Abstract

Investment projects in the construction industry usually require a large amount of capital. Most businesses need more capital to implement the investment project; therefore, they use borrowed capital and mobilise capital from investors. Understanding the determinants of excessively low or high leverage among construction companies provides essential information in identifying these companies' financial strategies. This research observes the sample of 53 listed construction entities on the Hanoi Stock Exchange (HNX) in Vietnam, with the 2018-2022 period, to find out what factors impact financial leverage. Statistical data is collected and aggregated from enterprises' audited consolidated financial statements. The author uses financial leverage as a dependent variable, while independent variables include asset tangibility, growth opportunities, profitability, liquidity, firm size and firm age. In addition, GDP and inflation rate are considered as control variables. The author uses OLS, FEM, REM and GLS models, modified Wald test and Wooldridge test to determine the relationship between independent and dependent variables. The research results show that asset tangibility, profitability, liquidity and firm size are statistically significant in explaining the firm's financial leverage change. In contrast, other variables such as growth opportunities, firm age, GDP and inflation were not correlated with the dependence variables. In particular, asset tangibility is the most significant determinant for financial leverage, which means those charged with governance of construction firms should consider carefully before deciding to acquire fixed assets. Based on research findings, the author suggests recommendations for managing financial leverage in construction companies in Vietnam. However, the results of this study will also be helpful for construction companies in other countries.

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