The Effect of Capital Structure on Firm Value: A Study of Companies Listed on the Vietnamese Stock Market

Abstract

This research investigates the relationship between capital structure and firm value for companies listed on the Vietnamese stock market. The study utilizes data from audited financial statements of 769 companies spanning from 2012 to 2022, amounting to 8459 observations. Employing various estimation methods, such as ordinary least squares (OLS), fixed effects model (FEM), random effects model (REM), and generalized least squares (GLS), the impact of capital structure on key financial indicators, namely, return on assets (ROA), return on equity (ROE), and Tobin’s Q, is assessed. The findings indicate that the debt ratio exhibits a positive influence on ROA, ROE, and Tobin’s Q, with Tobin’s Q displaying the most pronounced impact (0.450) and ROA showing the weakest impact (0.011). However, the long-term debt ratio does not significantly affect firm value. Interestingly, both short-term and long-term debt ratios have negative effects on ROA, ROE, and Tobin’s Q, with the most substantial impact on Tobin’s Q reduction (0.562). Based on these research outcomes, the authors offer valuable recommendations to companies, investors, business leaders, and policymakers to make informed decisions in selecting an optimal and sensible capital structure.