Finance dissertation on determinants of capital structure of listed firms in the construction sector in viet nam

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON DETERMINANTS OF CAPITAL STRUCTURE OF LISTED FIRMS IN THE CONSTRUCTION SECTOR IN VIETNAM TRUONG HUU DUC ID No: 21071811 Intake SUPERVISOR: DR PHAM MANH HUNG Banking Academy of Vietnam September 2022 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014126219671000000 EXECUTIVE SUMMARY Vietnam's building industry is the largest producer of materials And to this day, the construction industry continues to play a pivotal role by ensuring and bolstering the production and service capacities of all economic sectors This dissertation used the fixed effect model and random effect model with 10-year data (from 2012 to 2021) for 35 construction companies listed on the Ho Chi Minh Stock Exchange to evaluate what a suitable capital structure would be This dissertation makes recommendations to strengthen the capital structures of Vietnamese construction companies based on the findings of the research i ACKNOWLEDGEMENTS Prior to anything else, I would want to express my thanks to my supervisor, Dr Pham Manh Hung, for his unwavering support of my master's studies and research, as well as for his patience, encouragement, excitement, and vast knowledge His assistance was invaluable during the research and writing of this dissertation For my master's studies, I could not have asked for a greater supervisor and mentor In addition to my supervisor, I would like to extend my deepest and most sincere gratitude to all the teachers and friends who have provided me with highly useful information Without their instructions and assistance, it would not have been possible to complete this dissertation successfully Lastly, I'd like to thank my family and loved ones, who have always encouraged and motivated me to complete this dissertation Truong Huu Duc ii STATUTORY DECLARATION I affirm that this is the result of my own study These are analyses, evaluations, and outcomes based on the fundamentals of the discipline, the information sources, and the data acquired from the primary sources of business reports Please be certain that the topic's content has been acknowledged and the citation information has been supplied I accept full responsibility for this Council and School commitment Hanoi, September, 2022 Truong Huu Duc iii TABLE OF CONTENTS CHAPTER 1: INTRODUCTION 1.1 Motivation 1.2 Research method, objectives and questions 1.3 New contribution 1.4 Dissertation structure CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical Framework 2.1.1 The theory of capital structure from the traditional point of view 2.1.2 Modern theory of capital structure (M&M theory) 2.1.3 Trade-off theory 2.1.4 Pecking order theory 11 2.2 Experimental studies 12 2.3 Research gap 14 CHAPTER 3: DATA AND METHODOLOGY 16 3.1 Research data 16 3.2 Measurement of variables 16 3.2.1 Dependent variable 16 3.2.2 Independent variables 16 CHAPTER 4: ESTIMATION RESULTS AND MAJOR FINDINGS 24 4.1 Descriptive statistics 24 4.2 Correlation matrix 25 4.3 Diagnostic tests and define regression models 26 4.3.1 VIF test for multicollinearity 26 4.3.2 Breusch and Pagan Lagrange multiplier test 27 4.3.3 Hausman test 27 4.3.4 Modified Wald test for groupwise heteroskedasticity 28 4.3.5 Wooldridge test for autocorrelation 29 4.3.6 TLEV model robust 29 CHAPTER 5: POLICY RECOMMENDATION 34 5.1 Utilize economies of scale when employing loans 34 5.2 Balance between current assets and short-term liabilities 35 5.3 Improve business efficiency 36 5.4 Invest more in existing assets 37 5.5 Enhance the function of financial managers in organizations 37 CHAPTER 6: CONCLUSION 39 REFERENCES 41 LIST OF TABLES Table 1: Symbols and definitions of variables ………………………………………… 22 Table 2: Descriptive statistics………………………………………………………… 24 Table 3: Correlation matrix…………………………………………………………… 25 Table 4: VIF test for multicollinearity………………………………………………… 26 Table 5: Breusch and Pagan Lagrange multiplier test ……………………………… 27 Table 6: Hausman test………………………………………………………………… 28 Table 7: Modified Wald test…………………………………………………………… 28 Table 8: Wooldridge test……………………………………………………………… 29 Table 9: TLEV model results………………………………………………………… 29 Table 10: Final estimation result……………………………………………………… 30 CHAPTER 1: INTRODUCTION 1.1 Motivation In the present market economy, capital is recognized and conceptualized as the sum of all starting values applied to subsequent business activities This notion relates not only to capital as an essential input for manufacturing businesses but also to the continual engagement of capital in the enterprise's production and commercial operations throughout its existence Therefore, capital is the most important component in all manufacturing and economic activity Capital enables firms to develop production and operations, acquire equipment, and fulfill other future goals Therefore, firms must have good capital management and utilization in order to protect and expand capital, thus insuring their growth and vitality Depending on the unique circumstances of each business, the capital structure will change as a result of the influence of the macroeconomy, the growth of each industry, and the culture or religion Therefore, contemporary financial research focuses on the influence of factors impacting the capital structure or the ability of financial organizations to deploy financial leverage Based on how these factors interact with the capital structure, organizations can decide whether to use a loan or equity to simplify the production business They can also suggest ways to make sure that financial leverage works well and that the value of an enterprise's assets is maximized Over the years, some developed nations have conducted research on the theory of new modern capital structures, while developing nations have either paid little attention to it or have focused on it only on a general level for businesses without conducting extensive research for specific industries, such as the construction industry A developed nation is one that meets its infrastructural needs To this, there is little doubt that the construction sector is essential This discipline contributes to the establishment of the required infrastructure for each unit, organization, and society as a whole Then, other sectors of the new economy have several favorable circumstances for growth It is possible to say that the building sector has always played a crucial role It determines the size and technological sophistication of the economy In addition, it serves as the most effective economic regulating instrument The construction sector is the major producer of materials in Vietnam And to this day, the building industry continues to demonstrate its vital role by assuring and assisting in strengthening the production and service capacities of all economic sectors Not only is guaranteeing the ratio, balance, and rationality of production capacity for economic development in industries, regions, and economic zones a vital duty for the construction industry, but so is ensuring the proportion, equilibrium, and rationality of production capacity in these areas Nevertheless, the building sector also generates circumstances that increase the quality and efficiency of social activities, citizen living, and national security while also making major contributions to economic earnings According to the socioeconomic development strategy report for the period 2012–2020, construction is an economic sector with a vital strategic position and role in the process of national construction and development, accounting for 5% of GDP annually However, in addition to the achievements of Vietnam's building sector, its enterprises have faced several obstacles In recent years, the construction industry has been negatively impacted by the COVID-19 epidemic, variations in interest rates and inflation, and government management policies To optimize profits and minimize financial risks, it is essential to analyze the factors affecting the capital structure of construction companies Therefore, this research into the factors influencing the capital structure of construction companies listed on Vietnam's stock exchange aims to produce scholarly contributions that will assist firms in making capital management decisions Due to these factors, the author chose to examine "Determinants of Capital Structure of Listed firms in the Construction Sector in Vietnam" in order to determine what a good capital structure for listed businesses in the construction industry would be 1.2 Research method, objectives and questions Using OLS regression, pooling data, fixed effects, and random effects methodology, a vast amount of literature has explored the nature of capital structure, capital structure differences, optimal capital structure, and the causes of capital structure at the business, industry, and country level Some of these contemporary scholars have proposed crosssectional studies including massive collections of publicly accessible data The purpose of the study is to examine the elements that have a substantial impact on the capital structure and to develop some conclusions based on your results This provides a clear direction and findings regarding the financial structure of Vietnamese construction firms In addition, this study might provide a summary of the numerous arguments for and against capital structure, as well as the factors that influence capital structure Next, an inquiry into the nature of the relationship between the firm's capital structure and the financial metrics that indicate the company's characteristics that influence that structure Using the quality economy model, we will evaluate and analyze the impact of numerous variables on the