Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


The Relationship between Capital Structure and Firm Value: Cases of Listed Companies in the Food and Beverages Industry in Vietnam

Author(s): Tam Thanh Nguyen, Ha Phu Nguyen, Linh B.K Nguyen, Nam Thanh Vu, Thinh Ung Le

Food and beverages (F&B) industry plays an important role in satisfying customer demand in domestic market and for exports. In the period of 2010-2018, the demand for F&B products and services was at the highest level and accounted for 22.3% of total consumer spending. However, by the end of 2019, the number of F&B companies listed on Ho Chi Minh and Hanoi Stock Exchanges represented less than 10% of the registered companies in this sector. Along with issues related to financial management of F&B businesses, the management of capital has gained a lot of interests from stakeholders in the market. It also highlights the importance to analyze the relationship between capital structure and firm value of these listed companies in F&B industry, especially in the context that Vietnamese government has improvements in supporting small and medium enterprises (SMEs) after the global financial crisis. In line with the rapid growth of Vietnamese F&B industry during the last 2 decades, the paper clarifies relevance of the research topic from both theoretical and practical approaches. Theoretically, theories related to capital structure and firm value developed by Modigliani & Miller (1963), Myers (1984), Jensen & Meckling (1976) set foundations for the relationship between these two factors. In addition, reviews on empirical researches show different results on how sources of funds associated with capital amounts can have either positive effect or negative effect on the firm value of companies in different industries and in F&B particularly. In order to test the relationship between capital structure and firm value of F&B companies listed on Vietnamese stock exchanges; the authors utilize financial data of 22 representatives in the period between 2014 and 2018 and the multi-regression models developed by Aggarwal & Padhan (2017). In the model, market capitalization and leverage are selected to represent for the capital structure and firm value, while other variables are considered as control variables which include firm quality, size, intangibles, profits, growth, liquidity and macroeconomic factors. The findings of the paper prove that the capital structure has positive relationship with the firm value. In addition, an increase in firm quality, tangibility, firm growth and GDP growth rate can improve the firm value. Besides, an increase leverage, or pursuing high profitability and liquidity associated with the existence of inflation would weaken firm value of F&B companies. The authors, therefore, recommend that fund managers and board of management should improve the strategic planning towards sustainable sources of funding and management cost of funding more efficiently.

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