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Fixed Assets and Capital Structure: Evidence from Listed Companies in Vietnam

In: Proceedings of the 4th International Conference on Research in Management and Technovation

Author

Listed:
  • Duc Kien Vu

    (Academy of Finance)

  • Van Ninh Vu

    (Academy of Finance)

  • Minh Giang Tran

    (Academy of Finance)

Abstract

This paper examines the effect of fixed assets on capital structure. Agency theory argues that when firms use debt, there are agency costs of debt due to the information asymmetry between shareholders and lenders. Fixed assets can be used as a device to reduce the conflicts of interest between shareholders and lenders, thus reducing agency costs of debt and increasing firms’ leverage. Using a sample of Vietnamese-listed firms on Hanoi and Hochiminh stock exchanges, we find that there is a positive effect of fixed assets on firms’ financial leverage. Moreover, firms in emerging markets like Vietnam are more likely to use fixed assets as collateral for long-term rather than short-term loans since they demand high leverage but have a low level of fixed assets. Finally, the analysis indicates that the cost of debt for companies is lower for firms with a high proportion of fixed assets and this may encourage the firms to become more leveraged.

Suggested Citation

  • Duc Kien Vu & Van Ninh Vu & Minh Giang Tran, 2024. "Fixed Assets and Capital Structure: Evidence from Listed Companies in Vietnam," Springer Books, in: Thi Hong Nga Nguyen & Darrell Norman Burrell & Vijender Kumar Solanki & Ngoc Anh Mai (ed.), Proceedings of the 4th International Conference on Research in Management and Technovation, pages 449-460, Springer.
    • Handle: RePEc:spr:sprchp:978-981-99-8472-5_42
    DOI: 10.1007/978-981-99-8472-5_42
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