The impact of capital structure on financial performance of joint stock commercial banks in vietnam, 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 HO CHI MINH CITY, 2018 Tai ngay!!! Ban co the xoa dong chu nay!!! 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 i 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 ii 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 iii 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 iv 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 v 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 vi APPENDIX 60 APPENDIX 68 vii 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 viii research results more accurate, the next study should use quarterly figures instead of annual data 55 REFERENCES Domestic references: Nguyễn Thu Hà, 2013 Khái niệm vai trò vốn hoạt động kinh doanh Ngân hàng thương mại Thư viện học liệu mở Việt Nam Tăng Thị Thanh Loan, 2013 Cấu trúc vốn hiệu hoạt động công ty niêm yết Sở giao dịch chứng khoán TPHCM Luận văn thạc si kinh tế Ðại học Kinh tế Thành phố Hồ Chí Minh Trần Thiên Đức, 2013 Tác động cấu trúc vốn đến hiệu hoạt động ngân hàng thương mại cổ phần Việt Nam Luận văn thạc si kinh tế Ðại học Kinh tế Thành phố Hồ Chí Minh Lê Thị Mỹ Phương, 2017, Mối quan hệ cấu trúc vốn hiệu tài doanh nghiệp sản xuất.Tạp chí 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1.26 60 = = = = = = 224 1.72 0.1464 0.0305 0.0128 00661 [95% Conf Interval] -.0261324 -.0027998 -.0070368 -.0011124 0101035 000789 0010199 0145242 0006259 0340395  APPENDIX 3:FEM regression result Fixed-effects (within) regression Group variable: number Number of obs Number of groups = = 224 28 R-sq: Obs per group: = avg = max = 8.0 within = 0.1189 between = 0.0237 overall = 0.0091 corr(u_i, Xb) F(4,192) Prob > F = -0.6020 = = roa Coef td deps loans size _cons 0033741 -.0012887 -.0060579 -.0031939 0424664 0064866 000938 0060186 000665 0083757 sigma_u sigma_e rho 00497255 00576249 42681115 (fraction of variance due to u_i) F test that all u_i=0: Std Err F(27, 192) = t P>|t| 0.52 -1.37 -1.01 -4.80 5.07 0.604 0.171 0.315 0.000 0.000 6.48 0.0001 [95% Conf Interval] -.00942 -.0031387 -.0179289 -.0045055 0259462 3.56 0161682 0005614 0058131 -.0018822 0589866 Prob > F = 0.0000  APPENDIX 4:REM regression result Random-effects GLS regression Group variable: number Number of obs Number of groups = = 224 28 R-sq: Obs per group: = avg = max = 8.0 within = 0.0443 between = 0.0134 overall = 0.0270 Random effects u_i ~ Gaussian corr(u_i, X) = (assumed) Std Err Wald chi2(4) Prob > chi2 roa Coef z td deps loans size _cons -.0088825 -.0008982 0020259 -.0006059 0229636 0067077 0009529 0055535 0004661 0062997 sigma_u sigma_e rho 0012768 00576249 04679649 (fraction of variance due to u_i) -1.32 -0.94 0.36 -1.30 3.65 P>|z| 0.185 0.346 0.715 0.194 0.000 61 = = 6.68 0.1539 [95% Conf Interval] -.0220293 -.0027659 -.0088588 -.0015195 0106164 0042644 0009695 0129106 0003076 0353107 APPENDIX 5:Hausman test hausman fe re Coefficients (b) (B) fe re td deps loans size 0033741 -.0012887 -.0060579 -.0031939 -.0088825 -.0008982 0020259 -.0006059 (b-B) Difference sqrt(diag(V_b-V_B)) S.E .0122566 -.0003904 -.0080838 -.0025879 0023198 0004743 b = consistent under Ho and Ha; obtained from xtreg B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(4) = (b-B)'[(V_b-V_B)^(-1)](b-B) = 31.43 Prob>chi2 = 0.0000 APPENDIX 6:Heteroskedasticity Test xttest3 Modified Wald test for groupwise heteroskedasticity in fixed effect regression model H0: sigma(i)^2 = sigma^2 for all i chi2 (28) = Prob>chi2 = 1436.93 0.0000 62 APPENDIX 7:Serial autocorrelation test Wooldridge test for autocorrelation in panel data H0: no first-order autocorrelation F( 1, 27) = 2.095 Prob > F = 0.1593 APPENDIX 8:Generalized least squares test(GLS) 63 Regression on ROE variables  APPENDIX 9:Pooled OLS regression result Source SS df MS Model Residual 112405594 1.21428391 219 028101399 005544675 Total 1.32668951 223 00594928 roe Coef td deps loans size _cons 002688 -.0241578 0870075 0174928 -.1066643 Std Err .0769321 0109154 061614 0049675 0684008 t 0.03 -2.21 1.41 3.52 -1.56 Number of obs F( 4, 219) Prob > F R-squared Adj R-squared Root MSE P>|t| 0.972 0.028 0.159 0.001 0.120 64 = = = = = = 224 5.07 0.0006 0.0847 0.0680 07446 [95% Conf Interval] -.1489341 -.0456705 -.0344248 0077026 -.2414725 1543101 -.0026451 2084399 0272831 0281438  APPENDIX 10:FEM regression result Fixed-effects (within) regression Group variable: number Number of obs Number of groups = = 224 28 R-sq: Obs per group: = avg = max = 8.0 within = 0.0831 between = 0.5020 overall = 0.0026 corr(u_i, Xb) F(4,192) Prob > F = -0.4748 = = roe Coef td deps loans size _cons 1902148 -.0173901 -.1296174 -.0117867 073993 0726651 0105076 0674223 0074498 0938276 sigma_u sigma_e rho 05591578 06455352 42866595 (fraction of variance due to u_i) F test that all u_i=0: Std Err F(27, 192) = t P>|t| 2.62 -1.65 -1.92 -1.58 0.79 0.010 0.100 0.056 0.115 0.431 3.68 4.35 0.0022 [95% Conf Interval] 0468904 -.0381153 -.2626009 -.0264806 -.1110723 3335393 0033352 003366 0029073 2590583 Prob > F = 0.0000 65  APPENDIX 11:REM regression result Random-effects GLS regression Group variable: number Number of obs Number of groups = = 224 28 R-sq: Obs per group: = avg = max = 8.0 within = 0.0135 between = 0.2984 overall = 0.0793 Random effects u_i ~ Gaussian corr(u_i, X) = (assumed) Wald chi2(4) Prob > chi2 roe Coef td deps loans size _cons 0529455 -.0215671 0369822 0128908 -.0965489 075212 0106893 0627344 005321 0716163 sigma_u sigma_e rho 01636565 06455352 06039124 (fraction of variance due to u_i) Std Err z 0.70 -2.02 0.59 2.42 -1.35 P>|z| 0.481 0.044 0.556 0.015 0.178 = = 13.63 0.0086 [95% Conf Interval] -.0944674 -.0425177 -.085975 0024619 -.2369143 2003583 -.0006164 1599394 0233198 0438164 APPENDIX 12:Hausman test hausman fe re Coefficients (b) (B) fe re td deps loans size 1902148 -.0173901 -.1296174 -.0117867 0529455 -.0215671 0369822 0128908 (b-B) Difference sqrt(diag(V_b-V_B)) S.E .1372694 004177 -.1665996 -.0246775 0247013 0052141 b = consistent under Ho and Ha; obtained from xtreg B = inconsistent under Ha, efficient under Ho; obtained from xtreg Test: Ho: difference in coefficients not systematic chi2(4) = (b-B)'[(V_b-V_B)^(-1)](b-B) = 63.95 Prob>chi2 = 0.0000 66 APPENDIX 13:Serial autocorrelation test Wooldridge test for autocorrelation in panel data H0: no first-order autocorrelation F( 1, 27) = 0.905 Prob > F = 0.3499 APPENDIX 14:Generalized least squares test(GLS) 67 APPENDIX Name of 28 Joint Stock Commercial Banks in the research Tên ngân hàng Tên tiếng Anh Ngân hàng Á Châu Asia Commercial Joint Stock Bank ACB Ngân hàng Tiên Phong Tien Phong Bank TPBank Ngân hàng Đông Nam Á South East Asia Bank SeABank Ngân hàng An Bình An Binh Bank ABBANK Ngân hàng Bắc Bac A Bank Á BacABank Ngân hàng Bản Viet Capital Bank Việt VietCapitalBank Hàng Hải Việt Nam Maritime Bank Maritime Bank, MSB Kỹ Thương Việt Nam VietNam Technological and Commercial Joint Stock Bank Techcombank Kiên Long Kien Long Commercial Joint Stock Bank KienLongBank 10 Nam Á Nam A Bank Nam A Bank 11 Quốc Dân National Citizen Bank National Citizen Bank, NCB Vietnam Prosperity Bank VPBank Phát triển nhà 13 Thành phố Hồ Chí Minh Ho Chi Minh City Housing Development Bank HDBank 14 Phương Đông Orient Commercial Joint Stock Bank Orient Commercial Bank, OCB 15 Quân đội Military Commercial Joint Stock Bank Military Bank, MBB 12 Việt Nam Thịnh Vượng 68 Tên giao dịch Tên ngân hàng Tên tiếng Anh Tên giao dịch 16 Quốc tế Vietnam International and Commercial Joint Stock Bank VIBBank, VIB 17 Sài Gòn Sai Gon Commercial Bank Sài Gịn, SCB 18 Sài Gịn Cơng Thương Sai Gon Thuong Tin Bank Saigonbank, SGB 19 Sài Gòn-Hà Nội Saigon - Hanoi Commercial Joint Stock Bank SHBank, SHB 20 Sài Gịn Thương Tín Sai Gon Thuong Tin Commercial Joint Stock Bank Sacombank, STB 21 Việt Á Viet A Bank VietABank, VAB 22 Bảo Việt Bao Viet Bank BaoVietBank, BVB Joint Stock Commercia Petrolimex Bank Petrolimex Group Bank, PG Bank 23 Xăng dầu Petrolimex 24 Xuất Nhập Vietnam Joint Stock Commercia Việt Nam lVietnam Export Import Bank Eximbank, EIB 25 Bưu điện Liên Việt Joint stock commercial Lien Viet postal bank LienVietPostBan k, LPB 26 Ngoại thương Việt Nam JSC Bank for Foreign Trade of Vietnam Ngoại Thương Việt Nam,VCB 27 Công Thương Việt Nam Vietnam Joint Stock Commercial Bank for Industry and Trade VietinBank, CTG 28 Đầu tư Phát triển Việt Nam JSC Bank for Investment and Development of Vietnam BIDV, BID 69