The Firm’s Performance in Relation to Capital Structure and Foreign Ownership: Evidence from Vietnam

Abstract

The paper examines the impact of capital structure in the context of foreign ownership on firm performance on non-financial companies in Vietnam between 2008 and 2018. The study employs Pooled OLS, Fixed effect, random effect, and Generalized Least Square to analyze the data. The study finds a non-linear relationship of foreign ownership and firm performance, so that the relationship, which is at first a positive one, becomes negative beyond a certain level of foreign ownership (30-45% ownership depending on the measure of performance). This insight is then combined with a generally inverse relationship between capital structure and performance. Besides, we find that the firm’s size (SIZE) has a positive influence on profitability and financial leverage, while both financial leverage (LEV) and the number of listed years of company (AGE) impact negatively on firm performance. Furthermore, growth of sales (GROWTH) has a positive effect on the debt ratio, and growth rate (GDP) has a negative effect on financial leverage.

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