Testing the optimal capital structure hypothesis: A case of property firms in Vietnam

Abstract

This study examines the relationship between capital structure and firm value to test the optimal capital structure hypothesis. By collecting accounting and market data of Vietnamese property firms listed on the Ho Chi Minh City Stock Exchange for the period from 2017 to 2022, we employ a panel data approach with a total of 306 observations. With data that ensures stationarity, the study utilises the Feasible Generalised Least Squares (FGLS) method to address potential concerns related to heteroskedasticity within the model. The results indicate that the relationship between capital structure in general, capital structure by term, and firm value is quadratic, suggesting the presence of an optimal level of capital structure. Firm value increases with the increase in the debt ratio, and firms can maximise value at the optimal debt threshold. Additionally, the study finds that firm value is influenced by scale and asset structure, both of which have a positive impact on firm value. However, there is no evidence of the impact of sales growth and liquidity on firm value in this analysis.