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Impact of leverage and debt maturity on investment decisions of Vietnam’s enterprises

The research aims to analyze the impact of financing decisions on investment ones and examine the relationships between leverage, debt maturity structure, investment and growth opportunities. A systembased model is employed, including three structural equations in which leverage, debt maturity and investment are adopted as endogenous variables. | JED No.220 April 2014| 97 Impact of Leverage and Debt Maturity on Investment Decisions of Vietnam’s Enterprises TRẦN THỊ THÙY LINH University of Economics HCMC - linhtcdn@ueh.edu.vn TẠ THỊ THÚY thuy.tathi1312@gmail.com ARTICLE INFO ABSTRACT Article history: Received: Dec. 2, 2013 Received in revised form Feb. 12, 2014 Accepted: March 31, 2014 The research aims to analyze the impact of financing decisions on investment ones and examine the relationships between leverage, debt maturity structure, investment and growth opportunities. A systembased model is employed, including three structural equations in which leverage, debt maturity and investment are adopted as endogenous variables. The research data consist of 100 enterprises listed on HOSE and HNX in the period 2007-2012. The results indicate that financial leverage negatively correlates with investment decisions, whereas no correlation is revealed between debt maturity and corporate investment, which is compliant with findings by Dang (2011) and Aivazian et al. (2005). Accordingly, for Vietnamese enterprises, there exists an interaction among leverage, debt maturity and investment. Financial leverage and debt maturity are used as alternative strategies to control corporate liquidity. Keywords: financial leverage, debt maturity, investment 98 | Trần Thị Thùy Linh & Tạ Thị Thúy | 97 - 115 1. INTRODUTION Capital structure has emerged as one of the highly controversial issues in corporate finance. Based on the study by Modigliani & Miller (1958), a question is raised: how does a mixture of debt and equity in its capital structure affect a corporate value? The paper, by checking the interactions between financing and investment decisions by Vietnamese companies in an approach suggested by Aivazian et al. (2005a, 2005b) and Dang (2011), tries to examine the relationship and impact of corporate financing decisions on investment ones, thereby addressing the research questions: (1) Are there interactions .