| dc.description.abstract | The purpose of this study is to review the capital structure theories in general and give
comparison to the explanatory power of the Static Tradeoff Theory against the Pecking
Order Theory and in particular. A sample of Vietnamese firms in the electricity and
petroleum industries listed on Ho Chi Minh Stock Exchange over a period from 2010 to
2014 was employed to examine the applicability of these two theories. While the target
adjustment theory suggests that the changes in the debt ratio are accounted for the
deviations of the current ratio from the target, the pecking order model states that the
internal fund deficit is the key determinant to explain the new debt issued. Basically
relied on the research of Shyam-Sunder and Myers (1999) and Frank and Goyal (2003)
altogether, tests were carried out to verify whether the speed of adjustment as for
tradeoff theory lies within the theoretical interval between 0 and 1 and so as to indicate a
positive adjustment of debt ratio toward the target, and whether the pecking order
coefficient is equivalent to in the strong form or converges to 1 in the semi-strong form,
explaining the hierarchy of financing within a firm followed by internal fund then the
issuance of new debt and equity afterwards as a consequence of financial deficits. Our
results indicate that the estimation of both empirical models that explain that capital
structure favors the Static Tradeoff theory, whereas, the tests show a weak support to
reject the pecking order hypothesis. The outcome is reasonable to these leading industries
tested for the fact that they have pursued such a high growth rate as compared to the
whole economy, resulting in the quick speed of adjustment towards their optimal debt
level explained by the tradeoff theory, while pecking order theory appears not to indicate
its explanatory power to these firms’ financing decision. | en_US |
