The Impact of Capital Structure on Firm Performance of Vietnamese Non-financial Listed Companies Based on Agency Cost Theory

This paper investigates the impact of capital structure on firm performance using a sample of 3,122 observations of 446 non-financial listed companies on the Vietnam stock market during 2011-2017. Using firm performance measures, namely ROE and Tobin Q, we examined if higher leveraged firms are more efficient or less in their performance. We employed the fixed effect model to prove that there is an inverse U-shaped relationship between leverage and ROE, and then we can find a preferred capital structure for Vietnam non-financial firms. To deal with endogeneity problem of the leverage variable, we employ two stage least squares (2SLS) regression with instrument variable estimators, which helps us strengthen the above results. Keywords Capital structure, firm performance, leverage, efficiency, instrument variable estimator, agency cost theory References [1] J. Abor, The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana, Journal of Risk Finance. 6 (2005) 438-447. [2] M. Baker, J. Wurgler, The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions, Journal of Financial and Quantitative Analysis. 43 (2002) 59-92. [3] A.N. Berger, E. Bonaccorsi di Patti, Capital structure and ﬁrm performance: A new approach to testing agency theory and an application to the banking industry, Journal of Banking and Finance. 30 (2006) 1065-1102. [4] J. Berk, P. DeMarzo, J. Harford, Fundamentals of Corporate Finance, second edition, Prentice Hall, 2012. [5] A.A. Berle, G.C. Means, The Modern Corporation and Private Property, New York: The Macmillan Company, 1932. [6] V. Dawar, Agency theory, capital structure and firm performance: Some Indian evidence. Managerial Finance. 40(12) (2014) Số trang. [7] T.H. V. Duong, A study of the factors affecting the capital structure of the companies listed on Vietnam stock market, Doctoral thesis - National Economics University, 2014. [8] S.J. Grossman, O.D. Hart, Corporate financial structure and managerial incentives, In M. J.J., The economics of information and uncertainy, University of Chicago Press, 1982. [9] M. Jensen, Agency cost of free cash flow, corporate finance and takeovers, American Economic Review Papers and Proceedings. 76 (1986) 323-329. [10] J.C. Jensen, W.H. Meckling, Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics. 3 (1976) 305-360. [11] A. Kraus, R.H. Litzenberger, A State-Preference Model of Optimal Financial Leverage, Journal of Finance. Tập (1973) 911-922. [12] D. Margaritis, M. Psillaki, Capital structure and firm efficiency, Journal of Business Finance and Accounting. 34 (2007) 1447-1469. [13] D. Margaritis, M. Psillaki, Capital structure, equity ownership and firm performance, Journal of Banking and Finance. 34 (2010) 621-632. [14] F. Modigliani, M. Miller, The cost of capital, corporation finance, and the theory of investment, American Economic Review. 48 (1958) 655-669. [15] F. Modigliani, M. Miller, Corporate income taxes and the cost of capital: A correction, American economic Review. Tập (1963) 433-443. [16] S.C. Myer, Determinants of corporate borrowing, Journal of Financial Economics. Tập (1977) 147-175. [17] S.C. Myers, N.S. Majluf, Corporate Financing and Investment Decisions When firms have information that investors do not have, Journal of financial economics. 13 (1984) 187-221. [18] B. Seetanah, K. Seetah, K. Appadu, K. Padachi, Capital structure and firm performance: evidence from an emerging economy, The Business and Management Review. 4 (2014) 185-196. [19] S. Titman, R. Wessels, The determinants of capital structure choice. Journal of Finance. 43(1) (1988) 1-19. [20] L. Weill, Leverage and Corporate Performance: Does Institutional Environment matter? Small Business Economics. 30 (2008) 251-265. [21] J. Williams, Perquisites, risk and capital structure, Journal of Finance. 42 (1987) 29-49. [22] R. Zeitun, M.M. Haq, Debt maturity, financial crisis and corporate performance in GCC countries: a dynamic-GMM approach, Afro-Asian J. Finance and Accounting. 5 (2015) 231-247.