Trade-off in Capital Structure Decision in Emerging economies

1Bui Thanh Khoa, Duy Tung Thai

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Abstract:

Accompanied by the rise of Real Estate transactions is the establishment, development, and competition among real estate businesses. The study aims to test the existence of trade-off theory in capital structure among real estate companies in the emerging economies stock market, case of Vietnam. Instead of considering constant optimal leverage to test the trade-off model, we take advantage of the dynamic capital structure determined by growth opportunities, profitability, tax incentives, tangibility, liquidity, and firm size. This approach requires a dynamic panel data regression, which is estimated by system Generalized Method of Moment (Sys- GMM). Our empirical evidence shows that real estate companies listed in the Vietnamese stock market may change their leverage toward a target capital structure, which is determined by influential factors in a long-term perspective. In particular, the debt-to-asset ratio will change by approximately 14 percent, positively, in response to the difference between the current debt-to-asset ratio and the dynamic target debt-to-asset ratio.

Keywords:

Capital Structure, Dynamic Panel Data, system Generalized Method of Moments (SysGMM), Trade-Off Theory, Real Estate Company.

Paper Details
Month8
Year2020
Volume24
IssueIssue 10
Pages4320-4332