The Relationship Between Capital Structure and Firm Performance: The Case of Vietnam Material Enterprises

Abstract

The purpose of this study is to empirically investigate the relationship between capital structure and firm performance using a sample of Vietnam material enterprises. The annual financial statements of 20 material enterprises listed on the Vietnam Stock Exchange were used for this study which covers a period of twelve (12) years from 2008-2019. Multiple regression analysis was applied on performance indicators such as Return on Equity (ROE) as well as Short-term debt to Total assets (STD), Long term debt to Total assets (LTD) and Total debt to Equity (TDE) as capital structure variables. The results show that there is a negative relationship between LTD and ROE; while TDE is positively related with ROE. The study concludes that statistically, capital structure is a major determinant of firm performance. It recommends that managers of manufacturing companies should exercise caution while choosing the amount of debt to use in their capital structure.

Keywords: Capital Structure, Firm Performance, Vietnam Stock Exchange

DOI: 10.7176/RJFA/11-12-16

Publication date:June 30th 2020