Does firm characteristic matter in capital structure decision? An empirical study of listed food processing companies in Vietnam

Abstract

The aim of this paper is to explore the firm-specific factors that affect the capital structure of food processing companies listed in Vietnamese stock exchange. The paper firstly reviews theories of capital structure: trade-off theory, pecking-order theory and other related empirical studies. Seven factors are thereinafter concluded and discussed in the studied model in respect of correlations and the determinants of capital structure by using panel data procedures for a sample of 41 food processing companies listed on the Vietnamese Stock Exchange during the period of 2007-2012. Pecking order theory dominates in explaining financial decision of these firms. There are differences between the determinants of long-term fund-raising and short-term fund-raising. Profitability, size, tangibility, earnings volatility and liquidity are found statically significant to short-term leverage whereas tangibility and earnings volatility is the most important factors impacting the long-term leverage. Empirical findings suggest some policy recommendations for sustainable development of the private sector in Vietnam.