Capital structure (As presented in some recent papers, a variety of firms are facing competitive pressures to survive and awareness of about how to manage capital structure through financing their business activities and maximize the firms value. Require

THE FINANCIAL
UNIVERSITY OF FINANCE – MARKETING
BANKING AND FINANCE DEPARTMENT

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ESSAY
CORPORATE FINANCE 2
Topic:

CAPITAL STRUCTURE
Instructor guide:

DR.NGUYEN MINH PHUC

Section class:

2111702036502

Class:

CLC_19DTC02

First and last name:

NGUYEN BAO CUNG NGHI

Student code:

1921006309

HO CHI MINH CITY, DECEMBER 2021


INDEX
I. INTRODUCTION.......................................................................................................... 2
II. SUMMARISE THE PAPERS THAT INVESTIGATED THE
DETERMINANTS THAT AFFECT CAPITAL STRUCTURE.................................. 2
1. The concept of structural capital:............................................................................. 2
2. What are the factors that affect capital structure?....................................................2
3. Several other factors affect the volts structure:........................................................4
III. SUMMARISE THE PAPERS THAT INVESTIGATED THE IMPACTS OF
CAPITAL STRUCTURE.................................................................................................. 4
IV. THE VIETNAMESE COMPANIES’S CAPITAL STRUCTURE........................ 7
Request................................................................................................................................ 7
V. CONCLUSION..............................................................................................................8
References:.......................................................................................................................... 8

1


I. INTRODUCTION.
One of the themes that has attracted the attention of experts in the enterprise finance
sector for decades is the relationship between capital structure theory and enterprise
performance. Determining a reasonable capital structure for a business is very difficult
because there are many different factors that govern: the situation of each business, the
field in which the business operates as well as the effects of changes in the business
environment. As a result, it is critical to analyze the relationship between the capital
structure and the efficiency of the firm by establishing and maintaining an appropriate
structure that would promote efficiency and maximize shareholder assets, which is
always the primary goal of corporate governance.

II. SUMMARISE THE PAPERS THAT INVESTIGATED THE
DETERMINANTS THAT AFFECT CAPITAL STRUCTURE.
1. The concept of structural capital:
Capital structure is a financial concept that reflects the ratio of debt capital to equity
assets used by the business. Determining an optimal capital structure is important in
business operations, optimal capital structure will help businesses minimize the
weighted average cost of capital (WACC), and there by maximize asset value of
corporate shareholders.
2. What are the factors that affect capital structure?
The following article is based on three studies on factors affecting capital structure
of enterprises: “Các yếu tố ảnh hưởng đến cấu trúc vốn của doanh nghiệp nhà nước sau
cổ phần hóa trong thời kỳ hội nhập”(1)-ThS.Phạm Thị Diệu Linh (2017), “Các nhân tố
ảnh hưởng tới cấu trúc vốn của các doanh nghiệp niêm yết trên thị trường chứng khoán
Việt Nam”(2)-Nguyễn Thị Hà Thanh (2021), “Nhân tố ảnh hưởng đến cấu trúc vốn của
các công ty sản xuất thương mại Việt Nam”(3)-Nguyễn Thị Thúy Hạnh (2020). The
studies are based on many different fields, measures, countries,…in general, the basic
factors affecting capital structure are as follows:
2.1 Profitability.
It will affect corporate capital structure. For the study of article (3), the author
presents previous studies that show a negative effect on capital structure of the company.
Again, profitability will have a password system for large finance, the larger the
2


business, the more inclined to use borrowed capital in total assets. The first solution is
that the higher the rate of return, the lower the production risk of the specified capacity
is. However, according to the theory of order classification, firms increase the use of
capital while using loan cards and issuing shares are given priority last. When compared
with inefficient companies, profitable businesses will have more money, so they will
make the most of this internal capital.

2.2 Enterprise size.
Company size is one of the factors affecting the level of debt use. According to the
equilibrium theory, financial leverage and firm size have a positive correlation because
the firm is large and diversified in its portfolio of activities bankruptcy risk is lower
when compared to smaller firms. Larger companies have an advantage when it comes to
collaborating with financial institutions when compared to smaller companies.
Transaction costs will be reduced when businesses buy and sell a number of goods and
services in exchange. Also, loan interest rates will tend to be higher for small businesses.
This also indicates that a possible solution here is that small businesses should place a
high ratio of short-term debt instead of long-term debt.
2.3 Tangible assets.
Tangible assets characterize the company's willingness to mortgage before loans.
Myers (1984) asserts that there is a link between tangible assets and financial leverage
because of the fact that firms with a lot of collateral will have a low rate of asymmetric
information problem. It is obvious that if the company has multiple mortgage loans, the
borrower's risk related to the cost of the loan will also be reduced. The more fixed assets
a Vietnamese company has, the more long-term debt it has and the less short-term debt.
Huang and Song (2006) again show that the relationship between tangible assets and
financial leverage is negative.
2.4 Growth rate.
When the growth rate is higher, financial leverage tends to decrease. Then, the
enterprise will issue many shares instead of taking out debt to minimize the sharing of
benefits between shareholders and creditors. Besides, the growth rate is a stealth factor,
which will only increase the value of the company but will not be significant when the
company faces bankruptcy costs. Therefore, according to the equilibrium theory, due to
bankruptcy costs, firms with high growth rates tend to decrease financial leverage.
3


However, some researchers have shown that high growth rates lead to increased

financial leverage. As evidenced by the fact that companies with high growth rates are
said to have good health in the loan market and easy access to loans.
2.5 Corporate tax rate.
Tax rate is a macro factor affecting the capital structure of enterprises. When faced
with high corporate tax rates, businesses will tend to borrow more to take advantage of
the tax shield. That is explained because the debt-to-equity ratio is the cumulative result
of many years of operating with separate assessments while there is a possibility of loss
from tax revenues generated year after year. In line with that argument, my research
mainly shows that the impact of corporate tax rates includes the existence of tax shields
and investment taxes. The author concludes that corporate tax rate has a positive effect
on financial leverage.
3. Several other factors affect the volts structure:
These are the most basic factors that most Vietnamese businesses will encounter
when it comes to factors affecting corporate capital structure. In addition, there are a few
other common factors that vary by industry: loan interest rate, corporate liquidity, nondebt,…
III. SUMMARISE THE PAPERS THAT INVESTIGATED THE IMPACTS OF
CAPITAL STRUCTURE.
We will learn about the impact of capital structure on the situation of Vietnamese
enterprises today. Today's businesses are very diverse, so capital structure will also
affect each field differently through the following research papers:
Post number
1

Source
“Tác động của cấu

Summary
- The authors have conducted empirical research on

trúc vốn đến hiệu quả 34 energy enterprises listed on Vietnam's stock market,

hoạt động kinh doanh learn the effects of capital structure on business
của các doanh nghiệp

performance based on the following three hypotheses:

trong ngành năng

financial leverage, the ratio of short-term and the ratio

lượng niêm yết trên

of long-term debt to total assets.

thị trường chứng

- From the research results, the author has clarified the
4


khoán Việt Nam”-

impact of the independent variable on the business

TS.Trần Trọng Huy-

performance of the enterprise as follows:

Nguyễn Thị Ngọc

+ Group of explanatory variables: includes variables

Hân (2020).

representing enterprise capital structure (TDR, LDR,
SDR). The research results show that short-term
debt/total assets (SDR), long-term debt/total assets
(LDR), total debt/total assets (TDR) have a negative
impact on business performance business. The research
results are quite consistent with the actual situation in
Vietnam's energy industry.
+ Group of control variables: Firm size (SIZE) and
liquidity ratio (LIQ) have a positive impact on business
performance. Tangible assets (TANG) and growth
(GROW) have a negative impact on business
performance. The author also gives some
recommendations on capital structure for enterprises in
the energy sector.

2

“Phân tích tác động

- Joint-stock companies in Hue with the characteristic

của cơ cấu vốn đến

of moderate capital will avoid raising capital from

hiệu quả hoạt động

outside. The authors make the following research

của các công ty cổ

hypothesis: debt usage, the size of the firm, growth

phần trên địa bàn tỉnh opportunities, asset structure affect business
Thừa Thiên Huế”Trần Thị Bích Ngọc,

performance.
- The results from the fit model after overcoming the

Nguyễn Việt Đức,

defects show that capital structure is an important factor,

Phạm Hoàng Cẩm

negatively affecting all three indicators representing the

Hương (2017).

performance of joint-stock companies in Hue. ROA,
EPS are positively affected by the size of the business.
ROE, ROA are negatively affected by growth
opportunities and corporate asset structure. Managers
should consider reducing the debt ratio in the company's
capital structure.
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- These companies also need to make better use of the
advantages of the size of the business because the size of
the business positively affects the performance of the
business. Managers need to pay attention to balance the
interests of owners and creditors when making
investment decisions to avoid reducing the company's
performance. The management of the company must
improve the efficiency of long-term asset use in order to
improve earnings per share and thereby increase the
value of the company's shares.
3

“Đánh giá cấu trúc

- In order to inherit the research problems of corporate

vốn của các công ty

capital structure rotation, this study examines the factors

ngành thực phẩm

affecting capital structure for food industry enterprises

niêm yết trên Sở Giao listed on HOSE.
dịch chứng khoán

- The author uses a research method using secondary

TP.Hồ Chí Minh”-

data published in audited financial statements, annual

ThS.Trần Đức Tuấn

reports of 20 food joint stock companies in the period

(2021)

2017-2020.
- The research shows that the capital structure of food
industry companies is affected by the following factors:
enterprise size, profit margin and liquidity. Firm size has
a positive impact on capital structure, profitability ratio
and liquidity have the opposite effect. Because of the
most benefits of using financial leverage, most
businesses and companies in the food industry use debt
in their capital structure to finance production and
business activities. In order to increase corporate value,
food joint stock companies should perform well the
following contents: strictly control the debt ratio;
develop mechanisms and policies to be more careful
when investing and organize regular supervision of
financial activities; improve the efficiency of business
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capital, towards building the optimal capital structure.
IV. THE VIETNAMESE COMPANIES’S CAPITAL STRUCTURE.

- The capital structure of firms is influenced by common factors such as profitability,
size, assets, growth rate, and tax rates. For example, a business using debt must pay the
cost of using debt. These costs are calculated after tax, so if a family's policy is
appropriate, the business will use debt because the real interest that the business has to
pay after tax is very low.
- In addition, I also see a number of other factors that also affect capital structure
such as industry characteristics, loan interest rates, corporate liquidity, etc. According to
a survey of companies on the Vietnam stock market, the user group includes industries
such as real estate, information technology, and mining.
- In terms of investment activities, it is developed with a large capital of thousands
of billions of dong in the public investment sector and state-owned enterprises. In the
early days of establishment, it was difficult for private enterprises to get bank loans due
to scarcity.
- In Vietnam, despite outstanding development, the capital market still has many
challenges that need to be solved for more sustainable development such as: the prospect
of economic recovery still contains many potential risks; the scale is still quite small
compared to other countries in the region and lacks stability; products are few, not
diversified; transparency is limited; the lack of credit rating agencies increases lending
costs and reduces the ability to raise capital.
- The overall goal of deciding on a financing option is to achieve the lowest cost of
capital. Target capital structure is the structure that a business often uses when deciding
to add business capital.
- In short, in a financial system based on the banking system and the stock market
which has not yet developed stably, Vietnamese enterprises need to have a long-term
vision by building their own target capital structure but must flexibly take advantage of
market opportunities to mobilize resources cheapest capital.
Request
- Clearly define your capital goals.
7

-When raising capital, it is necessary to assess the market, clearly consider the strengths
and weaknesses of the business.
-When businesses raise a lot of debt capital, there must be many assessments to reduce
risks.
-Determine the capital structure including financial leverage and the following criteria:
the largest EPS, the smallest cost of capital, the largest profit.
V. CONCLUSION.
In the market mechanism and integration period, capital structure is very important
it affects the stability of the business. Get as much capital as possible, but it is more
important with that amount of capital that the enterprise allocates to which stages with a
reasonable proportion and promotes efficiency fruit. In other words, if the business has
capital it's not enough, it is important to use that capital to meet business requirements
and improve the efficiency of capital. If the enterprise has a reasonable capital structure,
it will not only decide to use capital effectively but also save capital in the production
and business process.
References:
1. ThS.Phạm Thị Diệu Linh (2017), “Các yếu tố ảnh hưởng đến cấu trúc vốn của
doanh nghiệp nhà nước sau cổ phần hóa trong thời kỳ hội nhập”, Tạp chí cơng thương.
2. Nguyễn Thị Hà Thanh (2021), “Các nhân tố ảnh hưởng tới cấu trúc vốn của các
doanh nghiệp niêm yết trên thị trường chứng khốn Việt Nam”, Tạp chí tài chính.
3. Nguyễn Thị Thúy Hạnh (2020), “Nhân tố ảnh hưởng đến cấu trúc vốn của các công
ty sản xuất thương mại Việt Nam”, Tạp chí khoa học.
4. TS.Trần Trọng Huy-Nguyễn Thị Ngọc Hân (2020), “Tác động của cấu trúc vốn đến
hiệu quả hoạt động kinh doanh của các doanh nghiệp trong ngành năng lượng niêm
yết trên thị trường chứng khoán Việt Nam”, Tạp chí cơng thương.
5. Trần Thị Bích Ngọc, Nguyễn Việt Đức, Phạm Hồng Cẩm Hương (2017), “Phân
tích tác động của cơ cấu vốn đến hiệu quả hoạt động của các công ty cổ phần trên địa
bàn tỉnh Thừa Thiên Huế”, Tạp chí khoa học và quản lý kinh tế.
6. ThS.Trần Đức Tuấn (2021), “Đánh giá cấu trúc vốn của các công ty ngành thực

phẩm niêm yết trên Sở Giao dịch chứng khốn TP.Hồ Chí Minh”, Tạp chí tài chính.
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7. Nguyễn Đình Luận (2017), “Cơ cấu vốn của doanh nghiệp Việt Nam trong thời kỳ
hội nhập: Nhận định và khuyến nghị”, Tạp chí UEF.
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