Ownership structure, capital structure and firm performance : a study of Vietnamese listed firms

Abstract

Although several studies have focused on diverse aspects of ownership and capital structure, some limitations still exist. First, most previous studies have concentrated on the influence of ownership structure on firm performance, but there is a lack of research about its effect on financing decisions. Concretely, while the relationship between ownership structure and capital structure has been established theoretically, only a few empirical studies have examined this linkage, especially in developing countries. In addition, the studies have often concentrated on managerial ownership, insider ownership, institutional ownership, or ownership concentration. There is limited empirical evidence on the influence of foreign and state ownership on capital structure, although these kinds of ownership have recently become common and important in developing economies because of a sharp increase in foreign investment and the equitisation process. Second, several theories and studies have examined capital structure; however, there is no single theory that can fully interpret the effect of capital structure on firm performance. Specifically, empirical evidence shows different and contradictory results and indicates that this relationship depends significantly on the specific circumstances. Therefore, the purpose of this research was to investigate the effect of ownership on capital structure and, subsequently, the influence of capital structure on firm performance in Vietnam, which is considered a typical developing country. To achieve this objective, the research used unbalanced panel data from all non-financial listed firms in Vietnam during the period 2007""2012 and employed pooled ordinary least squares, random effects and fixed effects regression methods, and the dynamic panel generalised method of moments for analysing data. Although various approaches were applied, all results were consistent. Specifically, the study found that whereas foreign ownership has a negative effect on leverage, state ownership has a positive influence. Managerial ownership has a positive relation, but the effect of large ownership on debt level is not conclusive. Additionally, the results revealed that foreign ownership affects inside ownership influence on financing decisions. In particular, foreign ownership decreases the positive effect of managerial ownership on debt level. The research results also indicate that all ratios of long-term debt, short-term debt and total debt in both book and market value are significantly and negatively related to return on asset, return on equity and Tobin Q. A non-linear relationship between leverage and firm performance only appears when performance is measured by return on equity and capital structure measured by total debt and short-term debt. These findings imply that firms with different ownership type may not be equal with respect to access to capital sources. State-owned firms could have substantial advantages through access to the debt market because they receive preferential treatment from stateowned banks. Additionally, this research provides evidence of an active monitoring role of foreign investors. Foreign owners with experience, knowledge and incentives can help firms to reduce agency costs of equity through actively monitoring the management. This research also supports the argument that one of the greatest concerns of managers is to retain or increase their control because it provides them with discretion in making decisions or accessing their private benefits. Moreover, the research findings indicate that in developing countries, an increase in debt can decrease firm performance because of high interest rates, exhausted cash flow or inefficient monitoring of debt.

Date of Award	2015
Original language	English