The impact of financial leverage on firm performance: A case of construction firms in Vietnam
Main Article Content
Abstract
The debt situation of Vietnam construction sector is analyzed by the study. Construction firms in Vietnam are very familiar with using debt. They diversify their capital structure by 7:3 or 70% of leverage and 30% of owners’ equity.In spite of the high financial leverage rate, the increase in sales revenue and the ability to liquidate current debts, the profitability, return on equity rate and book value decreased considerably. With the sample of 45 listed construction companies in Vietnam, this paper analyzes the effects of financial leverage on financial performance of construction industry in Vietnam from 2007 to 2011. GLS estimation has been carried out to analyze the relationship between financial leverage and financial performance in Vietnam construction industry during five years from 2007 to 2011. From the results, the financial leverage is positively correlated to return on equity, earnings per share, and negatively related to return on asset and quick ratio...
Article Details
Keywords
financial leverage, financial performance, construction industry
References
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35. Ojo, A.S.(2012). The Effect of Financial Leverage on Corporate Performance of Some Selected Companies in Nigeria. Canadian Social Science, 8(1), pp. 85-91
36. Ooi, J. (1999) The determinants of capital structure Evidence on UK property companies, Journal of Property Investment & Finance, 17(5), pp.464 - 480
37. Rajam, R.G. & Zingales, L. (1995). What Do We Know About Capital Structure? Some Evidence from International Data, The Journal of Finance, 50, pp. 1421-60
38. Ross, A. (1977). The Determination of Financial Structure: The Incentive-Signalling Approach,Bell Journal of Economics, 8(1), pp. 23-40
39. Sayılgan, G., Karabacak, H., Küçükkocaoğlu, G. (2006), The Firm-Specific Determinants Of Corporate Capital Structure: EvidenceFrom Turkish Panel Data, Investment Management and Financial Innovations, 3(3), pp. 125-139
40. Titman, S. & Wessels, R. (1988) The determinants of capital structure choice, Journal of Finance, 42, pp. 1-19
41. Van der Wijst, N. & R. Thurik (1993). Determinants of Small Firm Debt Ratios: An Analysis of Retail Panel Data, Small Business Economics, 5, pp. 55-65.
42. Weill, L. (2007). Leverage and corporate performance: Does institutional environment matter.Small Business Economics 30, pp. 251-265.
2. Ahmed, A.M. & Khababa, N. (1999). Performance of banking sector in Saudi Arabia,Journal of Financial Management and Analysis, 12 (2), p.30-36.
3. Al-Malkawi, H.A.N. (2007). Determinants of Dividend Policy in Jordan: An application of Tobit Model. Journal of Economic and Administrative Sciences, 23(2), pp. 44-70.
4. Armstrong, M. (2007). Armstrong’s Handbook of Reward Management Practice Improving performance through reward, 4E, CoganPage: London
5. Bansal, R., Gallant, R. & Tauchen, G.(2007). Rational Pessimism, Rational Exuberance, and Asset Pricing Models.Review of Economic Studies 74, pp. 1005–1033.
6. Besley,S.& Bringham, E.(2009). Principles of Finance. 4th ed. [e-book] Cengage Learning
7. BIDV Securities Company (2013), Analysis about industries strongly affected by the decrease in interest rate decision, p.1
8. Brealey, R., Myers, S. & Allen, F. (2008). Principles of Corporate Finance. 9th ed. The McGrawHill
9. Eldomiaty, T. (2007) Determinants of corporate capital structure: evidence from an emerging economy, International Journal of Commerce and Management, 17(1/2), pp.25 – 43
10. Esperanca, J.P., Gama, A.P.M. & Gulamhussen, M.A.(2003). Corporate Debt Policy of Small Firms: An Empirical (Re) Examination, Journal of Small Business and Enterprise Development,10, pp. 62-80
11. Ferry, M.G. &Jones, W.H. (1979). Determinants of Financial Structures: A New Methodological Approach. The Journal of Finance, 34(3), pp. 631–644.
12. Gibbs, P. (1993). Determinants of Corporate Restructuring: The Relative Importance of Corporate Governance, Takeover Threat, and Free Cash Flow. Strategic Management Journal, 14 (Special Issue: Corporate Restructuring), pp. 51-68.
13. Gill, A. & Mathur, N. (2011). Factors that influence financial leverage of Canadian firms. Journal of Applied Finance and Banking, 1(2), pp. 19-37.
14. Gill, A.S., Mand, H.S., Sharma, S.P. & Mathur, N. (2012). Factors that Influence Financial Leverage of Small Business Firms in India, International Journal of Economics and Finance, 4(3), pp. 33-45
15. Grossman, S.J. & Hart, O.D. (1982). Corporate Financial Structure and Managerial Incentives. The Economics of Information and Uncertainty, edited by John McCall. Chicago: University of Chicago Press, (1982) pp. 107-140.
16. Haim L. & Marshall S.(1988). Principle of Financial Management, Prentice Hall
17. Harris, M & Raviv, A. (1991) The theory of captical structure choice. Journal of Finance, 46, pp. 297- 355
18. Huang, S.G.H., &Song, F.M.. (2006). The Determinants of Capital Structure: Evidence from China. China Economic Review, 17, pp. 14-35.
19. James c. Van Horne (2002).Financial management and policy, 12th E. Prentice Hall: NJ
20. Jensen, M. (1986). Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers, American Economic Review, 76(2), pp. 323-29
21. Jensen, M.C. &Meckling, W.H. (1976).Can the corporation survive?, Center for Research in Government Policy and Business Working Paper no. PPS 76-4, University of Rochester, Rochester
22. Kinsman, M.D. & Newman, J.A.(1999). Debt Level and Firm Performance: An Empirical Evaluation, at Puerto Vallarta, Mexico.
23. Lasher, W.R. (2003). Practical financial management, 3rd E. Mason: Thomson
24. Majumdar S. & Chhibber P. (1999). Capital structure and performance: Evidence from a transition economy on an aspect of corporate governance, Public Choice (98), pp. 287- 305.
25. Margaritis, D. &Psillaki, M. (2007). Capital Structure and Firm Efficiency, Journal of Business Finance & Accounting, 34 (9-10), pp. 1447-1469.
26. Michaelas, N., Chittenden, F. &Poutziouris, P. (1999). Financial Policy and Capital Structure Choice in UK SMEs: Empirical Evidence from Company Panel Data, Small Business Economics, 12, pp. 113-130
27. Miller, M. & Rock, K. (1985). Dividend Policy Under Asymmetric Information,Journal of Finance, 40, pp.1031-1051.
28. Ministry of Construction, 2008. The 14th Asia Construction Conference, Vietnam report. The Ministry of Construction
29. Modigliani, F. & Miller, M. (1958). The Cost of Capital, Corporation Finance and the Theory of Investment, The American Economic Review, 48(3), pp. 261-297
30. Mohapatra, A.K. (1999).Corporate Financial Management, Discovery Publishing Pvt.Ltd
31. Myers, S. & Majluf, N.S. (1984). Corporate financing and investment decisions when firms have information investors do not have,Journal of Financial Economics, 13, pp.187-221.
32. Myers, S. (1977). Determinants of corporate borrowing. Journal of Financial Economics 5(5), pp. 147–175.
33. Myers, S. (1984). The Capital Structure Puzzle.Journal of Finance. 39(3), pp. 575-92.
34. Myers, S. (2001).Capital structure, Journal of Economic Perspectives, 15(2), pp. 81–102
35. Ojo, A.S.(2012). The Effect of Financial Leverage on Corporate Performance of Some Selected Companies in Nigeria. Canadian Social Science, 8(1), pp. 85-91
36. Ooi, J. (1999) The determinants of capital structure Evidence on UK property companies, Journal of Property Investment & Finance, 17(5), pp.464 - 480
37. Rajam, R.G. & Zingales, L. (1995). What Do We Know About Capital Structure? Some Evidence from International Data, The Journal of Finance, 50, pp. 1421-60
38. Ross, A. (1977). The Determination of Financial Structure: The Incentive-Signalling Approach,Bell Journal of Economics, 8(1), pp. 23-40
39. Sayılgan, G., Karabacak, H., Küçükkocaoğlu, G. (2006), The Firm-Specific Determinants Of Corporate Capital Structure: EvidenceFrom Turkish Panel Data, Investment Management and Financial Innovations, 3(3), pp. 125-139
40. Titman, S. & Wessels, R. (1988) The determinants of capital structure choice, Journal of Finance, 42, pp. 1-19
41. Van der Wijst, N. & R. Thurik (1993). Determinants of Small Firm Debt Ratios: An Analysis of Retail Panel Data, Small Business Economics, 5, pp. 55-65.
42. Weill, L. (2007). Leverage and corporate performance: Does institutional environment matter.Small Business Economics 30, pp. 251-265.