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MINISTRY OF EDUCATION AND TRAINING THE UNIVERSITY OF DA NANG NGUYEN TAN THANH DETERMINANTS OF FINANCIAL STRUCTURE OF CONSTRUCTION FIRMS IN VIETNAM Major: Accounting Code: 62.34.03.01 SUMMARY OF DOCTORAL THESIS ECONOMICS DaNang - 2021 The work was completed at: UNIVERSITY OF ECONOMICS, THE UNIVERSITY OF DA NANG Supervisor: Assoc Prof Dr Tran Dinh Khoi Nguyen Assoc Prof Dr Ngo Ha Tan - Reviewer 1: - Reviewer 2: - Reviewer 3: The thesis will be protected before council marks the thesis University of Danang level meeting at the University of Danang, On the day month .year Theses dissertation can be found at: - National Library of Vietnam; - The Center for Learning Information Resources and Communication - The University of Da Nang The need of the topic INTRODUCTION - In the market economy, the main aim of owners is to find ways to achieve the highest profit The aim that is achieved is related to business strategies and policies, in which firms choose a reasonable financial structure (FS) between debt and equity in order to improve profits and limit financial risks Up to now, the topic of FS and factors influencing capital is still a research space in terms of method and content in countries over the world - The economic reform policy in Vietnam began to be implemented after the 1986 National Party Congress opened up a great opportunity for all economic sectors to participate in investment and economic trade Especially since Vietnam's integration with the world market and other countries in the region, Vietnam's economy has made profound changes That process has made many economic breakthroughs, including the construction industry to meet the needs of infrastructure construction, housing and many other needs However, such development always needs a financial market to meet the capital needs of firms Vietnam's stock market was born and operated for nearly 20 years with the aim of diversifying capital financing ways for firms However, in fact, in recent years, the capital mobilization way of firms from the stock market is still few Unlisted construction firms are even more unable to mobilize capital through this line, while SMEs in the construction sector account for a large proportion Thus, the study of FS and influencing factors in the construction industry in Vietnamhas more and more practical significance in the process of innovation and international economic integration, especially in the period 2007-2015 Vietnam's economy is also affected by the world economic crisis - From an academic perspective, there have been many studies on the factors affecting the FS of construction firms in the world, in Vietnam there have been some studies in this direction, but in a narrower scope with specializing in construction, material firms construction firms listed on the stock market, but not investigated on the whole of the construction firms Research results on FS of listed construction firms on the stock market have not shown the common characteristics of all of the construction firms in Vietnam in the integration context On the other hand, in the country and abroad studies focus factors inside that lack macro factors - Regarding the methodology, the most of the studies performed on - small sample and using traditional OLS regression techniques have not dealt with the chain correlation of the error component and endogeneity - Due to the above mentioned reasons, the author chooses the: "The determinants of the financial structure of Vietnamese construction enterprises" for research Research Objectives - The thesis aims to achieve the following three objectives: - To assess the status of financial structure through analysis and comparison of financial structure between the group of construction firms - Identify and evaluate the impact of factors on the financial structure of Vietnam's construction firms - Consider the impact of the financial crisis on the financial structure of Vietnamese construction firms Research Objectives, scope and methodology - Research Objective: The research objective of the thesis is the This study concentrates on the factors affecting the financial - structure of Vietnamese construction enterprises - Scope of the research: The subject is studied in the following limits - + The construction firms in this study are enterprises registered with the main business line of construction activities, or enterprises with a ratio of construction revenue to total revenue greater than 50% - + The study period includes all construction firms in Vietnam operating continuously over 2007-2015 - Time: - Space: The thesis investigates and collects data construction enterprises representing in all three regions: North, Central and South - Research method - The thesis uses a combination of qualitative and quantitative methods, mostly based on a quantitative approach Specifically: qualitative methods applied to document research and in-depth interviews with experts in construction firm; Quantitative method through dynamic panel data regression Research questions - To achieve the above objectives, the content of this thesis must answer the following research questions: Whatare the featuresof financial structure of Vietnamese over 2007-2015? - Is there a difference in financial structure between groups of enterprises in the construction industry, between the types of listed and unlisted construction enterprises and between periods before, during and after the financial crisis? What factors affect the financial structure of Vietnam's construction firms? How does the financial crisis affect the financial structure of Vietnamese construction firms? New contributions of the thesis The research results of the thesis have some academic and practical contributions in the context of the global financial crisis as follows: Theoretical contributions: The thesis synthesizes the theoretical basis for the theory and related the theory with the influencing factors: From factors inside to macro factors Corporate governance is also synthesized, thereby providing a more comprehensive picture of the factors that affect the financial structure The thesis also contributes to solving the heteroskedasticity and endogeneity - Practical contributions:: + The thesis synthesizes inside and macro factors that affect the financial structure of Vietnamese construction enterprises, thereby serving as a recommendation for macro management agencies and enterprise managers to have a financial structure selection policy suitable for each stage + The results also show the current financial structure of Vietnam's construction firms, comparing between groups of firms and by period in the 2007-2015, in which the financial crisis has affected the dissertation The status of financial investment in Vietnamese construction firms, comparing between groups of firms and by period in the 2007-2015, in which the financial crisis has affected the FS These are important information to help true decisions to have appropriate policies to limit risks in times of crisis + The thesis also suggests effective analytical method in the study of FS The study uses bootstrap method in FS analysis, this is a relatively new statistical method that is reproducible when sampling with return elements (observation), the research results are very meaningful, help managers predict the FS of the construction firms, when the industry average has not been announced This result is also the basis for banks to have complete information about the construction firms in loan appraisal Structure of the study 10 In addition to introduction and conclusion, This study will be organized into chapters 11 12 CHAPTER LITERATURE REVIEW 1.1 Summary of factors affecting financial structure 1.1.1 Studies in developed countries 13 Studies based on book prices and market prices consider the factors affecting the FS of construction firms Specifically, studies focus on both internal factors and macro factors: size, Assets structure, growth opportunities, profitability, economic growth such as the research of Titman (1988), Bevan (1991), Feikadis (2007), Choi (2014), Bal (2020), Ek (2020) 14 Chang (2011), research on factors affecting capital structure of construction firms in Korea considering the financial crisis The results showed that after the financial crisis, firms in Korea increased the size of firms and profitability 1.1.2 Studies in developing countries 15 The studies mainly based on the number of books consider the factors affecting the financial industry of construction firms and focus on two groups of factors: i) The group of factors within the firsm includes: size, Assets structure, growth opportunities, profitability such as the research of Hijazi (2006), Buharuddin (2011), Qayyum (2013), Shah (2013), Das (2014), Youssef (2015), De (2016) ii) The macro factor of corporate income tax such as the research of Rus (2012), economic growth economic growth Gunardi (2020) The results show that FS are influenced by many 16 internal factors 1.1.3 Studies in Vietnam 17 Studies are based on book prices and listed construction firms on the stock market Specifically, the studies only mention internal factors including: size, growth opportunities, assets structure, liquidity such as the research of Le Thi Phuong Dung (2013), Chu Ba Quy (2013), Bui Ngoc Mai (2013), Le Thi My Phuong (2014), Nguyen Thi Tuyet Lan (2020) The results show that enterprise size, growth opportunities have a positive impact on FS and in contrary for liquidity 1.2 Studies of financial crisis effects on financial structure 18 There are some studies looking at the effect of the 2008 global financial crisis on the FS The results show that debt in the 20082011 financial crisis period increased compared to before the financial crisis such as the research of Gabriela (2013), Muijs (2015), Lemos (2017) 1.3 Research gaps 19 The results of previous researches in the country and abroad, It shows that there are not many studies combining inside factors and macro factors; have not considered the global financial crisis; and the trend of influencing factors on the FS is not consistent 20 Regarding the methodology, most researches in the country and abroad use traditional regression such as OLS, a few the country studies performed on limited samples, using regression method considering fixed effects (FE) and random effects (RE), there is no study considering the factors that affect the FS of the construction firms and the estimation method is consistent with the dynamic panel data model 21 From the gaps about the results and research methods mentioned 22 above, the thesis wishes to continue implementing to clarify more factors 23 24.CHAPTER THEORETICAL BASIS 2.1 Definition and characteristics of of financial structure 2.1.1 Definition of financial structure 25 Financial structure (FS) is defined as the relative amount of debt and equity used to finance firm’s operation (included short debt, long debt) 2.1.2.Characteristics and Factors that constitute financial structure 2.1.2.1 Characteristics of debt 26 Liabilities are an integral part of the FS Depending on the debt policy of each enterprise, debts are of two main types: short-term debt and long- term debt It includes cost (debt) and cost-free debt The common feature of debt is that the enterprise is responsible for repayment 2.1.2.2 Characteristics of equity 27 It is the remainder of total assets minus liabilities In legal terms, the enterprise is not responsible for paying the owner the contributed capital that the owner only expects on the business results through dividends 2.2 The theories of financial structure 28 The theory of agency cost; Asymmetric Information Theory;The theory of trade off; The theory of financial distress costs; Market timing theory 2.3 Development of hypotheses 29 H1a: Firm’s size will be positively related to Debt to Assets ratio and Long-term debt to Asset ratio; 30 H1b: Firm’s size negatively related to Short -term debt to Asset ratio; H2a: Firm’s growth will be positively related to Debt to Assets ratio and Long-term debt to Asset ratio; 210 and the financial crisis Specifically, the overal average debt ratio, short average debt ratio and long average debt rate during the financial crisis period were higher than pre-financial crisis period 4.2 The model of factors affecting the financial structure of Vietnam's construction enterprises 4.2.1 Analyzing the relationship between the factors affecting the financial structure of Vietnam's construction enterprises Correlation analysis: Correlation analysis results show that there are many pairs of predicting variables have correlation (statistically significant) However, the correlation coefficient between the independent variables has small values and is less than 0.8, so there is no multicollinearity between the independent variables 211 Unit panel root test: The results showed that the unit panel root tests of the variables all have P-value = 0.00 chi2 AE j R-squared 7.914 0,000 (6) 4.2.2.144 4.2.2.148 0,000 0,087 0,000 4.2.2.152 0,057 0,63 0,089 4.2.2.156 0,87 0,66 4.2.2.157 The results of three regression models (4,5 and 6) have consistency in the influence direction and arestatistically significant for some variables The variable debt ratio of the previous year (L.tdta, Lstdta, L.ltdta), liq (liquidity) positively affected the variable FS in the models The variables size (Firm’s size) and grow (growth opportunity) have a positive influence on the FS in model (4) and (6) but the opposite effect in model (5) The variable prof (profitability) has opposite influence with the FS in model (4) and (6) The tang variable (asset structure) has the opposite effect with the FS in model (4) and (5), but it is positive in model (6) The variables cpi (price index) and ir (interest rate) have positive effects on the FS in model (5) but in the opposite for model (6) and opposite for the variable gdp (economic growth rate) The variable ceo (dualty) has consistency in the influence direction but there is no evidence in terms of statistics 4.2.3 Tests of hypotheses and discussion on research results 4.2.3.1 Table 4.29 presented research compare to hypothesis 4.2.3.2 Table 4.29: Summary of testing hypothesis and Results 4.2.3.3 4.2.3.4 E 4.2.3.5 4.2.3.6 Co Hypotheses 4.2.3.7 H1a: Firm’s size will be positively relate d to xpected 4.2.3.9 + ely related to short 4.2.3.14 H1b:Firm ’s size negativ debt ratio + 4.2.3.11 4.2.3.8 debt ratio and long debt ratio 4.2.3.13 Results 4.2.3.10 nclution 4.2.3.12 Su pported (Sig) 4.2.3.15 - 4.2.3.16 - 4.2.3.17 (Sig) 4.2.3.18 Su pported 4.2.3.19 H2a: Firm’s growth be positi v e l y 4.2.3.20 will 4.2.3.21.+ 4.2.3.26 + related to debt ratio and 4.2.3.23 H2b: Firm’s growth will be negati v e l y 4.2.3.27 related to short debt ratio 4.2.3.28 4.2.3.24 Su pported (Sig) long debt 4.2.3.25 4.2.3.22 - 4.2.3.29 (Sig) 4.2.3.30 Su pported 4.2.3.31 4.2.3.32 Hypotheses H3:Profitability will be 4.2.3.36 negatively relat e d 4.2.3.37 to debt ratio 4.2.3.42 H4: Asset structure be positi v e l y 4.2.3.43 will 4.2.3.33 Expected 4.2.3.38 - positively related to 4.2.3.44.+ related to debt ratio in H5:Liquididy will be 4.2.3.48 4.2.3.52 debt ratio H6a: GDP will be negatively relate d to d ebt 4.2.3.53 ratio 4.2.3.58 H6b: GDP will be negativ ely relate d to s hort 4.2.3.59 debt ratio Results 4.2.3.39 - 4.2.3.40 Conclution 4.2.3.41 Supported (Sig) general 4.2.3.47 4.2.3.34 4.2.3.35 4.2.3.45 4.2.3.46 + (Sig) model : (6) 4.2.3.49.+ 4.2.3.50 + (Sig) 4.2.3.54 - 4.2.3.55 + 4.2.3.56 Supported: model (6) 4.2.3.51 Supported 4.2.3.57 Insignifica nt (No sig) 4.2.3.60 - 4.2.3.61 - 4.2.3.62 4.2.3.63 Supported (Sig) 4.2.3.64 H6c: GDP will be positively relate d to l ong debt ratio H7: CPI will be negatively 4.2.3.70 ratio related to d ebt 4.2.3.76 H8:Inte rest rate will be negativ ely relate d to 4.2.3.83 debt ratio 4.2.3.67 4.2.3.71 - - H9:Tax income will be 4.2.3.84 debt ratio 4.2.3.89 H10: Dualty will be Supported 4.2.3.74 4.2.3.73 4.2.3.75 - (Sig) 4.2.3.78 4.2.3.68 4.2.3.72 Supported: model (6) 4.2.3.79 4.2.3.81 4.2.3.80 4.2.3.82 - (Sig) positively related to positively related to + (Sig) 4.2.3.69 4.2.3.77 4.2.3.65.+ 4.2.3.66 4.2.3.85.+ 4.2.3.86 + (Sig) Supported: model (6) 4.2.3.87 Supported: 4.2.3.88 model (6) 4.2.3.91 - 4.2.3.92 - (No sig) 4.2.3.93 Insignifica nt 4.2.3.90 debt ratio 4.2.3.94 The results of regression analysis provide evidence of the relationship of the six factors that belong to the firms: size, growth opportunity (grow), profitability (prof), asset structure (tang), liquidity (lid), and five external factors: economic growth (gdp), price index (cpi), interest rate (ir), corporate income tax rate (tax), and crisis (crisis) that affects the financial industry of construction firms Although the results are not completely consistent with previous studies and not find evidence of some hypotheses, this may be due to other factors such as non-financial factors, management skills and assertiveness of Leadership, this inconsistency requires future studies to continue to examine other factors that affect the FS 4.2.3.95 CHAPTER CONCLUSION AND RECOMMENDATON 5.1 Conclusion 5.1.1 Conclusion related to features and variation of financial structure The average debt ratio of Vietnam's construction firms in the period 20072015 was 65%, compared with some developing countries in Asia (less than 61%) In which the short debt ratio accounts for a significant proportion in the totaldebts of theconstruction firms, the construction firms use less long debts Debt ratios arealso differentbetween listed and unlisted firsm and between construction, materials and design groups 5.1.2 Conclusion related to determinants of financial structure Analysis results show that there are five factors inside construction firms affect FS Firm’s size, growth opportunities are factors that have a positive relationship with the debt ratio, the long debt ratio This means that large construction firms need a lot of capital for long debt Asset structure is significantly inversely related to debt ratio and short debt ratio, construction firms with low fixed assets can use short debt and debt more Profitability is a factor that is inversely related to FS in all three measurements This factor has a strong impact on FS compared to other factors, possibly because the capital demand for construction projects is much larger than the profitability of the construction firms Liquidity is a factor found to have a great positive influence on the FS of construction firms in all three ways of measuring financial works compared to other factors The results imply that, for high liquidity construction firms, it means that high cash flows and liquid assets are more likely to be accepted by banks and always meet the payment of debts on arrival For macro factors: Economic growth rate (GDP) and tax income rate (tax) have a strong negative impact on the short debt ratio This relationship affirms that, when the economy develops, construction firms use funding from cash flow from advance from construction contracts However, the rate of economic growth (GDP) and corporate income tax rate (tax) have a strong positive impact on the long debt ratio, which is explained in the context of economic growth construction projects, therefore, there is a great demand for investment in fixed assets In addition, when increasing tax income rate, construction firms increase long loans to deduct interest expenses from expenses for tax income calculation Factor of financial crisis is found to have an impact on the FS of Vietnam's construction firms 5.2 Recommendations from research results 5.2.1 Recommendation for construction firm’s managers The results show that the average debt ratio of construction firms is high (65%) Therefore, construction firms need to find other sources of capital mobilization besides bank loans For enterprises in the group of construction enterprises and building materials, it is necessary to renew construction machinery and equipment to shorten the project implementation time in order to improve business efficiency and reduce the pressure of short-term loans During the crisis period, construction enterprises should look for other low-cost capital sources; speeding up the pre-acceptance test of construction volumes for payment; using other temporary sources of capital such as canceling tax debts equal to the value of construction volumes funded by the State Small firms find it difficult to get a bank loan, so Construction firms need to pay attention to the preparation and publication of financial statements data in accordance with the current accounting regime The financial statements presented specifically and transparently will help partners, including banks, understand more about firms This is a way to reduce the information asymmetry between parties and create favorable conditions for firms to access loans from banks The construction firms need to establish an effective internal control system, which will contribute to increasing the reliability of information from financial statements, ensuring efficient operation of firms and minimizing risks The construction firms need to pay attention to the acceptance of the completed construction volume to reduce the pressure on bank loans because this is the capital chosen by the firm before considering the bank loan plan This is confirmed by the positive relationship between liquidity and financial assets in all three measurement ways In addition, the construction firms always maintain and seek relationships with stable and quality input suppliers in order to enhance the maximum exploitation of temporary commercial credit capital from partners The research results show that profitability has a strong opposite influence on FS Therefore, the construction firms need to focus on improving business efficiency However, one of the weaknesses of Vietnamese construction firms is that their average profitability in the period 2007-2015 is low at 2.2% 5.2.2 Recommendation for Comercial bank Loan appraisal is based on criteria for construction lending procedures such as capital plan and disbursement progress to ensure safe lending to the banking system On the other hand, it is necessary to classify construction firms to assess the financial capacity for each loan Implement lending policies with reasonable interest rates for projects Review the loan to collateral ratio 5.2.3 Recommendation for macro policy makers (i) For Govemment The results show that the most construction firms have high debt ratio (65% on average), so the Government continues to allow the construction firms to increase equity capital, or transfer the state capital in the firms to investors The government should require that the financial statements of al types of construction firms be audited to create a transparent competitive environment in construction project This also solves a part of information asymmetry between the construction company and the lender The government needs to speed up the disbursement to pay debts for construction projects for construction firms Payment of construction value completed on schedule is also a way to support construction firms to have capital to cover their business activities, and to reduce pressure on bank loans The Government allows the investor (Project Management Board) to provide loan guarantees for small construction firms to participate in the implementation of projects in some necessary cases The recommendation comes from the research results showing that it is difficult for small construction firms to access bank loans because they not have enough assets to guarantee their loans The Government should have a policy to continue reducing the corporate income tax rate to below 20%, this policy is as a regulatory tool to support construction enterprises to accumulate capital for reinvestment Reviewing inefficient public investment construction projects, transferring public investment construction projects to the private economic sector in the form of BOT, BT Removing administrative procedural barriers on site clearance, project approval and disbursement to facilitate rapid project implementation (ii) For State Bank On the part of the State Bank, there should be measures to direct commercial banks to apply ceiling interest rates on construction activities to avoid risks for bad debts The Bank needs to buid iterm to evaluate and classify construction firms in lending activities The positive relationship between short debt and interest rates shows that the construction firms take risks when the interest rates rise The results also showedthat the financial crisis of 2008-2011 hada significant positive impact on the debt ratio and the long debt ratio To cope with the financial crisis, the macro makers agency needs to to control inflation, tight and flexible monetary policy, adjust exchange rates, interest rates, credit limits, control construction loans 5.3 Limitation and Future researches 5.3.1 Limitation of study Besides the achieved results, the thesis has some limitations The financial statements data collected from the General Statistics Office, data from the years before the financial crisis (2008) are not collected, so the results have certain differences Unlisted construction firms in the research sample account for a large proportion of 90% (919/1,024) in the entire number of construction firms According to current regulations, these companies are not required to disclose information like listed companies Therefore, some information from the financial statements of unlisted construction firms is limited when studying the factors affecting the financial investment The topic only stop quantitative factors financial and In fact, there are many other factors that can change the capital structure of the construction firms, including non-financial factors such as: qualifications, management and operating capacity of the director; The assertiveness of the leader 5.3.2 Future researches Future research should consider the impact of other non-financial factors such as the remuneration of the firm management Development of a dynamic panel econometric model with the method of least-squares dummy variable estimator LSDVC (biascorrected least-squares dummy variable estimator) LIST OF PUBLISHED WORKS OF PH.D STUDENTS Tran Dinh Khoi Nguyen & Nguyen Tan Thanh (2016) Research on factors affecting the financial structure of enterprises listed on Hanoi stock market in theperiod 2010 - 2014 Proceedings of NationalScientific Conference on Statistics and Applied Informatics, Kinh University Economy - Danang University, Quang Nam Statistical Office, National Economics University, Ho Chi Minh City University of Economics, Institute of Statistical Science, p 518 - 529 Nguyen Tan Thanh & Tran Dinh Khoi Nguyen (2018) Current status of financial structure of Vietnamese construction enterprises Journal of accounting & auditing, No 178 (7/2018), p 31 – 34 Nguyen Tan Thanh & Tran Dinh Khoi Nguyen (2018) Factors affecting the financial structure of Vietnam's construction enterprises Journal of accounting & auditing, No 179 (8/2018), p 26 – 30 Nguyen Tan Thanh (2020) Measuring the financial structure and the influencing factors of the construction business - Overview of empirical studies Journal of accounting & auditing, No 201 (6/2020), p 79 - 81 Nguyen Tan Thanh & Tran Dinh Khoi Nguyen (2020) The impact of macro factors affecting the financial structure of Vietnam's listed construction firms Economic and Management Science Journal, University of Economics - Hue University, No 13 (3), p - 18 Nguyen Tan Thanh & Tran Dinh Khoi Nguyen (2020) Applying Bootstrap method to analyze financial structure of Vietnamese construction enterprises Journal of Science and Technology, University of Danang, No 18 (10), p 32 - 35