Capital structure and growth option: evidence from Vietnam's stock market

Abstract

The research identifies the impacts of growth opportunities on capital structure of Vietnamese companies. All of the listed firms on Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) from 2008 to 2015 are included in the research data. The regression methods for panel data including Pooled Ordinary Least Squared (POLS), Fixed Effects Models (FEM), Random Effects Models (REM), and System Generalized Method of Moments (SGMM) are used for the whole sample and two subsamples for the years after and during the financial crisis. The results indicate that growth opportunities have significantly positive effects on leverage measured by both short-term and long-term debt over total assets. Interestingly, the sign of this relationship remains unchanged in the pre-crisis and post-crisis. In addition, this finding proves the existence of Pecking Order Theory in Vietnamese firms’ capital structure during this period because Vietnam has more financial constraints in getting the bank loans during the crisis, its legal systems are strictly controlled by the government or by state-owned enterprises, its law codes are too weak to protect the rights of shareholders and bondholders, and most of its firms are virtually comprised of small and medium enterprises.