What do we know about the capital structure choice of large firms – the case of Viet Nam?

Abstract

In most countries, enterprises play a significant role in contributing to production, investment, job creation, and output. Enterprises are also the leading bird in applying science and technology, improving labor productivity, and implementing digital transformation in the context of the industrial revolution 4.0. Therefore, countries always want to create a favorable business environment, reduce transaction costs and market access costs, improve capital markets, and improve the quality of human resources to develop businesses and then make more contributions to socio-economic development. In particular, the financial market needs adjustments to improve the ability to provide and transfer capital to businesses at optimal costs, helping businesses achieve business efficiency. Using a sample size of 30 enterprises in Vietnam's stock market in the period 2011 to 2021, at the same time, using the panel-corrected standard error (PCSE) method to handle the defects in the estimated model and the phenomenon of cross-dependence between enterprises on the stock market, the research results confirmed that large-scale enterprises often have many advantages in accessing external loans to finance their investment projects. However, larger firm size is consistent with slower access to loans. On the contrary, small-scale enterprises often have high risks and are difficult to access bank loans, so small-scale enterprises should prioritize using their own capital to finance their investment projects. In addition, the study also affirmed that corporate profitability, board of directors’ size, board of directors’ meeting frequency, and foreign participation in the board of directors often orient enterprises to increase funding by equity as well as limited loan capital. The study also found no effect of sales growth on capital structure choice.