Luận văn Capital structure and firm performance: case study: listed companies in hochiminh stock exchange

oxies for firm leverage. These proxies could be easily collected from the balance sheet. These measures were used by Zeitun and Tian (2007). Table 1: Dependent variables for model 1 Firm’s Capital Structure Symbol Total Debt to Total Assets TDTA Total Debt to Total Equity TDTE Long-term Debt to Total Assets LTDTA Short-term Debt to Total Assets STDTA Capital Structure and Firm Performance Page 21 3.4.2. Independent Variables Profitability was measured by pre-interest and pre-tax operating surplus plus depreciation divided by total assets. Profitability was used by many researchers (Titman and Wessels, 1988; and Fama and French, 2002; Margaritis and Psillaki, 2007). Growth opportunities were measured by growth of assets and were defined by book value of total assets minus book value of equity plus market value of equity divided by the book value of total assets. Growth opportunities were presented by Myers (1977) and were used by many researchers (e.g., Zeitun and Tian, 2007, Wei Xu, 2005, Margaritis and Psillaki, 2007). Firm size was defined by log of sales. These measures were used by many researchers (e.g., Mudambi and Nicosia, 1998, Lauterbach and Vaninsky, 1999, Durand and Coeuderoy, 2001, Tzelepis and Skuras, 2004). Asset Tangibility was defined by the ratio of fixed tangible assets to total assets. These measures were used by many researchers (e.g., Titman and Wessels, 1988, Rajan and Zingales, 1995, Frank and Goyal, 2003, Hall et al., 2004). Table 2: Independent variables for model 1 Independent Variables Symbol Firm performance was defined by Profitability PROF Growth Opportunities GROWTH Firm Size SIZE Asset Tangibility TA 3.5 VARIABLES MEASUREMENT FOR MODEL 2 3.5.1. Dependent Variables In order to investigate whether the market performance measures were explained by capital structure, I used market value of equity plus book value of debt to the book value of assets (Tobin’s Q), and price per share to the earnings per share (PE) as proxies for firm value. These measures were used to measure firm value in many studies (e.g., Morck, Shleifer, and Vishny, 1988, McConnel and Serveas, 1990, and Zhou, 2001). Capital Structure and Firm Performance Page 22 Table 3: Dependent variables for model 2 Firm’s Performance Symbol Market value of equity plus book value of debt to the book value of assets TOBIN Price per share to the earnings per share PE 3.5.2. Independent Variables I used total debt to total assets (TDTA), total debt to total equity (TDTE), long- term debt to total assets (LTDTA), short-term debt to total assets (STDTA) as proxies for firm leverage. Others independent variables such as firm size (SIZE) and growth opportunities (GROWTH) were the same as independent variables in Model 1. Table 4: Independent variables for model 2 Independent Variables Symbol Total Debt to Total Assets TDTA Total Debt to Total Equity TDTE Long-term Debt to Total Assets LTDTA Short-term Debt to Total Assets STDTA Growth Opportunities GROWTH Firm Size SIZE Capital Structure and Firm Performance Page 23 3.6 FRAMEWORK OF THE STUDY The framework of the study was presented as figure 4: RESEARCH PROBLEM LITERATURE REVIEW HYPOTHESES REGRESSION ANALYSIS DESCRIPTIVE STATISTICS CONCLUSIONS, RECOMMENDATIONS AND LIMITATIONS EMPIRICAL MODEL INTRODUCTION RESEARCH QUESTIONS RESEARCH OBJECTIVES Figure 4: Framework of the study Capital Structure and Firm Performance Page 24 3.7 SUMMARY The study was done by quantitative research method with sample size 162. The object of the study was all companies listed on Hochiminh Stock Exchange for the period 2008. The performance factors were measured by market value of equity plus book value of debt to the book value of assets (Tobin’s Q) and price per share to the earnings per share (PE). The leverage factors were measured by total debt to total assets (TDTA), total debt to total equity (TDTE), long-term debt to total assets (LTDTA), short-term debt to total assets (STDTA). The author also used other variables to investigate their effect on corporate performance and corporate capital structure: firm growth opportunities (GROWTH), firm size (SIZE) and asset tangibility (TA). Capital Structure and Firm Performance Page 25 CHAPTER 4: EMPIRICAL RESULTS OF THE RESEARCH 4.1 INTRODUCTION Chapter 4 presents the characteristics of research samples and measures concepts of the research. The author used descriptive statistics to explore the features of explanatory variables, as well the relationship between each variables in two models. Furthermore, the author used regression analysis to explore the relationship between the capital structure and market performance of listed companies in Hochiminh Stock Exchange. 4.2 CHARACTERISTICS OF RESEARCH SAMPLES The research samples included 162 listed companies in Hochiminh Stock Exchange. In these 162 samples, there were 05 companies in Travel & Leisure Sector; 01 company in Tobacco Sector; 02 companies in Technology Hardware & Equipment Sector; 01 company in Software & Computer Services Sector; 07 companies in Real Estate Sector; 06 companies in Pharmaceuticals & Biotechnology Sector; 04 companies in Personal Goods; 01 company in Oil Equipment Services & Distribution; 03 companies in Mining Sector; 01 company in Media Sector; 01 Companies in Leisure Goods Sector; 18 companies in Industrial Transportation Sector; 03 companies in Industrial Metals Sector; 02 companies in Industrial Engineering Sector; 09 companies in Household Goods Sector; 11 companies in General Retailers Sector; 09 companies in General Industrials Sector; 05 companies in Gas, Water & Multi-utilities Sector; 02 companies in Forest & Paper Sector; 27 companies in Food Producers Sector, 05 companies in Electronic & Electrical Equipment Sector; 05 companies in Electricity Sector; 06 companies in Chemicals Sector; 26 companies in Construction & Materials Sector; 01 company in Beverages Sector; 01 company in Automobiles & Parts Sector. In these samples, the Food Producers Sector gains the highest ratio: 16.7%; next is Construction & Materials Sector: 16% (See more in Appendix C). Capital Structure and Firm Performance Page 26 4.3 DESCRIPTIVE STATISTICS Table 5: Summary Statistics of the Explanatory Variables Variable Mean Median Max Min Std. Dev. Skewness Kurtosis Jarque-Bera Probability TDTA 0.432888 0.450650 0.866500 0.030900 0.224362 -0.001167 1.928074 7.755954 0.020693 TDTE 1.246424 0.834100 6.489800 0.031900 1.364461 2.040727 7.184002 230.6079 0.000000 LTDTA 0.104263 0.031900 0.693000 0.000000 0.153879 1.914029 5.994398 159.4380 0.000000 STDTA 0.328623 0.310200 0.855300 0.028100 0.196542 0.514847 2.454419 9.166013 0.010224 TOBIN 1.205579 1.002500 5.381400 0.213100 0.783774 2.676495 13.36807 919.0215 0.000000 PE 24.30095 6.662800 1,128.516 -436.7769 112.3259 6.403847 63.90002 26,141.73 0.000000 PROF 14.08572 11.94895 103.0916 -14.98230 12.46333 2.626848 18.86718 1,885.738 0.000000 GROWTH 1.077432 0.931100 4.549500 0.429800 0.609185 3.334689 16.53316 1,536.483 0.000000 SIZE 26.91065 26.88145 30.43010 24.11910 1.186553 0.178563 2.945791 0.880720 0.643805 TA 0.229886 0.168400 0.987000 0.001100 0.206125 1.459111 5.160072 88.97803 0.000000 Note: TDTA = total debt to total assets; TDTE = total debt to total equity; LTDTA = long-term debt to total assets; STDTA = short-tern debt to total assets; TOBIN = equity market value + liabilities book value / equity book value + liabilities book value; PE = market price of common stock / earnings per share; PROF = ebit + depreciation / total assets; GROWTH = total assets - book value of equity + market value of equity / total assets; SIZE = ln(sales); TA= fixed tangible assets / total assets. Table 5 reported summary statistics for the variables used in the study. The total debt to total assets (TDTA) for the sample as a whole was 43.28%, minimum was 3.09%, maximum was 86.65% and standard deviation of TDTA was 22.43%. This ratio was lower than the average TDTA ratio of East Asia companies (54%) and nearly equalled to the average TDTA ratio of Latin America companies (45%) (Dilip Ratha, et al, 20032). The average TDTA ratio of Chinese companies on Shenzhen listed market and Shanghai listed market is 49.83% (Wei Xu, et al, 2005)3 is slightly higher than Vietnamese companies in Hochiminh Stock Exchange. If we compared to the international data in Rajan and Zingales (1995)4 The average total debt to total equity (TDTE) was about 124.64%, minimum was 3.19%, maximum was 648.98% and standard deviation of TDTE was 136.44%. If we compared to the international data in Rajan and Zingales (1995) , Vietnamese companies can be regarded as relatively high in term of TDTA (i.e., 43% versus 31% (United States); 35% (Japan); 20% (Germany); 26% (France); 28% (Italy); 21% (United Kingdom); 36% (Canada)). 5 2 Figure 5.6, p.112 , Vietnamese companies could be regarded as lower than G7 countries in term of TDTE (i.e., 125% versus 194% (United States); 201% (Japan); 257% (Germany); 220% (France); 206% (Italy); 136% (United Kingdom); 151% (Canada)). 3 Table 1, row Debt (average), p.51 4 Table III, Panel A, column Debt to total assets (means), p.40 5 Table II, calculated by liabilities - total divide shareholders equity, p.39 Capital Structure and Firm Performance Page 27 The average long-term debt to total assets (LTDTA) was 10.42%, minimum was 0.00%, maximum was 69.30% and standard deviation was 15.38%. This ratio was higher than the average LTDTA ratio of Chinese companies (6.62%) (Wei Xu, et al, 2005)6. The average short-term debt to total assets (STDTA) was about 32.86%, minimum was 2.81%, maximum was 85.53% and standard deviation of STDTA was 19.65%. The average STDTA of Vietnamese companies was lower than the average STDTA ratio of Chinese companies (43.21%) (Wei Xu, et al, 2005)7. If we compared to the G7 countries data in Rajan and Zingales (1995), ratio of Vietnamese companies LTDTA was relatively low8 The descriptive data of leverage indicated that Vietnamese companies in Hochiminh Stock Exchange reply on short-term debt than long-term debt as the main source of fund for their business operations. Since stock markets, bond markets and Mutual Funds markets was undeveloped, commercial banking systems play an important role in providing lending to Vietnamese firms. (i.e., 10.42% versus 33% (United States); 25% (Japan and France); 42% (Germany); 24% (Italy); 18% (United Kingdom); 37.2% (Canada)). In term of STDTA (32.86%), the STDTA of Vietnamese companies was similar to United States (33%), slightly higher than Germany (30%), relatively higher than Canada (23%), and lower than the rest of countries (i.e., 42% (Japan); 43% (France and Italy); 40% (United Kingdom)). The average value of Tobin’s Q was 1.2, minimum was 0.21, maximum was 5.38 and standard deviation was 0.78. This market performance measure was lower than the average Tobin’s Q of Jordanian companies on Amman Stock Exchange (Tian & Zeitun, 2007)9. The average value of PE was about 24.3, minimum was -436.77, maximum was 1128.51 and standard deviation was 112.32. Compared to Jordanian companies of Tian & Zeitun (2007)10 , PE of Vietnamese companies was slightly higher (i.e., 24.3 versus 21.25). 6 Table 1, row Ldebt (average), p.51 7 Table 1, calculated by minus average debt to average ldebt, p.51 8 Table II, calculated by average liabilities - total minus average current liabilities – total, p.39 9 Table 1, row Tobin’s Q (mean), p.48 10 Table 1, row PE (mean), p.48 Capital Structure and Firm Performance Page 28 Table 6: Correlation Matrix of the Explanatory Variables for Model 1 PROF GROWTH SIZE TA PROF 1 GROWTH 0.461739 1 SIZE -0.071749 -0.002035 1 TA 0.136078 0.102802 -0.114289 1 Note: PROF = ebit + depreciation / total assets; GROWTH = total assets - book value of equity + market value of equity / total assets; SIZE = ln(sales); TA= fixed tangible assets / total assets. Table 7: Correlation Matrix of the Explanatory Variables for Model 2 TDTA TDTE LTDTA STDTA GROWTH SIZE TDTA 1 TDTE 0.845076 1 LTDTA 0.512491 0.480281 1 STDTA 0.740290 0.588665 -0.197898 1 GROWTH -0.063144 0.044704 0.060870 -0.119728 1 SIZE 0.261731 0.196178 0.036044 0.270581 -0.002035 1 Note: TDTA = total debt to total assets; TDTE = total debt to total equity; LTDTA = long-term debt to total assets; STDTA = short-tern debt to total assets; GROWTH = total assets - book value of equity + market value of equity / total assets; SIZE = ln(sales); TA= fixed tangible assets / total assets. The correlation matrix for the variables in the reported in Table 6 in order to examine the correlation between the explanatory variables for model 1. The results show that there was a positive relationship between growth and profitability, growth and asset tangibility, except size, which was negative, while size had a negative relationship with profitability and asset tangibility. This implied that companies with high growth opportunities had higher profitability ratio, but companies with smaller size in sales had higher profitability for the period 2008. It also implied that small firms had high growth opportunity which was consistent with Myers (1977). This result was similar to the result of Tian & Zeitun (2007) research. The correlation matrix for the variables in the reported in Table 7 in order to examine the correlation between the explanatory variables for model 2. The results showed that there was a positive relationship between growth and TDTE, growth and LTDTA, while TDTA and STDTA had a negative relationship with growth. Firm size had a positive relationship with all leverage ratios. This implied that Vietnamese companies with high growth opportunities generally use more long- term debt and use less short-term debt for financing. It is also implied that larger companies in sales tend to have higher leverage ratio than smaller ones. Capital Structure and Firm Performance Page 29 4.4 REGRESSION ANALYSIS 4.4.1. Model 1: The Leverage Model Table 8: Estimate Results for Model 1 TDTA TDTE LTDTA STDTA Constant -0.873102 -4.622503 -0.241070 -0.632159 PROF -0.005438 -0.036765 -0.002539 -0.002899 t-Statistic -3.640823 -3.985310 -2.623803 -2.207294 Prob. 0.0004 0.0001 0.0096 0.0287 GROWTH 0.022092 0.421161 0.026783 -0.004691 t-Statistic 0.726986 2.244020 1.360481 -0.175562 Prob. 0.4683 0.0262 0.1756 0.8609 SIZE 0.048965 0.213809 0.009991 0.038979 t-Statistic 3.512934 2.483681 1.106431 3.180438 Prob. 0.0006 0.0141 0.2702 0.0018 TA 0.17883 0.779893 0.362726 -0.183887 t-Statistic 2.212831 1.562532 6.928428 -2.587811 Prob. 0.0284 0.1202 0.0000 0.0106 No. Observations 162 162 162 162 R-squared 0.162133 0.135869 0.252491 0.155863 Adjusted R-squared 0.140786 0.113853 0.233446 0.134356 S.E of regression 0.207970 1.284441 0.134726 0.182863 Sum squared resid 6.790464 259.016600 2.849721 5.249888 Log likelihood 27.07020 -267.8810 97.40235 47.91251 F-statistic 7.595122 6.171335 13.25770 7.247170 Prob (F-statistic) 0.000013 0.000123 0.000000 0.000022 Mean dependent var 0.432888 1.246424 0.104263 0.328623 S.D. dependent var 0.224362 1.364461 0.153879 0.196542 Akaike info criterion -0.272472 3.368901 -1.140770 -0.529784 Schwarz criterion -0.177175 3.464198 -1.045474 -0.434488 Hannan-Quinn criter. -0.233780 3.407593 -1.102078 -0.491092 Durbin-Watson stat 1.964366 1.876261 1.955806 2.203875 Note TDTA = total debt to total assets; TDTE = total debt to total equity; LTDTA = long-term debt to total assets; STDTA = short-tern debt to total assets; PROF = ebit + depreciation / total assets; GROWTH = total assets - book value of equity + market value of equity / total assets; SIZE = ln(sales); TA= fixed tangible assets / total assets. Capital Structure and Firm Performance Page 30 The results of the estimation of model 1 with each of the leverage measures and for the full sample of observations for the period 2008 were displayed in Table 8. From Hypothesis 1, the firm profitability has a positive correlation with firm capital structure. Four capital structure variables were used, TDTA, TDTE, LTDTA, and STDTA. From the regression results in Table 8, the coefficient of profitability variable was negatively and significantly related to those variables. This result was contrary to the predictions of trade-off theory but consistent with the pecking order theory. According to this theory, companies prioritized their sources of financing (from internal financing to equity) according to the law of least effort, or of least resistance, preferring to raise equity as a financing means of last resort. Hence, internal funds were used first, and when that was depleted, debt was issued, and when it was not sensible to issue any more debt, equity was issued. Jensen (1986) predicted that if the market of corporate control was effective, the relationship between profitability and leverage was positive. If it was ineffective, however, managers of profitable firms prefer to avoid the disciplinary role of debt, which would lead to a negative correlation between profitability and debt. Finally, the result indicated that corporate control of Vietnamese firms was ineffective, and the profitability was negatively correlated with leverage. If in the short run, dividends and investments were fixed, and if debt financing was the dominant mode of external financing, then changed in profitability would be negatively correlated with changes in leverage. Therefore, based on the result, I rejected the Hypothesis 1: the firm profitability has a positive correlation with firm capital structure. Hypothesis 2 predicts that growth opportunities decrease firm leverage. From the regression results in Table 8, the coefficient of growth opportunities was negatively and insignificantly related to STDTA. However, growth opportunities was positively and significantly correlation with TDTE, while the coefficient of growth opportunities was found to be positively related to TDTA and LTDTA, but statistically insignificant. These findings were inconsistent with the Myers (1977) and predicted that Vietnamese firms with expected growth opportunities would maintain low short-term debt levels, but the growth opportunities also put pressure on retained earnings and pushed Vietnamese firms into borrowing long-term debt. According to the result above, I rejected the Hypothesis 2: growth opportunities decrease firm leverage. From Hypothesis 3, the firm size is expected to have a positive influence on a firm capital structure. From the regression results in Table 8, Size was found to have a positive and significant effect on the leverage measures TDTA, TDTE, STDTA, but was not significantly related to LTDTA leverage measure. An explanation for the positive effect of size on leverage was provided by Rajan and Zingales (1995) that larger firms were better diversified and had a lower probability of being in financial distress or safeguard against the expected costs of bankruptcy. Lower expected bankruptcy costs enabled them to take on more leverage. Size might be a Capital Structure and Firm Performance Page 31 proxy for the (inverse) probability of default. If so, it should not be strongly positively related with leverage in countries, where costs of financial distress were low. The results indicated that the financial distress costs of Vietnamese companies in HOSE were low and Vietnamese companies with higher sizes of sales would use more debt to finance their operating. Therefore, based on the result, I accepted the Hypothesis 3: the firm size is expected to have a positive influence on a firm capital structure. Hypothesis 4 predicted that asset tangibility is expected to be positively related to corporate leverage. From the regression results in Table 8, the coefficient of assets tangibility was negative and significantly related to STDTA. This result showed that if firm tangible assets were large, the ratio of short-term debt to total assets would be lower. However, the asset tangibility had positive and significant impact on TDTA and LTDTA, but was insignificantly related to TDTE. This findings was consistent with Rajan and Zingales (1995), Margaritis and Psillaki (2007). They argued that if a large fraction of a firm's assets are tangible, then assets should serve as collateral, diminishing the risk of the lender suffering the agency costs of debt (like risk shifting). They should also retain more value in liquidation. Therefore, the greater the proportion of tangible assets on the balance sheet (fixed assets divided by total assets), the more willing should lenders be to supply loans, and leverage should be higher. So, the result of regression model showed that Vietnamese companies had high ratio of fixed assets to total assets would use more long-term debt as a main source of financing. Therefore, based on the result, I accepted the Hypothesis 4: asset tangibility is expected to be positively related to corporate leverage. To summarize, the firm profitability was a significant determinant of firm capital structure. This finding supported the argument that firm profitability decrease firm leverage level. Another important finding was that firm size had a positive and significant impact on the leverage measures TDTA, TDTE, STDTA. Furthermore, the firm asset tangibility increased the firm leverage level. The regression results also showed that growth opportunities had significant impact only on Vietnamese firm total debt to total equity. Capital Structure and Firm Performance Page 32 4.4.2. Model 2: The Firm Value Model Table 9: Estimate Results for Model 2 Using TDTA TOBIN PE Constant 1.020104 136.8876 TDTA -2.011764 26.45088 t-Statistic -281.7428 0.641030 Prob. 0.0000 0.5224 GROWTH 1.005241 4.676144 t-Statistic 396.0540 0.318812 Prob. 0.0000 0.7503 SIZE -0.000993 -4.796432 t-Statistic -0.737274 -0.615972 Prob. 0.4620 0.5388 No. Observations 162 162 R-squared 0.999388 0.004436 Adjusted R-squared 0.999376 -0.014467 S.E of regression 0.019578 113.1355 Sum squared resid 0.060559 2022342 Log likelihood 409.3622 -993.8739 F-statistic 85960.14 0.234694 Prob (F-statistic) 0.000000 0.872090 Mean dependent var 1.205579 24.30095 S.D. dependent var 0.783774 112.3259 Akaike info criterion -5.004471 12.31943 Schwarz criterion -4.928234 12.39567 Hannan-Quinn criter. -4.973518 12.35038 Durbin-Watson stat 2.209864 2.063560 Note: TOBIN = equity market value + liabilities book value / equity book value + liabilities book value; PE = market price of common stock / earnings per share; TDTA = total debt to total assets; GROWTH = total assets - book value of equity + market value of equity / total assets; SIZE = ln(sales). Capital Structure and Firm Performance Page 33 Table 10: Estimate Results for Model 2 Using TDTE TOBIN PE Constant 1.421871 98.07088 TDTE -0.27458 -3.183458 t-Statistic -19.7284 -0.476915 Prob. 0.0000 0.6341 GROWTH 1.07937 4.387799 t-Statistic 35.3104 0.299294 Prob. 0.0000 0.7651 SIZE -0.038535 -2.769519 t-Statistic -2.410103 -0.361165 Prob. 0.0171 0.7185 No. Observations 162 162 R-squared 0.911000 0.003282 Adjusted R-squared 0.909311 -0.015643 S.E of regression 0.236031 113.2010 Sum squared resid 8.802281 2024687 Log likelihood 6.051375 -993.9677 F-statistic 539.0962 0.173423 Prob (F-statistic) 0.000000 0.914242 Mean dependent var 1.205579 24.30095 S.D. dependent var 0.783774 112.3259 Akaike info criterion -0.025326 12.32059 Schwarz criterion 0.050911 12.39683 Hannan-Quinn criter. 0.005628 12.35154 Durbin-Watson stat 1.977042 2.062094 Note: TOBIN = equity market value + liabilities book value / equity book value + liabilities book value; PE = market price of common stock / earnings per share; TDTE = total debt to total equity; GROWTH = total assets - book value of equity + market value of equity / total assets; SIZE = ln(sales). Capital Structure and Firm Performance Page 34 Table 11: Estimate Results for Model 2 Using LTDTA TOBIN PE Constant 2.719633 113.9763 LTDTA -1.494015 4.96757 t-Statistic -7.794511 0.085407 Prob. 0.0000 0.9320 GROWTH 1.074631 3.989722 t-Statistic 22.2098 0.271733 Prob. 0.0000 0.7862 SIZE -0.093499 -3.511319 t-Statistic -3.768377 -0.466371 Prob. 0.0002 0.64