Study on the Relationship Between the Value of Fixed Assets and Financial Leverage in Vietnam Businesses

Abstract

AbstractThe study was conducted to evaluate the relationship between fixed asset value and financial leverage in Vietnamese enterprises, specifically the construction industry. By using data of 125 construction industry enterprises in Vietnam market from 2015 to 2020, along with the BMA approach, the study shows that there is a positive correlation between the financial fixed assets, fixed asset investment expenditure compared to the financial leverage of the enterprise. Two variables representing fixed assets, TANG (fixed asset value/total assets) and LNTA (Logarithmic total assets), affect financial leverage of 0.45 and 0.07, respectively. When an enterprise increases its fixed asset investment by 1%, it means an increase in long-term debt, the financial leverage coefficient of the enterprise also increases to 0.45 and 0.07 respectively, shown by the dependent variable LTD/TA. In addition, when enterprises increase debt and debt structure tends to favor long-term debt more, the return on assets (ROA) will decrease. This is reflected in the negative coefficient in the return on assets (ROA) variable. When businesses increase the ratio of long-term debt to total assets (LTD/TA) by 1%, the corresponding return on assets (ROA) decreases to nearly 0.28. This result also shows the relationship between debt maturity and fixed assets, which is shown by a positive and statistically significant coefficient of the variables TANG (value of fixed assets/total assets), LNTA (Logarithm of total assets). When the enterprise tends to increase 1% for long-term debt (LTD/TD), the fixed assets of the enterprise is TANG, LNTA also increases by 0.69 and 0.10 respectively. This shows that the long-term borrowing of Vietnamese enterprises is mainly to invest in fixed assets. Enterprises in the construction industry need to be cautious in increasing leverage as this will lead to a more significant decrease in return on assets (ROA) than firms in other industries.KeywordsFixed asset valueFinancial leverageBayesBMA