The impact of leverage on firm investment : empirical evidence from Vietnam: Bachelor thesis of Banking and Finance / Nguyen Viet Phuong Linh ; Tran Minh Tam supervisor

STATE BANK OF VIETNAM THE MINISTRY OF

EDUCATION AND TRAINING

BANKING UNIVERSITY OF HO CHI MINH CITY

NGUYEN VIET PHUONG LINH

THE IMPACT OF LEVERAGE ON FIRM

INVESTMENT: EMPIRICAL EVIDENCE

FROM VIETNAM

GRADUATION THESIS

MAJOR: FINANCE – BANKING

CODE: 72340201

HO CHI MINH CITY, 2020

STATE BANK OF VIETNAM THE MINISTRY OF

EDUCATION AND TRAINING

BANKING UNIVERSITY OF HO CHI MINH CITY

NGUYEN VIET PHUONG LINH

THE IMPACT OF LEVERAGE ON FIRM

INVESTMENT: EMPIRICAL EVIDENCE

FROM VIETNAM

GRADUATION THESIS

MAJOR: FINANCE – BANKING

CODE: 72340201

ADVISOR by M.Sc TRAN MINH TAM

HO CHI MINH CITY, 2020

i

ABSTRACT

This essay examines the impact of leverage on firm investment by using the

information of corporate listed on Ho Chi Minh City Stock Exchanges in Vietnam.

The author proposes 4 hypotheses to estimate the relationship between leverage

and investment. First, there is a negative impact of leverage on firm investment.

Second, the negative relationship between leverage and firm investment is weaker

in firm with higher growth opportunities than low growth opportunities. Third, the

negative impact of leverage on firm investment is weaker in firm with poor

performing firm. The last one is the negative impact of leverage will be weakened

in highly state-ownership corporate. By using the quantitative methods to estimate

models: Pooled OLS, REM and FEM. Overall, the results of the thesis provide a

supportive to prior theories where leverage have a negative impact on firm

investment and this negative relation is stronger in firm with lower growth

opportunities. Moreover, the state-ownership have an effect on the negative

relationship of leverage and firm investment. Firm which have state-ownership

finds it easier to borrowing from external than other counterparts. And firm with

poor performing have less restriction on capital expenditure than other.

JEL classification: G32

Keywords: Leverage, investment, Vietnamese, Stata

ii

DECLARATION

The author ensures that the research paper "The impact of leverage on firm

investment: Empirical Evidence from Vietnam" is completed by the author and

guidance of Master Tran Minh Tam. References and data are cited completely,

clearly, and uniformly in the Reference List. The content and results of this study

have not been published in any other articles or projects up until now. The author is

responsible for all assurances.

Ho Chi Minh city,

Author,

Nguyen Viet Phuong Linh.

iii

APPRECIATION

This thesis will not be completed without the dedicated help of my teacher

and friends. As an author of this thesis, I would like to express my deep gratitude to

my advising instructor – Mr. Tran Minh Tam who has always follow closely and

provide sincere comments so that I can finish this thesis. I would like to express my

special thanks to Mr. Nguyen Tran Minh Tri and Mr. Nguyen Thai Bao – friends at

my training course at Ho Chi Minh joint stock company, he has encouraged me,

while helping me find documents. In addition, I would like to express my thanks to

the lecturer at Banking University of Ho Chi Minh City for creating such favorable

conditions in the process of study and as well as doing thesis. Finally, I have an

appreciation to my family supporting throughout my study process.

Ho Chi Minh city,

Author,

Nguyen Viet Phuong Linh.

iv

CONTENT

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

DECLARATION ....................................................................................................... ii

APPRECIATION...................................................................................................... iii

LIST OF TABLES ................................................................................................... vii

LIST OF ACRONYMS........................................................................................... viii

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

1.1 Research Issue ...............................................................................................1

1.2 Research Purpose...........................................................................................2

1.3 Object and Scope of the Study and Research question .................................3

1.3.1 Object and scope of the study ....................................................................3

1.3.2 Research question ......................................................................................3

1.4 Method of the research ..................................................................................3

1.5 Significant of the research .............................................................................3

1.6 Thesis Structure .............................................................................................4

CHAPTER 2. LITERATURE REVIEWS ..............................................................7

2.1 Theory of leverage and investment ...............................................................7

2.2 Theory of Investment ....................................................................................9

2.2.1 Pecking Order theory .................................................................................9

2.2.2 Investment theory of Tobin......................................................................10

2.3 The link between leverage and investment .................................................11

2.4 Growth and the impact of leverage on firm investment..............................12

2.5 Leverage, firm investment, and State ownership ........................................13

2.6 Studies in the world .....................................................................................15

2.6.1 Studies of the impact of leverage on investment .....................................15

2.6.2 Previous studies about leverage, firm investment, and state ownership in

corporate............................................................................................................17

v

2.7 Studies in Vietnam ......................................................................................19

CHAPTER 3. METHODOLOGY AND RESEARCH METHOD.......................22

3.1 Research design and research model...........................................................22

3.1.1 Research design........................................................................................22

3.1.2 Data Research...........................................................................................22

3.2 Research model and hypotheses..................................................................23

3.2.1 The impact of leverage on firm investment .............................................23

3.2.2 Test the impact of leverage on two groups of firms ................................24

3.2.3 The impact of leverage on firm investment and state ownership of

enterprise ...........................................................................................................27

3.2.4 Data Description ......................................................................................29

3.3 Samples and Sampling method ...................................................................31

3.4 Methods of data analysis.............................................................................31

CHAPTER 4. RESULTS OF RESEARCH ..........................................................35

4.1 Summary statistic result ..............................................................................35

4.2 Correlation matrix analyze ..........................................................................36

4.3 Regression Analysis ....................................................................................39

4.3.1 First hypothesis ........................................................................................39

4.3.2 Second hypothesis....................................................................................47

4.3.2.1 Using Tobin’s Q as growth opportunities.........................................47

4.3.2.2Testing the sample with Sales proxy growth opportunities...............50

4.3.3 The third hypothesis.................................................................................53

4.3.4 The last hypothesis...................................................................................55

CHAPTER 5. CONCLUSION AND RECOMMENDATION.............................59

5.1 Summarize the result ...................................................................................59

5.2 Suggestion and Recommendations..............................................................61

5.3 Contribution.................................................................................................62

5.4 Limitations of the topic ...............................................................................62

5.5 Recommended next research.......................................................................63

CONCLUSION.........................................................................................................65

vi

REFERENCE............................................................................................................66

APPENDIX...............................................................................................................71

vii

LIST OF TABLES

Table 3.1 Variables Description.....................................................................................30

Table 4.1 Summary statistics .........................................................................................35

Table 4.2 Correlation matrix .........................................................................................38

Table 4.3 Result of multicollinearity test .......................................................................39

Table 4.4 Statistic result of OLS of the first model (leverage1).....................................40

Table 4.5 The statistic result of Pooled OLS (leverage2)..............................................42

Table 4.6 Heteroskedasticity Test (Leverage1)..............................................................42

Table 4.7 Heteroskedasticity Test (Leverage2)..............................................................42

Table 4.8 REM and FEM regression result (Leverage1) ..............................................43

Table 4.9 The result of FEM and REM model (leverage2)............................................44

Table 4.10 Hausman test (Leverage1)...........................................................................46

Table 4.11 Hausman test (leverage2) ............................................................................46

Table 4.12 The result of model of the role of growth opportunities..............................47

Table 4.13 Result of Tobin regression model of second alternative measure of

Leverage2.......................................................................................................................49

Table 4.14 The role of growth opportunities (Variable Growth) ..................................51

Table 4.15 Growth opportunities, leverage, and investment .........................................52

Table 4.16 The regression result of model 3..................................................................54

Table 4.17 The regression result of model 3..................................................................55

Table 4.18 The role of state ownership, leverage and investment.................................56