Factors Affecting the Capital Structure of Pharmaceutical - Medical Companies Listed on Vietnam’s Stock Exchanges

DOI

10.2991/aebmr.k.211119.013How to use a DOI?

Keywords

Capital structure; debt ratio; pharmaceutical-medical listed firms; stock exchanges

Abstract

This paper investigates the determinants of the capital structure of pharmaceutical - medical companies listed on the Hanoi Stock Exchange (HNX) and Ho Chi Minh Stock Exchange (HOSE) over the period of 2016 - 2020 by deploying the capital structure theories combining Modigliani and Miller’s capital structure theory, trade-off theory, pecking-order theory, and agency cost theory. We then apply Pooled OLS Model, Fixed Effects Model (FEM), Random Effects Model (REM) and Feasible Generalized Least Square Model (FGLS) on panel data collected from financial statements of 23 pharmaceutical - medical listed companies. The empirical results indicate that profitability, tangible assets, firm size and liquidity have negative correlation with capital structure while growth opportunities has positive effect on capital structure. In contrast, the impact of firm age and pluralist executives on firms’ debt ratio are found to have no statistical meaning. In contrast, firm age and pluralist executives do not have statistical significance. Furthermore, the research results also discuss implications and give recommendations for investment activities and corporate policymaking of listed pharmaceutical – medical companies.

Research purpose:

In this paper, we utilize the traditional capital structure theories comprise Modigliani and Miller’s capital structure theory, Trade-off theory, Pecking-order theory, and Agency cost theory to explore factors affecting the capital structure of 23 pharmaceutical - medical companies listed on the Hanoi Stock Exchange (HNX) and Ho Chi Minh Stock Exchange (HOSE) over the period of 2016 – 2020

Research motivation:

Vietnam’s economy has changed a lot in recent years, especially in the context of the COVID-19 pandemic. This has a great influence on the choice of enterprise capital structure today. During this period, the level of debt usage of the pharmaceutical - medical industry increases to finance the fight against the epidemic, therefore pharmaceutical and medical enterprises are always alarmed about the debt-to-total asset ratio.

Research design, approach and method:

This study identifies the determinants affecting the capital structure of listed pharmaceutical medical enterprises on Hanoi Stock Exchange and Ho Chi Minh City Stock Exchange by using the Pooled OLS, FEM, REM and FGLS regression method. Data is collected from financial statements and annual reports of 23 listed pharmaceutical medical firms during the period from 2016 to 2020. The regression model is used to determine the impact of seven explanatory variables including profitability, tangible asset, firm size, growth opportunities, liquidity, firm age and pluralist executives on the ratio of total debt to total assets.

Main findings:

Research results reveal that profitability, tangible assets, firm size and liquidity have a negative correlation with capital structure. In contrast, growth opportunities have a positive impact on capital structure while firm age and pluralist executives do not correlate with debt ratio.

Practical/managerial implications:

The study systematizes a number of traditional theories on capital structure and identifies the determinants of the capital structure of 23 pharmaceutical - medical enterprises listed on Vietnam’s Stock Exchange as well as measuring the significance level of each factor to the capital structure.

Copyright

© 2021 The Authors. Published by Atlantis Press International B.V.

Open Access

This is an open access article under the CC BY-NC license.

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TY  - CONF
AU  - Nguyen Thi Ha THANH
AU  - Ho Linh TRANG
PY  - 2021
DA  - 2021/12/07
TI  - Factors Affecting the Capital Structure of Pharmaceutical - Medical Companies Listed on Vietnam’s Stock Exchanges
BT  - Proceedings of the International Conference on Emerging Challenges: Business Transformation and Circular Economy (ICECH 2021)
PB  - Atlantis Press
SP  - 113
EP  - 121
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.211119.013
DO  - 10.2991/aebmr.k.211119.013
ID  - THANH2021
ER  -