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28/03/2024
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Le, H. V., Nguyen, H. Y., & Bui, A. T. (2024). Financial leverage, state ownership, and firm value: the case of non-financial firms listed in Vietnam. Journal of International Economics and Management, 24(1), 89-102. https://doi.org/10.38203/jiem.024.1.0082
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Financial leverage, state ownership, and firm value: the case of non-financial firms listed in Vietnam
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Abstract
Numerous empirical studies have confirmed the impact of financial leverage on firm value. Nevertheless, these conclusions are inconsistent due to the influence of other factors. In the context of a transition economy such as Vietnam, the state can own a certain percentage of equity capital in companies after equitization. Accordingly, this study aims to evaluate the moderating role of state ownership on the impact of financial leverage on the value of non-financial firms listed in Vietnam. The generalized method of moments was employed to analyze a sample of 481 companies from 2015 to 2021. The findings show that financial leverage has a positive effect on firm value, but this relationship is negatively moderated by state ownership. In addition, financial leverage decreases the firm value of state-owned companies. The paper suggests that the government should focus on assessing financial performance rather than political intervention in using companies’ financial leverage. The results also have implications for accelerating the equitization and divestment of state capital in Vietnamese listed non-financial firms.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Keywords
Financial leverage, Firm value, State ownership
References
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Appiah, K.O., Gyimah, P. and Abdul-Razak, Y. (2020), “Financial leverage and corporate performance: does the duration of the debt ratio matters?”, International Journal of Business and Emerging Markets, Vol. 12 No. 1, pp. 31 - 45.
Baxter, N.D. (1967), “Leverage, risk of ruin and the cost of capital”, The Journal of Finance, Vol. 22 No. 3, pp. 395 - 403.
Blundell, R. and Bond, S. (1998), “Initial conditions and moment restrictions in dynamic panel data models”, Journal of Econometrics, Vol. 87 No. 1, pp. 115 - 143.
Borisova, G., Fotak, V., Holland, K. and Megginson, W.L. (2015), “Government ownership and the cost of debt: evidence from government investments in publicly traded firms”, Journal of Financial Economics, Vol. 118 No. 1, pp. 168 - 191.
Cheng, M.C. and Tzeng, Z.C. (2011), “The effect of leverage on firm value and how the firm financial quality influence on this effect”, World Journal of Management, Vol. 3 No. 2, pp. 30 - 53.
Damodaran, A. (2015), Applied corporate finance, Wiley, Hoboken.
Dang, T.D. and Do, T.V.T. (2021), “Does capital structure affect firm value in Vietnam”, Investment Management and Financial Innovations, Vol. 18 No. 1, pp. 33 - 41.
Eforis, C. (2018), “Corporate governance, state ownership and firm performance: an empirical study of state-owned enterprises in Indonesia”, Accounting and Finance Review, Vol. 3 No. 1, pp. 26 - 32.
Fajaria, A.Z. and Isnalita, N.I.D.N. (2018), “The effect of profitability, liquidity, leverage and firm growth of firm value with its dividend policy as a moderating variable”, International Journal of Managerial Studies and Research, Vol. 6 No. 10, pp. 55 - 69.
Fosu, S., Danso, A., Ahmad, W. and Coffie, W. (2016), “Information asymmetry, leverage and firm value: do crisis and growth matter?”, International Review of Financial Analysis, Vol. 46, pp. 140 - 150.
Gujarati, D.N. (2008), Basic econometrics, 5th Edition, McGraw-Hill, Boston.
Hair, J.F., Black, W.C., Babin, B.J., Anderson, R.E. and Tatham, R.L. (2006), Multivariate data analysis, Pearson Education, New Jersey.
Ibrahim, U.A. and Isiaka, A. (2020), “Effect of financial leverage on firm value: evidence from selected firms quoted on the Nigerian Stock Exchange”, European Journal of Business and Management, Vol. 12 No. 3, pp. 124 - 135.
Ibrahim, U.A. and Isiaka, A. (2021), “Dynamic modelling of the relationship between financial leverage and firm value of selected firms quoted on the Nigerian Stock Exchange”, International Journal of Research in Business and Social Science, Vol. 10 No. 3, pp. 259 - 275.
Ilham, W., Amboningtyas, D. and Minarsih, M.M. (2018), “Analysis of financial leverage, firm size, and growth opportunity on company value by profitability as intervening variables (case study on a service insurance company listed on the Indonesia Stock Exchange in 2013-2017)”, Journal of Management, Vol. 4 No. 4, pp. 1 - 17.
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305 - 360.
Jihadi, M., Vilantika, E., Hashemi, S.M., Arifin, Z., Bachtiar, Y. and Sholichah, F. (2021), “The effect of liquidity, leverage, and profitability on firm value: empirical evidence from Indonesia”, Journal of Asian Finance, Economics and Business, Vol. 8 No. 3, pp. 423 - 431.
Kouki, M. and Said, H.B. (2011), “Does management ownership explain the effect of leverage on firm value? An analysis of French listed firms”, Journal of Business Studies Quarterly, Vol. 3 No. 1, pp. 169 - 186.
Kraus, A. and Litzenberger, R.H. (1973), “A state-preference model of optimal financial leverage”, The Journal of Finance, Vol. 28 No. 4, pp. 911 - 922.
Levin, A., Lin, C.F. and Chu, C.S.J. (2002), “Unit root tests in panel data: asymptotic and finite-sample properties”, Journal of Econometrics, Vol. 108 No. 1, pp. 1 - 24.
Margono, F.P. and Gantino, R. (2021), “The influence of firm size, leverage, profitability, and dividend policy on firm value of companies in Indonesia Stock Exchange”, Copernican Journal of Finance & Accounting, Vol. 10 No. 2, pp. 45 - 61.
Modigliani, F. and Miller, M.H. (1958), “The cost of capital, corporation finance and the theory of investment”, The American Economic Review, Vol. 48 No. 3, pp. 261 - 297.
Modigliani, F. and Miller, M.H. (1963), “Corporate income taxes and the cost of capital: a correction”, The American Economic Review, Vol. 53 No. 3, pp. 433 - 443.
Musallam, S.R. (2020), “State ownership and firm value: simultaneous analyses approach”, Journal of Asia Business Studies, Vol. 14 No. 1, pp. 50 - 61.
Myers, S.C. (1977), “Determinants of corporate borrowing”, Journal of Financial Economics, Vol. 5 No. 2, pp. 147 - 175.
Nguyen, T.T.M., Evans, E. and Lu, M. (2017), “Independent directors, ownership concentration and firm performance in listed companies: evidence from Vietnam”, Pacific Accounting Review, Vol. 29 No. 2, pp. 204 - 226.
Pramesti, N.P.E., Yasa, P.N.S. and Ningsih, N.L.A.P. (2021), “The effect of capital structure and sales growth on company profitability and value in the cosmetics manufacturing and household needs manufacturing companies”, Jurnal Ekonomi dan Bisnis Jagaditha, Vol. 8 No. 2, pp. 187 - 193.
Qi, D., Wu, W. and Zhang, H. (2000), “Shareholding structure and corporate performance of partially privatized firms: evidence from listed Chinese companies”, Pacific-Basin Finance Journal, Vol. 8 No. 5, pp. 587 - 610.
Radja, F.L. and Artini, L.G.S. (2020), “The effect of firm size, profitability and leverage on firm value (study on manufacturing companies sector consumer goods industry listed in Indonesian Stock Exchange period 2017-2019)”, International Journal of Economics and Management Studies, Vol. 7 No. 11, pp. 18 - 24.
Ross, S.A. (1973), “The economic theory of agency: the principal’s problem”, The American Economic Review, Vol. 63 No. 2, pp. 134 - 139.
Scott, Jr.J.H. (1976), “A theory of optimal capital structure”, The Bell Journal of Economics, Vol. 7 No. 1, pp. 33 - 54.
Stiglitz, J.E., Jaramillo-Vallejo, J. and Park, Y.C. (1993), “The role of the state in financial markets”, in Bruno, M. and Pleskovic, B. (Eds.), Proceedings of the World Bank Annual Conference on Development Economics 1993. Supplement to the World Bank Economic Review and the World Bank Research Observer, World Bank, Washington D.C., pp. 19 - 61.
Suzulia, M.T. and Saluy, A.B. (2020), “The effect of capital structure, company growth, and inflation on firm value with profitability as intervening variable (study on manufacturing companies listed on bei period 2014-2018)”, Dinasti International Journal of Economics, Finance & Accounting, Vol. 1 No. 1, pp. 95 - 109.
Syura, A., Arfan, M. and Anzib, N. (2020), “Influencers to firm value: does tax avoidance play a mediating role?”, Jurnal ASET (Akuntansi Riset), Vol. 12 No. 2, pp. 265 - 277.
Tihanyi, L., Aguilera, R.V., Heugens, P., Van Essen, M., Sauerwald, S., Duran, P. and Turturea, R. (2019), “State ownership and political connections”, Journal of Management, Vol. 45 No. 6, pp. 2293 - 2321.
Tran, T.P.T. (2019), “The impact of capital structure on firm value of Vietnamese listed companies – A quantile regression approach”, Journal of International Economics and Management, Vol. 124, pp. 89 - 100.
Van Horne, J.C. and Wachowicz, Jr.J.M. (2008), Fundamentals of financial management, 13th Edition, Financial Times/Prentice Hall, Harlow.
Vo, M.L. (2017), “The relationship between capital structure and firm value: event listing joint stock companies on Ho Chi Minh City Stock Exchanges (HSX)”, Ho Chi Minh City Open University Journal of Science - Economics and Business Administration, Vol. 12 No. 1, pp. 180 - 192.
Vo, X.V. and Ellis, C. (2017), “An empirical investigation of capital structure and firm value in Vietnam”, Finance Research Letters, Vol. 22, pp. 90 - 94.
Zimny, A. (2020), “The impact of financial leverage on a company’s market valuation”, Journal of Finance and Financial Law, Vol. 4 No. 28, pp. 175 - 190.
Appiah, K.O., Gyimah, P. and Abdul-Razak, Y. (2020), “Financial leverage and corporate performance: does the duration of the debt ratio matters?”, International Journal of Business and Emerging Markets, Vol. 12 No. 1, pp. 31 - 45.
Baxter, N.D. (1967), “Leverage, risk of ruin and the cost of capital”, The Journal of Finance, Vol. 22 No. 3, pp. 395 - 403.
Blundell, R. and Bond, S. (1998), “Initial conditions and moment restrictions in dynamic panel data models”, Journal of Econometrics, Vol. 87 No. 1, pp. 115 - 143.
Borisova, G., Fotak, V., Holland, K. and Megginson, W.L. (2015), “Government ownership and the cost of debt: evidence from government investments in publicly traded firms”, Journal of Financial Economics, Vol. 118 No. 1, pp. 168 - 191.
Cheng, M.C. and Tzeng, Z.C. (2011), “The effect of leverage on firm value and how the firm financial quality influence on this effect”, World Journal of Management, Vol. 3 No. 2, pp. 30 - 53.
Damodaran, A. (2015), Applied corporate finance, Wiley, Hoboken.
Dang, T.D. and Do, T.V.T. (2021), “Does capital structure affect firm value in Vietnam”, Investment Management and Financial Innovations, Vol. 18 No. 1, pp. 33 - 41.
Eforis, C. (2018), “Corporate governance, state ownership and firm performance: an empirical study of state-owned enterprises in Indonesia”, Accounting and Finance Review, Vol. 3 No. 1, pp. 26 - 32.
Fajaria, A.Z. and Isnalita, N.I.D.N. (2018), “The effect of profitability, liquidity, leverage and firm growth of firm value with its dividend policy as a moderating variable”, International Journal of Managerial Studies and Research, Vol. 6 No. 10, pp. 55 - 69.
Fosu, S., Danso, A., Ahmad, W. and Coffie, W. (2016), “Information asymmetry, leverage and firm value: do crisis and growth matter?”, International Review of Financial Analysis, Vol. 46, pp. 140 - 150.
Gujarati, D.N. (2008), Basic econometrics, 5th Edition, McGraw-Hill, Boston.
Hair, J.F., Black, W.C., Babin, B.J., Anderson, R.E. and Tatham, R.L. (2006), Multivariate data analysis, Pearson Education, New Jersey.
Ibrahim, U.A. and Isiaka, A. (2020), “Effect of financial leverage on firm value: evidence from selected firms quoted on the Nigerian Stock Exchange”, European Journal of Business and Management, Vol. 12 No. 3, pp. 124 - 135.
Ibrahim, U.A. and Isiaka, A. (2021), “Dynamic modelling of the relationship between financial leverage and firm value of selected firms quoted on the Nigerian Stock Exchange”, International Journal of Research in Business and Social Science, Vol. 10 No. 3, pp. 259 - 275.
Ilham, W., Amboningtyas, D. and Minarsih, M.M. (2018), “Analysis of financial leverage, firm size, and growth opportunity on company value by profitability as intervening variables (case study on a service insurance company listed on the Indonesia Stock Exchange in 2013-2017)”, Journal of Management, Vol. 4 No. 4, pp. 1 - 17.
Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305 - 360.
Jihadi, M., Vilantika, E., Hashemi, S.M., Arifin, Z., Bachtiar, Y. and Sholichah, F. (2021), “The effect of liquidity, leverage, and profitability on firm value: empirical evidence from Indonesia”, Journal of Asian Finance, Economics and Business, Vol. 8 No. 3, pp. 423 - 431.
Kouki, M. and Said, H.B. (2011), “Does management ownership explain the effect of leverage on firm value? An analysis of French listed firms”, Journal of Business Studies Quarterly, Vol. 3 No. 1, pp. 169 - 186.
Kraus, A. and Litzenberger, R.H. (1973), “A state-preference model of optimal financial leverage”, The Journal of Finance, Vol. 28 No. 4, pp. 911 - 922.
Levin, A., Lin, C.F. and Chu, C.S.J. (2002), “Unit root tests in panel data: asymptotic and finite-sample properties”, Journal of Econometrics, Vol. 108 No. 1, pp. 1 - 24.
Margono, F.P. and Gantino, R. (2021), “The influence of firm size, leverage, profitability, and dividend policy on firm value of companies in Indonesia Stock Exchange”, Copernican Journal of Finance & Accounting, Vol. 10 No. 2, pp. 45 - 61.
Modigliani, F. and Miller, M.H. (1958), “The cost of capital, corporation finance and the theory of investment”, The American Economic Review, Vol. 48 No. 3, pp. 261 - 297.
Modigliani, F. and Miller, M.H. (1963), “Corporate income taxes and the cost of capital: a correction”, The American Economic Review, Vol. 53 No. 3, pp. 433 - 443.
Musallam, S.R. (2020), “State ownership and firm value: simultaneous analyses approach”, Journal of Asia Business Studies, Vol. 14 No. 1, pp. 50 - 61.
Myers, S.C. (1977), “Determinants of corporate borrowing”, Journal of Financial Economics, Vol. 5 No. 2, pp. 147 - 175.
Nguyen, T.T.M., Evans, E. and Lu, M. (2017), “Independent directors, ownership concentration and firm performance in listed companies: evidence from Vietnam”, Pacific Accounting Review, Vol. 29 No. 2, pp. 204 - 226.
Pramesti, N.P.E., Yasa, P.N.S. and Ningsih, N.L.A.P. (2021), “The effect of capital structure and sales growth on company profitability and value in the cosmetics manufacturing and household needs manufacturing companies”, Jurnal Ekonomi dan Bisnis Jagaditha, Vol. 8 No. 2, pp. 187 - 193.
Qi, D., Wu, W. and Zhang, H. (2000), “Shareholding structure and corporate performance of partially privatized firms: evidence from listed Chinese companies”, Pacific-Basin Finance Journal, Vol. 8 No. 5, pp. 587 - 610.
Radja, F.L. and Artini, L.G.S. (2020), “The effect of firm size, profitability and leverage on firm value (study on manufacturing companies sector consumer goods industry listed in Indonesian Stock Exchange period 2017-2019)”, International Journal of Economics and Management Studies, Vol. 7 No. 11, pp. 18 - 24.
Ross, S.A. (1973), “The economic theory of agency: the principal’s problem”, The American Economic Review, Vol. 63 No. 2, pp. 134 - 139.
Scott, Jr.J.H. (1976), “A theory of optimal capital structure”, The Bell Journal of Economics, Vol. 7 No. 1, pp. 33 - 54.
Stiglitz, J.E., Jaramillo-Vallejo, J. and Park, Y.C. (1993), “The role of the state in financial markets”, in Bruno, M. and Pleskovic, B. (Eds.), Proceedings of the World Bank Annual Conference on Development Economics 1993. Supplement to the World Bank Economic Review and the World Bank Research Observer, World Bank, Washington D.C., pp. 19 - 61.
Suzulia, M.T. and Saluy, A.B. (2020), “The effect of capital structure, company growth, and inflation on firm value with profitability as intervening variable (study on manufacturing companies listed on bei period 2014-2018)”, Dinasti International Journal of Economics, Finance & Accounting, Vol. 1 No. 1, pp. 95 - 109.
Syura, A., Arfan, M. and Anzib, N. (2020), “Influencers to firm value: does tax avoidance play a mediating role?”, Jurnal ASET (Akuntansi Riset), Vol. 12 No. 2, pp. 265 - 277.
Tihanyi, L., Aguilera, R.V., Heugens, P., Van Essen, M., Sauerwald, S., Duran, P. and Turturea, R. (2019), “State ownership and political connections”, Journal of Management, Vol. 45 No. 6, pp. 2293 - 2321.
Tran, T.P.T. (2019), “The impact of capital structure on firm value of Vietnamese listed companies – A quantile regression approach”, Journal of International Economics and Management, Vol. 124, pp. 89 - 100.
Van Horne, J.C. and Wachowicz, Jr.J.M. (2008), Fundamentals of financial management, 13th Edition, Financial Times/Prentice Hall, Harlow.
Vo, M.L. (2017), “The relationship between capital structure and firm value: event listing joint stock companies on Ho Chi Minh City Stock Exchanges (HSX)”, Ho Chi Minh City Open University Journal of Science - Economics and Business Administration, Vol. 12 No. 1, pp. 180 - 192.
Vo, X.V. and Ellis, C. (2017), “An empirical investigation of capital structure and firm value in Vietnam”, Finance Research Letters, Vol. 22, pp. 90 - 94.
Zimny, A. (2020), “The impact of financial leverage on a company’s market valuation”, Journal of Finance and Financial Law, Vol. 4 No. 28, pp. 175 - 190.