The impact of capital structure on firm performance of listed companies in HNX

i

TABLE OF CONTENTS
ABSTRACT ..........................................................................................................iii
ABBREVIATION ................................................................................................. iv
LIST OF TABLE ................................................................................................... v
LIST OF DIAGRAMS .......................................................................................... vi
CHAPTER 1: INTRODUCTION .......................................................................... 1
1.1

Rationale ................................................................................................. 1

1.2

Research objective:................................................................................. 2

1.3

Research methodology: .......................................................................... 2

1.3.1

Research model.......................................................................................... 2

a. Pooled OLS:.................................................................................................. 3
b. Fixed Effects Model: .................................................................................... 3
c. Random Effects Model: ................................................................................ 4
1.3.2

Operational Research Models and Variables ............................................ 4

a. Dependent variables: .................................................................................... 4
b. Independent variables and its calculations: .................................................. 6
1.4

Scope of research.................................................................................. 10

CHAPTER 2: LITERATURE REVIEW ....................................................... 11
2.1

Conceptual Framework ........................................................................... 11

2.1.1

Capital Structure ...................................................................................... 11

2.1.2

Optimal Capital Structure ........................................................................ 12

a. Theoretical Framework ........................................................................... 12
b. Empirical Studies about relationship between Capital Structure and Firm
performance ................................................................................................... 14
CHAPTER 3: RECENT SITUATION OF INDUSTRIAL COMPANIES
LISTED IN HNX ................................................................................................. 18


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3.1

Introduction to 112 industrial companies listed in HNX ........................... 18

3.1.1. Classification of 112 industrial companies listed in HNX ................... 18
3.1.2. Evaluation of several financial situations ............................................ 20
3.1.3. Analysis of firm performance .............................................................. 23
3.1.4. Analysis of capital structure ................................................................. 29
CHAPTER 4: EMPIRICAL RESULT ................................................................. 32
4.1

Descriptive statistics ................................................................................ 32

4.2

Correlation analysis ................................................................................. 33

4.3

Finding and analysis ................................................................................ 35

4.3.1

ROA................................................................................................... 36

4.3.2

ROE ................................................................................................... 39

4.3.3

Q Tobin’s .............................................................................................. 42

CHAPTER 5: DISCUSSION AND RECOMMENDATION ............................. 45
5.1

Discussion:............................................................................................... 45

5.2

Limitations of the study: .......................................................................... 48

5.3

Recommendation: .................................................................................... 50

CHAPTER 6: CONCLUSION............................................................................. 51
REFERENCES ..................................................................................................... 51
APPENDIX .......................................................................................................... 54


iii

ABSTRACT
The study investigates the relationship between capital structure and firm
performance. The investigation has been performed using panel data procedure
for a sample of 112 Vietnamese listed companies working in the industrial field
on the HNX during the period of five years from 2010 to 2014. The study uses
three performance measures (including return on equity, return on asset, Tobin s
Q) as dependent variable. The two capital structure measure (including leverage,
short term debt) as independent variable. Size, inflation ratio, tax expenses and
age are control variable.

The results indicate that firm performance, which is measured by return on asset
(ROA), return on Equity(ROE) and earning per share (EPS) have negative
relationship with short term debt ratio (SDTA), leverage (LEVERAGE) as
independent variable. Q Tobin’s reports that there is no relationship between
short term debt (SDTA) as well as leverage (LEVERAGE) and this variable.


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ABBREVIATION
WTO

World Trade Organization

TPP

Trans-Pacific Partnership

HNX

Hanoi Stock Exchange

Pooled OLS

Pooled ordinary least square

REM

Random – effect model

FEM

Fixed – effect model

ROA

Return on Asset

ROE

Return on Equity

EBIT

Earnings before interest and tax

EBT

Earnings before tax

VND

Vietnam dong

VNDbil

Billion Vietnam dong


v

LIST OF TABLE
Table 1.1: The formula for variables calculation………………………….…......9
Table 3.1: Classification of 112 industrial companies listed in HNX…….….....19
Table 3.2: Tangible Asset Valuation 2010 – 2014 (VNDbil)…..………………23
Table 3.3: Q Tobin’s valuation 2010 – 2014.....……..…………………………28
Table 3.4: Capital structure of companies 2010 - 2014 …………………..……30
Table 4.1: Descriptive statistics data of Dependent Variables ............................ 32
Table 4.2: Descriptive statistics data of Independent Variables .......................... 33
Table 4.3: Correlation of Return on Assets (ROA) as Dependent variable.........34
Table 4.4: Correlation of Return on Equity (ROE) as Dependent variable….…35
Table 4.5: Correlation of Q Tobin’s as Dependent variable..……………..……35
Table 4.6: Result equation for ROA….………………………...………………37
Table 4.7: Final result equation for ROA….…………………………………...38
Table 4.8: Result equation for ROE….……………………………………..….40
Table 4.9: Final result equation for ROE.…………………………………..….41
Table 4.10: Result equation for Q Tobin's…………………………………..….43
Table 4.11: Final result equation for Q Tobin's…...………………………...….44


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LIST OF DIAGRAMS
Diagram 3.1: The average of Total Assets in different groups 2010 – 2014..….21
Diagram 3.2: The average of ROA ratio in different groups 2010 – 2014..……24
Diagram 3.3: The average of ROE ratio in different groups 2010 – 2014…..…26


1

CHAPTER 1: INTRODUCTION
1.1 Rationale
After the “Doi Moi” economic reform in 1986, Vietnam becomes a socialistoriented market economy that led to the replacement of the centrally-planned
economy and the market-based mixed ones. Based on this reform, the
Vietnamese market can integrate with the global economy. Several
outstanding events occurred in recent years. Vietnam became the WTO’s
150th official member following the formal approval of the National
Assembly of the Socialist Republic of Vietnam in 2007. In November 2010,
after attending three negotiations, Vietnam officially joined the TTP
negotiation. In comparison with WTO, participating in TPP can give a deeper
commitment to Vietnam, especially in some special fields that do not contain
in WTO.
These events gave a large number of potential developments for Vietnam
economy due to market expansion, technology improvement, labor force
rising, and international trading efficiency. One of the indication is
significant growing in the number of new established domestic companies.
However, the number of companies increase does not have the same meaning
with the increase in the effectiveness of business’ operating activities.
According to the Department of Statistics, only in December 2014, there are
7944 enterprises having difficulty in suspending operation, up to 30.2% from
the previous month. This figure includes 2088 enterprises having registered
for suspending the operation and 5856 decommissioned business pending for
closing code or without registered. One of the major reasons for poor
performance in many Vietnamese businesses is the unreasonable decision in
financing capital that is closely related to the mix of debt and equity.


2

As a result, the number of research investigating the impact of capital

structure on firm performances is increasing due to the financial problem in
business.
1.2 Research objective:
The purpose of this study is to examine the relationship between capital
structure and firm performance by regarding 112 industrial companies listed
on Hanoi Stock Exchange (HNX) during the period of 5 years from 2010 to
2014.
In order to achieve the mentioned purpose, the researcher mainly focuses on
2 following questions:
1. How capital structure impact on industrial firm performance?
2. Suggest optimal structure for industrial companies
1.3 Research methodology:
1.3.1 Research model
Regarding the purpose of the study is quantifying the impact of capital structure
on the performance of industrial listed on HNX, the regression model for panel
data has been used. The primary reason for using panel data is that this model
provides more information, little multicollinearity between the variables, more
efficient as well as offers opportunity for controlling unobserved individual and/
or time specific heterogeneity, which may be correlated with the included
explanatory variables.
We used Pooled OLS, FEM and REM for estimation of the data. A balanced
panel data set is used which has equal number of observations for each (crosssection) and best model selection, REM versus FEM, Hausman specification test
and Breusch-Pagan Lagrange Multiplier test.
The general form of Panel Data Model:


3

Yt = m + β0 + β1 × X1it X2it + ... + βn * Xnit + ut
Where: i is the ith cross section, and t is the time t

Y: The dependent variable
X: Independent variables
a. Pooled OLS:
This is the simplest model that does not consider the difference between
the research firm; this model is rarely used. The model can be used when
the groups to be pooled are relatively similar or homogenous. Level
differences can be removed by 'mean-centering' (similar to Within-Effects
Model) the data across the groups (subtracting the mean or average of
each group from observations for the group). The model can be directly
run using Ordinary Least Squares on the concatenated groups. If the model
yields large standard errors (small T-Stats), this could be a warning flag
that the groups are not all that homogenous and a more advanced approach
to Random Effects Model may be more appropriate.
b. Fixed Effects Model:
FEM was developed from the Pooled when adding the difference in the
company, and the correlation between the residuals of the model and the
independent variables. In detail, the model measure differences in
intercepts for each group (calculated using a separate dummy variable for
each group). The approach is also called "Least Squares Dummy Variable"
method for this reason. This is an OLS model with dummy variables to
control for group differences, assuming constant slopes (coefficients) for
independent variables and constant variance across groups. Within-Effects
Model avoids using dummies by mean-centering all modeled variables,
including the dependent, thus increasing degrees of freedom.


4

c. Random Effects Model:
This approach leverages the differences in the variance of the error term to

model groups together, assuming constant intercept and slopes. It means
that RAM has some differences in the relationship between the residuals
and the independent variables of the model. Compared to FEM, REM is
more complex to estimate.
In this study, the optimal model applied will find by using the Breusch-Pagan
Lagrange Multiplier test for random effect and Hausman test between FEM and
RAM.
d. Hausman test Hypothesis:

Ho: Random effects model is appropriate
H1: Fixed effects model is appropriate
1.3.2 Operational Research Models and Variables
In this study is to quantify the impact of the capital structure to the performance
of industrial companies listed on HNX authors use regression models for panel
data. The dependent variables that are used return on assets (ROA), return on
equity (ROE) and Tobins’Q (TOBINSQ) as accounting measures for evaluating
the firm performance; and independent variable are the long – term debt ratio
(LEVERAGE), short – term debt ratio (SDTA) as capital structure. Also is used
for variables of firm size (SIZE), firm age (AGE), assets tangibility (TANG),
inflation (INF) and tax (TAX) as control variables.
a. Dependent variables:


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Return on assets (ROA) can be seen as an indicator of how profitable a
company is relative to its total assets. This number indicates the efficiency
management in using and allocating the total assets of a company to
maximize its net income. The assets of the company are comprised of both
debt and equity. Both of these types of financing are used to fund the

operations of the company. The ROA figure gives investors an idea of
how effectively the company is converting the money it has to invest in
net income. The figure gives an indication of the capital intensity of the
company, which will depend on the industry; companies that require large
initial investments will have a lower return on assets. ROA for public
companies can vary substantially and will be highly dependent on the
industry. This is why when using ROA as a comparative measure, it is
best to compare it against a company's previous ROA numbers or the
ROA of a similar company.
Return on Equity (ROE) refers to the amount of net income returned as a
percentage of shareholders equity. ROE measures a corporation's
profitability by revealing how much profit a company generates with the
money shareholders has invested. It is more than a measure of profit; it is
a measure of the efficiency of a firm at generating profits from each unit
of shareholder equity. A rising ROE suggests that a company is increasing
its ability to generate profit without needing as much capital. It also
indicates how well a company's management is deploying the
shareholders' capital. In other words, the higher the ROE, the better.
Falling ROE is usually a problem. Some industries tend to have higher
returns on equity than others. As a result, comparisons of returns on equity
are most meaningful among companies within the same industry, and the
definition of a "high" or "low" ratio should be made within this context.
Tobins’Q ratio devised by James Tobin of Yale University, Nobel laureate
in economics, who hypothesized that the combined market value of all the
companies on the stock market should be about equal to their replacement


6

costs. In detail, a low Q (between 0 and 1) means that the cost to replace a

firm's assets is greater than the value of its stock. This implies that the
stock is undervalued. Conversely, a high Q (greater than 1) implies that a
firm's stock is more expensive than the replacement cost of its assets,
which implies that the stock is overvalued. This measure of stock
valuation is the driving factor behind investment decisions in Tobin's
model.
b. Independent variables and its calculations:
Leverage refers to the amount of long – term debt using to finance firms’
assets, which contributes to the sources of capital. Most companies use
debt to finance operations. The cost of mobilizing capital from long – term
debt is interest fee, which always is charged by the lender to the borrower.
Most of the businesses usually find the way to raise capital by debt
because the interest rate often is lower than the dividend paid to
stockholders. Moreover, interest is a fixed cost (which can be written off
against revenue) a loan allows an organization to generate more earnings
without a corresponding increase in the equity capital requiring increased
dividend payments (which cannot be written off against the earnings).
Therefore, a company increases its leverage because it can invest in
business operations without increasing its equity. A firm with significantly
more debt than equity is considered to be highly leveraged. However,
while high leverage may be beneficial in boom periods, it may cause
serious cash flow problems in recessionary periods because there might
not be enough sales revenue to cover the interest payments.
Shot – term debt ratio (SDTA) indicates the likelihood that a company will
be able to deliver payments on its outstanding short-term liabilities. Shortterm debt describes liabilities that are due to be paid within one year. In
this context, short-term debts include liabilities with a repayment time
frame of less than one year from initial issue (such as commercial paper)


7

rather than the sum of all debt payments (final and interim) due within a
coming 12-month period. Using an accounting metric called a short – term
debt ratio, it is possible to gauge whether a company will be able to meet
its short-term debt obligations. If a company fails to meet its obligation of
paying short – term debt at maturity, it will face with much liquidities and
financial problems. As a result, short – term debt also effect in the firm’s
operation.
Tangible assets refer to assets in a physical form that include both fixed
assets, such as machinery, buildings, and land, and current assets, such as
inventory. Certain types of assets receive special treatment for accounting
purposes. For tangible assets with an anticipated useful life of more than
one year, a company uses a process called depreciation to allocate part of
the asset's expense to each year of its useful life, instead of allocating the
entire expense to the year in which the asset is purchased. A company
needs to buy a tangible asset for the manufacturing activities and making
products. This component also is an important factor that should be
concerned.
Firm size is measured by the total assets of the selected firm. This variable
is mentioned in this research because the firms with big size have better
performance than others in normal way. The reason is that they have a
good reputation, broaden market that can help them have large number of
customers. As a result, the sale revenue will increase. It can be seen as a
commercial advantage of big companies.
Age of a company is measured by the number of years since the
establishment. This variable is collected because of the life cycle’s
positive impact. A company has long operating time can have high
reputation, many customers, and good key stakeholders. It can help this
company perform better operation than others.

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Tax (business tax) is stated by corporate tax or company tax on the income
or capital of some types of legal entities that imposed by the national
authorities. Tax is calculated from the EBT (earning before tax) with the
proportion of this amount. Tax is the important obligation of every
company like debt; however, there are several differences between tax and
interest expense. Tax is collected after deducting the interest expenses.
Moreover, the company with negative EBIT (earnings before interests and
taxes) or EBT will not have to pay the tax; in contrast, the company has to
pay interest expenses in every case even bad performance result.
Inflation rate reminds to the rate at which the general level of prices for
goods and services is rising; and, subsequently, purchasing power is
falling. Central banks attempt to stop severe inflation, along with severe
deflation, in an attempt to keep the excessive growth of prices to a
minimum. Inflation will make input not only materials price increase but
also selling price rise. In the case of high inflation occurs, many
companies can lose their customers and have much difficulty in their
business activities.
The table below will illustrate the calculation as well as the unit of
measurement for each variable.


9

Variables

Formula

ROA

ROA =

ROE

ROE =

TOBINSQ

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
𝑇𝑜𝑡𝑎𝑙 𝑒𝑞𝑢𝑖𝑡𝑦

Q Tobin’s =

Units
× 100%

Percentage

× 100%

Percentage

𝑀𝑎𝑟𝑘𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐶𝑜𝑚𝑝𝑎𝑛𝑦

LEVERAGE

Leverage =

SDTA

SDTA =

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝐿𝑜𝑛𝑔−𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡

𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠
𝑆ℎ𝑜𝑟𝑡−𝑡𝑒𝑟𝑚 𝑑𝑒𝑏𝑡
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠

Decimal
Decimal
Decimal

TANG

Total tangible assets

Number

AGE

Number of years

Number

SIZE

Total assets

Number

TAX

Tax paid

Number

INF

Inflation rate

Percentage

Table 1.1: The formula for variables calculation
(Source: Collected by the researcher)
The model is described as follow:
ROA i,t = c + β0 × LEVERAGE i,t + β1 × SDTA i,t + β2 × SIZE i,t+ β3 × AGE i,t
+ β4 × TANG i,t + β5 × INF i,t + β6 × TAX i,t + u
ROE i,t = c + β0 × LEVERAGE i,t + β1 × SDTA i,t + β2 × SIZE i,t+ β3 × AGE i,t
+ β4 × TANG i,t + β5 × INF i,t + β6 × TAX i,t + u
TOBINSQ i,t = c + β0 × LEVERAGE i,t + β1 × SDTA i,t + β2 × SIZE i,t+ β3 ×
AGE i,t + β4 × TANG i,t + β5 × INF i,t + β6 × TAX i,t + u
In these models:
ROA i,t : return on assets of firm i in year t
ROE i,t : return on equity of firm i in year t

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TOBINSQ i,t : Tobins’Q of firm i in year t,
LEVERAGE i,t : leverage ratio of firm i in year t
SDTA i,t : short – term debts ratio of firm i in year t
SIZE i,t : size of firm i in year t
AGE i,t : age or number of activity years of firm i in year t
TANG i,t : total tangible asset of firm i in year t
INF i,t : inflation rate of firm i in year t
TAX i,t : tax paid by firm i in year t
1.4 Scope of research
In term of research scope, this study primarily concentrates on investigating
recent decisions in the financing mix of capital among selected enterprises.
The scope of timing is set during 5 – year period from 2010 to 2014 fiscal
year. All companies are analyzed through their financial statements that
provided by IPA Asset Management Company. The data collected from 5
financial years included a statement of profit and loss, statement of financial
position and statement of cash flows. These financial statements were
requested to audit as well as publish in the official website of companies and
other stakeholders such as investment companies, security companies.


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CHAPTER 2: LITERATURE REVIEW
2.1 Conceptual Framework
2.1.1 Capital Structure
According to en.wikipedia.org, – the most famous encyclopedia in the world,
capital structure refers to the way a corporation finances its assets through some

combination of equity, debt or hybrid securities. A firm's capital structure is then
the composition or 'structure' of its liabilities. Several studies have been
conducted to examine the role of debts. The first study was carried out by
Modigliani and Miller (1958); Modigliani and Miller (MM) Theory illustrates
that under certain key assumptions, firms value is unaffected by its capital
structure. The two professors theorized that the market value of a firm is
determined by its earning power and the risk of its underlying assets, and that its
value is independent of the way it chooses to finance its investments or distribute
dividends. The basic MM proposition is based on the following key assumptions:
•

No taxes

•

No transaction costs

•

No bankruptcy costs

•

Equivalence in borrowing costs for both companies and investors

•
Symmetry of market information, meaning companies, and investors have
the same information
•

No effect of debt on a company's earnings before interest and taxes

However, this theory was criticized on the ground that the perfect market does
not exist in the real world. Later on, Modigliani and Miller (1963) introduce
taxes into their model and show that the value of a firm increases with more debt
due to the tax shield. This study is known as Modigliani and Miller's Tradeoff


12

Theory of Leverage. The theory recognizes the tax benefit from interest
payments - that is, because interest paid on debt is tax deductible, issuing bonds
effectively reduces a company's tax liability. Paying dividends on equity,
however, does not. The thought of another way, the actual rate of interest
companies pay on the bonds that they issue is less than the nominal rate of
interest because of the tax savings. Studies suggest, however, that most
companies have less leverage than this theory would suggest is optimal.
2.1.2 Optimal Capital Structure
The optimal capital structure indicates the best debt-to-equity ratio for a firm that
maximizes its value. In a simple way, the optimal capital structure for a company
is the one that proffers a balance between the debt and equity thus minimizing
the firm’s cost of capital. Theoretically, debt financing usually proffers the
lowest cost of capital because of its tax deductibility. However, it is seldom the
optimal structure for as debt increases; it increases the company’s risk.
The effect of different capital structure and differing business risk are reflected
in a firm’s income statement. In practice, firms tend to use capital structure,
preferred stock and common equity with which the enterprise plans to raise
needed funds. Since capital structure policy involved a strategic tradeoff between
risk and expected a return, the optimal capital structure policy must seek a
prudent and informed balance between risk and return. The firm must consider

its business risk, tax positions, financial flexibility and managerial conservatism
or aggressiveness. While these factors are crucial in determining the target
capital structure, operating conditions may cause the actual capital structure to
differ from the optimal capital structure.
a. Theoretical Framework
Other theories that have been advanced to explain the capital structure of firms
include Pecking Order Theory and Agency Cost Theory. These theories will be
discussed in turn below.


13

Pecking Order Theory was first suggested by Donaldson in 1961 and it was
modified by Myers and Majluf (1984). In corporate finance, Pecking Order
Theory postulates that the cost of financing increases with asymmetric
information. Firms prioritize their sources of financing, first preferring internal
financing, and then debt, lastly raising equity as a “last resort”. As have been
known, financing comes from three sources: internal funds, debt and new equity
(equity would mean issuing shares that meant 'bringing external ownership' into
the firm). The existence of information asymmetries between the firm and likely
finance providers causes the relative costs of finance to vary between those
different sources. For instance, internal sources of finance where the funds
provider is the firm will have more information about the firm’s prospects, risk
and value than outsiders investors - debts holders and equity holders in detail;
thus, these outsiders investors, will expect a higher rate of return on their
investments. Furthermore, asymmetric information also affects the choice
between internal and external financing and the issue of debt or equity. This
information favors the issue of debt over equity as the issue of debt signals the
boards’ confidence that an investment is profitable and that the current stock
price is undervalued. The issue of equity would signal a lack of confidence in the

board and that they feel the share price is over-valued. An issue of equity would,
therefore, lead to a drop in share price. Therefore, the Pecking Order Theory
suggests that: internal financing is used first; when that is depleted, then debt is
issued, and when it is no longer sensible to issue any more debt, equity is issue.
Agency Cost Theory was first developed by Jensen and Meckling (1976) and
Myers (1977). This is a theory concerning the relationship between the principals
(shareholders) and their agents (firm’s managers). Agency costs are related to the
conflicts of interests between these two groups. According to the theory,
shareholders are the only owners of the firm; thus the task of firm’s directors is
to ensure that shareholders’ interests are maximized. More specifically,
shareholders wish for management to run the company in a way that increases
shareholders’ long-term return and thus maximizes firm’s profit and cash flow.


14

However, the problem is that the interests of the shareholders and managers are
never exactly the same. Managers, who are decision-makers, tend always to
pursue their interests instead of those of the shareholders. They may wish to
grow the firm in ways that maximize their personal power and wealth, although
it may not be the best interest of shareholders. It will lead to the fact that
managers may spend the free cash flow available to fulfill his need for personal
interests instead of returning it to the shareholders. Hence, the agency costs
consist of two main parts: first is the cost inherently associated with using an
agent (e.g., the risk that agents will use organizational resource for their
benefits). The second part of the cost will arise when the principals
(shareholders) want to make sure that their agents act in their interests. The more
the principals want to control managers’ decisions, the higher the cost will be.
This part of the cost may include costs of techniques used to mitigate the
problems that associated with using an agent. In some cases, to gather more

information on what the agent is doing (e.g., the costs of producing financial
statements) or employing mechanisms to align the interests of the agent with
those of the principal (e.g. compensating executives with equity payment such as
stock options).
b. Empirical Studies about relationship between Capital Structure
and Firm performance
Several studies have been conducted on the relationship between Capital
Structure and Firm performance. Each study has its perspective and method to
examine this relationship. In the following part, the author will represent some
studies that are directly related to this research.
A research paper named “An Empirical Analysis of Capital Structure on
Firm’s Performance in Nigeria” was conducted by Taiwo Adewale Muritala. It
examined the optimum level of the capital structure through which a firm can
increase its financial performance using annual data for ten firms spanning a
five-year period. This research used ROA as a dependent variable that measured


15

the firm performance. The results from a root test showed that all the variables
were non-stationary at level. The study hypothesized a negative relationship
between capital structure and operational firm performance. However, the results
from Panel Least Square (PLS) confirmed that asset turnover, size, firm’s age
and firm’s asset tangibility are positively related to firm’s performance. Findings
provided evidence of a negative and significant relationship between asset
tangibility and ROA as a measure of performance in the model. The implication
of this is that the sampled firms were not able to utilize the fixed asset
composition of their total assets judiciously to impact positively on their firm
performance. Hence, this study recommended that asset tangibility should be a
driven factor to capital structure because firms with more tangible assets are less

likely to be financially constrained.
Another study on the topic “The Effect of Capital Structure on the
Performance of Palestinian Financial Institutions” was conducted by two
professional authors in January, 2012. They are Dr. Suleiman M. Abbadia and
Dr. Nour Abu-Rub, who come from the Faculty of Administrative & Financial
Science, Arab American University, Jenin, Palestine. Different from the above
research, this paper focused on a more detailed group of organization – the
Financial Institutions only. The purpose of the study was finding the relationship
between the market efficiency and capital structure of Palestinian financial
institutions. It established a model to measure the effect of capital structure on
the bank efficiency measured by ROE, ROA; and Total deposit to assets, total
loans to assets total loans to deposits were used to measure capital
structure. It is found that leverage has a negative effect on bank profits, an
increase in each ROA and Total Deposit to Assets increase bank efficiency. Two
authors also tested the effect of the above variables on bank market value
measured by Tobin's Q. It was also found that Leverage has a negative effect on
market value of the bank, a positive and strong relationship between market
value and ROA and bank deposits to total deposits. After analyzing collected
data on the variables of the model using OLSQ method.


16

Zeitun and Tian (2007) in their study Capital structure and corporate
performance: Evidence from Jordan that investigated the impact of capital
structure on the firm performance for 167 Jordanian companies during 1989 to
2003. The results suggest that capital structure has a negative impact on
accounting measures of firm performance evaluation significantly. Also, they
indicate that short-term debt to total assets ratio (SDTA) has significantly
negative impact on the market measure of Jordanian companies’ performance

evaluation that was given by Tobin Q ratio.
In April, 2013, Mr. Ogebe, Ojah Patrick from St. Augustine College of
Education, Project TIME Akoka Lagos made a research about The Impact of
Capital Structure on Firm Performance in Nigeria. This study sought to
investigate the impact of capital structure on firm performance in Nigeria from
2000 to 2010. The author considered the impact of some key macroeconomic
variables (gross domestic product and inflation) on firm performance. The
traditional theory of capital structure was employed to determine the significance
of leverage and macroeconomic variables on firm’s performance. Besides, the
study made a comparative analysis of the selected firms that are classified as
highly and lowly geared firms setting a leverage threshold of above 10% as
being highly geared. A static panel analysis was used to achieve the objectives of
the study. Using fixed effect regression estimation model, a relationship was
established between performance (proxied by the return on investment) and
leverage of the firms over a period of ten years. The results provided strong
evidence in support of the traditional theory of capital structure which asserts
that leverage is a significant determinant of firm performance. A significant
negative relationship is established between leverage and performance. From the
findings, he strongly recommended that firms should use more of equity than
debt in financing their business activities; this is because in spite of the fact that
the value of a business can be enhanced with debt capital, it gets to a point that it
becomes detrimental.


17

In Vietnam, there are several studies about the relationship between capital
structure and firm performance. In the recently research, namely The impact of
capital structure, size and revenue growth to firm’s performance of Fisheries
companies listed on the Vietnamese Stock Exchange, the author had used the

panel data regression to conduct the relationship among these variables. ROE
was represented for dependent variable, which measured firm performance
during the period of 6 years from 2008 to 2013. This research had shown that
among four factors studied; only short-term debt ratio has an impact on the
performance of the firm, the percentage factor for long-term debt while the three
rest factors: the size and growth of firm have no impact on ROE with statistical
significance at the 5% level. It can be seen from the statistic model that 15.99%
of the changes in ROE can be explained by short-term debt of the firm.


18

CHAPTER 3: RECENT SITUATION OF INDUSTRIAL COMPANIES LISTED
IN HNX
3.1

Introduction to 112 industrial companies listed in HNX

3.1.1. Classification of 112 industrial companies listed in HNX
According to the Decision number 486 – TCTK/CN, the General Statistic Office
had made the rule of classifying industrial companies into several groups. In the
most general classification method, industrial companies can be categorized into
two big groups that contain group A and group B. Group A is the manufacturing
businesses with the role of producing materials, which is the basis for re –
expansion. Group B contains the companies producing consumer goods, which
will sell for end consumers. In the total number of 112 listed companies in this
research, there are 72 companies belongs to Group A; and the remaining 42 of
Group B.
In detail, it also can be divided into a smaller group. According to this Decision,
the business working on industrial segment also can be classified into 13

different fields of industrial companies. However, among 112 observations, they
are only classified into seven different groups. The table below will describe the
classification of these companies into small groups.


19

ID

Name of Each Group

Numbers of
companies

1

Electric power industry

6

2

Manufacture of machinery and metal products

27

3

Ore mining chemical and chemical industry

10

4

Production of construction materials

35

5

Fabrics, leather, textiles and coloring

3

6

Food industry

16

7

Prints and publications

5

8

Others

11

Total

112

Table 3.1: Classification of 112 industrial companies listed in HNX
(Source: Collected and classified from the subsector list)
As can be seen from the table, two sectors occupied the highest number of
companies in total are Production of construction materials and Manufacture of
machinery and metal products, which have 35 and 27 companies respectively.
The Production of construction materials contains exploration and creation of
materials for the basic construction industry. For example, they can be the
extraction of sand, rocks, erosion and creation of cement, bricks, lime stones,
concretes. Regarding the Manufacture of machinery and metal products, this
sector has a decisive impact on the rehabilitation engineering and technical
equipment for the entire national economy. It includes two components that are
machinery producing, upgrading, and fixing.
These two sectors are followed by Food industry with 16 and Ore mining
chemical and chemical industry with ten companies. Food industry refers to food
processing that includes the methods and techniques used to transform raw
ingredients into food for human consumption. Ore mining chemical and
chemical industry state about exploration of ore and chemical products, process
of making fundamental chemical products such as several kinds of acid; and