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The impact of capital structure on retail it enterprise’s business performance.
Introduction
The capital structure choice is critical for management since it controls investors’ capacity to
maximize profit, which maximizes the organization’s efficiency. As a result, managers,
shareholders, and investors are all interested in the influence of capital structure on business
success. Furthermore, business performance is the most important factor in production and
business operations; it is a long-term aim that applies to all businesses, including real estate
enterprises. The economic ratios that a company can achieve is based on its net, also market
value is used to evaluate its success. Therefore, financial managers must also consider capital
structure construction since it directly influences business value and profitability. Financial
managers must also consider capital network structure because it directly influences the value of
a company and its potential to increase revenue for its owners. Businesses commonly use many
diverse sources of funds either in issuing shares, bonds, borrowing from banks, or offering credit
institutions. The proportional choice of capital source significantly impacts the enterprise’s
financial success. As a result, the link between company success and capital structure results to
be the hottest topic.
Alot of research on the impact of capital structure on company performance has been carried out
in various nations, the majority of which are developed countries. However, a lot of studies
conducted in different countries show the transition and emerging economies of recent years.
Some research has identified a good link between capital structure and business success. While
others have found the reverse. As a result, when data samples are obtained from different
businesses and nations, empirical research on this connection provide varied conclusions.
Literature review
The real estate market is one of the most significant markets in the country, with direct links to
the financial and monetary markets and the construction and labor markets (Ngoc, 2014). The
real estate industry is currently a very appealing investment avenue for investors. When bank
deposit rates are low, gold and FX markets are less appealing due to the government’s strict
control measures, speculators are readily drawn to the real estate market, which offers better
returns and the capacity to hold value before inflation. The growth signal of the real estate
market in 2017 and 2018 is highly favorable, according to the statistics released by the Ho Chi
Minh City Real Estate Association (In addition, the state has established a three-year timeline
from the start of 2020 to restrict real estate financing.
In addition, the State Bank of Vietnam (SBV) has raised the risk factor for real estate
transactions in order to curb capital inflows. Due to the nature of the real estate sector, which
necessitates a big capital source, most enterprises have a high loan-to-total-asset ratio. The
impacts of capital structure on real estate company performance will be studied to enable
enterprises in this sector to create an acceptable capital structure and increase their operational
efficiency (Tien et al, 2019). Even though there has been several research on the effects of
capital structure on the economy there is still unlcear definition ansd stucture in commercial
investments . Furthermore, FDI
Determine the association between capital structure and performance of enterprises listed on
HOSE in the real estate industry.
Calculate the influence of capital structure on the performance of HOSE-listed real estate
companies.
The study’s geographical scope comprises 25 real estate businesses that are listed on the HOSE.
The time period covered is from 2011 to 2018.
The research methodologies used in this article are a mix of qualitative and quantitative. To
create research models, qualitative methodologies are utilized to describe the theoretical
foundation and prior studies connected to the effects of capital structure on company
performance.
THEORETICAL FRAMEWORK
Overview of capital structure
A lot of researchers across the world use various terms to describe capital structure. Capital
structure refers to a company’s choice of debt, equity, or derivative securities to fund its activities
(Myers, 1984). According to Abor (2005), a capital structure collects numerous guards.
Furthermore, according to Gill et al. (2011), a company’s capital structure is a combination of
debt and equity. Meanwhile, the capital structure, according to Nirajini and Priya (2013), is a
combination of long-term capital (common shares, concessional shares, and bank loans) and
short-term debt (overdraft and overdraft loans, payables to the seller). Also Firer et al (2004)
talks of the capital structure as the mix of debt and equity that organizations use to support their
operations. According to Firer et al (2004), capital structure is the combination of debt and
equity that firms utilize to fund their operations. Many scholars use a variety of terminology to
characterize capital structure throughout the world. A company’s capital structure refers to the
debt, stock, or derivative instruments to support its operations (Myers, 1984). According to Abor
(2005), A capital structure is a collection of several securities. According to Gill et al. (2011), A
company’s capital structure is a combination of debt and equity. Meanwhile, according to
Nirajini and Priya (2013), the capital structure consists of a mix of long-term capital (common
shares, concessional shares, and bank loans) and short-term debt (overdraft and overdraft loans,
payables to the seller).
Scale of capital structure
According to Ross et al. (2003), capital structure is the combination of debt and equity used in a
certain proportion to finance an enterprise’s production and commercial operations. This ratio
represents the percentage of a company’s assets financed by debt. This coefficient is used to
assess a company’s capacity to pay back its debts. In bankruptcy, the smaller the debt ratio, the
more debt is guaranteed. In contrast, the larger the ratio, the more likely the company is bankrupt
since it frequently approves its loans to finance its activities. It might be more advantageous for a
firm to borrow significantly to cover its high operating costs than to issue stock. If the firm’s
earnings are much more significant,
Theories Of Capital Structure
When Modigliani and Miller (1958) stated that capital structure did not affect firm market value
in ideal capital markets, they laid the groundwork for studying capital structure. The following
assumptions are required for perfect capital markets to exist:
• There are no fees associated with purchasing or selling securities;
• No single investor can impact stock prices;
• Every investor has access to the information that is accessible;
• All borrowers and lenders pay the same interest rate;
• The amount of business risk will be the same while operating in the same conditions;
• All investors have the exact expectations for the same firm.
• Managers will seek to maximize shareholder value (no agency costs incurred)
While ideal capital market assumptions are strict and do not occur in actuality, this model is
helpful in identifying scenarios where they could exist.
Capital structure trade-off theory
According to Myers (1984), the ideal debt ratio is defined by the trade-off between debt
advantages and costs. Similarly, the optimal leverage is established when the benefits and costs
of debt are balanced and firm value achieves a maximum (Shyam & Myers, 1999). Important
considerations.
Bankruptcy fees, taxes, and the cost of financial exhaustion are all factors that help to explain
and clarify this thesis. According to Fama and French (2002), bankruptcy costs are projected to
rise as earnings fall, and the fear of these costs forces businesses to reduce their leverage. The
larger the tax benefits of a firm’s debt, the greater the tax shield benefits (Modigliani & Miller,
1963), but the drawbacks of financial exhaustion include increased legal and administrative
expenditures.
Theory of pecking order
According to Myers and Majluf (1984), the notion of pecking order was developed by
asymmetric information between managers (within businesses) and investors (outside
enterprises). Because managers have access to more internal data and understand the current
business position, growth potential, and dangers better than investors, they will choose a capital
structure that will help the company accomplish its objectives. When deciding whether to issue
debt or equity, the disproportionate information determines the decision to use internal or
external capital. As they have kept earnings, this is the source of internal finance.
Issuance and transaction expenses are lower than other funding sources (e.g., Debt Issuing).
According to Myers (1984), the following is the content of pecking order theory:
Priority is given to internal financing.
Theory of marketing
When it comes to raising investment, economical timing is key since it helps firms reduce their
capital costs while increasing their worth. According to Graham and Harvey (2001), managers
select the best time for their businesses to enter the capital market by issuing debt while market
rates are low. Baker and Wurgler (2002) also stated that establishing the period of stock market
involvement is critical in influencing capital structure. When the market value of shares is high,
businesses prefer to issue shares rather than debt, and when the market price is low, they prefer
to buy back shares. Corporations opt to issue shares and purchase them back at a time when the
cost of equity is cheap. Finally, the corporation will issue shares when investors are confident in
the company’s earnings prospects. Baker and Wurgler (2002) conclude that optimal capital
structure does not exist in this theory and that capital structure changes when firms choose to
enter the capital market. The market timing hypothesis implies that market conditions influence
the manager’s choice to issue shares or debt. The market timing theory of equities is based on the
examination of stock market prices, while the market timing theory of debt is based on the fact
that corporations issue debt when their debt costs are lower than in the past or when market
conditions are better than in other capital markets. Therefore when there is rejuvenation and
experienced forces on the board of directors, the form of debt issuance is chosen over the issue of
shares, according to a new discovery of this theory. This conclusion is based on data from 219
non-financial companies that were publicly traded in Russia between 2008 and 2015.
(Zavertiaeva & Nechaeva, 2017).
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