An Evaluation Of Factors Influencing Capital Structure In Vietnam Banks: The Case Study Of Vietinbank In Vietnam

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An evaluation of factors influencing capital structure in Vietnam Banks: The case study of VietinBank in Vietnam

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ACKNOWLEDGEMENT

No words can express my appreciation and gratitude to my research advisor _______ through the course of this research, Professor _____has taught me numerous values that extend well beyond the realm of _________ (Your Subject Name). His emphasis on dedication to work and his valuable and practical insights of life are some of the major highlights of my education at The University _________.

DECLARATION

I [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for the academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

CHAPTER I: INTRODUCTION1

1.1 Background of the study1

1.2 Introduction2

1.3 Objectives4

1.4 Research questions5

1.5 The company overview5

1.6 Rationale of the study6

1.7 Significance of the study8

REFERENCES10

CHAPTER I: INTRODUCTION

1.1 Background of the study

The capital structure of a firm can be defined as its mix of debt and equity instruments used to finance its assets. More clearly it refers to the mix of long-term or permanent sources of funds used by the firm, i.e. debt, preferred stock, and common equity.

Chaplinsky (1983, 14) discusses that, in an article, which was published in the year 1958, Professors Merton Miller and Franco Modigliani had managed to show that under very protective premises, that the market value of an organization was not dependent on the capital structure of the organization. Presuming that there were no personal or corporate taxes or costs of bankruptcy the increase in shareholder return in an organization employing leverage is precisely countered by the risk, which is related with this financing from debt sources. Nevertheless, accompanying research, which would relax these limiting premises, had depicted that capital structure did get affected by the value of the firm. Chaplinsky said that the study of Miller and Modigliani had turned out to be very significant because there study had assisted in revealing the things and variables that were required for the capital structure to be applicable and make an effect on the value of the organization. Capital structure becomes important as we recognize the following:

(1.) Each source of financing has a different cost and so capital structure affects the firm's cost of capital, and ultimately the return on investment to the firm's shareholders.

(2.) As we will examine more use of debt by the firm, may mean higher returns to shareholders, but also higher risk due to interest payments and the increased risk of default.

(3.) There is an optimal capital structure of the firm, one that minimizes the firm's cost of capital and maximizes the firm's value.

According to Caves (2001, 1), factors to consider in determining capital structure include:

Corporate and personal taxes

Bankruptcy costs

Signaling Effects

Managerial Preference - Pecking Order Theory

Agency Costs

Business Risk

Remaining factors include managerial risk aversion, lender and bond-rater requirements, industry standards and retention of ...
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