Conclusions and Main Contributions of the Study

have also developed or developed more strongly (typically in the 5 countries under consideration, the stock market is more developed than the bond market), which helps businesses to raise capital from other sources (such as issuing shares) and thus reduce the debt ratio. In addition, when the efficiency of the financial market is improved, the total debt (especially short-term debt) of businesses tends to increase; this implies that information asymmetry in developing countries may still be one of the difficult problems, so when the financial market operates more effectively, it will help businesses' information to be more transparent; the reason is that when listed on the stock exchange, businesses must provide periodic information according to the regulations of the Stock Exchange, the vibrant market also makes investors more active in searching for information to find undervalued stocks in the market to seek high profits; These help reduce information asymmetry, leading to reduced loan risk, creating incentives for creditors to lend more and lower lending costs, making it easier for business owners to access loans (especially short-term loans). However, as the stock market continues to develop or improves in financial depth, the diversity of goods in the market as well as improvements in the quality of information, supervision and control of businesses will attract investors, motivating them to invest in the stock market, causing capital to circulate quickly, creating strong liquidity for the market; therefore, issuing new shares will be easier and taking advantage of surplus capital by issuing shares at market value instead of par value, so the cost of using equity capital will be lower than the cost of lending, encouraging businesses to mobilize by issuing equity capital. At the same time, the quality of national institutions directly affects a firm’s access to capital in the market as well as the relative costs and benefits of debt and equity financing, with debt being less expensive than equity in countries with poor institutional quality. Therefore, in better-governed countries, firms rely more on issuing shares and less on debt (especially long-term debt).

In addition to the variables representing the development of the financial market and the quality of national institutions, 6 variables representing the characteristics of enterprises (including the dependent variable lag, SIZE –

Enterprise size, ROA - Profitability, TANG - Asset nature, PTB - Enterprise growth opportunities, and IND - Industry of the enterprise) and 2 variables representing the macro economy (including GDPGR and INF) were also included in the model as control variables. The research results show that all 6 variables representing enterprise characteristics affect capital structure, but the impact of PTB on capital structure is insignificant. The lag of the dependent variables (including total debt, long-term debt and short-term debt) all have a positive impact on the dependent variable and reach a significance level of 1% (only models from 57 to 60, or 4/72 models, do not reach statistical significance), showing that the enterprise capital structure is relatively stable over time. At the same time, when an enterprise increases its total assets, it tends to increase its debt ratio (this is true for both total debt, long-term debt and short-term debt); The reason is that enterprises with many assets often have prestige in the market, exist for a relatively long time, so information is more transparent, so it is easier to access loans. Enterprises with high profitability will tend to reduce the use of debt (specifically, reduce short-term debt but increase long-term debt), and when enterprises increase the ratio of fixed assets to total assets, they will tend to increase the debt ratio (both short-term and long-term); but it should be noted that both of the above variables only affect enterprises in countries with higher institutional quality, and the impact of profitability is much larger than the ratio of fixed assets to total assets. The reason is that enterprises with many fixed assets that can be used as collateral for loans, these enterprises can easily access loans (both short-term and long-term), so they increase the debt ratio, and high profitability shows that enterprises have internal capital to finance their operations but still need more long-term loans to expand production and business activities. At the same time, countries with stronger institutional quality mean higher quality of contract enforcement, property rights, freedom of speech, political stability and public services, as well as lower risks of expropriation and corruption; which in turn improves the soundness of the financial sector and facilitates participation in financial markets – savers are willing to finance firms and thus the financial market thrives. In addition, as domestic institutional quality increases, firms’ need to hold cash decreases because whenever they need funds, they can get them from markets where

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Investors are willing to expand their financing channels with more favorable conditions. This is the reason why the two factors of return and the ratio of fixed assets to total assets have a stronger impact on capital structure in countries with stronger institutional quality. The direction of the impact of all firm characteristics variables shows that capital structure in developing countries supports both the trade-off and pecking order theories. At the same time, corporate capital structure is affected by industry characteristics (the industry variable is statistically significant in most models, only models 25 to 28 are not statistically significant). As for macroeconomic variables, the impact of GDP per capita growth rate on capital structure is not really clear; Inflation causes firms in countries with lower institutional quality to increase their debt ratios (both in the short and long term), but tends to encourage firms in countries with stronger institutional quality to reduce their long-term debt ratios.

Chapter 4 Summary

The topic analyzed data and conducted a regression model using the 2-step GMM method to determine the impact of financial market development on corporate capital structure. The results showed that financial market development has an impact on the capital structure of five developing countries in the ASEAN Economic Community, the impact direction of each aspect on the debt ratio has certain differences, at the same time, this impact is significantly different depending on the quality of national institutions as well as the debt maturity being considered. In addition, corporate capital structure supports both the trade-off theory and the pecking order theory. The main reason for the above results, according to the author, is due to the problem of information asymmetry and the size of the stock market in developing countries is still quite small, the source of loans mainly depends on the banking system, the investor protection mechanism may not be really strong, making access to external capital difficult; This is an important basis for proposing solutions in chapter 5.

CHAPTER 5: CONCLUSION AND POLICY IMPLICATIONS

5.1. Conclusions and main contributions of the study

In order to study the impact of financial market development on corporate capital structure in developing countries in the ASEAN Economic Community, the thesis collected annual data of listed enterprises in five countries, Indonesia, Malaysia, Philippines, Thailand and Vietnam, in the period 2010 - 2020. Although many studies have been conducted on factors affecting corporate capital structure, the impact of financial market development on capital structure is still quite limited, especially in developing countries or more specifically in the ASEAN region. At the same time, the results of previous studies show that the measurement of financial market development as well as corporate capital structure can lead to different impacts. In addition, the quality of national institutions is also an issue that needs to be considered, because institutional quality is a factor that can directly and indirectly affect corporate capital structure through financial market development; Therefore, when controlling the quality of national institutions, the impact of financial market development on capital structure may change. For the above reasons, the thesis has used many different measures to represent financial market development to provide an overview of the research problem; in which, 4 measures (FMI, FMA, FMD and FME) are general in nature, collected by IMF and standardized in value from 0 to 1, with higher values indicating better financial market development. The next 4 measures represent stock market development (MACAP and LIQ) and bond market development (GOVBOND and CORPBOND), which are two components of the financial market. Corporate capital structure is also measured in 3 different ways based on book value, including: Total debt to total assets ratio, long-term debt to total assets ratio, and short-term debt to total assets ratio.

The results of the two-step GMM regressions provide empirical evidence that financial market development in five developing countries in the ASEAN Economic Community does impact corporate capital structure. The direction of the impact of each considered aspect on corporate debt ratio is also different, and this impact is significantly different for

firms in countries with different institutional qualities and debt maturities are considered. However, in general, firms in countries with stronger institutional qualities tend to reduce their long-term debt ratios as financial markets develop (while financial market efficiency causes firms to increase their debt ratios, especially short-term debt), and their capital structures are affected by more factors (such as profitability or the ratio of fixed assets to total assets) than firms in countries with lower institutional qualities. This implies that in developing countries, information asymmetry is still a fairly large problem, while financial markets are still quite small and mainly dependent on bank loans; so the impact of financial market development on corporate capital structures in countries with different institutional qualities will have certain differences. At the same time, the capital structure of enterprises in five developing countries in the ASEAN Economic Community supports both the trade-off theory and the pecking order theory, meaning that enterprises' borrowing will depend on the consideration between the benefits and costs of using borrowed capital, but it is possible that due to the problem of information asymmetry still existing in the economy, enterprises still prioritize the use of internal capital.

Therefore, when the financial market develops, it will help make information more transparent, helping to reduce risks and costs; so depending on the position of the enterprise in the market, they will choose the most beneficial source of capital to access. However, in general, when the financial market develops and/or the quality of national institutions is consolidated (or enhanced), it will cause enterprises to reduce debt, especially long-term debt. Therefore, to reduce the burden on the banking system in providing long-term loans, promoting the development of the financial market (especially market depth) is very necessary; and when the efficiency of market operations increases, it will cause enterprises to increase their use of short-term debt.

5.2. Policy implications

5.2.1. General policy implications for the five countries

Both de facto integration and regional agreements under the ASEAN Economic Community (AEC) have led to increased financial linkages among countries in the region. Regional initiatives in financial services liberalization, market development

Capital and capital account liberalization have also contributed to the deepening of regional financial markets. However, the integration of financial markets in Asia also has certain limitations and there are many factors that explain these limitations; typically the lack of liquidity in financial markets due to the existence of small, illiquid and fragmented financial markets in Asia, which leads investors to prefer to access large financial markets in developed countries, where there are more choices of financial instruments to share risks. Strict regulations and policies on some cross-border financial transactions also hinder the integration of financial markets across Asia. For example, differences in capital account and tax regimes in Asian countries often discourage cross-border holdings of equities and bonds, as they increase the costs of entering and exiting financial positions. However, despite these limitations, evidence shows that Asian financial markets have become increasingly integrated over the past three decades, and by the end of 2015, ASEAN countries had completed 87% of all measures in the AEC Blueprint to achieve free movement of services and capital (Rillo, 2018).

In addition, empirical research results show that if the financial market develops, enterprises in the five developing countries in the ASEAN Economic Community will tend to reduce their debt ratios, especially long-term debt ratios in countries with stronger institutional quality (in particular, improved financial market efficiency increases debt ratios, especially short-term debt); this shows that when the financial market develops (both stock and bond markets, especially corporate bonds), it will significantly reduce pressure on the banking system. The reason is that most developing countries have underdeveloped capital markets, and external capital mobilization mainly depends on bank capital and is dominated by banks; this is a major obstacle to financing long-term development needs to achieve sustainable high growth. Therefore, the need for financing infrastructure and small and medium-sized enterprises (SMEs) is particularly important. A major issue in managing the financial structure of banks is the mismatch between assets and liabilities; specifically, banks often finance long-term projects, while the main source of funding for banks is short-term deposits. Therefore, financing infrastructure investment

This will naturally create significant asset-liability maturity mismatches on banks’ balance sheets, and this problem is particularly acute in emerging Asia (where banks remain the main source of corporate finance). In addition, SME finance is another important issue. In many emerging and developing economies, SMEs are a major pillar of production and employment. However, despite the economic importance of SMEs, banks are reluctant to lend to them because of their generally high business risk, lack of credibility, information, credit history, and inadequate collateral. Poor SME lending and the higher costs associated with managing a large number of small accounts also discourage banks from lending. Progress in SME finance has varied widely across regions. The most visible progress has been made in the region’s middle-income economies, where secured and unsecured lending regimes have been established with collateral management systems, credit information bureaus, etc. But in low-income developing economies, the lack of legal and regulatory frameworks, inadequate information and market transparency, weak corporate governance, and underdeveloped financial infrastructure continue to impede effective SME financing. Therefore, to facilitate businesses (especially SMEs) to access external capital, promoting the development of financial markets is essential.

In order to promote the development of financial markets, it is essential to propose solutions to improve the quality of national institutions (including 6 component indicators: voice and accountability, political stability and absence of violence/terrorism, government effectiveness, regulatory quality, rule of law, and control of corruption) to reduce information asymmetry in the market and encourage savers to invest in enterprises; this is the foundation for the development of both stock and bond markets. Therefore, laws and regulations must be built to protect investment rights in countries and enable investors to more accurately predict the cash flows from a project because this is an important step in any valuation. Typically, ownership rights in investments must be legally protected, furthermore, the terms of the contract must be enforceable. One

Another concern for investors (especially foreign institutional investors) is the uncertainty about what the regulatory framework may look like in the future. Since consistent application of a regulatory framework provides greater certainty in cash flow forecasts, reducing the returns required to compensate for risk, governments should reduce regulatory uncertainty that can be detrimental to long-term investment. In this regard, they can establish protocols that assure investors that the rules affecting such projects will not be changed arbitrarily following a change of government. In addition, the presence of inflation also makes it more difficult to accurately forecast cash flows in long-term investments, so controlling inflation enhances the security of real returns.

At the same time, there is a high correlation between the size of institutional investors (mutual funds, insurance companies and pension funds) and the size of capital markets (stocks and bonds); this shows the importance of developing a large number of long-term institutional investors to improve not only financial depth, but also market efficiency and liquidity. Therefore, these investors are necessary for the development of domestic bond and equity markets. However, apart from Malaysia and Thailand, the size of institutional investors in the countries is still relatively small. Therefore, further efforts are needed to facilitate the establishment of a large number of domestic institutional investors. The trend of urbanization and the growing middle class in the region is likely to boost the demand for mutual funds, pension funds and insurance assets, leading to an increase in the size of these institutional investors in the coming years. However, it should be noted that the growth of mutual funds is largely dependent on domestic factors including rising incomes and the expansion of domestic investor base, so the key barriers facing the mutual fund industry can be summarized as follows: Lack of appropriate and robust regulation of funds and financial markets; scarcity of large common markets where mutual funds can be traded; excessive volatility in returns on regional stock and bond markets; weak investor knowledge and lack of protection measures… Therefore, mutual funds have not been able to develop.

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