Impact of capital structure on profitability of vietnamese’s real estate firms listed on hanoi stock exchange in the covid 19 pandemic

BANKING ACADEMY THE FACULTY OF ADVANCED PROGRAM IN FINANCE 🙞🙜🕮🙞🙜 GRADUATION THESIS TOPIC: IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF VIETNAMESE REAL ESTATE FIRMS LISTED ON HANOI STOCK EXCHANGE IN THE COVID-19 PANDEMIC Student : NGUYEN TAN SANG Class : K21CLCC Course : 2018 – 2021 Student ID : 21A4010494 Instructor : MS.NGO THI HANG (MSc) Hanoi, May 2022 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014127455001000000 BANKING ACADEMY THE FACULTY OF ADVANCED PROGRAM IN FINANCE 🙞🙜🕮🙞🙜 GRADUATION THESIS TOPIC: IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF VIETNAMESE REAL ESTATE FIRMS LISTED ON HANOI STOCK EXCHANGE IN THE COVID-19 PANDEMIC Student : NGUYEN TAN SANG Class : K21CLCC Course : 2018 – 2021 Student ID : 21A4010494 Instructor : MS.NGO THI HANG (MSc) Hanoi, May 2022 DECLARATION I hereby declare that the work which is presented in this dissertation titled “IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF VIETNAMESE’S REAL ESTATE FIRMS LISTED ON HANOI STOCK EXCHANGE IN THE COVID-19 PANDEMIC” in fulfillment of the requirements for the Graduation Thesis of Banking Academy I assure that this thesis is an entirely work of my own I assure that this thesis has not been submitted for any other degree of this or any other University/Institute I have read the University’s current research ethics guidelines and acknowledged my obligations and the rights of the participants Hanoi, 20th May, 2022 Signature Nguyen Tan Sang i ACKNOWLEDGEMENT First of all, I would like to show my gratefulness to Ms Ngo Thi Hang for her enthusiastic contribution to the completion of my dissertation During the process of research conduction, Ms Hang has always been available to advise helpfully and support my thesis As an excellent and experienced mentor, she is so conscientious of correcting and suggesting additions to my work extensively I also have learned so much from her recommendation I also want to show my gratitude to all the teachers and managers at the Faculty of Advanced Program for giving me detailed instruction throughout the process Especially, I wish to express my honest appreciation to my family who always supports and encourages me I also want to show my respect to my schoolmates who have been sharing knowledge and motivating each other to keep improving Finally, I would like to thank myself for daring to get out of my safe zone, being persistent and resilient and striving for a better version of myself Due to the time limitations and a restricted capacity of the author, this thesis might contain certain defects Therefore, I would be really grateful for any constructive comments to enhance its quality ii TABLE OF CONTENTS DECLARATION i ACKNOWLEDGEMENT ii TABLE OF CONTENTS iii LIST OF TABLES v LIST OF ABBREVIATIONS vi ABSTRACT vii CHAPTER 1: INTRODUCTION 1.1 Rationale 1.1 Research objectives 1.2 Research subject and research scope 1.3 Research method 1.4 Thesis structure CHAPTER 2: LITERATURE REVIEW 2.1 Theoretical framework 2.1.1 Capital structure 2.1.3 The relationship between capital structure and firm profitability 2.1.3.1 Modigliani and Miller ‘s theories 2.1.3.2 Trade-off theory 2.1.3.3 Pecking order theory 2.1.3.4 Market timing hypothesis 2.2 Literature Review 10 2.2.1 International Literature 10 2.2.2 Vietnam Literature 11 2.2.3 Research gap 12 CHAPTER 3: DATA AND METHODOLOGY 13 3.1 Research methodology 13 3.2 Variables 15 3.3 Research Data 17 CHAPTER 4: EMPIRICAL RESULTS AND DISCUSSION 18 4.1 Descriptive Statistics 18 4.2 Correlation Analysis 19 iii 4.3 Regression Results 20 4.3.1 Model selection 21 4.3.2 Flaws test 22 4.4 Discussion of the research findings 24 CHAPTER 5: CONCLUSION AND RECOMMENDATIONS 27 5.1 Conclusion and policy recommendations 27 5.2 Research Limitations 29 REFERENCES 31 APPENDIX 34 iv LIST OF TABLES Table 1: Capital structure Table 2: Leverage ratios Table 3: Profitability Ratios Table 1: Descriptive statistic data 18 Table 2: Correlation between variables 19 Table 3: VIF test for multicollinearity between variables 20 Table 4: Multiple regression results 20 Table 5: Selection model test 22 Table 6: Multicollinearity, Heteroskedasticity and Autocorrelation test results 23 Table 7: GLS fixed regression model results 24 v LIST OF ABBREVIATIONS Abbreviations Interpretation ROE Return on equity ROA Return on assets EPS Earnings per share OLS Ordinary least squares FEM Fixed effects model REM Random effects model VIF Variance Inflation Factor HNX Hanoi Stock Exchange NSE National Stock Exchange FDI Foreign Direct Investment NHNN Ngân Hàng Nhà Nước FGLS Feasible Generalized Least Squares HOSE Ho Chi Minh Stock Exchange vi ABSTRACT Handling the financial situation is one of the most crucial tasks of any manager in a firm Prudent usage of equity and debt financing can critically impact entities’ valuation and performance Thus, the determination of the relationship between capital structure and profitability is not understood deeper but also to maximize the potential of a business This thesis aims to ascertain the effects of capital structure on the profitability of 34 real estate firms listed on HNX from 2018 to 2021 - when the COVID-19 pandemic affected the most negatively to the economy The author uses the quantitative method with the multiple regression analysis The findings show that capital structure relates oppositely with the profitability represented by return on equity (ROE) In contrast, these firms’ size and growth rate increase or decrease simultaneously with ROE Keywords: capital structure, profitability, real estate firms listed on HNX, multiregression models vii CHAPTER 1: INTRODUCTION 1.1 Rationale The real estate industry in Vietnam plays a massive role in the economy, which is reflected in the increase in mobilization or capital inflows into real estate businesses The influx of investment capital made the scale of this industry biasedly enlarged ten times bigger than other industries in the market The year 2021 was a year of difficulties for the real estate industry in Vietnam The market continues to lose its balance of supply and demand, with the market price skyrocketing The land fever occurred after each wave of the Covid-19 epidemic and ended up with the Thu Thiem’s land lots auction as an unprecedented record Vietnam's real estate industry relies heavily on bank loans to operate Data from listed companies show that the debt-to-equity ratio of the real estate industry is at the top of other sectors, indicating that a large amount of capital from banks has been disbursed into the real estate market (Phạm Hồng Chương et al., 2021) As a result, financial leverage can be a double-edged sword for this market On the one hand, it promotes the development of the industry and the country, providing opportunities for other aspects such as inhabitancy and tourism On the other hand, this is also a potential risk due to interest rates and liquidity Because of such specificity, it is essential to research and give recommendations to business managers to properly assess and promptly deal with the problems faced by industry groups in capital structure This plays a leading role in raising the value and performance of the firm and significantly contributes to assure and maintain a sustainable development of the economy As a result, I found the motivation to choose the topic “Impact of capital structure on profitability of Vietnamese’s real estate firms listed on the Hanoi Stock Exchange” for my graduation thesis