The Impact of Financial Structure on Profitability: Empirical Evidence from Vietnam’s Construction Sector

Pham Thi Nga () and Tristan Nguyen

Asian Economic and Financial Review, 2020, vol. 10, issue 9, 1028-1036

Abstract: The purpose of this study is to empirically investigate the impact of financial structure—the balance between a firm’s liabilities and equities—on profitability, based on a sample of listed construction companies in Vietnam. Following a literature review, the hypothesis that there is a positive relationship between financial structure and profitability was formulated and tested through pooled ordinary least square, fixed effects, and random effects models. The empirical results revealed that the total, short-term, and long-term debt ratios exert a negative impact on profitability, while asset tangibility, inventory ratios, and growth rate, as well as size and age of firm all positively affect profitability; however, short-term receivable ratios had no effect. These findings contribute empirical evidence, in the context of emerging economies, to the existing body of literature.

Keywords: Financial structure; Trade-off theory; Pecking order theory; Agency theory; Firm’s profitability; Construction sector; Vietnamese economy; Statistical modelling. (search for similar items in EconPapers)
Date: 2020
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