Capital Structure and Profitability of Listed Firms in a Transition Market, Does Debt Maturity Matter?

Abstract

Our study estimates how capital structure and debt maturity affect the profitability of enterprises listed on the Vietnamese stock exchange. Prior studies have not included the state ownership and debt maturity variables in estimating corporate profitability in Vietnam. We collect data from 631 non-financial companies in Vietnam from 2016 to 2020. However, the Tra-ditional Least Square violates heteroskedasticity and autocorrelation as-sumptions, so we use the Feasible Generalized Least Squares to generate reliable findings. Our crucial findings suggest that the capital structure negatively impacts ROA and ROE. Our findings also figure out that the ratio of short-term debt to total assets reduces the profitability of companies in Vietnam. Vietnamese companies depend on short-term loans because the conditions for issuing short-term terms will be more straightforward, and the borrowing rate is lower than long-term debt. Finally, our findings indicate a reverse relationship between the long-term debt ratio and profitability. Our findings are consistent with trade-off theory, pecking order theory, and prior literature. This paper provides managers of companies and lending institutions with helpful information based on empirical results. The lenders and managers need to understand the impact of factors, such as capital struc-ture, firm size, and state ownership, on the firm performance.