Capital structure and firm performance: Empirical evidence from a small transition country

Abstract

The research uses unbalanced panel data from all non-financial listed firms during the period 2007–2012 to investigate the effect of capital structure on firm performance in Vietnam. The results indicate that all debt ratios have significantly negative relation to firm performance. This outcome is not in accordance with most studies conducted in developed countries, which posit a positive relationship between capital structure and firm performance; however, it is consistent with some studies in the context of developing markets. This paper argues that in typical developing market like Vietnam, the benefits of debt from tax saving may be less than financial distress cost. In addition, the monitoring role of debt is not substantial because of severe information asymmetry and under-developed financial system. Our research results are robusted by using different approaches.