Capital Structure Impact on Operating Profit in Vietnamese Listed Companies: The Moderating Role of the Board of Directors

Abstract

Background: Capital structure (CT) is a controversial issue. Although numerous studies on CT have been conducted, their results are not uniform.

Objective: This study examines the operating profit of listed companies in Vietnam's emerging market, aiming to evaluate the impact of capital structure (CT) on the operating profit of listed companies in Vietnam’s emerging market. At the same time, it examined the board of directors as a moderating variable of the impact of capital structure on operating profitability.

Methodology: The dataset used in this study was the financial reports and annual reports of listed companies on the Vietnamese stock market in the period 2015 to 2023. FGLS regression was employed, with dependent variables representing Return on Assets and Return on Equity, which are measures of profit.

Result: The regression results reveal that CT is negatively correlated to ROA and ROE. However, board size moderates the negative impact of CT on ROA and ROE, and duality increases the positive impact of CT on ROA and ROE.

Conclusion: In the emerging Vietnamese economy, CT reduces operating profitability, and board characteristics can moderate the negative impact of CT on profitability.

Unique contributions: This study has made significant contributions to the discovery of the negative impact of CT on the profitability of listed companies in Vietnam. The study also provides evidence that acknowledges the effectiveness of board monitoring on debt use in the emerging market of Vietnam.

Key recommendation: Future studies should expand their consideration of short-term and long-term debt types that affect profits, as well as the moderating role of internal and external governance mechanisms, to gain a more comprehensive understanding of this issue.