Impact of capital structure on performance of listed material manufacturing enterprises in vietnam

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY TRUONG THI KIM NGAN IMPACT OF CAPITAL STRUCTURE ON PERFORMANCE OF LISTED MATERIAL MANUFACTURING ENTERPRISES IN VIETNAM MASTER THESIS Major: Banking - Finance Code: 34 02 01 Ho Chi Minh City – 2023 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY TRUONG THI KIM NGAN IMPACT OF CAPITAL STRUCTURE ON PERFORMANCE OF LISTED MATERIAL MANUFACTURING ENTERPRISES IN VIETNAM MASTER THESIS Major: Banking - Finance Code: 34 02 01 MENTOR: ASSOC PROF LE PHAN THI DIEU THAO Ho Chi Minh City – 2023 i DECLARATION OF AUTHENTICITY This thesis is the author's own research, the research results are authentic, in which there is no previously published content or the content done by others except the citations cited in the thesis I declare that all statements and information cited in this thesis are true, accurate and correct to the best of my knowledge and belief I am fully responsible for the thesis’s authenticity Ho Chi Minh City, February 25th, 2023 Student TRUONG THI KIM NGAN ii GRATEFULNESS Firstly, in order to complete this graduation thesis, I would like to express my deep gratitude to mentor Associate Professor Le Phan Thi Dieu Thao who has guided me from writing outline, enthusiastically giving feedback, encouraging and following the plan to ensure that the thesis is completed in a best and timely manner Next, I would also like to express my sincerest thanks to all the lecturers of Banking University of Ho Chi Minh City for imparting valuable knowledge to me during the course so that I have a good foundation in order to complete the graduation thesis Finally, it is indispensable to the enthusiastic support from my friends and family who always accompany and facilitate to perform the graduation thesis perfectly During implementing the thesis, due to some limitations in knowledge and experience, it is impossible to avoid shortcomings Therefore, I am very grateful to receive advice and suggestions from teachers and friends to help me complete the graduation thesis Once again thank you Ho Chi Minh City, February 25th, 2023 Student TRUONG THI KIM NGAN iii ABSTRACT Title: Impact of capital structure on performance of listed material manufacturing enterprises in Vietnam Abstract: The thesis analyzes the impact of capital structure on performance of listed material manufacturing enterprises in Vietnam Secondary data is extracted from annual reports, financial statements of listed material manufacturing enterprises selected as a sample for the 10-year period from 2012 to 2021 FGLS estimation method combined with matrix correlation is used to test the influence of the explanatory variables on the dependent variable The impact of capital structure including the short-term debt ratio, the long-term debt ratio on performance is measured by return on average assets (ROA), return on average equity (ROE), in addition, the thesis also uses additional control variables such as enterprise size (SIZE) and revenue growth (GROWTH) Regarding the level of influence, the impact of short-term debt ratio on performance is a non-linear relationship For longterm debt, because most enterprises use a very small ratio of long-term debt, only about 10%, the increase in long-term debt also has an impact on financial performance but follows a linear relationship For two control variables are firm size and revenue growth Both of these variables show a positive impact on financial performance Therefore, creating better profitability than other businesses Keywords: Capital structure, short-term debt ratio, long-term debt ratio iv ABBREVIATIONS LIST Abbreviations Meaning FEM Fixed effect model GLS Generalized least square HoSE Ho Chi Minh Stock Exchange Pooled OLS Pooled ordinary least square REM Random effect model ROA Return on asset ROE Return on equity WACC Weighted average cost of capital v TABLE OF CONTENTS DECLARATION OF AUTHENTICITY i GRATEFULNESS ii ABSTRACT iii ABBREVIATIONS LIST iv LIST OF TABLES vii LIST OF CHARTS viii CHAPTER : INTRODUCTION 1.1 Introduction 1.2 The necessity of the research 1.3 Research objectives 1.4 Research questions 1.5 Research subjects and scope 1.6 Research method 1.7 Research structure Chapter 1’s summary CHAPTER : THEORETICAL AND EMPIRICAL RESEARCHES 2.1 Theory of capital structure 2.1.1 Traditional approach 2.1.2 M&M theory 2.1.3 Trade-off theory .11 2.1.4 Pecking order theory 13 2.2 Empirical researches 15 2.2.1 Foreign researches 15 2.2.2 Domestic researches .24 2.2.3 Researches’ gaps 28 Chapter 2’s summary 29 CHAPTER : RESEARCH METHOD 30 3.1 Research hypothesis 30 3.2 Description of variables in the research model 31 3.2.1 Dependent variable 31 vi 3.2.2 Independent variables .32 3.2.3 Control variables 34 3.3 Theoretical research model 36 3.4 Research data 38 3.5 Research method 40 3.6 Data analysis sequence 42 3.6.1 Descriptive statistics .42 3.6.2 Correlation analysis 42 3.6.3 Regression Model Selection 43 3.6.4 Model’s deficiencies test 44 3.6.5 Model’s deficiencies remedy 45 Chapter 3’s summary 46 CHAPTER : RESEARCH RESULTS AND DISCUSSIONS 47 4.1 Descriptive statistics 47 4.2 Correlation analysis 50 4.3 Regression analysis 51 4.3.1 The impact of short-term debt on ROA 52 4.3.2 The impact of long-term debt on ROA 60 4.3.3 The impact of short-term debt on ROE 67 4.3.4 The impact of long-term debt on ROE 75 Chapter 4’s summary 84 CHAPTER : CONCLUSION AND POLICY RECOMMENDATION .85 5.1 Conclusion 85 5.2 Recommendations on capital structure for enterprises 87 5.3 Recommendations for relevant organizations 88 5.4 Limitations of the topic 89 Chapter 5’s summary 90 REFERENCES i APPENDIX viii APPENDIX x vii LIST OF TABLES Table 3.1: Description of variables in the research model .36 Table 4.1: Descriptive statistics of variables 47 Table 4.2: Correlation between variables 50 Table 4.3: Correlation between variables (after adjustment) 51 Table 4.4: Model regression results of short-term debt for the ROA 52 Table 4.5: Model’s selection for short-term debt on the ROA 53 Table 4.6: VIF test result for short-term debt on the ROA 54 Table 4.7: Heteroskedasticity test result for short-term debt on the ROA .55 Table 4.8: Auto-correlation test result for short-term debt on the ROA 56 Table 4.9: FGLS regression model for short-term debt on the ROA .57 Table 4.10: Regression results for long-term debt on the ROA .60 Table 4.11: Model’s selection for long-term debt on the ROA .61 Table 4.12: VIF test result for long-term debt on the ROA .62 Table 4.13: Heteroskedasticity test result for long-term debt on the ROA 63 Table 4.14: Auto-correlation test result for long-term debt on the ROA 64 Table 4.15: FGLS regression model for long-term debt on the ROA 65 Table 4.16: Model regression results of short-term debt for the ROE .67 Table 4.17: Model’s selection for short-term debt on the ROE .69 Table 4.18: VIF test result for short-term debt on the ROE 70 Table 4.19: Heteroskedasticity test result for short-term debt on the ROE .70 Table 4.20: Auto-correlation test result for short-term debt on the ROE 71 Table 4.21: FGLS regression model for short-term debt on the ROE .72 Table 4.22: Regression results for long-term debt on the ROE .75 Table 4.23: Model’s selection for long-term debt on the ROE 76 Table 4.24: VIF test result for long-term debt on the ROE .77 Table 4.25: Heteroskedasticity test result for long-term debt on the ROE 78 Table 4.26: Auto-correlation test result for long-term debt on the ROE 79 Table 4.27: FGLS regression model for long-term debt on the ROE 80 Table 4.28: Overall comparison results 83 viii LIST OF CHARTS Chart 4.1: Average rate of return over 10 years .48 Chart 4.2: Average debt ratio over 10 years 49 xiii Multicollinearity test for short-term debt on the ROA Heteroskedasticity test for short-term debt on the ROA 10 Auto-correlation test for short-term debt on the ROA xiv 11 FGLS model for short-term debt on the ROA xv 12 OLS regression for long-term debt on the ROA 13 FEM model for long-term debt on the ROA xvi 14 REM model for long-term debt on the ROA 15 Choosing between FEM and REM model for long-term debt on the ROA xvii 16 Multicollinearity test for long-term debt on the ROA 17 Heteroskedasticity test for long-term debt on the ROA 18 Auto-correlation test for long-term debt on the ROA xviii 19 FGLS model for long-term debt on the ROA xix 20 OLS regression for short-term debt on the ROE 21 FEM model for short-term debt on the ROE xx 22 REM model for short-term debt on the ROE 23 Choosing between FEM and REM model for short-term debt on the ROE xxi 24 Multicollinearity test for short-term debt on the ROE 25 Heteroskedasticity test for short-term debt on the ROE 26 Auto-correlation test for short-term debt on the ROE xxii 27 FGLS model for short-term debt on the ROE xxiii 28 OLS regression for long-term debt on the ROE 29 FEM model for long-term debt on the ROE xxiv 30 REM model for long-term debt on the ROE 31 Choosing between FEM and REM model for long-term debt on the ROE xxv 32 Multicollinearity test for long-term debt on the ROE 33 Heteroskedasticity test for long-term debt on the ROE 34 Auto-correlation test for long-term debt on the ROE xxvi 35 FGLS model for long-term debt on the ROE