Capital structure determinants of listed companies case study on food and beverage companies on the vietnam stock exchange

Trang 1 MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING --- GRADUATION DISSERTATION CAPITAL STRUCTURE DETERMINANTS OF LISTED COMPANIES: CASE STUDY ON FOOD AND Tra

MINISTRY OF EDUCATION AND TRAINING

HO CHI MINH UNIVERSITY OF BANKING

-

GRADUATION DISSERTATION CAPITAL STRUCTURE DETERMINANTS OF LISTED COMPANIES: CASE STUDY ON FOOD AND BEVERAGE COMPANIES ON THE VIETNAM

STOCK EXCHANGE MAJOR: FINANCE

Prepared by

Student’s full name: Nguyen Huynh Tra Student’s ID number: 030136200658 Class: DH35TC02

Dissertation’s supervisor: Vo Thien Trang MSc

MINISTRY OF EDUCATION AND TRAINING

HO CHI MINH UNIVERSITY OF BANKING

-

GRADUATION DISSERTATION CAPITAL STRUCTURE DETERMINANTS OF LISTED COMPANIES: CASE STUDY ON FOOD AND BEVERAGE COMPANIES ON THE VIETNAM

STOCK EXCHANGE MAJOR: FINANCE

Prepared by

Student’s full name: Nguyen Huynh Tra Student’s ID number: 030136200658 Class: DH35TC02

Dissertation’s supervisor: Vo Thien Trang MSc.

ABSTRACT

Capital structure has been one of the most concerns and has previously been studied However, because each research article is carried out in different countries and continents, with distinct dates, and in different professions and sectors, the results

of each study will be different According to prior studies, the author discovered that the research issue of an individual industry’s capital structure in Vietnam has not received adequate attention This is still an interesting and outdated topic The author chose this research article to learn more deeply about the determinants influencing to financial structure of F&B firms in an emerging economy in the period 2009-2022, with data collected from 30 listed Food and Beverage firms from Vietnam Stock Exchange and macro variables from official websites However, the study approach Pooled Ordinary Least Square (POLS), Fixed Effects Model (FEM), and Random Effects Model (REM), then applies Feasible Generalized Least Squares (FGLS) to overcome the phenomenon of heteroskedasticity number of changes and autocorrelation The final results show that inflation rate (INF) and growth rate (GTH) have a positive correlation with financial leverage; while profitability rate (PROF), tax rate (TAX), and liquidity rate (LIQ) have a negative correlation with financial leverage

Keyword: capital structure, financial leverage, F&B firms

ABSTRACT (VIETNAMESE)

Cấu trúc vốn đã và đang là một trong những vấn đề được quan tâm nghiên cứu Tuy nhiên, vì mỗi bài nghiên cứu được tiến hành ở các quốc gia và lục địa khác nhau, vào các mốc thời gian khác nhau, trong các ngành nghề và lĩnh vực riêng biệt, nên kết quả của mỗi nghiên cứu sẽ khác nhau Theo các nghiên cứu đã được đưa ra, các tác giả phát hiện rằng nghiên cứu về cấu trúc vốn của một ngành công nghiệp cụ thể tại Việt Nam chưa được nhận được sự chú ý đáng kể, tuy nhiên cấu trúc vốn vẫn là một chủ đề cần được khai thác nhiều hơn Tác giả đã chọn đề tài này để tìm hiểu sâu hơn

về những yếu tố ảnh hưởng đến cấu trúc tài chính của các công ty F&B trong một nền kinh tế mới nổi trong giai đoạn 2009-2022, với dữ liệu được thu thập từ 30 công ty F&B niêm yết trên Sở giao dịch chứng khoán Việt Nam và dữ liệu về các biến vĩ mô

từ các trang web của chính phủ Nghiên cứu này sử dụng các phương pháp Pooled Ordinary Least Square (POLS), Fixed Effects Model (FEM), Random Effects Model (REM), sau đó áp dụng Feasible Generalized Least Squares (FGLS) để khắc phục hiện tượng tự tương quan và phương sai sai số thay đổi Kết quả cuối cùng đưa ra cho thấy tỷ lệ lạm phát (INF), tỷ lệ tăng trưởng (GTH) có mối tương quan cùng chiều với đòn bẩy tài chính, trong khi tỷ suất lợi nhuận (PROF) tỷ lệ thuế (TAX) và tỷ lệ thanh khoản (LIQ) có mối tương quan ngược chiều với đòn bẩy tài chính

Từ khóa: Cấu trúc vốn, đòn bẩy tài chính, doanh nghiệp F&B

DECLARATION

My name is: Nguyen Huynh Tra,

Student of class: DH36TC02, Faculty of Finance, Ho Chi Minh University Of Banking, Student’s ID number: 030136200658

I declare that my graduation dissertation on the topic: “Capital Structure Determinants Of Listed Companies: Case Study On Food And Beverage Companies

On The Vietnam Stock Exchange” is the result of my own research during my studies

at Ho Chi Minh University Of Banking under the enthusiastic guidance of my academic advisor, MSc Vo Thien Trang The research and analysis results are independent, do not copy any documents and have not been published in any journal, nor have they appeared in any studies The data and sources cited in the study are clearly shown in the reference

The author takes full responsibility for my honorable pledge

Author NGUYEN HUYNH TRA

Therefore, I look forward to receiving your understanding, suggestions and further instructions Finally, I wish all teachers good health and success in their careers in life

Author NGUYEN HUYNH TRA

TABLE OF CONTENT

LIST OF ABBREVIATIONS vii

LIST OF TABLES, FIGURES viii

CHAPTER 1 INTRODUCTION 1

1.1 Introduction and background: 1

1.2 Research gap identification and new contributions 4

1.3 Research objectives: 5

1.4 Research question: 6

1.5 Scope of the study: 6

1.6 Research data and methodology 6

1.6.1 Research data 6

1.6.2 Methodology 7

1.7 Research structure: 8

CHAPTER 2 LITERATURE REVIEW 10

2.1 Overview of Capital structure: 10

2.1.1 The definition of capital structure: 10

2.1.2 The definition and measurement of capital structure: 11

2.2 Optimal capital structure: 14

2.3 Capital structure theory 15

2.3.1 Modigliani and Miller's capital structure theory (M&M Theory) 15

2.3.2 Trade-off theory 17

2.3.3 The Pecking Order Theory 18

2.3.4 Market-timing theory 18

2.4 Summary of previous researches: 19

2.4.1 International researches: 19

2.4.2 Domestic researches 22

CHAPTER 3 RESEARCH METHODOLOGY 25

3.1 Research process 25

3.2 Research data: 26

3.3 Methods of measuring variables 27

3.3.1 Dependent variable: 27

3.3.2 Undependent variable: 27

3.4 Research methods and model 30

3.4 Research hypothesis: 33

CHAPTER 4: DATA ANALYSIS 39

4.1 Descriptive statistics of variables: 39

4.2 Correlation matrix 41

4.3 Variance inflation factor test 43

4.4 Results of model regression 44

4.5 Test for optimal estimation method 45

4.6 Test for defects in the model 47

4.6.1 Autocorrelation test 47

4.6.2 Heteroskedasticity test 48

4.6.3 Feasible Generalized Least Squares (FGLS) method 48

CHAPTER 5 CONCLUSION AND IMPLICATION 54

5.1 Conclusion: 54

5.2 Research implications: 56

5.2.1 For the government and state management agencies: 56

5.2.2 For the corporate administrators 57

5.3 Contribution of the research topic 58

5.4 Limitations 58

REFERENCE LIST 60

APPENDIX 1 67

APPENDIX 2 70

LIST OF ABBREVIATIONS

FEM Fixed Effects Model

FGLS Feasible Generalized Least Squares GDP Gross Domestic Product

REM Random Effects Model

VIF Variance Inflation Factor

LIST OF TABLES, FIGURES

Figure 3.1: Description of the research processs 25

Table 4.1: Descriptive statistics of variables……….39

Table 4.2: Correlation coefficient between variables of model 42

Table 4.3: Variance inflation factor 43

Table 4.4: Regression results of Pooled OLS, FEM, REM regression models 44

Table 4.5: F-test 46

Table 4.6: Breusch-Pagan / Cook- Weisberg test 46

Table 4.7: Hausman test 47

Table 4.8: Serial Correlation and Heteroskedasticity tests 47

Table 4.9: Regression results of FEM, REM and FGLS regression models 49

CHAPTER 1 INTRODUCTION 1.1 Introduction and background:

Determining an optimal capital structure is significant in business operations This process is crucial since it helps businesses minimize the weighted average cost

of capital (WACC), and through that will maximize the asset value of corporate shareholders In addition, capital structure also affects profitability and business risks that the business itself may encounter (Frank and Goyal, 2009) A suitable capital structure is based on the features of each industry and firm, the right period to borrow capital, the right amount of debt, and the proper usage of equity capital, ways to attain maximum effectiveness Only then will the companies be able to reduce risks, boost their value, and have the opportunity to develop sustainably

According to Ross, Westerfield, & Jordan (2008), capital structure of an enterprise is the ratio between debt capital and equity capital of that firm Brealey, Myers, & Marcus (2009) defined that capital structure is related to a mix of equity and long-term debt financing It was also described as a "mix of different securities"

by Abor (2005) All of the above definitions agree that the company’s capital structure decision is its choice of debt-equity ratio D/E ratio shows the current situation of the enterprise, high equity ratio shows firm’s independent finance ability

On the contrary, businesses with a large debt ratio represent the financial leverage used in business operations A firm has an optimal capital structure synonymous with the ratio between debt and equity is stable This is shown through the cost of capital and the market value of corporate shares, capital structure reaches optimal level when the cost of capital is at its lowest and the market value of its shares is at its highest Recognizing the importance of capital structure, every firm constantly considers and investigates the variables influencing capital structure in order to determine the best optimal capital structure

Theoretically, many theories have been carried out, the most prominent of which are the theories of Modigliani and Miller, Trade-off theory, and Pecking order theory, and Intermediation Cost Theory Although there are different views on the

priority order of capital financing for businesses, the above theories are all built with inheritance in mind that the following theory is built on the foundation of assumptions from the previous theory However, Abor (2005) said, ‘Despite the theoretical appeal

of capital structure, researchers in financial management have not found the optimal capital structure’

Based on these above theories, many empirical studies in countries around the world have been carried out to discover important factors affecting the capital structure of enterprises such as size, profitability, asset structure, growth rate, liquidity, and ownership (Ross, 1977; Bowen et al, 1982; Long and Malitz, 1985; Kester, 1986; Titman and Wessels, 1988) Many later studies also combined research

on many different markets to examine the impact of factors reflecting national institutional characteristics and the development of financial markets such as the legal system, macroeconomics, banking system, stock market (Wald, 1999; Booth et al., 2001; Jong et al., 2008) In addition, several studies also analyze the influence of specific business industry factors including the industry's level of competition, the industry's level of sustainable growth, and the level of business risk to the capital structure policy of the enterprise (Calayton, 2009; Kayo and Kimura, 2011) In fact, financial structure will change depending on the specifics of each firm, changes in the industry in which the organization operates, influences from macroeconomic changes, cultural factors, and religious influences Therefore, studying the factors that affect the capital structure in each different field is necessary Numerous studies on various industries, including cement manufacturing, tourism, building, and minerals, have been conducted in Vietnam A few examples include CT Nguyen (2011), Vu and Nguyen (2013), PTM Le (2014), Phan (2016), HTT Nguyen (2017), and Pham (2017) Nevertheless, there hasn’t many specific research on companies in the F&B sector

According to a report by General Statistics Office of Vietnam in 2020, 35% of monthly spending and 15% of the nation's GDP are accounted for by food and beverage, and this percentage is predicted to rise in the coming years Besides the

achievements of the F&B industry in Vietnam, there have also been significant challenges for enterprises in this sector This sector has recently been negatively impacted by the Covid-19 pandemic, changes in interest rates and inflation, as well

as state management practices Food and beverage sector plays an important role in the Vietnamese economy This role is demonstrated through: the scale of food businesses accounts for a large proportion and is widely distributed, a field with a close relationship with agriculture and fisheries; Abundant local raw material sources, cheap prices, large consumer markets, and no need for high technical infrastructure; fast capital turnover time, high growth rate

Currently, the capital structure of listed F&B firms in Vietnam achieved the following positive results: the debt ratio remains at a safe threshold and is adjusted

by businesses in accordance with macroeconomic fluctuations in the recent period; low financial risk, the financial balance is significantly improved and acts as a safety background, the ability to pay interest is high; firms have a high proportion of internal capital However, the capital structure of listed F&B enterprises still has some outstanding limitations: the capital structure of enterprises is shifting towards increasing dependence on external capital; capital structure has not yet promoted the positive impact of financial leverage; the capital structure and debt structure of businesses lack diversity; increased financial risks for some businesses; enterprises have not yet built their target capital structure

Several studies have been carried out about determinants of capital structure, and the findings indicate because every business is unique, different factors will have

an impact on its capital structure However, so far up to now, the debate on what affects financial structure is still controversial The challenges mentioned earlier motivated the author to conduct further research on the actual situation and find out which factors affect capital structure This is the explanation of why the author chooses the topic "Factors affecting the capital structure of Vietnamese Listed F&B firms" as the subject of the author’s graduation dissertation The research results will contribute to the theoretical and practical basis of financial structure and contribute

to supporting capital decisions of financial managers of commercial manufacturing companies

1.2 Research gap identification and new contributions

In addition to the theoretical and practical results that previous studies have achieved, the author found that there are still research gaps on this topic Based on the overview, the author drains some research gaps in studies as follows:

Firstly, plenty of research has been done on the capital structure of Vietnamese

firms, the majority of these studies have concentrated on all industries, while a small number of studies focus on the capital structure of businesses within specific industries Nevertheless, the food and beverage industry has received not great interest

Secondly, till now studies on this topic have almost approach of Fixed Effects

Model (FEM) and Random Effects Model (REM) to investigate, then use test to conclude However, using these methods can still cause heteroscedasticity and autocorrelation, so the author uses GLS regression, specifically FGLS, to overcome model defects

Hausman-As more research is conducted and data becomes available, a more comprehensive understanding of what factors influence capital structure in various aspects can be achieved This research can help identify specific factors and strategies that contribute to the development of F&B firms, as well as any potential challenges

or risks that need to be addressed This study contributes both theoretically and practically

Theoretical contribution: The author has synthesized factors affecting the

capital structure of an enterprise based on theories and related research In addition, the author also reviewed related research to help make the academic content on this topic more diverse Helps people have a more in-depth and accurate view of this academic issue

Practical contribution: The author is actually researching the topic at F&B

firms to provide in-depth discussions on F&B in particular and on other industries in general

For corporate administrators, it can inform about the best practices for implementing and optimizing capital structure to enhance both value and the financial capital health of the company For policymakers, this research helps them tailor financial regulations, tax policies, and lending frameworks to encourage sound capital structure decisions By comprehending the factors influencing leverage choices, policymakers can create an environment conducive to business growth, investment, and financial stability Overall, continued research in this field is essential

to support the sustainable development of F&B firms in Vietnam

1.3 Research objectives:

The primary objective of this research study is to investigate determinants affecting listed companies: Case study on Food and Beverage firms on the Vietnam Stock Exchange in the period from 2009 to 2022

(1) The author conducts a brief review of previous studies on factors affecting capital structure, finding the main factors Next, determine which variables require further investigation and analyze their effects on capital structure of enterprises in the Vietnamese F&B industry as if they positively and negatively affect

(2) By diligently examining these aspects, this research aspires to provide valuable insights into the relationships between variables (firm size, firm age, GDP, inflation rate, liquidity rate, growth rate, risk rate, tangibility, profitability rate and tax rate) and the financial structure of Listed F&B firms Then analyze the correlations and significance of these factors in shaping capital structure decisions within the Vietnamese F&B industry context

(3) The findings from this study will serve as a foundation for formulating strategic directions and recommendations for the development of the aforementioned topics Consequently, this research endeavors to contribute meaningfully to the

understanding of suitable capital structure and help shape a firm's future trajectory in the Vietnamese context

(3) What solutions do Vietnamese F&B firms need to implement to achieve optimal capital structure and how can governmental and state management agencies assist in facilitating support for these firms?

1.5 Scope of the study:

The data used in this study is panel data collected from audited financial statements for 14 years from 2009 to 2022 of 30 listed Food and Beverage firms (including 420 observations) The study uses data from 2009 to 2022 since during this time: Vietnam's economy experienced two significant downturns (the 2008 financial crisis and the COVID-19 pandemic) Studying these two timelines simultaneously will give a greater general overview in the capital structure of a business over each period

1.6 Research data and methodology

1.6.1 Research data

Observations:

The dataset utilized in this study was sourced from listed F&B firms on Vietnam Stock Exchange, ensuring their continued existence and operation until the conclusion of 2022 This dataset comprises consistent statistical records spanning from 2009 to 2022, collected from audited financial statements for 14 years from

2009 to 2022 of 30 Food and Beverage firms on HOSE and HNX (including 420 observations)

Data sources:

Data about firms: The author sourced data from various official platforms, including FireAnt.vn, Vietstock.vn, FiinPro Platform Website, and the official websites of the companies themselves

Data about macro variables: The author collected from the official website of The World Bank

Sample size:

The author meticulously gathered data from a sample of 30 listed F&B firms

in Vietnam that met the stipulated criteria, involving comprehensive data retrieval, sorting, and filtering, covering the period from 2009 to 2022

1.6.2 Methodology

The research used panel data (a combination of data cross-section and time series) Hence, the author conducted a quantitative analysis on three models which are OLS, FEM and REM, meanwhile, the author determines whether the regression model (FEM or REM) is the most appropriate by using the defect testing method The author Alanaseer (2019) also completed this Then use Hausman Test, F-test to select the appropriate model If the methods in the author's research report do not violate the hypothesis after screening for model defects The usual regression will be used in the study

However, the Feasible Generalized Least Squares (FGLS) method will be used

if the model includes violations (Serial Correlation and Heteroskedasticity) This method is very helpful when attempting to overcome the autocorrelation and heteroskedasticity of the model

In this study, Stata software version 15.00 was used to support data processing and perform model testing and estimation

CHAPTER 2: LITERATURE REVIEW

Theory and empirical research related to factors affecting the capital structure

In this chapter, the author describes the general concepts, some theorie,s and related models

CHAPTER 3: RESEARCH METHODOLOGY

The author presents the research process, qualitative research design, quantitative research design, research methods and research models, scale construction, sample design, data collection and research methods

CHAPTER 4: DATA ANALYSIS

After collecting the data, the author conducted data analysis and presented the analysis results, discussing the analysis results in connection with the research question

CHAPTER 5: CONCLUSION AND IMPLICATION

The chapter content includes management implications, conclusions of the research results, proposed solutions and limitations of the research, thereby proposing future research directions

CHAPTER 1 SUMMARY

In this chapter, author provides an explanation for selecting the research topic in this chapter Develop the research objectives, research questions, research objects and methods, contribution of the topic and finally show the overall structure of the research paper From there, it helps us have an overview of the research problem

CHAPTER 2 LITERATURE REVIEW 2.1 Overview of Capital structure:

2.1.1 The definition of capital structure:

In a market economy, firms have a wide range of capital options available to meet their capital requirements However, it is vital to coordinate the use of capital sources to create a suitable capital structure that brings maximum benefits to the business In fact, there are a great deal of definitions and perspectives surrounding a company's capital structure In "Financial Management: Text, Problems and Cases", M.Y Khan and P.K Jain (2011) defined capital structure as the ratio between a company's liabilities and equity on the balance sheet According to the authors, to finance their operations, businesses must mobilize capital from many different sources, each type of capital source has its advantages and disadvantages These unique characteristics will affect the cost of using capital sources as well as the financial situation of the enterprise

Stephen A Ross, Randolph W Westerfield and Brandford D Jordan (2003) define "Capital structure of an enterprise is the combination of using debt capital and equity capital in a certain ratio to production and business activities Similarly, Firer and colleagues (2004) define: "Capital structure refers to the combination of debt and equity that an enterprise uses to finance its operations."

According to some domestic studies on the subject, capital structure can also

be explained as "Capital structure is the proportion of capital sources in the total value

of capital that enterprises mobilize to use in export and business activities" (Bui Van Van and Vu Van Ninh, 2015) or "Capital structure is the composition and proportion

of each capital source compared to the total capital source at a certain time" (Duong Thi Thuy Ha, 2016)

Thus, according to the above definition, capital structure is a combination of long-term capital and short-term capital that enterprises use to support production and business activities This view holds that each source of capital has its characteristics According to this perspective, managers must consider the distinct characteristics of

each source of capital, including its advantages and disadvantages, time and cost of use, while determining their ideal capital structure, consistent with those enterprises

in each period

However, some other researchers believe that when referring to the capital structure, long-term capital sources must be considered than short-term capital sources Short-term capital is only temporary and does not affect the right to manage and operate the enterprise This opinion is presented in many studies, for example, Tran Thi Thanh Tu (2006) in her thesis defined: "The capital structure of an enterprise

is a certain ratio between long-term debt and equity" or the thesis of Vu Thi Ngoc Lan (2014): "Capital structure of an enterprise is the proportional correlation between long-term debt and equity of the enterprise" To sum up, short-term debt is not one of the elements constituting capital structure

As a result, numerous definitions of capital structure have been carried out, each viewpoint has its own ways of logic and explanation, reflects to the characteristics of each scientist's research object Although there are differences in the components that make up capital structure, scientists all agree that capital structure is considered reasonable when it satisfies three basic purposes of enterprises, including maximizing business value, minimizing the cost of capital and minimizing risks Each firm is different when conducting production and business activities and

is affected by many different factors, depending on the business industry, the stability

of the economy, the goals of the administrators Therefore, financial structure of enterprises is unique and the continuous movement in the economy should be focused

2.1.2 The definition and measurement of capital structure:

The capital structure of a business can be reflected through debt ratio, equity ratio or debt-to-equity ratio:

(1) Debt ratio: The Debt Ratio is a financial metric that measures the

extent of a company's leverage or its reliance on debt financing It is calculated by

dividing a company's total debt by its total assets This ratio provides insight into the proportion of a company's assets that are financed through debt

The formula for calculating the Debt ratio is:

Debt ratio = 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

This indicator shows the use of debt in organizing capital resources Firms with a high debt ratio will depend heavily on debt, led to lower independence and autonomy Conversely, the less debt a business uses, the more independence and autonomy it will have Firms that have high debt ratios indicate that they are highly leveraged financially, which can increase return on equity but also expose the company to risk that could result in capital loss or even bankruptcy Through the debt ratio, managers will evaluate the financial independence, the financial leverage used and financial risks, thereby adjusting the capital structure

(2) Equity ratio: The equity ratio is a financial metric that measures the

proportion of a company's assets financed by shareholders' equity It is calculated by dividing total equity (shareholders' equity) by total assets This ratio indicates the extent to which a company relies on equity financing to support its assets, reflecting the proportion of ownership held by shareholders versus creditors' claims on the company's assets

The formula for calculating the Equity ratio is:

𝐸𝑞𝑢𝑖𝑡𝑦 𝑟𝑎𝑡𝑖𝑜 = 𝐸𝑞𝑢𝑖𝑡𝑦

𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 = 1 – 𝐷𝑒𝑏𝑡 𝑟𝑎𝑡𝑖𝑜

An equity ratio greater than 0.5 indicates that more than 50% of a company's capital are financed by equity This means that a larger portion of the company's capital is funded by shareholders' equity rather than debt

The equity ratio directly affects the capital structure of a firm in several ways: Capital Mix: A higher equity ratio signifies a larger portion of assets being financed through equity This affects the overall composition of a company's capital structure A higher equity ratio means less reliance on debt financing

Risk Profile: A higher equity ratio generally implies lower financial risk Since equity doesn't have a fixed repayment obligation like debt, a higher equity ratio can make the firm less vulnerable to financial distress during economic downturns or periods of low profitability

Cost of Capital: Equity tends to be more expensive than debt due to the cost

of issuing stocks or the need to provide returns to shareholders Therefore, a higher equity ratio may increase the firm's overall cost of capital compared to using more debt financing

Leverage and Flexibility: Lower equity ratios mean higher leverage (using more debt), which can amplify returns when the company is performing well However, higher leverage also increases financial risk On the other hand, a higher equity ratio provides more financial flexibility and stability but may limit potential returns

Investor Perception: Investors often analyze a company's equity ratio to assess its financial health and risk A company with a higher equity ratio might be perceived

as more stable and less risky, attracting certain types of investors who prefer less risky investments

(3) Debt-to-Equity: The Debt-to-Equity ratio is a financial metric used to

measure the proportion of a company's financing that comes from debt relative to the amount that comes from shareholders' equity It is calculated by dividing a company's total liabilities (debt) by its total shareholders' equity

The formula for calculating the Debt-to-Equity ratio is:

𝐷𝑒𝑏𝑡 − 𝑡𝑜 − 𝑒𝑞𝑢𝑖𝑡𝑦 𝑟𝑎𝑡𝑖𝑜 =𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐸𝑞𝑢𝑖𝑡𝑦The Debt-to-Equity ratio provides insights into a company's financial leverage and risk:

High D/E Ratio: A ratio greater than 1 indicates that the company has more debt than equity This suggests that the company is primarily financed by debt, which

can magnify returns but also increase financial risk and the potential for financial distress, especially if the company struggles to meet debt obligations

Low D/E Ratio: A ratio less than 1 signifies that the company relies more on equity financing than debt While this may imply lower financial risk and greater stability, it might also mean missed opportunities for leveraging debt to enhance returns

The optimal Debt-to-Equity ratio varies across industries, and what might be considered acceptable or ideal can depend on factors such as the company's growth stage, industry norms, cash flow, and risk tolerance

It's crucial to note that while a high D/E ratio may increase financial risk, it can also offer tax advantages due to deductible interest payments Conversely, a low D/E ratio might indicate financial stability but could limit growth opportunities if the company isn't taking advantage of debt financing when it's beneficial

2.2 Optimal capital structure:

Optimal capital structure refers to the ideal blend of debt and equity financing that maximizes a firm's value and minimizes its cost of capital It represents the most efficient mix of debt and equity that balances the advantages of debt (such as tax benefits and lower cost) with the advantages of equity (such as lower financial risk)

in accordance with a company's risk profile, growth prospects, and market conditions have been proposed to shed light on the idea of an optimal mix of debt and equity

An optimal capital structure isn't a one-size-fits-all scenario; it varies based on several factors:

Industry and Business Dynamics: Different industries have varying levels of

tolerance for debt due to differences in stability, cash flow patterns, and asset structures For example, industries with stable cash flows might handle higher debt levels better than those with volatile earnings

Financial Risk and Stability: The risk appetite of the company plays a

significant role Too much debt can increase financial risk and lead to potential distress, while too much equity might hinder profitability and returns to shareholders

Tax Considerations: Debt often offers tax advantages due to interest payments

being tax-deductible This can influence the decision to take on more debt to benefit from tax shields

Market Conditions: Access to debt and equity markets, prevailing interest

rates, and investor sentiment impact the cost and availability of funding, influencing

a company's optimal capital structure

Balancing these factors involves continual assessment and adjustments as a company evolves For instance, a growing firm might initially rely on equity financing but might gradually introduce debt as it matures and establishes stable cash flows

Striking the right balance can optimize a company's weighted average cost of capital (WACC), reducing the cost of funding future projects and maximizing shareholder returns However, achieving the 'optimal' structure is more of a continuous process than a fixed target, requiring ongoing evaluation and adjustment

in response to changes in internal and external conditions

2.3 Capital structure theory

2.3.1 Modigliani and Miller's capital structure theory (M&M Theory)

This research first released in 1958 is known as the foundation for further studies on capital structure theory M&M theory is stated in two important propositions The first clause talks about company value The second clause talks about the cost of capital These propositions will be considered in two cases, respectively, with two assumptions: businesses operate in tax and non-tax environments

M&M theory without corporate income tax (1958) follows assumptions that there is no corporate income tax and personal income tax; no transaction costs; no bankruptcy costs and financial difficulty costs; individuals and businesses can borrow money at the same interest rate With the above assumptions, the content of M&M theory is stated in the following two propositions

The first proposition: The value of an enterprise using debt is equal to the value

of the enterprise without using debt, meaning capital structure does not affect enterprise value In a perfect capital market, the benefits of using debt (tax benefits)

or the costs (transaction costs, bankruptcy costs, agency costs ) do not exist Therefore, the use of debt does not bring any additional benefits and additional costs

to the business Enterprises have an unchanged value, regardless of capital structure, which means, enterprise value is not affected by the ratio of debt and equity No matter what method of capital mobilization, it will not change the value of the business; a business using debt has the same value as a business not using debt

The second proposition: The cost of equity capital is proportional to the debt ratio This proposition states that the cost of equity capital increases if the enterprise increases debt Under the assumed conditions, the cost of using debt capital is lower than the cost of using equity capital, so if a business increases the proportion of debt,

it will reduce the average cost of capital, and at the same time the cost of capital Shares also increase with the proportion of on-lending debt, causing the average cost

of capital to increase Therefore, the average cost of capital does not change

M&M theory with corporate income tax (1963) follows assumptions that there

is corporate income tax; no transaction costs; individuals and businesses can borrow money at the same interest rate

In a tax environment, the value of a leveraged enterprise is higher than the value of a non-leveraged enterprise, due to the benefit of the tax shield Therefore, without a capital structure, it is optimal, and companies cannot increase value by changing their capital structure

Franco Modigliani and Merton Miller (1963) proposed a follow-up study on eliminating the tax-free hypothesis to investigate the relationship between capital structure and corporate value with the influence of profit taxes, M&M pointed out that the value of indebted companies was greater than that of non-indebted companies, and its tax rate was multiplied by the value of liabilities M&M theory concluded that increasing leverage will increase corporate value

Although the M&M theory laid the first foundation for capital structure theories, but this theory makes assumptions that cannot happen in reality, such as perfect capital markets, businesses operating without taxes, and transactions performed without fees That point created the basis for the development of later theories

2.3.2 Trade-off theory

The trade-off theory of capital structure was first developed by Kraus & Litzenberger (1973) This theory is divided into two forms: static trade-off theory of capital structure and dynamic trade-off theory of capital structure Dynamic Trade-Off Theory)

From the perspective of trade-off theory (Kraus & Litzenberger, 1973), Administrators believe that they can find an Optimal capital structure to maximize enterprise value and capital structure is determined based on the trade-offs between the benefits of taxation and bankruptcy costs The higher debt amount, the greater the benefit of the tax shield, but the cost of financial distress also increases Therefore, shareholders and banks will also expect a high Profit margin, increasing the business's cost of capital Therefore, a firm's optimal CTV is determined by increasing the amount of debt until the marginal benefit from tax credits balances the marginal cost

of financial distress (Castanias, 1983) The shareholder trade-off theory has the advantage of explaining the differences in shareholders of many industries: industries with safe tangible assets have a high debt ratio, industries with a lot of intangible assets have a high debt ratio little (because there are few valuable assets to mortgage for loans); explains the birth of companies that are "bought out with borrowed capital" However, the limitation of the CTV trade-off theory is that it cannot explain why some very successful companies in the industry have very little debt and do not use tax shields despite their very high operating income This limitation is the premise for another cooperative theory to be born: The Pecking Order theory

2.3.3 The Pecking Order Theory

The first foundation for the pecking order theory was the research of Donaldson (1961) The pecking order theory is mainly based on concerns about information asymmetry (Myers and Majluf, 1984) affecting firms' investment and financing decisions Since administrators have more information than outside investors, standing in the position of existing investors, new investors will demand a high discount when the enterprise issues securities and this leads to increasing the cost of external funding sources Therefore, when businesses have a need for capital, they often use internal funding sources (retained profits) first, followed by debt securities and issuing common stock is the last choice

According to pecking order theory, there is no well-defined target mix of debt and equity Myers believes that it is difficult to determine an optimal capital structure because equity is ranked first (retained profits) and last (issued new shares) in the pecking order theory An observed debt ratio for each firm reflects the firm's cumulative needs for external financing

The authors introduced the idea that firms adjust their capital structures (issuing equity or debt) based on their assessment of market conditions This theory suggests that firms try to time the market by issuing securities when their stock prices are high (overvalued) and avoid raising capital when prices are low (undervalued) The authors provide empirical Evidence: The study provided empirical evidence supporting the Market Timing Theory It was found that companies tend to issue equity when their stock prices are high relative to historical values and industry peers

Conversely, they showed a tendency to repurchase shares or issue debt when their stock prices are low compared to historical values

Graham and Harvey emphasized that managers' perceptions of market valuations significantly influence their capital structure decisions Managers might believe they can capitalize on market mispricing to benefit their firms by issuing securities at opportune times The study highlighted the importance of considering managers' views and market perceptions when analyzing firms' capital structure choices It suggested that firms' financial decisions are not solely driven by traditional financial factors but are also influenced by market conditions and managers' beliefs about market valuations

The empirical investigation provided valuable insights into the relationship between market conditions and corporate financial decisions, contributing to the ongoing discussion about the relevance of market timing in shaping firms' capital structures

2.4 Summary of previous researches:

2.4.1 International researches:

The capital structure of businesses has theoretically been the subject of numerous studies, the most well-known of which are theories like: Modigliani and Miller theorem (M&M) (1958), Theory of Agency Costs Theory Jensen and Meckling (1976), Trade-off Theory, The Pecking Order Theory, Signaling Theory These are the foundation theories for further research Although there are different views on approaches to capital structure, the above theories are all built with inheritance, the latter theory is built on the foundation of assumptions from the previous theory In practice, there are also many studies showing that capital structure

is influenced by many different factors

Research by Jean.J.Chen (2004) conducted on 77 large listed companies on the Shanghai Stock Exchange, China to determine factors affecting the capital structure of companies including profits, growth, tangible fixed assets, financial distress costs and tax shields to the capital structure of businesses Chen's research

results show that growth rate and tangible fixed assets have a positive impact, while profitability ratio and enterprise size have a negative impact on capital structure

In the same field of research, Huang and Song (2006) conducted research and analysis on 1,200 listed enterprises in China during the period 1994-2003, the results showed that capital structure seemed to have a positive relationship with asset structure but negatively related to profitability, taxes and growth opportunities Meanwhile, growth and liquidity have a negative impact on the capital structure of the enterprise

Research by Wanrapee Banchuenvijit (2009) was conducted on 81 companies listed on the Stock Exchange of Thailand from 2004 - 2008 with five factors included

in the model including profitability ratio, business size, ratio of tangible fixed assets, asset growth rate, volatility of operating profits In this study, the author found that there are three factors that are statistically significant at the 1% level: profitability ratio, fixed assets have a negative relationship while company size has a positive correlation with capital structure

Turki S F Alzomaia (2014) also presented the results of his research on capital structure This article studies the capital structure of listed companies in Saudi, based on analyzing 93 Saudi listed companies Data extend from 2000 to 2010 and used methodological cross-sectional panel data Research shows a positive relationship between firm size, growth, and leverage In addition, the results show that there is a negative relationship between asset tangibility, profitability, risk and leverage

A recent study by Antakya Hatay (2015) takes data spanning from 1993 to

2010 for 79 firms on the Istanbul Stock Exchange in the manufacturing sector This study compares the impact on capital structure by industry and firm size of the variables used in the model The results show that there is a significant relationship between growth opportunities, scale, profitability, tangible variables and leverage But the explanatory variable non-debt tax shield has no significant effect on leverage (book value of total debt/total assets)

At the same time in 2015, Obeid Gharaibeh’s research with data samples collected from 49 enterprises listed on the Kuwait stock market with many industries

in the period 2009 - 2013 said that factors related to capital structure include: including industry characteristics, age, enterprise size, growth opportunities, liquidity and profits, in which profits are negatively related and other variables are positively related

Panda et al.'s (2020) published the research about 1592 companies across eight major manufacturing sectors of the Indian economy spanning 2007 to 2017 At the industry level, the study concluded that each the manufacturing sector has its own factors that determine capital structure

Some emprirical studies have research on the impact of macro factors including the findings of Cook & Tang (2008), Chipeta and Mbulul (2013), Bulent et

al (2013), Aris Taoulaou and Giorgi Burchuladze (2014) These previous research have mentioned five macro factors that affect capital structure: Corporate income tax rate, inflation rate, speed GDP growth, stock market conditions, exchange rates Cook and Tang (2008) used U.S data over a 30-years sample period, provided evidence of the positive impact of GDP growth rate and enterprise size on firm’s capital structure Research also concluded that enterprise capital structure is negatively affected by stock market conditions and debt market conditions Futher, Chipeta and Mbululu (2013) have researched the internal and macro factors of corporate capital structure The results show that GDP growth rate, inflation, and enterprise size affect capital structure Bülent (2013) also showed similar results, pointing out that capital structure

is influenced in the same direction by corporate income tax rates and inflation This study use data of non-financial enterprises listed on Türkiye's ISE from 1996 to 2009 Besides, capital structure is also negatively affected by GDP growth rate While Aris Taoulaou and Giorgi Burchuladze (2014) conducted that capital structure is negatively affected by inflation and positively affected by GDP growth rate and debt market conditions

2.4.2 Domestic researches

Tran Hung Son (2008) proposed a research with title "Factors affecting the capital structure of companies listed on the Vietnamese stock market", the author used data from 45 non-financial companies, listed on the Ho Chi Minh City stock exchange The topic has clearly shown the factors that affect the structure of enterprises Theory points out different directions of impact and experimental results have been very successful However, the research results are still limited and there is

no uniformity in the scope and method of estimating regression variables

According to a Vietnam research results of Dang Thi Quynh Anh anh Quach Thi Hai Yen (2014) who analyzed data from 80 non-financial companies listed on HOSE in the period 2010 - 2013, the author concluded that there are three factors that strongly impact the capital structure of businesses during this period: Company’s size, profitability and taxes In which, business size and profitability are positively correlated, while taxes are negatively correlated with capital structure

Bui Ngoc Toan (2015) mentioned the influence of factors on capital structure such as growth rate, liquidity, asset structure, profitability, researching 27 listed food industry firms listed on the Vietnam stock market in the period 2010-2014 The author applies the panel data regression models, including the Pooled Regression Model (Ordinary Least Squares -OLS), the Fixed Effect Model (FEM) and the Random Effect Model (REM) Bui Ngoc Toan (2015) pointed out that asset structure, profitability have a negative effect to capital structure, two remain factors are positively effect

Subsequent studies have approached the capital structure of enterprises from the perspective of different industries Nguyen Viet Dung (2016), "Solutions for financial restructuring of listed cement enterprises in Vietnam" researched the financial structure of enterprises in the context of the cement industry The dissertation has shown that solvency is the most important factor affecting the financial structure of enterprises; asset utilization efficiency is the second important

factor that affects financial structure; business efficiency is the third important factor and asset scale is a factor that greatly influences the decision to use long-term debt

Author Duong Thi Thuy Ha's dissertation (2016), "Capital structure of listed enterprises in the pharmaceutical industry in Vietnam" has researched the capital structure of listed enterprises in the pharmaceutical industry, results shown that the capital structure of these businesses is stable over the years; high solvency, financial autonomy; safe capital structure with permanent and positive capital sources; the ability to raise capital easily However, the dissertation has not analyzed and evaluated the factors affecting the capital structure of listed companies in the pharmaceutical industry to have a basis for capital structure planning

Le Tham Duong et al (2020) investigated financial report data for 52 food businesses listed on the Vietnamese stock market from 2011 - 2018 According to them, food businesses' profitability, fixed assets/total assets ratio and number of years

in operation have a negative influence on capital structure On the contrary, scale and growth rate are two factors that have a positive influence on capital structure In addition, corporate income tax rates do not affect capital structure decisions of food businesses

Thus, the capital structure is affect by many factors, including factors belonging to internal characteristics and external environmental factors The studies mentioned above are important reference documents, serving as a basis for approaching and researching factors affecting the capital structure of companies listed on the Vietnam Stock Exchange However, identifying, predicting and determining which factors need to be included in the analysis in this study needs to

be discussed, from which appropriate models and analysis tools are selected to achieve the desired results proposed research objectives

CHAPTER 2 SUMMARY

Chapter 2 provides a general overview of theory and a number of indicators to measure business performance of listed enterprises on the stock exchange On that basis, capital structure is affected by many factors such as business size, asset structure, operational efficiency, At the same time, it provides an overview of the f&b industry in the world and Vietnam Based on theories and previous research results as a basis for proposing the model and providing research methods in the next chapter

CHAPTER 3 RESEARCH METHODOLOGY

Chapter III of the topic will focus on describing the data used for statistical testing More specifically, the author presents research methods to measure factors affecting the capital structure of listed company in Vietnam Stock Exchange in F&B sector And finally, the authors propose an econometric model to conduct research

3.1 Research process

Depending on the detail and perspective of each person, their research process will have many different steps However, the scientific research process of this study

is divided into many steps as follows:

Figure 3.1: Description of the research processs

Step 1: Identifying the research problem: At this step, the dissertation defines

and articulate the specific problem or topic to be investigated This step involves understanding the scope of the research, identifying gaps in knowledge, or exploring areas that need further exploration In conclusion, author choose the topic: “Capital structure determinants of listed companies: Case study on Food and Beverage companies on the Vietnam stock exchange

Step 2: Building a theoretical basis: Here, the dissertation explores the

existing theoretical foundations related to capital structure

Identifying the research problem

Building a theoretical basis

Research Design and MethodologyData Analysis

Conclusion and policy implications

Step 3: Research Design and Methodology: Select appropriate research

methods based on the research question, objectives, and data availability Define the population, sample size, and sampling technique if applicable Then, design data collection instruments or techniques (surveys, interviews, experiments, observations)

to gather relevant data Ensure the methods chosen align with the research objectives and enable the analysis of collected information

Step 4: Data Analysis: Organize and prepare collected data for analysis This

step involves cleaning, coding, and organizing the data to make it suitable for analysis Then, apply suitable statistical or qualitative analysis techniques to interpret and derive meaningful conclusions from the data Analyze the collected data to answer the research questions or test hypotheses

Step 5: Conclusion and policy implications: Here, the dissertation offers some

policy implications for F&B firms so they can have a more general perspective as well as have plans for better capital structure

3.2 Research data:

The target population of the study is 30 out of 31 Listed F&B firms in Vietnam The reason for selecting these companies as the sample is simply because some have availability of the required data, willingness to deliver the required information, and their strong management information system

Two types of data are available for research: primary and secondary data The selection of either or both types of data depends on the research type and what data the researcher collects, as discussed by Saunders et al.’s (2007) Similarly, as outlined

by Kothari (1990), secondary data refers to pre-existing data The research adopted a quantitative research approach, utilizing secondary data sourced from audited financial statements, the websites of chosen companies, and financial reports spanning the period from 2009 to 2022

The data collection process is as follows: Firstly, selecting a specific group on the range of stock groups included: AFX, ANT, BBC, BHN, BLT, BSL, CAN, CAP,

CDC, CLC, CMF, DBC, FCS, FMC, HAD, HHC, IFS, KDC, KTS, LSS, MSN, NAF, QNS, SAF, SGC, SLS, SMB, VDL, VNM, VSN Then choose metrics and indicators

in all audited financial statements over the years from 2009 to 2022 Secondly, remove companies that have delisted from the stock exchange Thirdly, the research team eliminated enterprises in the agricultural production industry due to differences

in products, concentration levels and specialization

Calculation and data processing are supported by Stata 15.0 software Based on the collected data, the author conducts a synthesis according to the criteria and criteria appropriate to the research purpose through using tabulation techniques and statistical tables to summarize the data; Apply statistical analysis and economic analysis methods to evaluate the current state of capital structure and factors affecting capital structure, including: descriptive statistics and comparative statistics

3.3 Methods of measuring variables

𝑇𝐿𝑖𝑡: total liabilities for year i for the company t

𝑇𝐴𝑖𝑡: total assets for year i for the company t

3.3.2 Undependent variable:

(1) Firm size (SZE)

Based on (Cassar and Holmes, 2003; Ramadan and Alokdeh, 2011; Anafo

et al., 2015) The size calculated through the following equation:

𝑆𝑍𝐸 = 𝐿𝑜𝑔(𝑇𝐴𝑖𝑡) Where

Log: natural logarithm

𝑇𝐴𝑖𝑡: total assets for year i for the company t

𝑇𝐴𝐸𝑖𝑡: total assets at the end of the previous year i for the company t

𝑇𝐴𝐵𝑖𝑡: total assets at the beginning of the next year i for the company t

(3) Tax rate (TAX)

Based on Abbad (2013) Tax calculated through the following equation

𝑇𝐴𝑋 =(𝑃𝐵𝑇𝑖𝑡 − 𝑃𝐴𝑇𝑖𝑡)

𝑃𝐵𝑇𝑖𝑡 Where

𝑃𝐵𝑇𝑖𝑡 Profit before tax for year i for the company t

𝑃𝐴𝑇𝑖𝑡: Profit before tax for year i for the company t

(4) Risk (RSK)

Based on (Ramadan and Alokdeh, 2011; Alzubaidi and Salameh, 2014) Risk calculated through the following equation:

𝑅𝑆𝐾 = 𝑆 𝐷(𝑅𝑂𝐴𝑖𝑡) Where

S.D: Standard Deviation

𝑅𝑂𝐴𝑖𝑡: Return On Assets for year i for the company t

(5) Firm age (AGE)

Based on Ramadan and Alokdeh (2011) Age calculated through the following equation:

𝐴𝐺𝐸 = 𝑙𝑜𝑔(𝑌𝑖𝑡) Where

Log: natural logarithm

𝑌𝑖𝑡: years since the bank founded in year i for the company t

𝑁𝐼𝑖𝑡: net income for year i for the company t

𝑇𝐴𝑖𝑡: total assets for year i for the company t

𝐶𝐴𝑖𝑡: current assets for year i for the company t

𝐶𝐿𝑖𝑡: current liabilities for year i for the company t

𝐹𝐴𝑖𝑡: fixed assets for year i for the company t

𝑇𝐴𝑖𝑡: total assets for year i for the company t

(9) Gross Domestic Product (GDP): Based on Gatsi, (2012) The Gross

Domestic Product calculated through the GDP growth rate at current market prices announced by Worldbank

(10) Inflation (INF): Based on Gatsi, (2012) Inflation calculated through

annual inflation rates announced by Worldbank

3.4 Research methods and model

According to the theoretical basis stated in chapter 2, the dissertation will focus on researching the impact of two main groups including: the group of factors belonging to the company's characteristics and the group of macro factors affecting capital structure of listed F&B enterprises from 2009 to 2022 The general research model is based on some empirical evidence abroad such as research by Ramadan and Alokdeh, (2011); Gatsi (2012); Almanaseer (2019); and studies in Vietnam such

as the research of Dang Thi Quynh Anh and Quach Thi Hai Yen (2014); An Thai (2017); Nguyen Thi Nhu Quynh et al (2019) to select factors affecting capital structure of Listed F&B firms on Vietnam Stock Exchange Therefore, author uses the indicator of total liabilities over total assets of businesses as a variable to measure capital structure (dependent variable) In addition, there are 10 indicators used by the author to measure independent variables with the expectation that they can affect the capital structure

The factors that affect the expected capital structure assumed by the model include the following:

𝑭𝑳𝒊𝒕 = 𝜷𝟎+ 𝜷𝟏𝑨𝑮𝑬𝒊𝒕+ 𝜷𝟐𝑮𝑫𝑷𝒊𝒕+𝜷𝟑𝑰𝑵𝑭𝒊𝒕+ 𝜷𝟒𝑷𝑹𝑶𝑭𝒊𝒕+ 𝜷𝟓𝑹𝑺𝑲𝒊𝒕+ 𝜷𝟔𝑺𝒁𝑬𝒊𝒕 +

𝜷𝟕𝑻𝑨𝑵𝑮𝒊𝒕+ 𝜷𝟖𝑻𝑨𝑿𝒊𝒕+ 𝜷𝟗𝑮𝑻𝑯𝒊𝒕+ 𝜷𝟏𝟎𝑳𝑰𝑸𝒊𝒕+ 𝒆Where:

𝐹𝐿𝑖𝑡: Financial leverage for year i for the company t

𝐴𝐺𝐸𝑖𝑡: Firm age for year i for the company t

𝐺𝐷𝑃𝑖𝑡: Gross Domestic Product growth rate at current prices of for year i for the company t

𝐼𝑁𝐹𝑖𝑡: Inflation rate for year i for the company t

𝑃𝑅𝑂𝐹𝑖𝑡: Profitability rate for year i for the company t

𝑅𝑆𝐾𝑖𝑡: Risk rate for year i for the company t

𝑆𝑍𝐸𝑖𝑡: Firm size for year i for the company t