The Determinants of the Fundraising Structure of
Listed Companies in Vietnam:
Estimation of the Effects of Government Ownership

Hidenobu Okuda
Lai Thi Phuong Nhung

February 2010


This study investigates the factors determining the debt-ratios of listed companies on the Hanoi and Ho Chi Minh stock exchange markets. Estimation analysis using panel data covering the three-year period from 2006 to 2008 reveals the following results. (1) The debt-ratios of listed companies may be well explained by adjusted Modigliani and Miller theory combined with agency cost theory. (2) In order to borrow long-term outside funds, the ability to provide collateral is very important, even for qualified and listed companies. (3) Government controlled companies have weak incentives to save corporate tax payments by using debt financing. (4) In term of long-term fundraising, government controlled companies are perceived to present less risk than other companies. (5) In the determinants of fundraising, there is almost no difference in the determinants of fundraising between companies listed on the Ho Chi Minh stock exchange and those on the Hanoi stock exchange. (6) Compared to the fundraising activities of small- and medium-sized companies analyzed by Nguyen (2006) and Biger et al. (2008), those of listed companies could be better explained by using standard corporate financing theory. These observations suggest several policy implications. (1) Economic reform (Doi Moi) policies have successfully built up market based corporate financing systems for listed companies in Vietnam; however, (2) the protection of outside creditors should be further enhanced, as should be the disclosure of corporate information. (3) Further liberalization and privatization of the banking sector is urgently needed.

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