Chung, Thuy An (2022) Impact of Debt Maturity Structure, Financial Market Development and Ownership Structure on the Financial Performance of Vietnamese Listed Firms. PhD thesis, Victoria University.

Abstract

Debt maturity structure (DMS) is an important financial aspect that a firm’s managers must make decisions about as it impacts a firm’s long-term investment decisions, rollover risk, cash-flow budgeting and external monitoring. Although previous research has examined DMS and firm financial performance, few studies have examined the determinants of DMS and the consequences of DMS for firm financial performance in Vietnam. The limited empirical evidence relating to determinants of DMS and the influence of DMS on firm financial performance in developing countries, especially in Vietnam, is the motivation for this thesis. Moreover, prior empirical studies show inconsistent results and indicate that determinants of DMS depend on specific circumstances. For Vietnam, these special circumstances relate to a high stock market concentration, a bank-based financial system and a high level of State control in both the private and banking sectors. Given this, it is important to examine the DMS for Vietnamese firms to facilitate decision making relating to an appropriate DMS to reduce refinancing risks and interest rate fluctuations. In particular, there are two phases of this study which examine: (1) the effects of firm-level, financial market development-level and various ownership structures on DMS; and (2) the effect of DMS on firm financial performance. This study contributes to the literature by examining the impact of stock market concentration and the moderating effect of bank debt and outside shareholders on DMS. An area that has been overlooked in DMS studies. The study employed the most common measurement of DMS, which is the ratio of long-term debt to total debt, in both phases. In the first phase, the firm-level variables employed were effective tax rate, term structure of interest rates, volatility of interest rates, growth opportunities, firm size, asset maturity structure, firm quality, firm liquidity and firm leverage. Bank debt was measured as the ratio of bank debt to total debt. While financial market development was proxied by stock market concentration and banking sector size (measured as the ratio of domestic credit to the private sector by banks to GDP), ownership structure was proxied by state ownership, foreign ownership, managerial ownership and large shareholder ownership. Firm financial performance was measured using Tobin’s Q, return on assets and return on equity to reflect the profitability of a firm based on market and accounting value. This study employed a sample of 4170 observations from 536 non-financial firms listed on the Ho Chi Minh Stock Exchange and the Hanoi Stock Exchange. The sample period was from 2009 to 2019. The data was collected from various databases and annual financial reports. The study mainly used a fixed-effects estimator and a system-generalized method of moments (GMM) estimator in Stata for analyzing the data. System-GMM helps to control for potential endogeneity issues so that findings are valid and reliable. The study employed the Hausman test and Wooldridge’s strict exogeneity test to select the appropriate models. For the system-GMM, the study employed a second-order serial correlation test and an overidentification test (Hansen test), which are two post-estimation tests. The study found evidence to support all three main hypotheses on DMS: the tax-based hypothesis, agency costs hypothesis, and signalling and liquidity risks hypothesis. Furthermore, the study reports that only the effects of firm quality and term structure of interest rates on DMS varied depending on a firm’s reliance on bank debt. Next, the study found significant impacts of stock market concentration and banking sector size on DMS. The study also provides evidence to support the influence of state ownership and managerial ownership on DMS choice. However, it was found that only foreign investors significantly affected the negative relationship between managerial ownership and debt maturity, while the state and large shareholders did not significantly affect the relationship between managerial ownership and DMS. Further, DMS had a significant effect on firm financial performance as proxied by Tobin’s Q, return on assets and return on equity. In summary, the findings from this study can be generalized to other countries that have market conditions such as high stock market concentration, heavy dependence on bank debt by firms and a relatively small and illiquid bond market. The following policy implications arise from the study. First, the study raises awareness for market participants of the potentially troubling consequences of high stock market concentration. Second, the government needs to formulate new policies to attract foreign investment by removing the foreign ownership caps in some major sectors such as banks, postal services and telecommunications. Third, to allocate capital sources equally, the state needs to reduce its ownership stakes in both state-owned enterprises and state-owned banks.

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