Determinants of capital structure of listed real estate companies in Vietnam

Abstract

This research focuses on the impact of determinants to capital structure with respect to 56 listed real estate companies in Vietnam from 2010 to 2013. Basing on two theories of trade-off and pecking order, capital structure, which is defined by debt ratio, is expected to provide the current prospect of Vietnamese real estate sector. The tradeoff theory mentioned about the establishment of optimal capital structure for enterprises, while theory of pecking order implied the financing decisions by board of managements. For the methodology, Fixed Effect Model is used to test the results of regression model. Non-random statistics of Fixed Effect Model would be more efficient and consistent in order to reduce the level of bias. The data set will be arranged by panel data, which combined both cross section and time series, helped to improve the significant results of regression model.

Policy implications carefully mentioned about the limitation of both Pecking order and Trade-off theories in Vietnam evidence. For Pecking order, board of management prefers to use external financing budgets by issuing new bonds or stocks rather than internal financing capital. The abuse of debt financing is also pointed out the hard pressures on banking system, securities markets, and the corporate governance structure of the listed firms. Besides that, Trade-off theory has limited its effect in Vietnam due to centrally planned economy. The government needs to change its administration in some listed real estate companies to create fair environment for the whole market.