Capital structure and stock price of non-financial firms listed in Viet Nam

Abstract

The aim of our paper is to consider the non-linear effect of the capital structure represented by debt ratio on stock prices of non-financial firms listed in Vietnam. The research sample in this paper is 458 firms, which was selected by the purposive sampling method. The research data has been extracted from audited financial statements of the firms at the end of every year over the period from 2015 to 2019 and processed correspondingly with stock price statistics from FiinPro Data. According to the panel data of our paper, we used Pooled Ordinary Least Squares (POLS), Fixed Effects Model (FEM) and Random Effects Model (REM), but we only selected FEM after using Redundant Fixed Effects test, Breusch-Pagan test and Hausman test. However, the Wald test’s result showed that the heteroscedasticity does exist in the model; therefore, we adjusted by using Generalized Least Squares (GLS) method. The final estimation results based on GLS show that capital structure has a positive effect on stock price within a limit of debt ratio and will have a negative effect when this limit has been exceeded. This implies that capital structure has an inverted-U-shaped effect on stock price, and we identify the debt ratio threshold of capital structure of 22.07%. The findings are expected to provide useful information for financial managers when making financing decisions with the expectation of maximizing shareholder value and also for investors when analyzing and investing in stocks. The limitations of this research are that the research sample does not include all non-financial firms listed in Vietnam and the research model has not considered the moderating or intervening relationship between factors; according to that, future studies may consider these.