The impact of financial market development on the capital structure of listed enterprises in the ASEAN Economic Community

2.3.2. Domestic studies on the impact of financial market development and economic factors on the capital structure of listed enterprises 69

2.4. Research gap 71

CHAPTER 3: RESEARCH METHODOLOGY 75

3.1. Research hypothesis 75

3.1.1. Group of variables measuring financial market development 75

3.1.2. Variables measuring national institutional quality 80

3.1.3. Control variables group 81

3.2. Research model and measurement of variable 87

3.3. Research data 90

3.4. Data analysis and processing methods 91

3.4.1. Qualitative research methods 92

3.4.2. Quantitative research methods 92

3.4.3. Steps to process and analyze data to achieve research objectives 96

CHAPTER 4: RESEARCH RESULTS AND DISCUSSION 98

4.1. Overview of financial market development in 98 countries

4.2. Descriptive statistical analysis of variables 102

4.3. Correlation analysis 107

4.4. Regression analysis 112

4.4.1. Impact of financial market development on capital structure 113

4.4.2. Impact of financial market development on corporate capital structure classified by national institutional quality 120

4.5. Discussion of research results 130

CHAPTER 5: CONCLUSION AND POLICY IMPLICATIONS 135

5.1. Conclusions and main contributions of the study 135

5.2. Policy implications 136

5.2.1. General policy implications for the five countries 136

5.2.2. Specific policy implications for Vietnam 149

5.3. Limitations of the topic and suggestions for further research 159

CONCLUSION 161

REFERENCES 163

Appendix 1: FTSE and MSCI Market Rating Criteria 178

Appendix 2: Summary of empirical studies related to topic 186

Appendix 3: Statistics on the number of enterprises in countries each year 192

Appendix 4: Statistics of variables used in the 7 most recent studies on topic 193

Appendix 5: Some commonly used enterprise characteristic variables 200

Appendix 6: Regression results using GMM method 202

Appendix 7: OLS, FEM, REM, GLS methods and model testing 226

Appendix 8: Some indicators of financial development in 5 countries 231

Appendix 9: The role of financial institutions 239

Appendix 10: Institutional Quality in Countries 242

LIST OF ABBREVIATIONS

STT

Acronym	Write in full
1	AEC	ASEAN Economic Community
2	ASEAN	Association of Southeast Asian Nations (Association of Southeast Asian Nations) Asian Nations)
3	DCTC	Financial institution
4	SMEs	Small and Medium Enterprises
5	FTSE GEIS	FTSE Global Equity Index Series
6	Commercial Bank	Commercial Bank
7	Stock market	Stock market
8	TTTC	Financial markets

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LIST OF DIAGRAM

STT

Diagram name	Page
1	Figure 1.1: Research process	6
2	Figure 2.1: How TTTC supports corporate finance and investment management	23
3	Figure 2.2: The role of financial institutions	26

LIST OF CHARTS

STT

Chart Name	Page
1	Chart 4.1: Financial market development (FMI) period 2010 – 2019	104
2	Chart 4.2: Accessibility to financial services (FMA) in the period 2010 - 2019	104
3	Chart 4.3: Financial Market Depth (FMD) in the period 2010 - 2019	105
4	Figure 4.4: Market efficiency (FME) in the period 2010 – 2019	106

LIST OF DRAWINGS

STT

Image name	Page
1	Figure 4.1: Stock market capitalization and value of traded stocks over GDP	100
2	Figure 4.2: Ratio of traded stock value to market capitalization (%)	100
3	Figure 4.3: Ratio of bond issuance value to GDP (%)	102

LIST OF TABLES

STT

Table name	Page
1	Table 2.1: Variables measuring financial market development of the IMF	35
2	Table 3.1: Symbols, measurements, and sign expectations of independent variables	89
3	Table 3.2: Number of enterprises per country over the years	91
4	Table 4.1: Descriptive statistics of variables in the model	102
5	Table 4.2: Correlation coefficient matrix between variables	108
6	Table 4.3: VIF coefficients of variables in the model	111
7	Table 4.4: Impact of financial market development on total debt	113
8	Table 4.5: Impact of financial market development on long-term debt	114
9	Table 4.6: Impact of financial market development on short-term debt	115
10	Table 4.7: Impact of financial market development on total debt in the group with low national institutional quality (GOV_LOW)	120
11	Table 4.8: Impact of financial market development on long-term debt in the group with low national institutional quality (GOV_LOW)	122
12	Table 4.9: Impact of financial market development on short-term debt in the group with low national institutional quality (GOV_LOW)	123
13	Table 4.10: Impact of financial market development on total debt in the group with high national institutional quality (GOV_HIGH)	124
14	Table 4.11: Impact of financial market development on long-term debt in the group with high national institutional quality (GOV_HIGH)	125
15	Table 4.12: Impact of financial market development on short-term debt in the group with high national institutional quality (GOV_HIGH)	127

CHAPTER 1: TOPIC OVERVIEW

1.1. Research problem and urgency of the topic

Capital structure is one of the topics that has attracted the attention of not only academic researchers but also policy makers over the past decades; the reason is that capital structure is one of the key factors that helps optimize the efficiency of capital use, increase enterprise value and contribute to promoting economic growth. In principle, business administrators choose capital structure not only to maintain the balance between debt and equity, but also to determine the level of financial risk arising from the imbalance of debt and equity ratios (Schwartz, 1959); therefore, maintaining the balance between debt and equity is very important to minimize financial risk (Campbell, Galpin and Johnson, 2016). In addition, the financial market (TTTC) is the place where the supply and demand relations of capital are combined, or in other words, the TTTC is the place where capital is transferred from people with idle savings to people in need of capital through two mobilization channels: Indirect capital mobilization channel is implemented through intermediary financial institutions - most notably banks; or direct capital mobilization channel is the stock market - people in need of capital issue types of valuable papers certifying the ownership of the capital used along with the rights or benefits that the buyer enjoys (Nguyen Thi Canh et al., 2011; Mishkin, 2016).

The core role of the financial market is to facilitate funding sources, helping corporate finance activities (related to decisions such as the amount of capital to be mobilized and what types of securities to issue to finance activities) to be carried out smoothly. In addition, the financial market also makes investment management easier, because the financial market provides many financial instruments with different maturities and risk levels, helping those with excess capital to make optimal use of their temporarily idle capital. In general, the financial market really plays a role in linking investment management activities with corporate finance activities (Madura, 2016). At the same time, the financial market is also an effective tool to help the state effectively manage the economy (Le Van Tu, 2006). However, if one party in the transaction has more information than the other party, it will lead to

information asymmetry, which leads to inefficient allocation of capital (Darskuviene, 2010).

In fact, there are many empirical studies related to capital structure, but most of the studies only focus on the impact of internal factors in enterprises on capital structure, or the impact of capital structure on business performance, with little attention paid to the impact of the development of financial markets on capital structure. While the role of financial markets is very important because it will provide more forms of capital mobilization for enterprises to choose from, the development of financial markets helps reduce information asymmetry, thereby reducing capital mobilization costs, reducing agency problems... so it will have a certain impact on the capital structure of enterprises. In addition, previous studies have produced mixed results and no single theory seems suitable in explaining the choice of capital structure. Although the issue has been studied for both developed and developing countries, the ambiguity seems to be much more serious for developing countries. This is because the role of developed and developing capital markets may differ in the choice of corporate capital structure; while the legal and institutional environments of developed countries are quite similar, those of emerging markets are significantly different. Therefore, these differences may explain the inconsistencies in the findings from emerging countries (Wald, 1999; Yarba and Guner, 2019; Yadav, Pahi, and Gangakhedkar, 2019). According to Glen and Singh (2004), the characteristics of firms in developing countries (or emerging markets) are different from those in developed countries, specifically (1) firms in emerging markets are dominated (about 76%) by small firms (with total assets under US$300 million) compared to large firms; (2) firms had lower and declining debt levels in the early 2000s, with long-term debt accounting for a smaller portion of short-term debt; (3) with regard to asset structure, emerging market firms had higher levels of fixed assets than current assets; (4) firms had lower profitability (ROA and ROE) which tended to increase in the early 2000s; and (5) emerging market firms had lower liquidity ratios.

Therefore, the study of factors affecting capital structure choices in developed economies may not be generalizable to emerging (developing) economies, which have significantly different financial infrastructures, institutional openness, and capital market development levels (Machokoto, Areneke, and Ibrahim, 2020). At the same time, a review of previous studies shows that although empirical studies are generally increasing in developing countries, very few studies have been conducted in the ASEAN region (Phooi, Rahman, and Sannacy, 2017). Meanwhile, Asia is at the center of global economic activity as well as the main growth engine of the world economy; Typically, at the end of October 2019, the McKinsey Global Institute also published a report stating that if the 19th century was called the "Europeanization Century", the 20th century was the "Americanization" century, then now it is the "Asianization Century" (Ha Ngoc, 2020); and the focus of Asia's development is the ASEAN region. Therefore, it is necessary to study the development of financial markets, capital structure, and the impact of financial market development on the capital structure of enterprises in the ASEAN Economic Community (AEC) to have an overall picture of the situation of countries within the bloc, thereby making comments on the questions raised.

Therefore, the topic " The impact of financial market development on the capital structure of listed enterprises in the ASEAN Economic Community " was chosen to study to determine and measure the impact of financial market development on the capital structure of listed enterprises in developing countries in the AEC bloc.

1.2. Research objectives and research questions

1.2.1. General objectives

The general objective of the thesis is to study the impact of the development of financial markets on the capital structure of listed enterprises in developing countries in the AEC bloc; from there, propose a number of solutions to help policy makers have a basis to propose more appropriate regulations and methods of financial market management, helping business operators have an overview of the factors affecting capital structure in order to be able to choose.

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