The impact of capital structure on firm value of Vietnamese listed companies - a quantile regression approach
Main Article Content
Abstract
Although there are many studies proving the close relationship between capital structure and firm value, contradicting results show that this relationship depends on research methods or characteristics of businesses. Does the decision on capital structure in low-value firms have different influence compared to high-value firms? This paper overviews literature on the effect of capital structure on firm value, and provides an empirical study on non-financial listed companies on Vietnam’s Stock market in the period from 2011 to 2017. By using quantile regression method based on the panel data from 446 companies with 3122 observations, the results show that leverage has a positive impact on firm value when it is low and a opposite effect when it is high. These findings suggest that low-value firms should raise capital by taking more debt, whereas high-value firms should raise capital by issuing more shares.
Article Details
Keywords
Capital structure, Firm value, Quantile regression
References
Abor, J. (2005), “The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana”, Journal of Risk Finance, Vol. 6 No. 5, pp. 438–447.
Baker, M., Wurgler, J. (2002), “Market timing and capital structure”, Journal of Financial, Vol. 57 No. 1, pp. 1-30.
Balakrishnan, S., Fox, I. (1993), “Asset specificity, firm heterogeneity and capital structure”, Strategic Management Journal, Vol. 14 No. 1, pp. 3-16.
Berger, A.N., Bonaccorsi di Patti, E. (2006), “Capital structure and firm performance: a new approach to testing agency theory and an application to the banking industry”, Journal of Banking and Finance, Vol. 30 No. 4, 1065-1102.
Berle, A.A., Means, G.C. (1932), The modern corporation and private property, Macmillan Co., New York.
Bui, D.T. (2016), The impact of capital structure and working capital on financial efficency of small and medium-sized companies in Ho Chi Minh City, Dotoral thesis, Banking University Ho Chi Minh, Ho Chi Minh.
Chowdhury, A., Chowdhury, S.P. (2010), “Impact of capital structure on firm’s value: Evidence from Bangladesh”, Business and Economic Horizons, Vol. 3 No. 3, pp. 111-122.
Cook, B.L., Manning, W.G. (2013), “Thinking beyond the mean: a practical guide for using quantile regression methods for health services search”, Shanghai Arch Psychiatry, Vol. 25 No. 1, pp. 55-59.
Dawar, V. (2014), “Agency theory, capital structure and firm performance: some Indian evidence”, Managerial Finance, Vol. 40 No. 12, pp. 1190-1206.
Ebaid, I.E. (2009), “The impact of capital structure choice on firm performance: empirical evidence froem Egypt”, The Journal of Risk Finance, Vol. 10 No. 5, pp. 477-487.
Ghosh, S. (2008), “Leverage, foreign borrowing and corporate performance: firm level evidence for India”, Applied Economics Letters, Vol. 15, pp. 607-616.
Gleason, K.C., Mathur, I., Knowles L.L. (2000), “The interrelationship between culture, capital structure, and performance: evidence from European retailers”, Journal of Business Research, Vol. 50 No. 2, pp. 185-191.
Jensen, M. (1986), “Agency cost of free cash flow, corporate finance and takeovers”, American Economic Review Papers and Proceedings, Vol. 76, pp. 323-329.
Jensen, M., Meckling, W. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3, pp. 305-360.
Jiraporn, P., Liu, Y. (2008), “Capital structure, staggered boards, and firm value”, Financial analysts Journal, Vol. 64 No. 1, pp. 49-69.
King, M.R and Santor, E. (2008), “Family values: Ownership structure, performance and capital structure of Canadian firms”, Journal of Banking and Finance, Vol. 32, pp. 2433-2432.
Kraus, A., Litzenberger, R.H. (1973), “A state-preference model of optimal financial leverage”, Journal of Finance, Vol. 28 No. 4, pp. 911-922.
Le, T.P.V. (2015), Ownership structure, capital structure and firm performance: a study of Vietnamese listed firms, Dotoral thesis, Sydney: University of Western Sydney.
Majumdar, S.K., Chhibber, P. (1999), “Capital structure and performance: evidence from a transition economy on an aspect of corporate governance”, Public Choice, Vol. 98 No. 3-4, pp. 287305.
Margaritis, D., Psillaki, M. (2010), “Capital structure, equity ownership and firm performance”, Journal of Banking & Finance, Vol. 34, pp. 621–632.
Masulis, R. (1983), “The impact of capital structure change on firm value: some estimates”, Journal of Finance, Vol. 38 No. 1, pp. 107-126.
Modigliani, F., Miller, M. (1963), “Corporate income taxes and the cost of capital: a correction”, American economic Review, Vol. 53 No. 3, pp. 433-443.
Modigliani, F., Miller, M.H. (1958), “The cost of capital, corporation finance and the theory of investment”, The American Economic Review, Vol. 48, pp. 261-297.
Myers, S.C. (1977), “Determinants of corporate borrowing”, Journal of Financial Economics, Vol. 5, pp. 147–175.
Myers, S.C., Majluf, N.S. (1984), “Corporate financing and investment decisions when firms have information that investors do not have”, Journal of financial economics, Vol. 13, pp. 187221.
Phillips, P. A., Sipahioglu, M.A. (2004), “Performance implications of capital structure: evidence from quoted UK organisations with hotel interests”, The Service Industries Journal, Vol. 24 No. 5, pp. 31-51.
Ross, S.A., Westerfield, R.W., Jaffe, J. (2013), Corporate finance 10th, The McGraw-Hill Irwin, New York.
Seetanah, B., Seetah, K., Appadu, K., Padachi, K. (2014), “Capital structure and firm performance:
evidence from an emerging economy”, The Business & Management Review, Vol. 4, pp. 185-196.
Shyu, J. (2012), “Ownership structure, capital structure, and performance of group affiliation”, Managerial Finance, Vol. 39 No. 4, pp. 404-420.
Singh, M., Faircloth, S. (2005), “The impact of corporate debt on long term investment and firm performance”, Applied Economics, Vol. 37 No. 8, pp. 875-883.
Singh, A.J., Schimigall, R.S (2002), “Analysis of financial ratios commonly used by US lodging financial executives”, Journal of Leisure Property, Vol. 2, pp. 201-213.
Statistical Help (2019), Statistical Help, available at: https://www.statsdirect.com/help/ nonparametric_methods/quantiles.htm (accessed September 06, 2019).
Tobin, J., Brainard, W. (1968), “Pitfalls in financial model building”, American Economic Review, Vol. 58 No. 2, pp. 99-122.
Tran, T.K.O. (2016), “Capital structure and performance efficiency of Vietnamese companies: approach by quantile regression”, Journal of Economics & Development, Vol. 235, pp. 6-70.
Vo, M.L. (2017), “Relationship between capital structure and firm value: Vietnamese listed on the Ho Chi Minh Stock Exchange”, Journal of Science - Ho Chi Minh Open University, Vol. 53 No. 2, pp. 45-56.
Watson, D., Head, A. (2007), Corporate finance: principles and practice, fourth edition, Financial Times Prentice Hall, London.
Weill, L. (2008), “Leverage and corporate performance: Does institutional environment matter?”, Small Business Economics, Vol. 30, pp. 251-265.
Zeitun, R., Haq, M.M. (2015), “Debt maturity, financial crisis and corporate performance in GCC countries: a dynamic-GMM approach”, Afro-Asian J. Finance and Accounting, Vol. 5, pp. 231-247.
Baker, M., Wurgler, J. (2002), “Market timing and capital structure”, Journal of Financial, Vol. 57 No. 1, pp. 1-30.
Balakrishnan, S., Fox, I. (1993), “Asset specificity, firm heterogeneity and capital structure”, Strategic Management Journal, Vol. 14 No. 1, pp. 3-16.
Berger, A.N., Bonaccorsi di Patti, E. (2006), “Capital structure and firm performance: a new approach to testing agency theory and an application to the banking industry”, Journal of Banking and Finance, Vol. 30 No. 4, 1065-1102.
Berle, A.A., Means, G.C. (1932), The modern corporation and private property, Macmillan Co., New York.
Bui, D.T. (2016), The impact of capital structure and working capital on financial efficency of small and medium-sized companies in Ho Chi Minh City, Dotoral thesis, Banking University Ho Chi Minh, Ho Chi Minh.
Chowdhury, A., Chowdhury, S.P. (2010), “Impact of capital structure on firm’s value: Evidence from Bangladesh”, Business and Economic Horizons, Vol. 3 No. 3, pp. 111-122.
Cook, B.L., Manning, W.G. (2013), “Thinking beyond the mean: a practical guide for using quantile regression methods for health services search”, Shanghai Arch Psychiatry, Vol. 25 No. 1, pp. 55-59.
Dawar, V. (2014), “Agency theory, capital structure and firm performance: some Indian evidence”, Managerial Finance, Vol. 40 No. 12, pp. 1190-1206.
Ebaid, I.E. (2009), “The impact of capital structure choice on firm performance: empirical evidence froem Egypt”, The Journal of Risk Finance, Vol. 10 No. 5, pp. 477-487.
Ghosh, S. (2008), “Leverage, foreign borrowing and corporate performance: firm level evidence for India”, Applied Economics Letters, Vol. 15, pp. 607-616.
Gleason, K.C., Mathur, I., Knowles L.L. (2000), “The interrelationship between culture, capital structure, and performance: evidence from European retailers”, Journal of Business Research, Vol. 50 No. 2, pp. 185-191.
Jensen, M. (1986), “Agency cost of free cash flow, corporate finance and takeovers”, American Economic Review Papers and Proceedings, Vol. 76, pp. 323-329.
Jensen, M., Meckling, W. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3, pp. 305-360.
Jiraporn, P., Liu, Y. (2008), “Capital structure, staggered boards, and firm value”, Financial analysts Journal, Vol. 64 No. 1, pp. 49-69.
King, M.R and Santor, E. (2008), “Family values: Ownership structure, performance and capital structure of Canadian firms”, Journal of Banking and Finance, Vol. 32, pp. 2433-2432.
Kraus, A., Litzenberger, R.H. (1973), “A state-preference model of optimal financial leverage”, Journal of Finance, Vol. 28 No. 4, pp. 911-922.
Le, T.P.V. (2015), Ownership structure, capital structure and firm performance: a study of Vietnamese listed firms, Dotoral thesis, Sydney: University of Western Sydney.
Majumdar, S.K., Chhibber, P. (1999), “Capital structure and performance: evidence from a transition economy on an aspect of corporate governance”, Public Choice, Vol. 98 No. 3-4, pp. 287305.
Margaritis, D., Psillaki, M. (2010), “Capital structure, equity ownership and firm performance”, Journal of Banking & Finance, Vol. 34, pp. 621–632.
Masulis, R. (1983), “The impact of capital structure change on firm value: some estimates”, Journal of Finance, Vol. 38 No. 1, pp. 107-126.
Modigliani, F., Miller, M. (1963), “Corporate income taxes and the cost of capital: a correction”, American economic Review, Vol. 53 No. 3, pp. 433-443.
Modigliani, F., Miller, M.H. (1958), “The cost of capital, corporation finance and the theory of investment”, The American Economic Review, Vol. 48, pp. 261-297.
Myers, S.C. (1977), “Determinants of corporate borrowing”, Journal of Financial Economics, Vol. 5, pp. 147–175.
Myers, S.C., Majluf, N.S. (1984), “Corporate financing and investment decisions when firms have information that investors do not have”, Journal of financial economics, Vol. 13, pp. 187221.
Phillips, P. A., Sipahioglu, M.A. (2004), “Performance implications of capital structure: evidence from quoted UK organisations with hotel interests”, The Service Industries Journal, Vol. 24 No. 5, pp. 31-51.
Ross, S.A., Westerfield, R.W., Jaffe, J. (2013), Corporate finance 10th, The McGraw-Hill Irwin, New York.
Seetanah, B., Seetah, K., Appadu, K., Padachi, K. (2014), “Capital structure and firm performance:
evidence from an emerging economy”, The Business & Management Review, Vol. 4, pp. 185-196.
Shyu, J. (2012), “Ownership structure, capital structure, and performance of group affiliation”, Managerial Finance, Vol. 39 No. 4, pp. 404-420.
Singh, M., Faircloth, S. (2005), “The impact of corporate debt on long term investment and firm performance”, Applied Economics, Vol. 37 No. 8, pp. 875-883.
Singh, A.J., Schimigall, R.S (2002), “Analysis of financial ratios commonly used by US lodging financial executives”, Journal of Leisure Property, Vol. 2, pp. 201-213.
Statistical Help (2019), Statistical Help, available at: https://www.statsdirect.com/help/ nonparametric_methods/quantiles.htm (accessed September 06, 2019).
Tobin, J., Brainard, W. (1968), “Pitfalls in financial model building”, American Economic Review, Vol. 58 No. 2, pp. 99-122.
Tran, T.K.O. (2016), “Capital structure and performance efficiency of Vietnamese companies: approach by quantile regression”, Journal of Economics & Development, Vol. 235, pp. 6-70.
Vo, M.L. (2017), “Relationship between capital structure and firm value: Vietnamese listed on the Ho Chi Minh Stock Exchange”, Journal of Science - Ho Chi Minh Open University, Vol. 53 No. 2, pp. 45-56.
Watson, D., Head, A. (2007), Corporate finance: principles and practice, fourth edition, Financial Times Prentice Hall, London.
Weill, L. (2008), “Leverage and corporate performance: Does institutional environment matter?”, Small Business Economics, Vol. 30, pp. 251-265.
Zeitun, R., Haq, M.M. (2015), “Debt maturity, financial crisis and corporate performance in GCC countries: a dynamic-GMM approach”, Afro-Asian J. Finance and Accounting, Vol. 5, pp. 231-247.