Academic journal article Journal of Southeast Asian Economies

Determinants of the Capital Structure of Listed Vietnamese Companies

Academic journal article Journal of Southeast Asian Economies

Determinants of the Capital Structure of Listed Vietnamese Companies

Article excerpt

I. Introduction

Vietnam is one of the most dynamic economies in the Asia-Pacific region and has experienced dramatic changes in its financial system in recent years. Accordingly, Vietnamese enterprises are increasingly able to seek financial capital through stock and bond markets, in addition to traditional sources such as bank lending and trade credit. This paper explores whether these changes have altered the capital structure of Vietnamese companies. Thus, we study the capital structure of listed Vietnamese companies in the broader context of financial development (the recent expansion of domestic equity and debt capital markets). Previous research on the capital structure of Vietnamese enterprises is limited. Vietnam is absent in international analyses of capital structure in emerging markets (e.g. Booth et al. 2001; Deesomsak, Paudyal and Pescetto 2004; Lucey and Zhang 2011), and only two country-specific peer-reviewed studies are discernible (Nguyen and Ramachandran 2006; Biger, Nguyen and Hoang 2008).

We enhance the understanding of capital structure in Vietnam relative to the extant literature (Nguyen and Ramachandran 2006; Biger, Nguyen and Hoang 2008) in a number of ways: (i) we examine a large sample of listed companies whilst most prior work has focused on unlisted companies and SMEs; (ii) we cover the period 2007-11 with prior work examining the period up to 2003 (1)--this is critical since there have been major changes in Vietnam's financial system in recent years (see discussion in section II); and (iii) within this context, we compare the financing policies between state-owned enterprises (SOEs) and private corporations. Accordingly, we provide the first insights into the capital structure of listed companies in one of the most dynamic emerging markets in the world (see Table 1).

From a more academic perspective, it is noteworthy that the capital structure literature has consistently found considerable differences in the capital structures of developed, as distinct to emerging country, companies. For instance, in countries with developed bond capital markets, pecking order theory is supported, whereas in developing countries a "modified" pecking order is observed (i.e., internal finance, equity and debt) (see, for instance, Chen 2004; Delcoure 2007). Further, studies in developed economies find a negative relationship between growth and debt ratios (Rajan and Zingales 1995; Wald 1999), while studies in developing countries indicate that firms finance their growth with debt (especially bank loans) (Chen 2004; Delcoure 2007; Biger, Nguyen and Hoang 2008). These differences are attributed to stronger financial systems in developed countries, as reflected in deeper capital markets and more competitive banking sectors. This is important from a broader macroeconomic perspective, since there is an association between financial development and economic growth, as evidenced in an established literature (see, for instance, Love 2003) that includes evidence specific to the case of Vietnam (O'Toole and Newman 2012). Though as noted by Guariglia and Poncet (2008), in the case of China, at least, rapid growth has been possible despite the existence of large financial distortions.

To summarize, this paper provides the first insights into the capital structure of listed companies in Vietnam in the broader context of rapid financial development. We do so by employing a panel GMM (generalized method of moments) system estimator to analyse the determinants of the capital structure of 116 non-financial firms listed on either the Ho Chi Minh Stock Exchange or the Hanoi Stock Exchange for the period 2007-11. The rest of this paper is structured as follows: section II describes the context leading to, and provides measures of, Vietnam's recent financial development. Section III reviews the theoretical and empirical literature on capital structure. Section IV develops hypotheses, discusses the data employed and specifies the econometric model utilized. …

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