Vietnamese Firms' Possibility of Obtaining Credit and Capital Structure

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INTRODUCTION

Access to loans is a consideration not only for firms in Vietnam but also for those in advanced and industrialized economies. From the analysis of access to bank loan, do firms with bank loan or without bank loan have different characteristics of capital structure? The characteristics of firms and finance must be used in analyzing firms' capitals. This is an opportunity to test Pecking Order Theory (POT).

The number of enterprises each year continues to grow during the last 10 years. In 2000, there were 14,453 newly established enterprises; this number was estimated to be more than seven times higher in 2010. Until December 2010, the total number of enterprises in Vietnam was about 520,000. According to the surveys in 2002 and 2005, shortage of capital was the most serious problem. Rand et al (2009) finds that access to credit in 2005 is more constrained than in 2002. It can be said that, firms' access of credit depends on the capacity of banking industry. On the other hand, if firms do not grow steadily and efficiently, it will be difficult for bank branches to be opened here. The amount of credit and deposits has constantly increased, and the total assets have grown annually, about 25 percent on average during the period of 2000-05 (Zavatta, 2008). The banking sector is currently undergoing large changes. According to the evaluation of World Bank, Vietnam ranks 21 of 183 countries in terms of credit obtainment in 2011 (World Bank, 2011).

Capital structure has long been controversial for many researches. Degryse et al. (2012) conclude that short-term debt is influenced by profit, whereas long-term debt is affected by asset growth. Moreover, long-term debt ratio is positively related with asset structure, and there is a negative correlation between short-term debt and asset structure (Sogorb-Mira, 2005). Bhaird and Lucey's (2010) analysis of a sample of 299 Irish small and medium-sized enterprises concludes that firms increase their use of internal equity when they develop over time, and Paul et al. (2007) find that small firms prefer equity to debt when external funds are required, which is contrary to POT theory.

The study complements previous studies on the capital structure of Vietnamese firms. An empirical study on Vietnamese firms' capital structure investigated 116 listed companies in the stock market, mostly with big companies (Nguyen et al., 2012). They applied theories of capital structure and analyzed SMEs in the context of financial development. Nguyen and Ramachandran (2006) investigated determinants of capital structure in Vietnamese small and medium enterprises with the number of employees fewer than 300 and/or a registered capital of less than 10 billion Vietnam dongs excluding foreign-owned or joint-venture SMEs and financial firms. For our study, we used data from World Bank Enterprise Survey in 2005 for productivity and investment climate. The main purpose of our research is to examine the probability of firms in obtaining bank loans and to investigate the similarities and differences of capital structure of firms with bank loans and those without bank loans. A look into the body of literature shows that few researches have been conducted to investigate the multiple borrowing statuses and hardly any comparison of capital structure has been done between firms with bank loans and firms without bank loans.

This paper is divided into five sections. Section 2 presents the major applied financial theories and reviews the empirical results which support or contradict these financial theories. Section 3 describes data and research methodology, and gives definitions of independent and dependent variables. Section 4 relates to the possibility of firms' capital access and capital structure of two different groups. Section 5 sums up these finding and gives suggestions.

There is a difference in status of firm borrowing. This status can be divided into four categories: (1) firms that did not apply for loans; (2) firms whose last application for loan was turned down; (3) firms whose application for loan is still pending; (4) firm that has a bank loan. …