MINISTRY OF EDUCATION & TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY ��� MAI THI PHUONG THAO DETERMINANTS OF CAPITAL STRUCTURE AN EMPERICAL RESEARCH OF LISTED COMPANIES IN HOSE MASTER THESIS OF B[.]
MINISTRY OF EDUCATION & TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY MAI THI PHUONG THAO DETERMINANTS OF CAPITAL STRUCTURE: AN EMPERICAL RESEARCH OF LISTED COMPANIES IN HOSE MASTER THESIS OF BUSINESS ADMINISTRATOR HO CHI MINH CITY – 2013 MINISTRY OF EDUCATION & TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY MAI THI PHUONG THAO DETERMINANTS OF CAPITAL STRUCTURE: AN EMPERICAL RESEARCH IN HOSE LISTED COMPANIES Subject: Master of Business Administrator Code: 60.34.01.02 THESIS OF MASTER OF BUSINESS ADMINISTRATOR SUPERVISOR: DR VO XUAN VINH HO CHI MINH CITY – 2013 I ABSTRACT This paper attempts to investigate the determinants of the capital structure of a sample of listed companies on the Ho Chi Minh Stock Exchange from 2007 to 2012 After refining the data, this study can be able to use 271 companies to make the investigation on the determinants of the capital structure by observation in all samples, in each year and in each business sectors The relationship between PE, EPS, tangibility, profitability, size, and liquidity to the leverage (including total debt and short-term debt ratio) are gradually shown up The findings reveal that PE, tangibility, profitability, size and liquidity are highly significant However, EPS are not much effect to leverage The results confirm that in each economics status, the components of capital structure have their tendency toward the gearing Finally, the business factors also affect to the determinants of leverage will emphasis the difference in decision of capital structure in each industry II ACKNOWLEDGEMENT I would like to express my gratitude to all those who gave me the possibility to complete this thesis I want to thanks all my lecturers in course at University of Economics Ho Chi Minh City, who have empowered me with considerably useful knowledge during the time I studied, especially Dr Vo Xuan Vinh, who support in this thesis, thanks for his patience, motivation, enthusiasm, and immense knowledge to judge and comment on the contents of the subject Besides my advisor, I would like to thank the rest of my friend in eMBA class, for kindly helping me during my study and thesis processing Last but not the least; I would like to thank my family for supporting me spiritually throughout my life Although I has tried the best to complete the thesis, but errors could not be comprehensively avoided Therefore, I am also looking forward to receiving the inputs and comments from respectful lecturers and friends, so that the thesis could be extended and improved Mai Thi Phuong Thao Ho Chi Minh, November 2013 III COMMITMENT I would like to commit that this thesis, “DETERMINANTS OF CAPITAL STRUCTURE: A EMPERICAL RESEARCH OF LISTED COMPANIES IN HOSE”, was accomplished based on my individual study and research The data was collected based on the secure sources Mai Thi Phuong Thao Table of Contents TABLE OF CONTENTS CHAPTER INTRODUCTION 1.1 Background 1.2 Problem Statement 1.3 Purpose of Research 1.4 Organisation of the Study CHAPTER LITERATURE REVIEW AND HYPOTHESIS 2.1 Definition: 2.2 Theories 2.2.1 Modigliani and Miller 10 2.2.2 Trade-off theory and Pecking order theory 13 2.2.3 Agency cost models 17 2.2.4 Other models 19 2.3 Empirical study on Capital Structure in Vietnam 24 CHAPTER METHODOLOGY 26 3.1 Data Collection 27 3.2 Developing Hypotheses 27 3.2.1 Dependent Variables 28 3.2.2 Independent Variables: 30 3.2.3 Hypotheses: 30 a PE and EPS: 30 b Tangibility (TANG) 31 c Profitability (PROFIT) 32 d Firm Size (SIZE) 33 e Liquidity (LIQD) 35 3.3 Methods of Analysis 37 3.3.1 Descriptive analysis 38 3.3.2 Pearson correlation 38 3.3.3 Multiple regression analysis 38 CHAPTER DATA ANALYSIS AND FINDING 41 4.1 Descriptive statistic 41 4.2 Correlations between Variables 44 4.3 Multiple Regression Analysis 45 4.4 Testing on Regression Result 48 4.5 Conclusion 49 4.5.1 EPS with leverage 50 4.5.2 PE with leverage 51 4.5.3 Tangibility to leverage 52 4.5.4 Profit to leverage 53 4.5.5 Size to leverage 54 4.5.6 Liquidity to leverage 56 4.5.7 Determinants of capital structure from 2007 to 2012 57 4.5.8 Determinants of capital structure in observing in business sectors 59 CHAPTER IMPLICATION 61 5.1 Summary of finding and discussion 61 5.2 Limitation of thesis 64 5.3 Recommendation for future study 64 REFERENCES 66 CHAPTER 1.1 INTRODUCTION Background Capital structure decisions have been agued amongst theorists and practitioners in finance for many years The underlying question of such research is how and why companies come to the debt-equity ratios in their decision for capital structures and which determinants would affect their decision There are varying ways to define the debt ratio Some of companies prefer self financing while the others want to utilize the leverage To see how much a company relies on debt financing, the comparison between two companies is the good example: the cash-rich Microsoft (MSFT), and the hugely leveraged Amazon (AMZN) Microsoft, in 2000, claimed earnings before interest, taxes, depreciation and amortization, or EBITDA, of $11.8 billion, had a negative cash flow of $340.7 million in the same year That very low ratio reflects that Microsoft has zero long-term debt, and its short-term debts are relative to its massive assets In comparison with ultrasolvent Microsoft, Amazon looks positively deficit The extremely high debt ratio (2,723.6 divided by 1,852, or 1,470.2) reflects that its total debts significantly outstrip its total assets (Swanson, 2001) This example could show that there are differences of the decision in defining the appropriate capital structure The reason could be based on the difference in business activity or some determinants could affect to the debt ratio For a long time it has been believed that an optimal debt-equity choice exists for any firm, and that this optimal capital structure is a tradeoff between the advantages of debt financing and the disadvantages of bankruptcy risks From a firm’s perspective, debt is often a cheaper source of finance than equity because of tax advantages to be gained Debt is preferred over equity, especially where the firm does not face financial distress Since the publication of Modigliani and Miller’s (1958; 1963) seminal article, this argument had been developed by many theories try to explain variation in debt ratio across the firm Until now, the analysts don’t argue about which theories are the best use for company but they start to find which factor that will affect to the financial decision and performance of the company 1.2 Problem Statement Modigliani and Miller (1958) stated their famous irrelevance theory, where under perfect conditions, the choice of debt or equity is irrelevant When other research irrelevant, such as Myers and Majluf (1984) run the test, which is result of agency cost, as the underlying theory of how a firm comes to decide the debt-equity distribution Many other theories have been proposed and tested, but the Tradeoff Theory, including agency costs as part of the tradeoff, is still often applied and discussed in literature It seems that no perfect theory exists, and many theories explain only a part of the story Perhaps one theory cannot be sufficient for one firm’s capital structure determination (S.C Myers, 2001) In many years later, through the empirical work among the world and each country, financial economics has yet to provide agreement about which factors affect the selection of a specific leverage position The empirical evidence on capital structure in developed countries found that the choice of debt-equity ratio can be modeled subject to the agency cost (Marsh, 1982; Titman & Wessels, 1988) With the similar method, data from industrialized countries help explaining the differences in firms’ capital structure (Rajan & Zingales, 1995) ...MINISTRY OF EDUCATION & TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY MAI THI PHUONG THAO DETERMINANTS OF CAPITAL STRUCTURE: AN EMPERICAL RESEARCH IN HOSE LISTED COMPANIES. .. determinants of the capital structure of a sample of listed companies on the Ho Chi Minh Stock Exchange from 2007 to 2012 After refining the data, this study can be able to use 271 companies. .. could perform in each industry that can prove the significant influences to capital structure The research of (T D K Nguyen & Ramachandran, 2006) show the proof in comparing the financing policies