Determinants of capital structure of listed firms in the pharmaceutical sector in vietnam

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY BUI THI MINH HUYEN DETERMINANTS OF CAPITAL STRUCTURE OF LISTED FIRMS IN THE PHARMACEUTICAL SECTOR IN VIETNAM MAJOR: BUSINESS ADMINISTRATION CODE: 8340101.01 RESEARCH SUPERVISORS: Prof Dr HIROSHI MORITA Assoc.Prof Dr NGUYEN VAN DINH Hanoi, 2020 TABLE OF CONTENTS ACKNOWLEDGEMENT iii STATUTORY DECLARATION iv LIST OF TABLES v LIST OF FIGURES vi LIST OF ABBREVIATIONS vii EXECUTIVE SUMMARY viii CHAPTER 1: INTRODUCTION 1.1 Research Motivations 1.2 Research Objectives 1.3 Research Objects and Scope 1.4 Research Questions 1.5 Research Structure CHAPTER THEORETICAL FRAMEWORK .6 2.1 Definition relating to capital structure 2.2 The theories about capital structure 2.3 The determinants affecting capital structure 11 2.4 Literature review 16 2.5 Research gaps 21 CHAPTER 3: METHODOLOGY 23 3.1 Research methodology 23 3.2 Research Data 23 3.3 Research Model 24 3.4 Variables measurement 25 3.5 Hypothesis 26 CHAPTER 4: DATA ANALYSIS AND FINDINGS 31 4.1 Analyzing the pharmaceutical sector in Vietnam during the 10-year period 31 4.1.1 The characteristics of pharmaceutical sector in Vietnam 31 4.1.2 Current status of capital and capital structure of pharmaceutical listed firms 32 i 4.2 Descriptive statistics 4.2.1 Descriptive statistics of dependent variable 4.2.2 Descriptive statistics of independent variables 4.3 Testing the model 4.3.1 Original regression model 4.3.2 Correlation matrix and multicollinearity testing 4.3.3 Heteroskedasticity testing 4.3.4 Autocorrelation testing 4.3.5 Overcoming the Heteroskedasticity of the model 4.4 Result of the research and discussing them 4.5 Comparing factors affect to capital structure between companies listed on Hanoi Stock Exchange (HNX) and ones listed on Ho Chi Minh City Stock Exchange (HOSE) CHAPTER 5: RESEARCH IMPLICATIONS AND RECOMMENDATIONS 5.1 Research implications 5.2 Recommendations 5.2.1 Recommendations for the pharmaceutical listed companies in Vietnam 5.2.2 Recommendations for related parties 5.3 Limitation and the following research directions CONCLUSION REFERENCES APPENDIX ii ACKNOWLEDGEMENT I would like to express my sincere thanks to the Board of Management, professors, and teachers of Vietnam Japan University and Yokohama National University for facilitating and imparting knowledge to me to complete this graduation thesis as well as help me to have a solid portfolio for the future career And in particular, I would like to send my deepest gratitude to my supervisors Prof Hiroshi Morita and Assoc Prof Nguyen Van Dinh, who mentored, instructed, and imparted useful knowledge and ideas during the implementation and completion of this thesis Sincerely thanks to my family and friends for their support, convenience, and motivation in the past time Although many attempts have been made to implement the research in the most complete way, the limitations of knowledge and experience will inevitably lead to certain shortcomings I hope to receive more guidance and valuable comments from teachers to complete my thesis Sincerely, Bui Thi Minh Huyen iii STATUTORY DECLARATION I pledge that the thesis “Determinants of capital structure of listed firms in the pharmaceutical sector in Vietnam” is the work of the author The content is drawn from the learning process and the results of empirical research The data used in the study period are true and have a clear origin Research results have not been published in any previous scientific research The thesis is conducted under the guidance of Prof Hiroshi Morita and Assoc Prof Nguyen Van Dinh Sincerely, Bui Thi Minh Huyen iv LIST OF TABLES Table 3.1: Variables measurement 25 Table 4.1: Overview of asset structure of pharmaceutical firms 33 Table 4.2: Overview of capital structure of pharmaceutical firms 34 Table 4.3: Descriptive statistics of dependent variable 35 Table 4.4: Descriptive statistics of independent variables .36 Table 4.5:Requirements for companies listed on the HOSE and HNX stock exchanges 47 v LIST OF FIGURES Figure 1.1: Revenue of Vietnamese pharmaceutical sector (billion USD) Figure 4.1: Original regression model 37 Figure 4.2: Correlation matrix of research variables 38 Figure 4.3: Regression model without “SIZE” or “TANG” variable .39 Figure 4.4: Multicollinearity testing 40 Figure 4.5: Heteroskedasticity testing 41 Figure 4.6: Autocorrelation testing 42 Figure 4.7: Overcoming the Heteroskedasticity of the model 43 Figure 4.8: Regression model of firms listed on HNX and HOSE stock exchanges 48 vi LIST OF ABBREVIATIONS Abbreviations Meaning AGE Firm age API Active Pharma Ingredient CA Current Assets CEO Chief Executive Officer CL Current Liabilities EBIT Earnings before interests and taxes GROW Growth opportunity HNX Hanoi Stock Exchange HOSE Ho Chi Minh City Stock Exchange LA Long-term Assets LD Long-term Debts LIQ Liquidity M&A Mergers and Acquisitions OLS Ordinary Least Square PLU Pluralist Executive PROF Profitability SIZE Firm size SMEs Small and Medium-sized enterprises TA Total Assets TANG Tangible Assets TC Total Capital TD Total Debt TE Total Equity USD United States Dollar VIF VND Variance – Inflation Factor Vietnam Dong vii EXECUTIVE SUMMARY This research aims to study the factors influencing the capital structure of pharmaceutical companies listed on stock exchanges in Vietnam This study uses data from financial statements, annual reports, management reports of listed companies that publish data on the stock market during the period 2010-2019 The study used the Ordinary Least Square method to estimate the parameters of the model The study used different independent variables including company characteristics (profitability, growth opportunity, tangible assets, liquidity, firm size, firm age) and corporate governance (pluralist executives) Research results show that profitability, tangible assets, and liquidity have a negative correlation with capital structure However, research also illustrates firm size, firm age and pluralist executives have a negative correlation with capital structure but they not have statistical significance In contrast, growth opportunities have a positive relationship with capital structure Generally, the results are most consistent with previous studies on capital structure In addition, the study also shows the direction and the level of the influence of the above independent variables on the capital structure of pharmaceutical companies listed on the Hanoi Stock Exchange and Ho Chi Minh City Stock Exchange are different Also, the study proposed some recommendations for pharmaceutical listed firms to get a reasonable capital structure as well as investors and related parties when they would like to invest in pharmaceutical listed firms in Vietnam viii CHAPTER 1: INTRODUCTION 1.1 Research Motivations Enterprises need capital to operate which may be retained earnings, debt, and equity The source of funds from debt can increase the value of the firm but using too much debt to finance investments, the company may have financial risks which can consequently lead the enterprise into bankruptcy Moreover, an ideal combination of capital structure including debt and equity can also minimize the cost of capital and maximize the firm’s value Therefore, “capital structure decision is an important corporate policy that deals with the firm’s activities, with debts and equity” (Brounen et al., 2006) In fact, the capital structure will change depending on the characteristics of the situation of each enterprise, the area in which it operates, as well as the effects of macroeconomic fluctuations of the economy, culture, and religion Rather than finding the optimal ratio of debt to equity, finance researchers are often interested in finding out the factors that influence the use of the financial leverage of the business From the relationship between these factors and the capital structure that we can assess whether the decision to use the loan or the equity of the business 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"Determinants of capital structure of listed firms in the pharmaceutical sector in Vietnam ", the author aims to provide significant information on the Vietnam pharmaceutical industry and define... of capital structure of listed firms in the pharmaceutical sector in Vietnam? ?? is the work of the author The content is drawn from the learning process and the results of empirical research The. .. FINDINGS 4.1 Analyzing the pharmaceutical sector in Vietnam during the 10-year period 4.1.1 The characteristics of pharmaceutical sector in Vietnam The pharmaceutical industry is one of the important