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What Influences to Financial Leverage in Listed Construction Firms in Vietnam? The Role of Asset Tangibility and Growth Opportunities

Author

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  • Pham Tien Manh

    (Banking Academy of Vietnam, Hanoi, Vietnam)

Abstract

Investment projects in the construction industry usually require a large amount of capital. Most businesses need more capital to implement the investment project; therefore, they use borrowed capital and mobilise capital from investors. Understanding the determinants of excessively low or high leverage among construction companies provides essential information in identifying these companies' financial strategies. This research observes the sample of 53 listed construction entities on the Hanoi Stock Exchange (HNX) in Vietnam, with the 2018-2022 period, to find out what factors impact financial leverage. Statistical data is collected and aggregated from enterprises' audited consolidated financial statements. The author uses financial leverage as a dependent variable, while independent variables include asset tangibility, growth opportunities, profitability, liquidity, firm size and firm age. In addition, GDP and inflation rate are considered as control variables. The author uses OLS, FEM, REM and GLS models, modified Wald test and Wooldridge test to determine the relationship between independent and dependent variables. The research results show that asset tangibility, profitability, liquidity and firm size are statistically significant in explaining the firm's financial leverage change. In contrast, other variables such as growth opportunities, firm age, GDP and inflation were not correlated with the dependence variables. In particular, asset tangibility is the most significant determinant for financial leverage, which means those charged with governance of construction firms should consider carefully before deciding to acquire fixed assets. Based on research findings, the author suggests recommendations for managing financial leverage in construction companies in Vietnam. However, the results of this study will also be helpful for construction companies in other countries.

Suggested Citation

  • Pham Tien Manh, 2023. "What Influences to Financial Leverage in Listed Construction Firms in Vietnam? The Role of Asset Tangibility and Growth Opportunities," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 68-74, June.
    • Handle: RePEc:iaf:journl:y:2023:i:2:p:68-74
    DOI: 10.33146/2307-9878-2023-2(100)-68-74
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    References listed on IDEAS

    as
    1. Asmaul Husna & Ibnu Satria, 2019. "Effects of Return on Asset, Debt to Asset Ratio, Current Ratio, Firm Size, and Dividend Payout Ratio on Firm Value," International Journal of Economics and Financial Issues, Econjournals, vol. 9(5), pages 50-54.
    2. Amarjit Gill & Neil Mathur, 2011. "Factors that Influence Financial Leverage of Canadian Firms," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(2), pages 1-2.
    3. A.O. Olakunle & P.L. Jones, 2014. "Assessing the Impact of Size on the Capital Structure Choice for Listed Nigeria Firms," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(7), pages 184-202, July.
    4. repec:eme:ijlma0:ijlma-01-2013-0004 is not listed on IDEAS
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    More about this item

    Keywords

    financial leverage; asset tangibility; growth opportunities; firm size; firm age; profitability; GDP; inflation;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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