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Does Profitability affect Debt Ratio? Evidence from Vietnam Listed Firms

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  • Nguyen Tra Ngoc Vy

    (Quy Nhon University, Binh Dinh, Vietnam. Yuan Ze University, Taiwan)

Abstract

The main objective of this study is to examine the relationship between profitability and leverage of Vietnam listed corporations in the aftermath of the Global Financial Crisis (GFC). The study finds strong evidence that this relationship is negative. This conclusion is not affected by control variables as well as firm and year fixed effects. Particularly, it is found that the smaller the firms are, the more profound the relationship is. In line with many previous researches, this result is in favor of the Pecking order theory. In the Vietnamese context, small and profitable firms tend to have higher incentive to use less debt. In contrast, large firms seem to be indifferent in their debt use due to having greater access to other sources of finance, as well as a larger base of collateral assets. Interestingly, in stark contrast to the arguments made in official economic reports as well as the common consensus, Vietnam's firms operating in building and property industries do not borrow more than other firms, even after the GFC when the government released its rescue package.

Suggested Citation

  • Nguyen Tra Ngoc Vy, 2016. "Does Profitability affect Debt Ratio? Evidence from Vietnam Listed Firms," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(2), pages 87-100, October.
    • Handle: RePEc:gei:jnlfer:v:1:y:2016:i:2:p:87-100
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