Testing the impact of market timing on the capital structure of firms listed on the Vietnamese stock market


Authors

  • Vu Thi Loan VNU University of Economics and Business
  • Ha Bao Tram VNU University of Economics and Business
DOI: https://doi.org/10.57110/vnu-jeb.v4i1.236

Keywords:

Market timing theory, capital structure, leverage, panel data model

Abstract

This study examines the impact of market timing theory on the capital structure of firms listed on the Vietnamese stock market in the period 2015-2022 by using the following methods: panel data regression. The independent variable representing market timing is the weighted average market-to-book ratio of equity financing (M/B EWA), which is a new measurement method compared to studies in Vietnam. In addition, the control variables used in the model include Profitability (PROP), Firm Size (SIZE) and Tangible Assets (TANG). The test results show that there is evidence for the existence of market timing behavior in capital structure decision of listed companies in Vietnam.

References

Alti, A. (2006). How persistent is the impact of market timing on capital structure? Journal of Finance, 61(4), 1681-1710. https://doi.org/10.1111/j.1540-6261.2006.00886.x

Baker, M., & Wurgler, J. (2002). Market timing and capital structure. Journal of Finance, 57(1), 1-32. https://doi.org/10.1111/1540-6261.00414

Bo, H., Huang, Z., & Wang, C. (2011). Understanding seasonal equity offerings of Chinese firms. Journal of Banking & Finance, 35, 1143-1157. https://doi.org/10.1016/j.jbankfin.2010.09.025

Chen, J. (2004). Determinants of capital structure of Chinese-listed companies. Journal of Business Research, 57(12), 1341-1351. https://doi.org/10.1016/S0148-2963(03)00070-5

Dahlan, I. O. (2004). Marketing timing and study capital structure in non-financial companies listed on the Jakarta Stock Exchange. Jakarta: PSIM University of Indonesia.

Delcoure, N. (2007). The determinants of capital structure in transitional economies. International Review of Economics and Finance, 16(3), 400-415. https://doi.org/10.1016/j.iref.2005.03.005

Dittmar, A. K., & Thakor, A. V. (2007). Why do firms issue equity? Journal of Finance, 62(1), 1-64. https://doi.org/10.1111/j.1540-6261.2007.01200.x

Donaldson, G. (1961). Corporate debt capacity: A study of corporate debt policy and the determination of corporate debt capacity. Boston: Division of Research, Harvard Graduate School of Business Administration.

Elliott, W. B., Koeter-Kant, J., & Warr, R. S. (2008). Market timing and debt-equity choice. Journal of Financial Intermediation, 17(2), 175-197. https://doi.org/10.1016/j.jfi.2007.05.002

Frank, M. Z., & Goyal, V. K. (2009). Capital structure decisions: Which factors are reliably important? Financial Management, 38(1), 1-37. https://doi.org/10.1111/j.1755-053X.2009.01026.x

Frank, M., & Goyal, V. (2004). The effect of market conditions on capital structure adjustment. Finance Research Letters, 1(1), 47-55. https://doi.org/10.1016/S1544-6123(03)00005-9

Graham, J. R., & Campbell, R. H. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7

Henderson, B. J., Jegadesh, N., & Weisbach, M. S. (2006). World markets for raising new capital. Journal of Financial Economics, 82, 63-101. https://doi.org/10.1016/j.jfineco.2005.08.004

Huang, R., & Ritter, J. R. (2005). Testing the market timing theory of capital structure. University of Florida Working Paper.

An, H. T., & Tho, T. N. (2017). The impact of market timing on the capital structure of listed companies in Vietnam. Master's thesis in Economics, University of Economics, Ho Chi Minh City.

Kusumawati, D., & Danny, F. (2006). Persistence of capital structure in non-financial public companies listed on the IDX: Market timing approach and optimal capital structure theory. Jurnal Ekonomi STEI, 15(32), 1-24.

Luigi, P., & Sorin, V. (2009). A review of the capital structure theories. Annals of Faculty of Economics, 3(1), 315-320.

Mahajan, A., & Tartaroglu, S. (2008). Equity market timing and capital structure: International evidence. Journal of Banking and Finance, 32(5), 754-766. https://doi.org/10.1016/j.jbankfin.2007.05.007

Zavertiaeva, M., & Nechaeva, I. (2017). Impact of market timing on the capital structure of Russian companies. Journal of Economics and Business, 92, 10-28. https://doi.org/10.1016/j.jeconbus.2017.04.001

Mostafa, H. T., & Boregowda, S. (2014). A brief review of capital structure theories. Research Journal of Recent Sciences, 3(10), 113-118.

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221. https://doi.org/10.1016/0304-405X(84)90023-0

Tra, N. T., Tuyen, T. V., & Diep, N. V. (2017). The impact of market timing on the capital structure of companies listed on the Vietnamese stock market. Journal of Science and Technology Development, 20, Q3 - 2017.

Nhut, N. H. H. (2015). Market timing and the choice between debt and equity of companies on the Vietnamese stock market. Development & Integration Magazine, 22(32), 05-06/2015.

Nguyen, T. D., & Neelakantan, R. (2006). Capital structure in small and medium-sized enterprises: The case of Vietnam. ASEAN Economic Bulletin, 23, 192-211.

Huong, N. T. Q. (2019). Financing decisions, market timing theory, and real investment theory. Master's thesis in Economics, Ho Chi Minh City University of Economics.

Russel, P., & Hung, K. (2013). Does market timing affect capital structure? Evidence for Chinese firms. Chinese Business Review, 12(6), 395-400.

Rajan, R. G., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50, 1421-1460. https://doi.org/10.1111/j.1540-6261.1995.tb05184.x

De Bie, T., & De Haan, L. (2007). Market timing and capital structure: Evidence for Dutch firms. De Economist, 155(2), 183-206. https://doi.org/10.1007/s10645-007-9054-1

Yang, Z., Cheng-Few, L., & Min-the, Y. (2019). Does equity market timing have a persistent impact on capital structure? Evidence from China. The British Accounting Review, 52(1), 100838. https://doi.org/10.2139/ssrn.2948193

Downloads

Download data is not yet available.

Downloads

Published

25-02-2024

Abstract View

350

PDF Downloaded

128

How to Cite

Vu Thi Loan, & Ha Bao Tram. (2024). Testing the impact of market timing on the capital structure of firms listed on the Vietnamese stock market. VNU JOURNAL OF ECONOMICS AND BUSINESS, 4(1), 60. https://doi.org/10.57110/vnu-jeb.v4i1.236

Issue

Section

Original Article