Trade-Off Theory or Pecking Order Theory with a State-Ownership Structure: The Vietnam Case

International Review of Business Research Papers, Vol. 11. No. 1. March 2015 Issue. Pp. 114 – 132

19 Pages Posted: 12 Apr 2015

See all articles by Sebastien Dereeper

Sebastien Dereeper

Université Lille Nord de France - Lille School of Management Research Center (LSMRC)

Quoc Dat Trinh

Université Lille Nord de France - Lille School of Management Research Center (LSMRC)

Date Written: March 27, 2012

Abstract

The process firms use to choose their capital structures is explained by different corporate finance theories in which trade-off and pecking order are the two most popular hypotheses. Testing these two models will help to determine whether a target debt ratio exists, and if so, how rapidly firms adjust their current leverage levels to match this target level. The findings in this paper determined that the pecking order theory might not be applied in Vietnam when internal funds and new equity issuance are independent with the leverage level. In contrast, our empirical results proved that the long-run target debt ratio does exist in the Vietnamese market. The partial adjustment model has shown that both private firms and state-owned firms rapidly adjust to their optimal levels of debt. However, the state ownership structure does not affect the amount of debt taken during the year by the firms.

Keywords: Capital Structure, Speed adjustment, trade-off and pecking order theory

Suggested Citation

Dereeper, Sebastien and Trinh, Quoc Dat, Trade-Off Theory or Pecking Order Theory with a State-Ownership Structure: The Vietnam Case (March 27, 2012). International Review of Business Research Papers, Vol. 11. No. 1. March 2015 Issue. Pp. 114 – 132, Available at SSRN: https://ssrn.com/abstract=2586056

Sebastien Dereeper

Université Lille Nord de France - Lille School of Management Research Center (LSMRC) ( email )

1, Place Déliot
Lille, 59000
France

Quoc Dat Trinh (Contact Author)

Université Lille Nord de France - Lille School of Management Research Center (LSMRC) ( email )

Lille, 59000
France

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