Determinents of debt maturity structure

TABLE OF CONTENTS
Table of Contents
INTRODUCTION ......................................................................................................... 1
1.

Rationale of the research ................................................................................. 1

2.

Purposes of the research .................................................................................. 3

3.

Research methodology ..................................................................................... 4

4.

Research subject and scope ............................................................................. 5

5.

Research gap ..................................................................................................... 5

6.

Research structure ........................................................................................... 5

CHAPTER 1: LITERATURE REVIEW .................................................................... 7
1.1. Overview of Debt Maturity ............................................................................. 7
1.1.1.

Definition of Debt Maturity .................................................................. 7

1.1.2.

The Debt Maturity Theory ................................................................... 7

1.2. Factors affecting Debt Maturity – Theory Developing ................................ 9
1.2.1.

Trade-Off Model .................................................................................... 9

1.2.2.

Agency Cost .......................................................................................... 11

1.2.3.

Leverage Cost ....................................................................................... 12

1.2.4.

Signaling ............................................................................................... 13

1.2.5.

Information asymmetry ...................................................................... 15

1.2.6.

Macroeconomics factors ...................................................................... 18

CHAPTER 2: DATA AND METHODOLOGY ....................................................... 21
2.1. Data ................................................................................................................. 21
2.2. Empirical models ........................................................................................... 21
2.2.1.

Regression methods: ............................................................................ 21

2.2.2.

Dependent variables ............................................................................ 22

2.2.3.

Independent variables ......................................................................... 24

2.3. Theoretical hypothesis ................................................................................... 29

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CHAPTER 3: EMPIRICAL RESULTS OF DEBT MATURITY IN
VIETNAMESE FIRMS LISTED ON VIETNAM STOCK MARKET ................. 32
3.1.

Overview of firms on the Vietnam Stock Market ................................... 32

3.1.1.

Introduction of Vietnamese Stock Market ........................................ 32

3.1.2.

Current situation of Vietnamese Stock Market ................................ 33

3.2.

Empirical results ......................................................................................... 40

3.3

Robustness checks .......................................................................................... 47

3.4.

Limitation .................................................................................................... 47

CHAPTER 4: RECOMMENDATIONS OF THE STUDY ..................................... 51
4.1. Recommendations for firms .......................................................................... 51
4.1.1.

Direct recommendations ..................................................................... 51

4.1.2.

Indirect recommendations .................................................................. 55

CONCLUSION ............................................................................................................ 61
REFERENCES ............................................................................................................ 62

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ABBREVATIONS
Abbreviation

Meaning

FDI

Foreign Direct Investment

HOSE

Ho Chi Minh Stock Exchange

VNINDEX

Vietnam Stock Index

MSCI

Morgan Stanley Capital International

FTSE

Financial Times and Stock Exchange

HNX

Hanoi Stock Exchange

OLS

Ordinary Least Squares regression

EPS

Earnings per share

FEM

Fixed Effects Model regression

GDP

Gross domestic product

USD

The United States dollar

NPV

Net Present Value

REM

Random Effects Model regression

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LIST OF FIGURES
Figure 1.1: The trade-off theory…………………………………………………….10
Figure 3.1: Dramatic fluctuations of Vietnamese Market Example……………....35
Figure 3.2: Inflation Rate of Vietnam 2012 - 2021 ................................................... 39

LIST OF TABLES
Table 1: Variables and Formulation.......................................................................... 29
Table 2.1: Statistics of the mean of variables ............................................................ 37
Table 3.1: Descriptive statistical results of the research variable ........................... 40
Table 3.2: Correlation coefficient matrix between variables .................................. 41
Table 3.3: Debit Maturity Regression Results .......................................................... 43

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INTRODUCTION
1. Rationale of the research
The choice of debt maturity structure is critical for firms. Companies must
appropriately balance debt structure, is contingent upon this option. The
significance of researching a company's debt maturity structure is in developing
models that can summarize and forecast the most significant aspects influencing the
choice to attain an "optimal" capital structure that enables efficient resource
utilization. Also, companies can finance themselves through debt or equity, which
can be either internal money or stock. When they choose debt, they must choose the
average weighted maturity of the debt carefully, because making the wrong choice
could hurt the market value of the company or put its market position at risk.
In 1958, Modigliani and Miller developed the first theory of capital structure,

demonstrating that in a perfect market, the value of the firm is unrelated to its
capital structure, and that taxes, capital costs, information asymmetry, and
bankruptcy costs have no effect, but that its value is determined by the value of the
assets it possesses. However, the problem with Modigliani and Miller's hypotheses
is that they are based on unrealistic circumstances. According to a recent study by
Serrasqueiro, Matias, & Salsa (2016), the tax benefits associated with the use of
debt brought significant value to companies, primarily through tax savings.
Additionally, Miller (1977) analyzed the effect of taxes and concluded that taxes
have an influence solely at the macro level, not on individual companies.
Previously, various theories focused on this choice, expanding into new views and
examining the costs and benefits of each, since these new perspectives included
taxes, bankruptcy costs, market flaws, and agency costs, among others.
Among the theories that developed following 1958, two theories on capital
structure decisions stood out: the Static Trade-off theory and the Pecking Order
theory. The Static Trade-off theory (Myers and Robichek, 1965) argues that there is
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a trade-off when it comes to debt structure selection because while increasing debt
increases tax benefits, it also increases bankruptcy costs, and vice versa. As a result,
there is an optimal capital ratio that maximizes firm value. On the other hand, the
Pecking Order (Myers, 1984) argues that when information asymmetry exists,
enterprises should avoid searching for the best capital structure and instead adhere
to a tight order of funding. Internal funds are used first, followed by debt issuance
and convertible bonds, and finally, stock issuance, implying that more profitable
corporations utilize less leverage.
Following that, Jensen and Meckling (1976) formalized the theory of agency
costs, and Myers (1977) demonstrates how debt structure can mitigate them and the
resulting problems, such as underinvestment and asset substitution, can be remedied
by lowering the average debt maturity. This is complemented by Hart and Moore's

(1994) theory of maturity matching, with a focus on asset and liability matching.
Flannery (1986) established the notion of signaling, demonstrating that corporations
employ debt maturity to communicate their financial health to the market through
the use of short-term debt. Taxes were also a significant determinant affecting debt
maturity in academic studies, as Brick and Ravid (1985) argued that long-term debt
benefited companies through its associated benefits. Rollover risk is also a
significant factor, as the premise behind it is that corporations with wider yield
spreads will avoid issuing long term debt (Gopalan et al., 2014). Leland and Toft
(1996) showed that a company's debt weight and its maturity tend to go up together
as its leverage goes up.
Similar to the prior firm-level determinants, the country-level determinants were
put to the test, with macroeconomic indicators and the financial and legal systems
taking center stage. Inflation was one of these, since Wang et al. (2010)
hypothesized that when inflation rates rise, enterprises will more employ short-term
debt to maximize short-term gains. According to Jun and Jen (2003), as the yield

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curve steepens upward, firms will gravitate into short-term debt and vice versa in
order to avoid higher yields.
Even though several theories emerged, and the statistical relevance of additional
determinants was established, no unified theory emerged (Terra, 2011) as the
empirical results were not consistent. The expected results are not exhibiting the
expected linear tendencies, with the majority of these theories being tested in the
United States of America, with few papers focusing on European countries and
even fewer on Asia, Africa, or Oceania, with only China receiving more attention
on evaluation. Furthermore, these tests are based on periods prior to the 2008
financial crisis and do not take into account the changes in the international scene
(Correia et al., 2014).

In Vietnam, businesses have had many ups and downs over the previous decade.
Since 2012, Vietnam's economy has risen rapidly and accomplished numerous
remarkable feats. Companies have had sufficient time to strengthen debt maturity,
corporate governance, and debt management. Since 2019, however, the Covid-19
outbreak has damaged the global economy badly. Since Vietnamese businesses
have benefited from extremely cheap interest rates on corporate loans, the structure
of debt maturities has changed. With the desire to understand the change in debt
maturity structure of companies, and at the same time study the investigate the
elements influencing debt maturity and the influence of the market on these factors,
I decided to choose the topic: "The Determinants of Debt Maturity" case of listed
companies in Vietnam.
2. Purposes of the research
• General objective: This topic aims to study the determinants of debt maturity
of the non-financial listed firm on the stock market of Vietnam
• Specific objective:

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-

This study will organize and systematize existing theories about the
relationship between debt maturity and other variables.

-

This study will assess the current state of the Vietnamese market's
performance

-

This study will illustrate the importance of debt maturity

-

This study will make recommendations to increase the effectiveness of
Vietnamese enterprises' debt usage and the management of debt maturity.

3. Research methodology
The research uses secondary data. The data is collected from Finn Group JSC
and consists of 759 non-financial firms listed on the stock market of Vietnam and
the General Statistics Office of Vietnam.
The data used in this research include
-

Total Assets from 2012-2021

-

Total Liabilities from 2012-2021

-

Current Assets from 2012-2021

-

Earnings Before Interest, Taxes, Depreciation and Amortization from 20122021

-

Earnings Before Interest from 2012-2021

-

Firm share price from 2012-2021

-

Total Tax from 2012-2021

-

National Inflation Rate 2012 - 2021

This research uses the following methods:
-

Descriptive statical analysis

-

Conducting quantitative research methods to examine financial data,
comment on the influence of various variables on firms' debt maturity;

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statistics, synthesis data and regression according to an econometric model,
then analyze and assess the results to clarify the impact in this study.

4. Research subject and scope
• Research subject: Determinants of debt maturity
• Research scope:
-

Period: from 2012 to 2021

-

Scope: Vietnamese non-financial firms listed in HOSE and HNX.

5. Research gap
The importance of Debt Maturity research has positive effects on the
evolution of a company's debt maturity management during economic eras. So
far, however, there have been no study publications on this topic in Vietnam that
cover all companies to provide the most objective perspective. In the case of a
potential market with a rapid growth rate, such as Vietnam, research on the
factors affecting debt maturity is crucial, as it can provide directors with the
necessary perspectives during the decision-making process and provide both a
theoretical and practical basis for finding solutions for companies
In response to this gap in the literature, the author selected the topic "The
determinants of debt maturity" for the period 2012-2021, using a sample of 759
non-financial enterprises listed on the Vietnamese market.
6. Research structure
The research consists of four parts:
Chapter 1: Literature review
Chapter 2: Data and methodology
Chapter 3: Empirical results of debt maturity in Vietnamese firms listed on
Vietnam stock market

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Chapter 4: Recommendations for firms listed on the stock market of
Vietnam
Due to the limited scope of understanding about finance in general and
analytical and statistical skills in particular, some inherent flaws in the
implementation of this research are unavoidable. I eagerly await all contributions
from instructors, professors, and fellows toward the conclusion of the project.

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CHAPTER 1: LITERATURE REVIEW
1.1.

Overview of Debt Maturity

1.1.1. Definition of Debt Maturity
The maturity date is the due date for the principal amount of a note, draft,
acceptance bond, or other debt instrument. On this date, which is typically printed
on the certificate of the instrument in question, the principal investment is repaid to
the investor and the interest payments that have been made periodically throughout
the bond's existence end. The maturity date also refers to the date by which an
installment loan must be repaid in full (due date).
Debt Maturity is the relationship between short-term and long-term debt. Longterm debt is debt with a maturity of more than one year and short-term debt is debt
with a maturity of less than one year. Debts are debts with a 12-month maturity
date (Barclay & Smith, 1995). Therefore, the structure of corporate debt maturity
has an effect on the enterprise's sustainable development and business success.
Therefore, pursuing a debt maturity structure that does not match the features of

the business sector and the characteristics of individual organization might have
long-term negative consequences for the business.
1.1.2. The Debt Maturity Theory
According to the fit theory, firms' business performance will decrease if their
debt structure is unbalanced. Modigliani and Miller's (1963) theory makes
reference to the capital structure issue both with and without taxes. Internal
managers have considered the advantages of a tax shield; nevertheless, the
incremental tax benefit would diminish as corporations expanded their debt levels
and the benefit of tax shields became less assured. Additionally, the existence of
personal taxes may reduce the notional tax shield when considering corporate
borrowing; historically, the personal tax has been defined as the difference between
capital gains and ordinary income tax rates. Nonetheless, Modigliani and Miller
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(1963) observed that the capital structure in an ideal world is incomplete; thus,
corporate funding cannot be regarded as limited. Alcock et al. (2012) examined the
effect of financial leverage on debt maturity using data from Australian enterprises.
Antoniou et al. (2006), Deesomsak et al. (2009), Lemma and Negash (2012), and
Correia et al. (2014) discovered a strong beneficial effect of financial leverage on
debt maturity policy. Diamond (1991), on the other hand, demonstrated that there is
no correlation between financial leverage and debt maturity.
Modigliani and Miller (1958) established one of the most fundamental tenets of
capital structure theory, in which profit maximization loses precedence in
investment and financing decisions. While this criterion still has some weight in
firms' decisions, the authors demonstrate the critical importance of comparing the
return on capital to the marginal cost of capital in firms' financial decisions, all with
the primary goal of maximizing market value in a "perfect market" (neglecting
taxes and transaction costs).
The authors demonstrate this in an economy in which all debt commodities are

perfect substitutes for one another on a scale factor basis; in other words, the author
assumes that companies are classified into return classes, with enterprises
organized according to their separate returns on their own shares. As such, if a
firm's market value is the sum of its debt and equity market values, then "...the
market value of any firm is completely independent of its capital structure..." and if
the average cost of capital is the ratio of expected returns to the market value of all
its securities, then "...the average cost of capital to any firm is completely
independent of its capital structure and equal to the capitulation rate..."
Additionally, when firms with and without debt are compared, the expected yield
of a stock is equal to the pure equity stream in the respective class plus a risk
premium equal to the D/E ratio multiplied by the spread between the capitalization
rate and the rate of return, and the firm will not invest if the rate of return is less
than the capitalization rate, regardless of the instrument used.

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In the study, the percentage of long-term debt to total debt is used to gauge debt
maturity.
1.2.

Factors affecting Debt Maturity – Theory Developing

1.2.1. Trade-Off Model
Modigliani and Miller (1963) then proceeded to correct their prior study on
Perfect Market Modeling, focusing on the interest deduction in the computation of
corporate revenue. As such, although previous work ignored the effect of leverage
on a firm's expected return, this study corrects this by demonstrating how, in the
situation of two firms in the same risk class, if one firm earns twice as much as the
other, the distribution of returns after taxes will be asymmetric. The authors

rebutted their earlier assertions on the usefulness of interest tax shields by
demonstrating that the higher the rate of return and leverage, the lesser the volatility
of after-tax profits. Additionally, the authors demonstrate an equilibrium between
the unlevered value of a firm and the value of a leveraged firm plus the rate of
market capitalization times the permanent level of debt, stating that the value of
unlevered firms cannot exceed the value of a leveraged firm minus the rate of
market capitalization times the value of debt; as a result, if the equilibrium is
broken, investors will sell their unlevered firm shares and purchase only the
leveraged firm's shares. The WACC (weighted average cost of capital) is
introduced as the optimal cost of capital for investment decisions, and the trade-off
model is given as the equilibrium between the existence of debt financing tax
shelters and the financial flexibility of a firm's borrowing power.
Figure 1.1: The trade-off theory

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Miller (1977) added new insights, as the trade-off model now includes not only
the equilibrium between interest tax-shield benefits and bankruptcy costs
disadvantages, with companies structuring their capital structures to achieve the
optimal equilibrium and maximization of their value, but also the personal taxation
factor, as investors with capital gains must deal with personal taxes and their
potential impact on the trade-off equilibrium, es DeAngelo-Masulis (1980) builds
on Miller's 1977 paper "Debt and Taxes" by providing non-debt tax shields, or
actual tax code adjustments such as accounting depreciation deductions and
investment tax credits. As such, the paper argued that the trade-off model should
incorporate these variables in order to provide a more complete picture of the
funding decision. Myers (1984) introduced the concept of adjustment costs and lags
as a result of current events affecting the equilibrium ratio and the time required to
recalibrate the optimal debt ratio for a particular firm, requesting further

development of models due to the wide variation in debt ratios among similar firms.
As such, the author recommended that the model be updated to incorporate
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adjustment costs, particularly those associated with agency costs and information
asymmetry.
1.2.2. Agency Cost
The first set of ideas on debt maturity structure stresses the role of agency costs
as a component of debt maturity. We consider growth potential, firm size, and
collateralizable assets to be the major determinants.
Jensen and Meckling (1976) first codified the concept of agency costs, which is
based on the concept of conflicting interests inside an organization, particularly
between owners and managers or stockholders and creditors, since these arise when
two parties have conflicting interests. This occurrence results in additional
expenditures, such as monitoring and incentive charges for aligning views and
objectives when dealing with internal agents or when dealing with creditors and
stockholders through the use of contracts protecting each firm's interests from
excessive debt consumption.
The leading study on growth alternatives is (Myers, 1977), in which the author
argues that company future investment possibilities can be considered as
alternatives. Myers adds to this theory by noting that corporations avoid investing
in positive net present value projects due to conflicts with creditors since these
agents can grab the revenues generated by the projects, restricting the feasibility of
opportunities and resulting in underinvestment.. Although this conundrum can be
detrimental to diverse organizations, Myers addresses it by mismatching leverage
maturity through the issuance of shorter-term debt, which is more prevalent for
firms with more investment options. As a result, this maturity matching technique
between corporate debt and assets can assist minimize the underinvestment
problem, as the debt repayment is timed to coincide with the asset's value fall. As a

result, enterprises with long-term assets will also have long-term debt, which does
not considerably increase the agency cost (Guedes and Opler, 1996). Smith and
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Warner (1979) argue that large firms are less exposed to these agency costs because
their potential conflicts of interest are less severe than those of smaller firms, while
Barnea, Haugen, and Senbet (1985) argue that large firms can also address these
issues by reducing the maturity of their debt, thereby avoiding conflicts of interest
between bondholders and shareholders.
The present literature largely acknowledges that larger organizations have lower
debt agency costs (Ozkan, 2000; Yi, 2005; and Whited, 1992), because larger firms
are thought to have easier access to capital markets (they can more readily
overcome transaction costs) and higher bargaining leverage (they have a stronger
position in debt negotiation than smaller firms). As a result of both considerations,
larger firms are more likely to issue long-term debt than smaller firms.
Additionally, Smith and Warner (1979) suggest that smaller enterprises have
greater agency costs as a result of the conflict of interest between shareholders and
debtholders. We will investigate the impact of business size on debt maturity based
on these agency costs arguments.
1.2.3. Leverage Cost
Numerous pieces of literature support the trade-off theory, including Kraus
Lintzenberger (1973), whose deduction led to the development of a more
interactive model of tax shelters and insolvency costs, with the primary conclusion
pointing toward an increased level of firm leverage when bankruptcy penalties are
relatively low.
In terms of the maturity structure of the debt, several points stand out, including
the fact that firms whose value is derived from large investment opportunities have
a greater incentive to borrow short-term debt, while players with riskier investment
opportunities tend to use longer-term debt in order to avoid inefficient liquidation,

with firms hedging against liquidity risk by matching the maturity of their debt to
the life of the asset, although the use of short-term debt results in a higher cost of
capital (Morris, 1992). Morris further contends that enterprises with a larger debt
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ratio are more likely to issue long-term debt in order to stave off bankruptcy risk.
On the other hand, tax and agency theories indicate that leverage has the opposite
effect on debt maturity. Thus, the effect of leverage on the maturity structure of
debt is an empirical conundrum.
Firms with shorter loan periods have a lower optimal leverage ratio and a
proclivity to issue more short-term debt in order to minimize agency costs, despite
the fact that long-term debt generates more firm value. As such, "the maturity of
debt is a trade-off between tax benefits, bankruptcy costs, and agency expenses"
(Leland-Toft, 1996). Leland and Toft (1996) demonstrate theoretically that
enterprises with greater leverage prefer longer-term debt and vice versa. GuedesOpler (1996) continued to assert that riskier enterprises are more likely to issue
long-term debt in order to minimize inefficient liquidation risk, whereas firms with
more growth alternatives are more likely to issue short-term debt.
According to Datta et al. (2005), managers with stock ownership have a stronger
incentive to pursue stakeholders' goals of increasing self-monitoring by utilizing
more short-term debt rather than the more traditional technique of entrenching in
long-term debt, which entails higher agency costs. However, these statements are
expanded upon, since it is seen that managers with lesser stock ownership tend to
employ more long-term debt, even when the danger of liquidation is minimal,
because longer maturity debt requires less external management attention. In
conclusion, corporations having a greater leverage ratio are more likely to issue
long-term debt.
1.2.4. Signaling
Ross, Leland, and Pyle pioneered the signal effect theory in 1977. It
analyzes the influence of asymmetric knowledge on the true value of firms

between insiders and outsiders. According to signaling effects theory, information
asymmetry affects the market value of a firm and results in unproductive
investment decisions; alternative capital structures communicate a signal of
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economic value joint (Ross, 1977). Managers and insiders convey information
about the quality of enterprises by selecting the appropriate capital structure and
avoiding the transmission of negative information. Ross (1977) extended Silence's
(1973) signaling model into the sphere of capital structure in order to investigate
the relationship between capital structure and company quality. In his model,
corporate executives and investors are supposed to have disproportionate
information about predicted profits. Additionally, the manager's usefulness
improves as the enterprise's stock worth is appraised by capital market investors
but declines as bankruptcy costs climb. In this instance, the firm with a high
predicted yield is less likely to fail, the manager's expected bankruptcy cost is low,
and such firms may opt for a greater debt ratio. However, if the enterprise's
predicted profit is low, the volume and risk of non-standard debt operations will be
greater, reducing the profit margin and increasing the likelihood of bankruptcy.
These companies cannot imitate successful business leaders in choosing a larger
capital structure ratio. If outside investors can forecast the manager's behavior, the
debt market balance results for investors are as follows: a high debt ratio indicates
a high-quality company, while a low debt ratio indicates a low-quality company.
As a result, investors can make their own decisions in response to this signal.
Leland and Pyle (1977) established a hypothesis of signaling effects that
uses the shareholding rate as an indicator. As is well known, there is an imbalance
of knowledge between business owners and shareholders. Thus, the percentage of
shares that the owner wants to hold shows whether the project is a good or terrible
bet. The more the owner's shareholding in the business, the greater the company's
worth in the eyes of investors. This indicates a favorable signal. If the owner of the

business decides to issue new shares, the owner's share price will fall. This is a red
flag for investors. Additionally, when a business's founder or manager is willing to
hold a high number of shares, the company's potential to utilize loan capital
improves. Debt financing will raise the market worth of the firm." In comparison to
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agency cost theory, signaling effects theory places a greater emphasis on the
motivation of outsiders. Insiders must adopt acceptable trading techniques in order
to communicate to outside investors the true market value of the company. For
outsiders, they will sensibly assess this signal in light of the stock analysis and
evaluation outcomes. "If there is a signal balance, outside investors can participate
in the market using the signals selected by insiders and pay an acceptable price, so
resolving the asymmetry problem."
1.2.5. Information asymmetry
According to Myers (1977), corporations can utilize investment possibilities
such as options because they are conditional on the company exercising them at the
ideal debt ratio point, as the rewards of these investments are eventually shared
between shareholders and debtholders. However, because these benefits are
prioritized for debtholders above shareholders, the firm's management may reject
them, as shareholders may miss out on the benefits as a result of losing priority,
resulting in the rejection of positive-NPV initiatives. With this issue duly dubbed
the underinvestment problem. Myers also suggests several ways to address this,
including shortening the debt maturity to the point where the debt matures before
the investment option is exercised. However, this is not an easy method to
implement because the costs of monitoring may increase in the process, and
stockholders may reject this and prevent the company from shortening the debt
maturity. Another option is to restrict dividends, but this merely adds pressure to
invest in something with an NPV greater than the dividend value in order to
enhance the firm's worth even further. However, this pressure may cause managers

to "jump the gun" and invest in projects with a negative net present value.
Myers (1984) emphasized the cost of external financing, noting that this
cost includes not only the normal underwriting and administrative costs, but also
the information asymmetry that may prevent the firm from issuing debt even on a
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positive NPV opportunity due to favorable inside information and managers
preferring to cover the investment with internal revenues rather than external
financing due to the firm's shares being overvalued. As example, the exhibited
method is based on issuing equity when companies' shares are overvalued and debt
when firms' shares are low, but by implementing it, the market will recognize the
pattern and will purchase stock only when all debt channels have been exhausted.
Myers's "Modified pecking order" is predicated on numerous aspects. Firms prefer
to employ retained earnings or debt over equity issuance since this prevents them
from taking advantage of positive net present value opportunities or issuing lowcost shares. In terms of dividends, there is evidence that corporations set target
payout ratios in order to maintain the equilibrium between equity investment rates
and internal funds. While the pecking order model indicates a preference for
retained earnings, corporations prefer to finance projects using a combination of
retained earnings and low-risk debt in order to keep some level of "Reserve
borrowing capacity." Finally, the author makes another argument pertinent to
benchmarking debt ratios: because different industries have varying levels of asset
risk, asset kind, and capital requirements, long-run industry ratios are often
worthless as targets for individual enterprises.
In terms of loan maturity, Ross (1977) asserts that firms advertise to the
market their superior performance by issuing short-term debt, displaying their
resilience to new information in the short run. Supported by Flannery (1986), who
emphasizes how transaction costs prevent lower-performing firms from issuing
short-term debt, as this sort of debt typically has greater transaction costs than
longer-term debt; as a result, firms chose short-term debt only when the transaction

costs are justified.
The duration of debt chosen by firms demonstrates not only their
performance but also their strategy, as maturity is mostly determined by the arrival
of cash flows. Diamond (1991) divides short-term borrowers into two categories:
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those with lower credit ratings who are unable to refinance at lower rates as new
information becomes available, and those with higher credit ratings who use shortterm debt as a buffer to be able to refinance at lower rates as new information
becomes available. Mid-rated borrowers use long-term debt to finance their
investment projects. The information effect is extremely important in this decision,
as lower-rated enterprises choose short-term debt because their liquidity risk is
greater than the information effect, but higher-rated firms make this option based
on the likelihood of refinancing at lower short-term rates.
Stohls & Mauer (1996) examined the debt maturity structure determinants
of multiple industrial firms in the United States, with the primary conclusion
pointing toward theories of information asymmetry based on Diamond's (1991)
theory of high and low credit rating firms issuing short-term debt and intermediate
credit rating firms issuing long-term debt, emphasizing the importance of asset
maturity and the widely accepted notion of debt and asset maturity matching, while
minimizing the importance of debt and asset maturity matching. Barclay and Smith
(1995) support Myers on the issue of short-term debt on firms with greater growth
possibilities but add the notion of growing use of long-term debt on regulated firms
as their discretion over policy is reduced and their underinvestment policy is
narrower. Additionally, larger firms use long-term debt, whereas smaller firms use
short-term debt because their only source of financing is bank loans, as this
concept is justified by the firms' access to capital markets, as larger firms have
greater access to debt markets, whereas smaller firms have more difficulty
justifying the higher monitoring costs and debt backing imposed by long-term
leveraging (Whited, 1992).

Diamond (1991) defies this assumption by simulating the emergence of
long-term debt in small enterprises when the term structure of interest rates grows.
Additionally, Diamond demonstrates how debt maturity varies negatively with
credit rating; as such, firms with higher credit ratings use short-term debt to
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refinance themselves at better rates upon information arrival, while firms with
lower credit ratings use long-term debt to ensure lower debt costs, with the very
low credit rating companies using short-term debt to finance themselves because
long-term debt is not viable, leaving them with no choice at pa. Gul and Goodwin
(2010) demonstrate the relationship between short-term debt and credit rating,
demonstrating that firms with lower credit ratings prefer short-term debt, as lowerrated firms have more private leverage and higher monitoring costs; as a result,
weaker control over debt governance demonstrates the increased cost of debt.
1.2.6. Macroeconomics factors
Wang et al. (2010) highlighted how the GDP growth rate and micro-tax
burden are positively connected with a firm's debt maturity, whereas the inflation
rate and money supply are negatively correlated with a firm's debt maturity. As a
result, as the GDP growth rate increases, the economic backdrop provides more
investment opportunities and risks decrease, firms tend to issue long-term debt, on
par with the micro-tax burden. As the micro-tax burden increases, firms'
investment options become more limited, and the choice of debt also tends toward
the longer term, as the need for shorter-term financing diminishes. Inversely, as
inflation rates rise, the concept of the real value of the debt return becomes hazy,
and as the danger of default increases, short-term debt is utilized.
Zhang and Sorge's (2010) macroeconomic findings indicate that countries
with higher GDP growth and lower inflation rates have a higher ratio of long-term
debt, whereas Fan et al. (2012) demonstrate that countries with a greater tax gain
associated with interest tax shields and firms' uncertainty about the legal
environment tend to tilt debt structure decisions toward the short-term period, with

macroeconomic implications.
Baker et al. (2003) explains that while firms seek to issue debt at the lowest
feasible cost, they typically utilize long-term debt when expected bond
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returnability is low, as this is related to inflation, bond returns, and spreads, all of
which are negatively correlated with firms' leverage maturity. While public debt
dominates the literature, private debt is also a significant driver of debt maturity
structure choices, as this type of debt plays a significant role in leverage selection.
Wang et al. (2017) examined the effect of debt maturity on the cost of bank loans,
with a particular emphasis on rollover risk. Their findings indicate that banks
charge a higher loan rate for firms with short- and long-term debt, but a lower loan
rate for firms with intermediate maturity debt, with bank spreads being more
visible in firms with a greater reliance on bank financing and firms with stronger
growth choices. and Chen et al. (2020) assert that enterprises with shorter-term
debt confront a wider spread, which is justified by the increased risk of debt
readjustment, as well as the assumption that highly leveraged firms face heightened
risk and thus wider credit spreads. Kim et al. (1995) address the rollover risk with a
model that demonstrates how a long-term debt maturity strategy can maximize taxtiming option value by requiring firms to increase their debt maturity as the term
structure and interest rate volatility deteriorate, whereas Stohs and Mauer (1996)
find the opposite, with firms reducing their debt maturity as the yield curve
steepens in the long term and they seek to avoid the term premium associated with
those interest rates.

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Summary of Chapter 1
In the first chapter, the author provides an outline of the study about the

determinants of debt maturity and the relevant theoretical foundations.
Additionally, this chapter discusses corporate governance theories and models
from prior research.
The author picks the following determinants of Debt Maturity based on past
research: Debt Weight, Firm Size, Company Profitability, Asset Maturity,
Effective Tax Rate, and Inflation.
On the basis of previously established theories, the following connections
are estimated between the aforementioned variables: The influence of Debt Weight
and Firm Size on Debt Maturity is positive. On the other hand, Company
Profitability, Asset Maturity, Effective Tax Rate and Inflation Rate are negative
influences on Debt Maturity.

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CHAPTER 2: DATA AND METHODOLOGY
2.1.

Data
The report compiles information from FiinGroup JSC on firms registered on
Vietnam's stock markets, including the Hanoi Stock Exchange (HNX) and the Ho
Chi Minh City Stock Exchange (HCM) (HOSE). The financial statements of these
companies are prepared in line with Vietnamese accounting standards.
The sample spans a ten-year period (from 2012 to 2021) and comprises 759
distinct enterprises. The data sources are provided by FiinGroup JSC and General
Statistics Office of Vietnam. These are sources of information that are officially
regarded as reliable. Following that, a regression model was created, and statistical
analysis performed using STATA software.

2.2.

Empirical models
For the purpose of conducting empirical research on macroeconomic and
microeconomic factors affecting debt maturities in listed companies on the
Vietnamese stock market, the variables of this research are as follows:

2.2.1. Regression methods:
OLS algorithms can be used to undertake benchmarking that relates individual
business performance relative to what would be expected: an estimate of a mean
production or cost function of a sample of firms. Average benchmarking methods can
be used to compare firms with very similar costs or when there are insufficient data of
comparable enterprises to apply frontier methods. Essentially, the method refers to the
estimate of a regression functional form for costs or production using the OLS
technique. The objective of linear regression analysis is to establish a link between
company performance (in terms of output or total cost) and market conditions and
production process features. Multiple independent variables' responsibilities can be
determined by isolating the effects of particular conditions or output levels using
statistical analysis. Then, based on the factors that characterize each organization, the
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