Unveiling the Nexus between Capital Structure Dynamics and Stock Performance: A Panel Data Approach of Listed Firms in Vietnam

Abstract

This study investigates the dynamic relationship between capital structure and stock performance in Vietnamese firms, addressing a critical gap in emerging market finance literature. Utilizing a comprehensive dataset of 122 listed firms on the Ho Chi Minh and Hanoi Stock Exchanges from 2010 to 2022, we employ a dynamic panel approach with System GMM estimation to control for endogeneity and unobserved heterogeneity. Our findings reveal a non-linear, U-shaped relationship between leverage and stock returns, suggesting an optimal capital structure that maximizes performance. We also find that ownership structure significantly impacts stock returns, with state ownership negatively associated and foreign ownership positively linked to performance. Furthermore, the quality of the institutional environment plays a crucial role in shaping this relationship. This research contributes to both academic literature and practical applications by extending the understanding of capital structure dynamics in emerging markets, particularly in the context of Vietnam's transitioning economy. It offers valuable insights for corporate financial management, emphasizing the importance of calibrating debt levels and ownership structures to optimize performance. The study's originality lies in its comprehensive examination of capital structure dynamics, ownership structure, and institutional quality in the context of an emerging Asian market, providing a nuanced understanding of these complex interrelationships.