Financial Development and the Determinants of Capital Structure in Vietnam

Abstract

This paper explores the capital structure of listed Vietnamese companies in the broader context of financial development (the recent expansion of domestic equity and debt capital markets). Accordingly, the paper provides the first insights into the capital structure of listed companies in one of the most dynamic economies in the Asia-Pacific region and in an economy that has experienced rapid change in recent years. We employ a panel GMM (generalized method of moments) system estimator to analyse the determinants of the capital structure of 116 non-financial firms listed on either the Ho Chi Minh Stock Exchange or the Hanoi Stock Exchange for the period 2007-2010. From this analysis we conclude that despite the emergence in recent years of equity and (to a lesser extent) corporate debt capital markets, the capital structure of Vietnamese enterprises are still dominated by the use of short-term financing sources. Further, our results show that state controlled enterprises continue to have preferential access to finance and that high growth firms still rely principally on external debt rather than equity issuance. These results indicate that policymakers need to continue to pursue policies that will deepen capital markets and ensure that bank finance is allocated on a purely commercial basis.