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

By

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.

Signed __________________ Date _________________



ABSTRACT

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. Vietnam has been changing to a market-oriented economy over the past eighteen years, and there is growing recognition of Small and Medium Firms' importance in the transitional economy. The development of theoretical capital structure literature started with the seminal work of Modigliani and Miller (1958) in which they argue that under the asset of strict assumptions, capital structure is irrelevant. Following up their previous study, Modigliani and Miller (1963) contend that when one of the main assumptions is relaxed (i.e. when taxes are introduced into the irrelevance model), a firm start benefiting from using more debt because the interest payment is tax deductible. This dissertation had focused on determining the determinants of capital structure of VIetinBank , Vietnam, which is a large bank of Vietnam. The literature review had identified that liquidity; asset tangibility, profitability, bankruptcy probability and cost were the main determinants of capital structure. However, the results of this dissertation have suggested that asset tangibility is making a negative impact on the capital structure of VIetinBank .



TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

LIST OF TABLESIX

LIST OF CHARTSX

CHAPTER I: INTRODUCTION1

1.1 Background of the study1

1.2 Introduction2

1.3 Objectives4

1.4 Research questions4

1.6 Rationale of the study5

1.7 Significance of the study8

CHAPTER 2: LITERATURE REVIEW9

2.1 Overview of the capital structure literature9

2.2 Tax advantage of debt10

2.3 Costs of financial distress11

2.4 Theories of capital structure11

2.5 The trade-off theory of capital structure13

2.6 Static trade-off theory vs. Dynamic trade-off theory13

2.7 The pecking order theory15

2.8 Determinants of capital structure15

2.8.1 Asset Tangibility15

2.8.2 Profitability15

2.8.3 Z-score16

2.8.4 Liquidity16

2.9 Major findings from the literature review17

CHAPTER 3: METHODOLOGY19

3.1 Outline of quantitative and qualitative approaches to conducting research19

3.2 Research approach used in this study19

3.2.1 Justification of using mixed method to research20

3.3 Search for and compilation of empirical information20

3.3.1 Primary data collection for financial analysis21

3.4 Instruments used21

3.4.1 Financial ratio analysis21

3.4.2 Regression analysis21

3.4.3 Secondary data collection21

3.5 Secondary data in the research22

3.6 Criteria for searching secondary data22

3.7 Keywords22

3.8 Variables of the research23

3.8.1 Liquidity23

3.8.2 Profitability23

3.8.3 Other variables23

3.9 Participants of the ...