Threshold effects of capital structure on firm values in Vietnam and the United States of America

• Main Authors: Guan, Jingwen, Le, Nhut Duy, Nguyen, Lan Chi
• Other Authors: Wu Guiying Laura
• Format: Final Year Project
• Language: English
• Published: Nanyang Technological University 2023
• Subjects: Business::Finance::Corporate finance
• Online Access: https://hdl.handle.net/10356/166186
• Institution: Nanyang Technological University

With the recent interest rate hike led by the United States of America (USA) Federal Reserves, firms around the world and particularly in Vietnam find it hard to raise and refinance their debts due to the increased cost and constraints. We set out to determine whether there exists an optimal level of capital structure, represented by estimated threshold levels, that maximises firms’ value for those listed in Vietnam and the USA. We contribute to the literature by applying Hansen’s (1999) panel threshold regression model to a new firm-level dataset from 2015 to 2021. This comprises 457 Vietnam enterprises and 1,737 USA enterprises, forming a balanced panel data of 3,199 and 12,159 observations. Our results show that when not controlling sectors, there is no threshold effect of capital structure on a firm’s market value, with Tobin’s Q as a proxy, for both countries. Regarding firms’ accounting value, we find that the threshold effect exists depending on the variable used as a proxy, which may vary across different markets. Debt financing, in both countries, poses a negative impact on firm value with capital structure at both lower and higher levels than the threshold value. Keywords: Capital Structure; Firm Value; Panel Threshold Regression Model; Vietnam; USA