Tác động của sự phát triển thị trường tài chính đến cấu trúc vốn doanh nghiệp niêm yết trong Cộng đồng Kinh tế ASEAN ttta

MINISTRY OF EDUCATION AND TRAINING

STATE BANK OF VIETNAM

BANKING UNIVERSITY OF HO CHI MINH CITY

----------

THESIS SUMMARY
Major: Finance - Banking
Industry code: 9.34.02.01
IMPACT OF FINANCIAL MARKET DEVELOPMENT
ON CAPITAL STRUCTURE OF LISTED FIRMS
IN THE ASEAN ECONOMIC COMMUNITY

PhD student: Tram Bich Loc
Student code: 010121160011
Lecturers: PhD. Nguyen Van Thuan
PhD. Ngo Van Tuan

HO CHI MINH CITY, MAY 27, 2022


1
CHAPTER 1: TOPIC OVERVIEW
1.1. Research problem and topic urgency
For decades, capital structure topic has attracted attention
of many academic researchers and policy makers owing to the
capital structure’s important role in optimizing capital
efficiency, increasing enterprises value, and contributing to
economic growth. In addition, financial market is a place where

the relationship between supply and demand for capital is
summed up. The key role of the financial market is to open up
the possibility of many funds sources, support corporate finance
activities, which relates to defining the amount of capital to
raise and what types of securities need to be issued to finance
operations, to be conducted smoothly.
In fact, there are many empirical studies related to capital
structure, most of them focus on the impact of internal factors in
the enterprise on capital structure, or the capital structure impact
on business performance, and only a few studies pay attention
to the impact of financial markets development on capital
structure despite its important role. Specifically, it provides
more forms of capital mobilization for businesses, financial
market

development

also

helps to reduce asymmetric

information, thereby reducing the cost of capital mobilization as
well as the agency problem, etc. For this reason, there will be a
certain impact of financial market development on capital
structure. In addition, previous studies have produced
heterogeneous results and no single theory seems to be relevant
in explaining capital structure choice. Although the problem has
been studied with both developed and developing countries, the

2
ambiguity seems to be much more severe for developing
countries. This is because the roles of developed and developing
capital markets can be different in the choice of corporate
capital structure. Furthermore, while the regulatory and
institutional environments of developed countries are quite
similar, those of emerging markets are significantly different.
Thus, these differences may explain the contradiction in
findings from emerging countries studies (Wald, 1999; Yarba
and Guner, 2019; Yadav, Pahi and Gangakhedkar, 2019).
Therefore, the study of factors affecting the choice of capital
structure may not be generalized from developed economies to
emerging (developing) economies, which have markedly
different

levels

of

financial

infrastructure,

institutional

openness, and capital market development from each other
(Machokoto, Areneke and Ibrahim, 2020). At the same time, a
review of previous studies shows that although the number of
empirical research is generally increasing in developing
countries, the number of empirical research in the ASEAN

region is still very limited (Phooi, Rahman and Sannacy, 2017).
In conclusion, the topic "Impact of financial market
development on capital structure of listed firms in the ASEAN
Economic Community" was chosen to determine and measure
the financial market development impact on the capital structure
of listed companies in developing countries in the AEC.
1.2. Research objectives and questions
The overall objective of the thesis is to study the financial
market development impact on the capital structure of listed
companies in developing countries in the AEC, then propose a


3
number of solutions based on the findings to help policy makers
have a basis to propose more appropriate regulations and ways
of operating financial markets.
To achieve the research objectives, the thesis needs to
find answers for the following questions: (1) Does the
development of financial markets affect the capital structure of
listed companies in the AEC? (2) Will the impact of the
development of financial markets on the capital structure of
listed companies in the AEC change when there is a difference
in the quality of national institutions? (3) What solutions to
promote the development of financial markets in order to
facilitate enterprises in mobilizing external capital, as well as
maintaining or adjusting the capital structure to a reasonable
level to promote economic development?
1.3. Research Methods
To achieve the objectives and find the most suitable
answers to the research questions, the thesis uses the regression

method on panel data under support of Stata software to process
and analyse the data, thereby considering the impact of
independent variables on the firm's capital structure and testing
the proposed hypotheses.
The research process of the thesis is based on basis of
previous studies, including theoretical basis, approaches and
variables in experimental research.
1.4. Object and scope of the study
Research object: The impact of financial market
development on capital structure of enterprises listed in AEC;
direction and magnitude of the impact.


4
Research scope: The study focuses on developing
countries in the ASEAN Economic Community (AEC).
Specifically, the research data is collected in 5 countries within
the AEC, including Indonesia, Malaysia, Philippines, Thailand
and Vietnam; four other countries including Brunei, Cambodia,
Laos and Myanmar are not included because the stock markets
in these countries have been established in recent times, so the
data does not match the requirements of the study; Singapore is
also excluded from the sample because it is a developed market.
At the same time, based on per capita income or stock market
development according to FTSE Russel, developing countries
in the AEC region also have different development level;
therefore, the research results will be more objective and
reliable. Moreover, in order to ensure the research period is long
enough and avoid the impact of the global financial crisis of
2007-2008, the selected research period is from 2010 to 2020.

1.5. Research contribution
Scientific contribution: Most of the current studies
concentrate on the enterprises’ internal factors, the macro
economy, the financial development in general or the legal
system impacts upon the capital structure, and very few studies
analyze the impact of financial market development on capital
structure individually. Therefore, the variables measuring
financial market development in previous studies are not
adequate and do not cover all aspects that need to be
considered. In addition, although there are many multinational
studies on the above issues, there are no or only a few
individual countries in the AEC to be mentioned. Therefore, the


5
study will add more empirical evidence on the impact of
financial market development on the capital structure of five
developing countries in the AEC in the period 2010-2020.
Besides, some previous studies argues that the financial
market’s development may not affect the financial decisionmaking of

corporates if the quality of national institution

variable, which the development of financial market depends
on, is controlled (Kirch and Terra, 2012; Tresierra and Reyes,
2018). Therefore, the quality of national institutions will be
taken into consideration so that the research results are more
reliable and provide a more comprehensive view.
Practical contribution: The research results will help
business administrators and policy makers understand more

about the direction and extent of the representative factors of
financial market development impact on capital structure,
thereby proposing solutions and policies to promote the
development of financial markets in order to help businesses
adjust their capital structure to a reasonable level, develop as
well as promote economic growth.
1.6. Thesis structure
In addition to the introduction, conclusion and some
appendices, the thesis is structured in 5 chapters, including:
Chapter 1: Topic overview
Chapter 2: Theoritical framework and empirical studies
Chapter 3: Methodology
Chapter 4: Results and discussion
Chapter 5: Conclusion and policy implications.


6
CHAPTER 2: THEORITICAL FRAMEWORK
AND LITERATURE REVIEW
2.1. Theoretical framework
The thesis has reviewed relevant theoretical bases such as
the concept of capital structure and optimal capital structure,
advantages and disadvantages of debt and equity financing, how
to measure capital structure; basic theories related to capital
structure, including asymmetric information theory, M&M
theory, trade-off theory, agency theory, pecking order theory
and market timing theory. Based on these theories, the thesis
synthesizes the micro-factors affecting the capital structure of
enterprises such as firm size, asset structure (ratio of fixed
assets to total assets), profitability, growth opportunities, and

tax shields.
Moreover, the thesis synthesizes the theoretical bases
related to financial market (such as concepts, functions,
classifications), financial market development as well as stock
market and bond market, which are the two constituents of
financial market; indicators measuring the development of
financial market; and analyze the impact of financial market
development on capital structure. Besides, the quality of
national institutions is also taken into consideration because the
development of financial market can be the result of better
investor protection thanks to the institutional framework,
property rights, etc., (La Porta, Lopez-de-Silanes, Shleifer and
Vishny, 2000). In addition, Kirch and Terra (2012), Tresierra
and Reyes (2018) state that if the quality of investor protection
is controlled, financial market development, which is simply the


7
result of better investor protection, will not affect corporate
financial decisions. Therefore, national institutional quality is
considered in order to ensure reliable research results.
2.2. Literature review
In order to have an overview of previous studies, the
thesis references study of Kumar, Colombage and Rao (2017)
based on 167 research articles, which were published by many
different journals in 40 years (from 1972 to 2013), about the
determinants of corporate capital structure. The main findings
of Kumar et al. (2017) show that studies on the determinants of
corporate capital structure in developed economies are
numerous and comparatively sufficient; however, in emerging

markets, this issue has not been fully considered because the
capital and securities markets in emerging markets are relatively
inefficient and inadequate compared with developed markets.
Consequently, the financial decisions of corporates in emerging
markets are incomplete and anomalous, leaving a research gap
for further experimental studies and survey research. Moreover,
most of the literature has been studied only at the firm level,
and the impact of leverage on different industries and different
countries has not been fully examined. For these reasons, the
research of Kumar et al. (2017) is an important premise for the
author to select domestic and foreign studies related to the
topic.
There have been many studies on factors affecting capital
structure in many countries around the world. These factors are
very diverse, such as macro factors, differences between
countries in terms of financial institutions and institutional


8
settings, the impact of the economic crisis, financial integration,
etc. The research scope can be in one country or in many
countries, but the thesis focuses more on cross-national studies
to better suit the research direction of the topic. Finally, the
thesis selects 23 related empirical studies (in which there are 7
articles in Q1, 2 articles in Q2, 7 articles in Q3 and 2 articles in
Q4), including 19 foreign research papers and four domestic
research

papers.

Specifically,

foreign

studies

comprise

Demirguc-Kunt and Maksimovic (1996, 1999), Agarwal and
Mohtadi (2004), Bokpin (2010), Le and Ooi (2012), Masoud
(2013), Yadav et al (2019) research on the financial market
development impact on corporate capital structure, Deesomsak,
Paudyal and Pescetto (2004, 2009), Zafar, Wongsurawat and
Camino (2019) research on the factors affecting capital
structure, Kirch and Terra (2012), Tresierra and Reyes (2018),
Cam and Ozer (2021) research on the quality of national
governance affecting corporate capital structure, Booth,
Aivazian, Demirguc-Kunt and Maksimovic (2001), Bokpin
(2009), Lucey and Zhang (2011), Lemma and Negash (2012)
research on the macro factors affecting corporate capital
structure, and Kayo and Kimura (2011), and Haron (2014)
related research on capital structure. Domestic studies include
Le Dat Chi (2013), Dang Thi Quynh Anh and Quach Thi Hai
Yen (2014), Vo Thi Thuy Anh, Tran Khanh Ly, Le Thi Nguyet
Anh and Tran Thi Dung (2014), and Le (2017).
2.3. Research gap
There have been many studies on the factors affecting
capital structure, but each work has been focused on different

9
features (some studies include variables representing the
development of capital market, or money market, or both), and
very few works focus on examining the financial market
development impact on capital structure. Specifically, in the
review of previous studies, there are 5 studies with the main
objective is the financial market development impact on capital
structure; including empirical research by Demirguc-Kunt and
Maksimovic (1996), Agarwal and Mohtadi (2004), Bokpin
(2010), Le and Ooi (2012), Masoud (2013), Le (2017) and
Yadav et al (2019) ). In which, the reasearch of Agarwal and
Mohtadi (2004) may lead to an insufficient result due to the
lack of the firm characteristics, which have a great affect on
capital structure, as a control variable. The Le and ooi (2012)
research is exclusively for the real estate industry, so the
findings cannot provide an overview of all sectors in the
economy. In addition, most of the studies do not have the
industry’s representative varibale despite its significant impact
on the capital structure. Furthermore, the variables representing
the development of financial markets still have many
differences, leading to inconsistent research results. Moreover,
because of using only single variables without considering
different aspects to evaluate the development of financial
market, empirical research’s finding cannot provide an
overview perception. Therefore, there are still many research
gaps as well as means of methodology to develop a more
complete and sustained study. This study uses the IMF's
financial market development indicators under all three aspects
(accessibility, depth and effectiveness) and a composite index to

10
examine the impact of financial market development on capital
structure. At the same time, financial market development will
be separated into equity market development and bond market
development to see the separate impact of each market on
capital structure. Besides, the research sample is also grouped
by the quality of national governance to have a more general
view. In other words, to make a contribution to previous studies
on ASEAN countries, the thesis will focus on examining
different aspects of the development of financial markets.
In addition, a review of previous studies shows that only four
country-focused reasearch are conducted by using Vietnamese
data.

However,

country-focused

study

will

make

all

observations of the representative variables for financial market
development in the data sample homogeneous, which is the
cause of the difficulty in evaluating financial market

development impacts on capital structure. Despite this obstacle,
none of cross-country research includes Vietnamese data, and
there were no studies specifically for the five countries
(including Indonesia, Malaysia, the Philippines, Thailand and
Vietnam) in the AEC. In addition, the data used in the previous
studies are limited to 2017 for the cross-national research by
Cam and Ozer (2021), and limited to 2015 for Vietnamese
market research by Le (2017). Therefore, it is necessary to
update the research data to test whether the relationship
between financial market development and capital structure
remains the same or changes. Besides, the number of
enterprises in each country in the thesis sample is much larger
(except for the number of enterprises in Malaysia is less than


11
the data used in the study of Deesomsak et al., 2004 and Haron,
2014) than previous studies using data from one or a few of the
five developing countries in the AEC [such as Demirguc-Kunt
and Maksimovic (1996, 1999), Agarwal and Mohtadi (2004),
Bokpin (2009, 2010), Le and Ooi (2012), Masoud (2013),
Yadav et al (2019) and 4 studies in Vietnam]. The research
period is 11 years, which is quite similar to most previous
studies (ranging from 4 years to 22 years). Besides, the
development level of the five countries has many differences in
terms of per capita income, capital market and money market;
in which Vietnam is almost the country with the lowest ranking.
Therefore, examining the financial market development impacts
on capital structure of the five developing countries in the AEC
in the period from 2010 to 2020 will give more reliable research

results, and may provide lots of suitable policy implications for
Vietnam.


12
CHAPTER 3: METHODOLOGY
The thesis will use a combination of both qualitative and
quantitative methods to find answer to the research questions.
Specifically,

qualitative

research

methods

include:

Systematization, generalization and synthesis methods to carry
out the research overview and build the theoretical basis of the
thesis; Inductive method is used to draw conclusions about the
research object; Interpolation and extrapolation methods to
provide recommendations and solutions for business managers
and policy makers to build a capital structure suitable to the
development of financial markets. The quantitative method
based on the econometric model is implemented through
building a quantitative model to evaluate and measure the
impact of financial market development on enterprises’ capital
structure. The results of quantitative method are intended to
provide an empirical basis to supplement the qualitative

analysis. Specifically, the study uses Stata software to process
and analyze data, thereby examining the impact of financial
market development on corporate capital structure and testing
hypotheses based on estimation techniques GMM, specifically
the 2-step Dynamic system GMM.
Based on the theoretical basis, the models of previous
studies and the research hypothesis, research model is as
follows:


13
8

5

𝐷𝑖𝑗𝑡 = 0 + 1 𝐷𝑖𝑗𝑡−1 + ∑ 𝛼2𝑛 𝐹𝑀𝑛𝑗𝑡 + ∑ 𝛼3𝑚 𝐵𝐶𝑚𝑖𝑗𝑡
3

𝑛=1

𝑚=1

+ ∑ 𝛼4𝑘 𝑀𝐴𝑘𝑗𝑡 + 𝑖𝑗𝑡
𝑘=1

➢ Dijt (Debt) is the ratio of debt to total assets based on book
value (in which debt is divided into 3 cases: total debt - LEVijt,
short term debt - SLEVijt and long term debt - LLEVijt) of the
enterprise i in country j at time t; Dijt-1 is lagged variable of Dijt;
➢ FMnjt (Financial market) includes n variables representing

financial market development of country j at time t, including:
Financial Markets Access Index (FMA), Financial Markets
Depth Index (FMD), Financial Markets Efficiency Index (FME)
and Financial Markets Index (FMI). In which, 3 variables FMA,
FMD and FME will be included in the model simultaneously,
and FMI will be included in the separate model. At the same
time, financial market development will be separated into stock
market development (including 2 variables: Stock market
capitalization to GDP - MACAP and Value of trading shares to
GDP - LIQ) and bond market development [including 2
variables: Value of government bonds issued to GDP GOVBOND and Value of corporate bonds (including financial
and non-financial) to GDP - CORPBOND], the development of
each market will be considered in its own model;
➢ BCmijt includes m variables representing the characteristics
of enterprise i in country j at time t, including: Size of the
business (in logarithmic total assets - SIZE), profitability (net
profit to total assets - ROA), asset nature (ratio of fixed assets to


14
total assets - TANG), growth opportunities (TobinQ index PTB) and industry (dummy variable - IND). Specifically, IND
has 8 industries including: Basic Materials (IND1), Consumer
Cyclicals (IND2), Consumer Non-Cyclicals (IND3), Energy
(IND4), Healthcare (IND5), Industrials (IND6), Technology
(IND7), and Utilities (IND8);
➢ MAkjt (Macroeconomics) includes k variables representing
the macro economy of country j at time t, including: inflation
rate (INF), growth rate of GDP per capita (GDPGR), and
quality governance (GOV);
➢ 𝑖𝑗𝑡 is the error.

How variables are measured, expected signs and data
sources are summarized in Table 3.1.
Table 3.1: Symbols, measures and expected sign
of independent variables
Symbols

1

FMA

2

FMD

How to measure
Synthesized
from
5
normalized variables: Stock
market capitalization to
GDP, value of trading shares
to GDP, government bonds
issued in the international
market to GDP, total value of
financial corporate bonds to
GDP, total value of nonfinancial corporate bonds to
GDP
Synthesized
from
2

normalized variables: Stock

Expecta
tions

Source

-

IMF

-

IMF


15

3

FME

4

FMI

5

MACAP

6

LIQ

7

GOVBOND

8

CORPBOND

9

SIZE

10

ROA

11

TANG

12

PTB

13

IND

market capitalization does
not include the 10 largest
companies
by
total
capitalization, the number of
bond
issuers
both
domestically
and
internationally
Normalized the ratio of total
trading value of shares to
market capitalization
Synthesized
from
3
normalized variables: FMA,
FMD and FME.
Stock market capitalization
to GDP
Value of trading shares to
GDP
Value of government bonds
issued to GDP
Value of corporate bonds
(financial and non-financial)

to GDP
Firm size (in logarithm of
total assets)
Profitability (net profit to
total assets)
Asset structure (the ratio of
fixed assets to total assets)
Growth opportunity (TobinQ index)
Industry (dummy variable),
equals 1 if the industry is

-

+
+

World
Bank
Asian
Develo
pment
Bank

+
+
+
+/-

Thoms
on

Reuters


16
considered and 0 in the other
case
14
15
16

World
Bank
INF
Inflation rate
+
IMF
Quality
of
national
World
GOV
+
governance
Bank
Source: Expectations and suggestions of the author

GDPGR

GDP per capita growth rate

+

To ensure that survey sample is large enough and
representative of the AEC region, the study will use the
financial statements of companies listed in 5 countries
(including Indonesia, Malaysia, the Philippines, Thailand and
Vietnam) have data at Thomson Reuters for the period 2010 2020. Research data is collected in the following specific steps:
(1) Eliminate financial institutions (such as banks, financial
companies, insurance companies) out of the study sample; (2)
Eliminate outliers by removing values less than 1% percentile
and above 99% percentile for independent variables (except for
macroeconomic variables), and for variables that represent
enterprise capital structure, remove observations with total debt
to total assets ratio greater than 1 or negative value; and (3)
Eliminate businesses with less than 3 years of data. After
collecting and filtering data according to the above 3 steps, the
panel data is unbalanced data for the period 2010 - 2020 as
shown in Table 3.2.


17
Table 3.2: Number of enterprises per country over the years
Year

Indon

Malay

Philip

Thaila

Vietna

esia

sia

pines

nd

m

Total

2010

299

324

129

330

250

1.332

2011

317

325

132

338

260

1.372

2012

333

341

140

350

265

1.429

2013

340

346

141

368

281

1.476

2014

354

350

149

386

293

1.532

2015

376

359

152

395

332

1.614

2016

415

377

152

409

355

1.708

2017

476

388

153

426

372

1.815

2018

520

400

155

438

375

1.888

2019

551

407

163

439

378

1.938

2020

554

416

163

441

378

1.952

Total

4.535

4.033

1.629

4.320

3.539

18.056

Source: Author's statistics from the research sample


18
CHAPTER 4: RESULTS AND DISCUSSION
The correlation coefficient results show that the variables
representing financial market development have strong or very
strong correlation with each other. At the same time, the
national institutional quality variable (GOV) also has a high and
relatively high correlation (r value from 0.7 or more) with most
of variables representing financial market development. This
implies that including GOV and the above variables in a model
will cause the results to be skewed. However, GOV can be one
of the very important factors determining the development of
financial markets as well as corporate capital structure.
Therefore, in addition to considering the overall sample, the
thesis will separate the sample into two subgroups, including:
Group of countries with high national institutional quality
(GOV_HIGH) and group of countries with low national
institutional quality (GOV_LOW) based on the median value of
GOV. The variables representing financial market development
will be included in the model in turn, the numbering of specific
models is as follows: Models 1 to 8 (with variables representing
market development included in turn: FMI, FMA, FMD, FME,
MACAP, LIQ, GOVBOND and CORPBOND) consider total
debt, models 9 to 16 consider long-term debt, and models 17 to

24 consider short-term debt; Models 1 to 24 are considered on
the overall sample. Similarly, the model from 25 to 48
corresponds to the GOV_LOW group and the model from 49 to
72 is the GOV_HIGH group.
The research results show that the size of financial
markets in most developing countries is still quite small.


19
Therefore, financial markets with an improvement in general or
scale in particular will help businesses to issue equity to raise
capital, helping to reduce dependence on long-term loans. When
considering each market separately (stocks or corporate bonds),
the expansion of these markets’ size will help businesses reduce
the debt ratio (both total debt, short-term debt and long-term
debt). For the stock market, this result is quite understandable
because enterprises will use equity instead of debt to reduce the
debt ratio. However, for the bond market, it seems that the
impact direction is reversed compared to expectations. The
reason is that when the corporate bond market is more
developed, other markets have followed or developed more
strongly (typically in the 5 countries where stock market is
more developed than bond market), this helps businesses to
raise capital from other sources (such as issuing shares) so the
debt ratio should be reduced. Moreover, when the efficiency of
financial market is improved, the total debt (especially shortterm debt) of enterprises tends to increase. This implies that
information asymmetry in developing countries may still be one
of the dilemmas. For this reason, when financial market is more
efficient, it will help to make business information more
transparent. When listing on stock exchange, enterprises must

periodically provide information according to the regulations of
the Exchange, the vibrant market also makes investors more
active in searching for information to find out stocks that are
undervalued in order to gain high profits. These help reduce
information asymmetry, leading to lower loan risk, incentives
for creditors to lend more, and lower lending costs, making it


20
easier for business owners to access loans (especially short-term
loans). However, as the stock market continues to develop or
improve in terms of financial depth, the diversity of goods on
the market as well as improvements in the quality of
information, corporate supervision and control will attract
investors, motivating them to invest in the stock market, making
capital flows quickly circulated, creating strong liquidity for the
market. Therefore, it will be easier to issue new shares and
capitalize on surplus capital by issuing shares at market value
instead of par value, so the cost of equity will be lower than the
cost of loans, encouraging businesses to raise capital by issuing
equity. At the same time, the quality of national institutions
directly affects not only firms' access to capital in the market,
but also the relative costs and benefits of debt and equity
financing, particularly in developing countries. If the country
has poor institutional quality, borrowed capital will be less
expensive than equity capital. Thus, in better-regulated
countries, firms rely more on equity issues and reduce their
reliance on debt (especially long-term debt).
In addition, firm size, return on total assets, ratio of fixed
assets to total assets and business growth opportunities (PTB)

are factors that affect the capital structure of enterprises.
However, the impact of PTB on capital structure is very small
(nearly insignificant). When enterprises increase total assets,
there will be a tendency to increase debt ratio, which is true for
both total debt, long-term and short-term debt. The reason is
that businesses with many assets often have a reputation in the
market and have existed for a relatively long time. Therefore,


21
those enterprises’ information is more transparent, so they are
easier to access loans. Enterprises with high profitability will
tend to reduce debt use (namely, reducing short-term debt but
increasing long-term debt). When enterprises increase the ratio
of fixed assets to total assets, there will be a tendency to
increase debt ratio (both in short and long term). However, it
should be noted that profitability and fixed assets to total assets
affect firms only in countries with higher institutional quality,
and the impact of profitability is much larger than the ratio of
fixed assets to total assets. The reason is that businesses have
many fixed assets that can be used as collateral for loans, so
these businesses can easily access loans (both in the short and
long term), thus increasing the debt ratio. High profitability
shows that enterprises have internal capital to finance their
operations, but enterprises still need more long-term loans to
expand production and business activities. At the same time,
countries with stronger institutional quality mean higher quality
of contract enforcement, property rights, freedom of speech,
political stability, and public services, as well as reduced risk of
expropriation and corruption. This will enhance the soundness

of financial sector and facilitate entry into financial markets –
savers are willing to finance companies and thus financial
markets will prosper. In addition, as the quality of domestic
institutions increases, the need for firms to hold cash decreases
because whenever they need capital, they will be able to obtain
it from markets where there are investors willing to expand their
funding channels with more favorable terms. This is the reason
why the two factors of return and the ratio of fixed assets to


22
total assets have a stronger impact on capital structure in
countries with stronger institutional quality. The effects of all
firm characteristics indicate that capital structure in developing
countries supports both the trade-off and pecking order theories.
At the same time, the firm's capital structure is relatively stable
over time and is influenced by industry characteristics.
As for the macro variables of the economy, the impact of
GDP per capita growth rate on capital structure is not very
clear. The inflation rate causes firms in countries with lower
institutional quality to increase their debt ratios (both in the
short and long term), but tends to encourage firms in countries
with stronger institutional quality to reduce long-term debt
ratios.


23
CHAPTER 5: CONCLUSIONS AND POLICY
IMPLICATIONS
Both de facto integration and regional agreements within

the framework of the ASEAN Economic Community (AEC)
have resulted in increased financial linkages among countries in
the

region.

Regional

initiatives

in

financial

services

liberalization, capital market development and capital account
liberalization have also contributed to the regional financial
market's deepening development. Despite certain limitations of
financial markets’ integration in Asia, evidence shows that
Asian financial markets have become increasingly integrated
over the past three decades, and by the end of 2015, ASEAN
countries completed 87% of all measures in the AEC Blueprint
to achieve free flow in services and capital (Rillo, 2018).
In addition, the results of empirical research show that if
financial market develops, enterprises in 5 developing countries
in AEC will tend to reduce their debt ratio, especially the longterm debt ratio in developing country having stronger
institutional quality. However, the improved financial market
efficiency increases the debt ratio, especially short-term debt.
These results show that when the financial market develops

(either the stock market or the bond market, especially
corporate bonds), it will help reduce the pressure on the banking
system significantly. Therefore, in order to create favorable
conditions for businesses (especially SMEs) to access external
capital, promoting the development of financial markets is
extremely necessary.


24
To promote development of financial markets, it is
extremely necessary to provide solutions to improve the quality
of national institutions helping reduce information asymmetry
in the market and encourage savers to invest in businesses. This
is the foundation for the development of both stock and bond
markets. Therefore, laws and regulations must be developed to
protect the right to invest in countries and enable investors to
more accurately predict the cash flows from a project as this is
an important step in investment valuation process. Besides,
inflation also makes it more difficult to accurately forecast cash
flows in long-term investments, so controlling inflation
enhances the safety of real returns. At the same time, there is a
high correlation between institutional investor size (such as
mutual funds, insurance companies and pension funds) and
capital market size (stocks and bonds markets). This shows how
important it is to develop a large pool of important long-term
institutional investors to improve not only financial depth, but
also market efficiency and liquidity. Besides, it is also
necessary to implement the following solutions: Promoting the
development of bond markets (especially corporate bonds
market); Prioritizing policies to promote the development of

financial markets; Building and developing derivatives market;
Diversifying commodities and promoting liquidity in the market
(especially the stock market); Improving products and margin
mechanism; Strengthening the management, supervision,
inspection and enforcement capacity of state management
agencies; Promoting the protection of all investors' interests as
prescribed by law; Promoting the training of ethics and talent