Relationship between Capital Structure and Firm Profitability: Evidence from Vietnamese Listed Companies

Soa La Nguyen, Cuong Duc Pham (), Tu Van Truong, Trong Van Phi, Linh Thuy Le and Trang Thu Thi Vu
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Soa La Nguyen: School of Accounting & Auditing, National Economics University, Hanoi 100000, Vietnam
Cuong Duc Pham: School of Accounting & Auditing, National Economics University, Hanoi 100000, Vietnam
Tu Van Truong: School of Accounting & Auditing, National Economics University, Hanoi 100000, Vietnam
Trong Van Phi: School of Accounting & Auditing, National Economics University, Hanoi 100000, Vietnam
Linh Thuy Le: School of Accounting & Auditing, National Economics University, Hanoi 100000, Vietnam
Trang Thu Thi Vu: International School of Business, Banking Academy of Vietnam, Hanoi 100000, Vietnam

IJFS, 2023, vol. 11, issue 1, 1-13

Abstract: This research focused on exploring capital structure that would have an impact on the Vietnamese company’s profitability. Theoretically, we apply agency theory which mentions the separation of ownership and management, which leads to the problem when the managers act in their own interests rather than the owner’s interest. We built a research model, and the quantitative data was clarified thanks to the regression model with the data given by 300 Vietnamese firms for the period from 2012 to 2018. The findings indicated that firm profitability, represented by Return on Equity (ROE) and Return on Assets (ROA), was associated with liquidity and debt. In detail, it was indicated that there would be a positive relationship between liquidity and profitability of Vietnamese entrepreneurs, while there was a negative relationship between long-term debt and profit maximization. Moreover, the short-term loan also has a positive impact on the firm’s profitability in the context of Vietnam. These preliminary outcomes negated some previous research, confirming that the higher the leverage, the better the firm’s profitability. The difference in findings may provide information about a dynamic Vietnam market as well as the financial environment that require changes in the capital structure to gain the optimal profit.

Keywords: capital structure; firm profitability; agency theory; Vietnam (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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