Internal Factors Determining the Leverage of Non-financial Companies in Vietnam

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2016-06
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eng
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application/pdf
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7 pages
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The 4th International Graduate Research Conference
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Vietnam is a developing country and currently providing huge opportunities for foreign investors who can understand the market. After joining World Trade Organization, Vietnam is following the commitment by gradually opening up the previous restricted industries and sectors. The Vietnam economy is expected to have a boom on new opening up business in 2016 due to the allowance of foreign ownership up to 100% (before was 49% maximum). The objective of this research is to study the internal factors that will affect leverage of the non-financial companies in Vietnam. According to previous studies, the selected variables used to test the relationship with leverage are dividend payout ratio, profitability, size, liquidity, return on equity, growth, working capital, market to book ratio and total tangible asset. The annual data of 116 non-financial companies with 580 observations was collected from 2010-2014. The relationship between leverage of Vietnam companies with mentioned internal factors will be tested by panel regression analysis with fixed effect model. The results showed that there are four factors that have significant relationship with leverage, including: return on equity (positive relationship at 1% significant level), company’s size (positive relationship at 1% significant level), working capital (negative relationship at 1% significant level), and profitability (negative relationship at 10% significant level). Other factors have no significant effect on the leverage of Vietnam companies. This study enables investors to have deeper understanding about capital structure of companies in Vietnam.
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