The impact of capital structure on financial performance of joint stock commercial banks in Vietnam, 2018

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

HO QUYNH BAO TRAN

THE IMPACT OF CAPITAL STRUCTURE ON FINANCIAL EFFICIENCY OF

JOINT STOCK COMMERCIAL BANKS IN VIETNAM

GRADUATION DISSERTATION

MAJOR: FINANCE - BANKING

CODE: 7340201

HO CHI MINH CITY, 2018

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

HO QUYNH BAO TRAN

THE IMPACT OF CAPITAL STRUCTURE ON FINANCIAL EFFICIENCY OF

JOINT STOCK COMMERCIAL BANKS IN VIETNAM

GRADUATION DISSERTATION

MAJOR: FINANCE - BANKING

CODE: 7340201

SUPERVISOR

MA. TRAN KIM LONG

HO CHI MINH CITY, 2018

i

ABSTRACT

Author Tran, Ho Quynh Bao

Title The impact of capital structure on financial efficiency of

Joint Stock Commercial Banks in Viet Nam

Language English

Instructor Long, Tran Kim

The research presents the experiment on the impact of capital structure on

financial efficiency of Joint Stock Commercial Banks in Vietnam. The main objective of

this study is to determine the overall effect of capital structure on the performance of

these banks, establishing the existential relationship between the choice of capital

structure of firms and the return on equity owned.Quantitative analysis of this thesis

uses sample consisting of 28 Joint Stock Commercial Banks from 2010 to 2017.

Research model makes use of panel data and regression made in 4 methods: Pooled

Ordinary Least Square (OLS), Fixed Effects Model (FEM), Random Effects Model

(REM) and Generalized Least Squares (GLS). Empirical results indicates there is

negative relationship between deposits ratio and financial efficiency – represented by

ROE, ROA, the reason behind this is that the stagnation of capital mobilization,

speaking in another way, because of the asymmetrical development of capital

mobilization and credit activities, the more mobilizing capital the banks get, the more

inefficiency they perform. Moreover, the study also finds out that the ratio of

outstanding loans to total assets and financial performance have positive relationship,

which reflects the current situation of Joint Stock Commercial banks that it is essential

to speed the credit activity up, utilizing maximum the capital mobilization. Therefore, a

number of recommendations are introduced to promote the financial performance of

these banks.

ii

DECLARATION OF AUTHENTICITY

I hereby confirm that I am the sole author of the written these here enclosed and

I have compiled it in my own words.

With my signature, I confirm that I have documented all methods, data and

processes truthfully. I have mentioned all people who were significant facilitators of

the work.

I declare that all statements and information contained herein are true, correct

and accurate to the best of my knowledge.

Ho Chi Minh City, December 24, 2018

Ho Quynh Bao Tran

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ACKNOWLEGEMENTS

First and foremost, I would like to express my sincere gratitude to my advisor

Mr. Tran Kim Long for his continuous support of my study, for his patience,

motivation, enthusiasm and immense knowledge. He has given me all the freedom to

pursue my research, while silently and non-obtrusively ensuring that I stay on course

and do not deviate from the core of my research. His guidance helped me all the time

of writing this thesis. I could not have imagined having a better advisor and mentor for

my study.

Next, my acknowledgement would be incomplete with thanking the biggest

source of my strength, my family. I thank them for putting up with me difficult

moments and guiding me to follow my dream of taking this degree. This would not

have been possible without their unwavering and unselfish love and support given to

me all the times.

Finally, best regards to my lecturers, my friends and BUH for their sharing and

support throughout my Bachelor program.

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TABLEOF CONTENTS

ABSTRACT.................................................................................................................i

DECLARATION OF AUTHENTICITY ..................................................................ii

ACKNOWLEGEMENTS ........................................................................................ iii

LIST OF ABBREVIATIONS .................................................................................viii

LIST OF TABLES.....................................................................................................ix

CHAPTER 1: INTRODUCTION..............................................................................1

1.1 Motivation.........................................................................................................1

1.2 Research goal ....................................................................................................3

1.3 Research questions............................................................................................3

1.4 Research subject and scopes.............................................................................3

1.5 Methodology......................................................................................................3

1.6 Research contribution ......................................................................................4

1.7 Research outline...............................................................................................4

CHAPTER 2: LITERATURE REVIEW ..................................................................6

2.1 Definitions.........................................................................................................6

2.1.1 Capital structure ........................................................................................6

2.1.2 Financial performance...............................................................................7

2.1.3 The performance of Joint Stock Commercial Banks ...............................8

2.2 Theoretical background .................................................................................10

2.2.1 Capital Structure Theories of Modigliani and Miller (M&M)...............10

2.2.2 Trade-off theory of Capital structure .....................................................11

2.2.3 Pecking Order Theory .............................................................................11

2.2.4 Agency Theory .........................................................................................12

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2.3 Previous studies on the relationship between capital structure and financial

efficiency ...............................................................................................................13

Conclusion of chapter 2....................................................................................16

CHAPTER 3: RESEARCH DESIGN......................................................................17

3.1 Research methods...........................................................................................17

3.2 Data collecting and processing method..........................................................17

3.3 Measurement of research variables...............................................................17

3.3.1 Dependent variables.................................................................................17

3.3.2 Independent variable ...............................................................................18

3.3.3 Other controlling variables......................................................................18

3.4 Research model...............................................................................................19

3.5 Hypothesis.......................................................................................................19

3.6 Research procedure ........................................................................................21

3.6.1 Descriptive analysis..................................................................................21

3.6.2 Variance Inflation Factor test .................................................................21

3.6.3 Stage of regression models.......................................................................22

Conclusion of Chapter 3...................................................................................24

CHAPTER 4: EMPIRICAL RESULTS..................................................................25

4.1 Descriptive statistics .......................................................................................25

4.2 Correlation Matrix and multicollinearity VIF ..............................................26

4.3 Regression results...........................................................................................28

4.3.1 Testing conformability of Pooled OLS, FEM, REM models..................28

4.3.2 Choosing the best fitted model ................................................................28

4.3.3 Other relevant tests..................................................................................29

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4.4 Regression result.............................................................................................31

4.5 Discussion about research results ..................................................................32

Conclusion of Chapter 4...................................................................................36

CHAPTER 5: CONCLUSION AND RECOMMENDATIONS.............................37

5.1 Conclusion.......................................................................................................37

5.2 Recommendations...........................................................................................38

5.2.1 Solutions to improve business performance from the perspective of

capital structure................................................................................................39

5.2.1.1. Steady increase in payables....................................................................39

5.2.1.2 Enhancing the efficiency of credit operation ...........................................41

5.2.2 Support solutions group .............................................................................44

5.2.2.1 Financial solutions..................................................................................44

5.2.2.2 Personnel solutions group.......................................................................47

5.2.2.3 Technological solutions group ................................................................48

5.2.2.4. Management solutions group .................................................................50

5.2.2.5 Constructing and complete the legal enviroment.....................................51

5.2.2.6 Assist banks to carry out M & A activities...............................................51

5.2.2.7 Supporting for the process of restructure and modernizing the banking

system.................................................................................................................52

5.2.2.8 Promulgate regulations guiding the accounting according tointernational

accounting standards..........................................................................................52

5.2.2.9 For the State bank...................................................................................53

5.3 Limitations of the thesis..................................................................................54

5.4 New approaches in the future.........................................................................54

REFERENCES.........................................................................................................56