital structure to improve the financial efficiency of JSCB in Vietnam 1.3