The impact of leverage on firm investment empirical evidence from vietnam

STATE BANK OF VIETNAM THE MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY NGUYEN VIET PHUONG LINH THE IMPACT OF LEVERAGE ON FIRM INVESTMENT: EMPIRICAL EVIDENCE FROM VIETNAM GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 72340201 HO CHI MINH CITY, 2020 STATE BANK OF VIETNAM THE MINISTRY OF EDUCATION AND TRAINING BANKING UNIVERSITY OF HO CHI MINH CITY NGUYEN VIET PHUONG LINH THE IMPACT OF LEVERAGE ON FIRM INVESTMENT: EMPIRICAL EVIDENCE FROM VIETNAM GRADUATION THESIS MAJOR: FINANCE – BANKING CODE: 72340201 ADVISOR by M.Sc TRAN MINH TAM HO CHI MINH CITY, 2020 i ABSTRACT This essay examines the impact of leverage on firm investment by using the information of corporate listed on Ho Chi Minh City Stock Exchanges in Vietnam The author proposes hypotheses to estimate the relationship between leverage and investment First, there is a negative impact of leverage on firm investment Second, the negative relationship between leverage and firm investment is weaker in firm with higher growth opportunities than low growth opportunities Third, the negative impact of leverage on firm investment is weaker in firm with poor performing firm The last one is the negative impact of leverage will be weakened in highly state-ownership corporate By using the quantitative methods to estimate models: Pooled OLS, REM and FEM Overall, the results of the thesis provide a supportive to prior theories where leverage have a negative impact on firm investment and this negative relation is stronger in firm with lower growth opportunities Moreover, the state-ownership have an effect on the negative relationship of leverage and firm investment Firm which have state-ownership finds it easier to borrowing from external than other counterparts And firm with poor performing have less restriction on capital expenditure than other JEL classification: G32 Keywords: Leverage, investment, Vietnamese, Stata ii DECLARATION The author ensures that the research paper "The impact of leverage on firm investment: Empirical Evidence from Vietnam" is completed by the author and guidance of Master Tran Minh Tam References and data are cited completely, clearly, and uniformly in the Reference List The content and results of this study have not been published in any other articles or projects up until now The author is responsible for all assurances Ho Chi Minh city, Author, Nguyen Viet Phuong Linh iii APPRECIATION This thesis will not be completed without the dedicated help of my teacher and friends As an author of this thesis, I would like to express my deep gratitude to my advising instructor – Mr Tran Minh Tam who has always follow closely and provide sincere comments so that I can finish this thesis I would like to express my special thanks to Mr Nguyen Tran Minh Tri and Mr Nguyen Thai Bao – friends at my training course at Ho Chi Minh joint stock company, he has encouraged me, while helping me find documents In addition, I would like to express my thanks to the lecturer at Banking University of Ho Chi Minh City for creating such favorable conditions in the process of study and as well as doing thesis Finally, I have an appreciation to my family supporting throughout my study process Ho Chi Minh city, Author, Nguyen Viet Phuong Linh iv CONTENT ABSTRACT i DECLARATION ii APPRECIATION iii LIST OF TABLES vii LIST OF ACRONYMS viii CHAPTER INTRODUCTION 1.1 Research Issue .1 1.2 Research Purpose 1.3 Object and Scope of the Study and Research question 1.3.1 Object and scope of the study 1.3.2 Research question 1.4 Method of the research 1.5 Significant of the research .3 1.6 Thesis Structure .4 CHAPTER LITERATURE REVIEWS 2.1 Theory of leverage and investment .7 2.2 Theory of Investment 2.2.1 Pecking Order theory 2.2.2 Investment theory of Tobin 10 2.3 The link between leverage and investment 11 2.4 Growth and the impact of leverage on firm investment 12 2.5 Leverage, firm investment, and State ownership 13 2.6 Studies in the world .15 2.6.1 Studies of the impact of leverage on investment .15 2.6.2 Previous studies about leverage, firm investment, and state ownership in corporate 17 v 2.7 Studies in Vietnam 19 CHAPTER 3.1 METHODOLOGY AND RESEARCH METHOD .22 Research design and research model 22 3.1.1 Research design 22 3.1.2 Data Research 22 3.2 Research model and hypotheses 23 3.2.1 The impact of leverage on firm investment .23 3.2.2 Test the impact of leverage on two groups of firms 24 3.2.3 The impact of leverage on firm investment and state ownership of enterprise 27 3.2.4 Data Description 29 3.3 Samples and Sampling method 31 3.4 Methods of data analysis .31 CHAPTER RESULTS OF RESEARCH 35 4.1 Summary statistic result 35 4.2 Correlation matrix analyze 36 4.3 Regression Analysis 39 4.3.1 First hypothesis 39 4.3.2 Second hypothesis 47 4.3.2.1 Using Tobin’s Q as growth opportunities 47 4.3.2.2Testing the sample with Sales proxy growth opportunities .50 4.3.3 The third hypothesis 53 4.3.4 The last hypothesis 55 CHAPTER CONCLUSION AND RECOMMENDATION 59 5.1 Summarize the result 59 5.2 Suggestion and Recommendations 61 5.3 Contribution 62 5.4 Limitations of the topic .62 5.5 Recommended next research .63 CONCLUSION 65 vi REFERENCE 66 APPENDIX .71 vii LIST OF TABLES Table 3.1 Variables Description 30 Table 4.1 Summary statistics 35 Table 4.2 Correlation matrix 38 Table 4.3 Result of multicollinearity test 39 Table 4.4 Statistic result of OLS of the first model (leverage1) 40 Table 4.5 The statistic result of Pooled OLS (leverage2) 42 Table 4.6 Heteroskedasticity Test (Leverage1) 42 Table 4.7 Heteroskedasticity Test (Leverage2) 42 Table 4.8 REM and FEM regression result (Leverage1) 43 Table 4.9 The result of FEM and REM model (leverage2) 44 Table 4.10 Hausman test (Leverage1) 46 Table 4.11 Hausman test (leverage2) 46 Table 4.12 The result of model of the role of growth opportunities 47 Table 4.13 Result of Tobin regression model of second alternative measure of Leverage2 49 Table 4.14 The role of growth opportunities (Variable Growth) 51 Table 4.15 Growth opportunities, leverage, and investment 52 Table 4.16 The regression result of model 54 Table 4.17 The regression result of model 55 Table 4.18 The role of state ownership, leverage and investment 56 80 81 APPENDIX 18 Pooled OLS Result of model which have DState (leverage2) 82 APPENDIX 19 Multicollinearity Test APPENDIX 20 Random Effect for model which using Dstate (leverage1) APPENDIX 21 Fixed Effect for model which using Dstate (leverage1) 83 APPENDIX 22 Pooled OLS regression Effect for model which using Dstate (leverage1) APPENDIX 23 Multicollinearity Test (VIF Leverage2) 84 APPENDIX 24 Random Effects Effect for model which using Dstate (leverage2) APPENDIX 25 Fixed Effects model Effect for model which using Dstate (leverage2) 85 APPENDIX 26 Pooled OLS regression (Growth, Leverage and Investment) 86 APPENDIX 27 Random Effect regression (Growth, Leverage, and Investment) APPENDIX 28 Fixed Effect regression (Growth, Leverage and Investment) 87 APPENDIX 29 Hausman test and LM test model (Growth, Leverage, and Investment) 88 APPENDIX 30 Heteroskedasticity Test APPENDIX 31 Pooled OLS regression (Growth, Leverage, and Investment) with Dstate 89 APPENDIX 32 Multicollinearity test APPENDIX 33 Random Effect model (Growth, Leverage and Investment) with Dstate 90 APPENDIX 34 Fixed Effect model (Growth, Leverage and Investment) with Dstate APPENDIX 35 Heteroskedasticity Test (Growth, Leverage and Investment) with Dstate 91 APPENDIX 36 Regression result when Growth higher than median APPENDIX 37 Regression Result when using Dummy variables (Growth higher than median) 92 APPENDIX 38 Regression result Growth lower than median APPENDIX 39 Regression Result when using Dummy variables (Growth lower than median) 93 APPENDIX 40 Regression Result of Model testing Loss variable APPENDIX 41 Regression result testing Loss and Leverage Interaction 94 APPENDIX 42 Regression Result testing the interaction of State and leverage in Loss preforming firm ... and hypotheses 23 3.2.1 The impact of leverage on firm investment .23 3.2.2 Test the impact of leverage on two groups of firms 24 3.2.3 The impact of leverage on firm investment. .. meanings of the thesis and thesis structure Chapter 2: Literature review Basic theories of the impact of leverage on firm investment Theoretical basis of the impact of leverage and the relationship... 3.2.3 The impact of leverage on firm investment and state ownership of enterprise After examining the level of the impact of leverage on investment in different groups of the firm Then the author