Does capital structure affect firm value in Vietnam ?

This study aims to examine whether the capital structure and several factors have significant influences on firm value in Vietnam. To achieve this objective, 435 non-financial listed companies have been selected from 2012 to 2019 on Vietnamese stock exchanges. Four groups of firms continue to be chosen from the total to investigate the differences in the outcomes among industries. The results altogether using the GMM method show that the impact of capital structure and other control variables on firm value is significant, yet different across industries: capital structure has a significant positive impact on firm value in the food and beverage industry, but has a significant negative effect on the value of the firm in wholesale trade and construction, as well as real estate industry, while has an insignificant influence on enterprise value considering all industries. Apart from the firm size, the impact of other control factors on firm value also indicates mixed results.


INTRODUCTION
Despite the negative effects of COVID-19, Vietnam is recognized by the Asian Development Bank (ASB) as one of the fastest-growing countries in Southeast Asia and is expected to rebound starting from 2021 (Do, 2020). Besides, four industries have a substantial influence on the Vietnamese economy: wholesale trade industry and other market services are important factors that led to the economic growth of Vietnam during the first half of 2020 (GSO of Vietnam, 2020). The European-Vietnam Free Trade Agreement (EVFTA) taking effect in August 2020 is an excellent opportunity for Vietnamese economic recovery, such as the tariffs' liberalization of the food and beverage (F&B) industry's products to export to the EU markets . Another industry forecasted to have a strong growth in the next 10 years is construction, owing to the increase in income level and demand and the positive impact of investment laws on FDI inflows (Ngoc, 2020). Although the real estate industry is pointed out to have the same optimistic outlook due to the increase in demand and new FDI trends and segments, the sustainable growth of the industry is questionable due to the transparency and efficiency in regulation .
Financing is one of the most crucial decisions to maximize shareholder's wealth (Arnold, 2013). Simultaneously, the choices of debt and equity are still an ongoing debate until nowadays with various types of research on financing decisions such as determinants of capital structure, estimates the adjustment speed toward optimal capital structure, etc. Nevertheless, the published research on the relationship between capital structure and firm value in Vietnam is stated to be limited (Vo & Ellis, 2017): the scope of the investigation is one industry only such as the research of Cuong and Canh (2012), or listed firms in one stock exchange in the study of Vo and Ellis (2017) and Dang et al. (2019). To the best of our knowledge, no formal empirical studies have examined the factors that influence firm value, including capital structure, and investigated the differences in the outcomes among groups of firms in Vietnam. The present study intends to investigate the impact of capital structure on firm value of listed firms on the Vietnamese Stock Exchange using the GMM method from 2012 to 2019.

LITERATURE REVIEW
The propositions of first-ever meticulous theoretical research set in a frictionless world by Modigliani and Miller (1958) in which there are either taxes or transaction costs, no financial distress, agency costs, and all information are available to investors. They propose that firm value is unrelated to its capital structure, and when the gearing ratio increases, the expected return of equity will also rise at the same proportion. The authors continued to develop their propositions assuming in the world with taxes, the value of the firm is affected by its choices of debt and equity: which firm can take advantages of tax reduction to lower the cost of capital, thus increase the value of the firm (Modigliani & Miller, 1963).
The effect of tax on debt is expanded in both costs and benefits: Miller (1977) argued that taxes could also bring disadvantages to debt structure as low personal taxes on equity will increase the costs of risky debt. A non-debt tax shield is another factor that reduces marginal tax advantages (DeAngelo & Masulis, 1980). Graham (2000) pointed out a specific number of tax benefits to firm value, which is 9.7%, and the benefits could be double by debt issuance until marginal tax advantages start to decrease.
The inability to make repayment on interests and principal of the debts -financial distress costs by Gordon (1970) and managers may not monitor as they do not in the benefits of debt holders -agency costs by Jensen and Meckling (1976) were taken into account and led to the development of tradeoff theory. It is stated that those costs can outweigh the low costs of debts, including tax benefits, in turn, increase the cost of capital and decrease firm value. While the static trade-off models by Kraus and Litzenberger (1973), Scott (1977), Myers (1977), Bradley et al. (1984) focused on one period only, the dynamic trade-off models by Fischer et al. (1989) emphasized multiple periods, including the costs in transactions and adjustments toward target debt ratio.
Another popular approach on the choices of capital structure is pecking-order theory (Myers, 1977;Myers, 1984;Myers & Majluf, 1984), in which asymmetric information results in the preference of internal financing and if there is a requirement for external financing, debt issuance is prioritized before share flotation. Signaling theory by Ross (1977) considers debt increase a good signal for on-going business, and the value of the firm will go up. The market timing theory by Baker and Wurgler (2002) claimed that the fluctuation of equity markets heavily influences financing decision: firms will issue new shares when they are overvalued and repurchase them when share prices are low; hence, there is no optimal debt ratio. However, later evidence suggested that this is only a short-run effect, and firms can reach a target capital structure in the medium and long term (Arnold, 2013).
Empirical research on the relationship between capital structure and firm value provides various results, including significant, insignificant, and other mixed outcomes from the previous investigations. As for the empirical findings on non-Vietnamese firms, a significant positive influence of capital structure on firm value can be found in the study of Cheng and Tzeng (2011)  Although it can be seen that there is a variety of work on the topic, some certain gaps are remaining that need to be filled, particularly the empirical evidence in Vietnam: GMM method is rarely used in the previous study and only in the research of Cheng and Tzeng (2011) and has not yet been applied in any previous work regarding the relationship between capital structure and firm value in

HYPOTHESES AND METHODOLOGY
The article addresses the effect of capital structure on non-financial listed companies' firm value from 2012 to 2019 by applying both micro and macroeconomic variables. The independent variable (firm value) is measured by enterprise value, which is equal to market capitalization plus book  Firm liquidity: equals current assets divided by current liabilities. A high current ratio means a better chance for a firm to meet its short-term financial obligations, yet the results by Aggarwal and Padhan (2017) yield both positive and negative substantial influence on firm value: H1.6: Firm liquidity has a significant impact on firm value.
Inflation rates: equal to the proportional changes in the CPI. A high inflation rate will lower the cash flows and increase the cost of capital, thus lowering the firm's value. Tzeng (2011, 2014) show an opposite relationship but inconclusive in Aggarwal and Padhan (2017): H1.7: Inflation rates have a significant impact on firm value.
One of the common issues of OLS methods is endogeneity and, in turn, leads to errors and biases in estimation models. Thus, the GMM method will be employed to solve this problem (Verbeek, 2017).
The regression model is presented as follows: where EV -Enterprise value,

EMPIRICAL RESULTS
The distribution of all variables in Table 1 is non-normality as the Jarque-Bera tests' probabilities are significant at 1% level. Enterprise values are absolute numbers without modification, and it has much higher standard deviations than other variables. It is noticed that database also consists of negative figures as the minimum values of some variables are lower than 0, including enterprise value, firm profitability, and firm growth.
The coefficients in Table 2 show that financial leverage and firm liquidity have the highest correlations (-0.4874), while firm tangibility and inflation rates have the lowest (0.0025). All independent variables have coefficient correlations lower than 0.8 and higher than -0.8; thus, multi-collinearity is not a serious issue in the estimation.
As can be seen from Table 3, firm size has a significant positive impact on firm value across industries; thus, the alternative hypothesis H1. On the one hand, capital structure has a significant positive effect on firm value in the food and beverage industry, which follows the proposition of Modgliani and Miller (1963) and signaling theory by Ross (1977). On the other hand, there is a significant negative relationship between capital structure and firm value in wholesale trade, construction, and real estate industry. These results follow the pecking-order theory by Myers (1977), Myers (1984), and Myers and Maljuf (1984). Besides, it is worth noting that trade-off theory can also explain both significant positive and negative effect of firm leverage on enterprise value: the average debt ratio of the F&B industry is approximately 47.73% compared to 54.86% in the wholesale trade industry, 65.54% in the construc-  Note: *** p-value < 1%; ** 1% < p-value < 5%; * 5% < p-value < 10%.
tion industry and 53.28% in real estate industry based on the data gathered for this research. These results imply that listed F&B firms might not have reached their optimal capital structure, while the others went beyond their target ones.
Although firm leverage has no significant impact on firm value considering all industries together, the propositions of Modgliani and Miller (1958) do not seem to justify this relationship as the assumptions of the irrelevancy theory are not suitable for real-world situations.
The significant positive influence of firm size on enterprise value advocates both financial distress costs (Gordon, 1970) and agency costs (Jensen & Meckling, 1976) as the benefits of large firms can reduce these expenses and in turn lower the cost of capital, increase the value of the firm.
The significant positive impact of firm profitability on enterprise value also advocates the financial distress theory but only in the wholesale and F&B industry; however, the connection is insignificant in the construction and real estate industry. This could be due to a large amount of interest expense from high financial leverage decreasing the quality of earnings generation; thus,, the returns on assets using EBIT do not have substantial impact firm value in the construction and real estate industry.
Firm growth has a significant positive effect on firm value in the wholesale trade industry, while the factor has a significant negative influence on firm value in the F&B industry. This means that the agency theory does not always hold, and a decrease in agency costs due to the effective expansion or shrinkage could reduce the cost of capital, in turn, increase the value of the firm.
The significant positive link between firm tangibility and firm value also supports the agency theory in the F&B and construction industry and all industries together, because information asymmetry in borrowing can be reduced by having a large amount of fixed assets. However, firm tangibility has a significant negative influence on firm value in the real estate industry. Since a high proportion of fixed assets can raise the fixed costs, an increase in operating leverage can increase the business risks and lower the enterprise value.
The statistical results on the relationship between firm liquidity and firm value are inconsistent with the financial distress theory: the relationship is insignificant considering all industries and F&B industry, but significant negative in wholesale trade, construction, and real estate industry. Even though a high current ratio implies a better guarantee for short-term financial obligations, it could be ineffective if the ratio contains excessive cash, which should be used for investments or too many illiquid assets such as inventories.
The inflation rate has an insignificant impact on enterprise value considering all industries and the construction and real estate industry but has a significant negative impact on wholesale trade and the F&B industry. In addition to the reduction in cash flows and the rise in the cost of capital as negative effects of inflation, it is worth reminding that CPI changes are based on the changes in prices the essential goods and services. Because of this reason, inflation might have a more significant impact on firm value in wholesale trade, as well as food and beverage than other selected industries, including construction and real estate.
When all industries are combined, it might be more difficult to identify a significant relationship between independent and dependent variables, owing to the fact the several business characteristics of each industry are not identical to one another. Additionally, the economic conditions among regions and nations can also be different from each other: while the US and China are considered the leaders of worldwide economic growth for a long time, several other Asian economies mentioned are still on the rise in recent years such as Vietnam, India, Indonesia, Jordan, etc. Moreover, enterprise value consists of not just book value but also market value. Changes in stock prices do not always comply with a particular set of rules because the financial market has not reached its highest level of efficiency and the behavior of investors is not rational all the time. Therefore, the impact of capital structure and other control factors on firm value can still be found insignificant and inconsistent with theories and practices across industries and countries.

CONCLUSION
The study examines the effect of capital structure and other factors on the firm value of 435 listed companies and listed firms of four selected industries on two Vietnamese stock exchanges from 2012 to 2019. The results from data analysis show that the relationship between firm leverage and firm value is significant, and the same conclusions can be drawn from other factors. It is emphasized that the impacts can be both positive and negative among industries, except for firm size that is significantly positive in all cases. Most of the effects are consistent with past theoretical and empirical research, but some of them are inconsistent and different among groups of firms.
The study shows the impact of capital structure and other factors on firm value considering all industries and several prominent ones using the GMM method. Besides, the research demonstrates the distinctions in the results among industries and explain these results under the light of both past theoretical research and business characteristics of various industries, which is often failed to notice by both empirical findings on both Vietnamese and non-Vietnamese firms.