The capital structure is one of the most complex areas of financial decision making that has attracted much attention in the academic arena. Changes in capital structure will change profitability measured in terms of earnings per share or returns on equity and financial risk. This study thus aims to examine the effect of capital structure on profitability for the Vietnamese Real Estate industry.
The annual data are collected from 2011 to 2013 for 55 real estate companies traded on the Vietnamese exchange. Profitability is the dependent variable. The proxies of profitability include earnings per share (EPS), returns on equity (ROE), return on assets (ROA) and the ratio of earnings before interest and taxes to equity (EE). The explanatory variables are capital structure denoted by debt to equity ratio and debt maturity structure denoted by long-term debt to total assets ratio. The control variables are the scale and the number of years of existence of the firm. The pooled least squares method with fixed effects is applied to estimate the multiple regression model by using the pooled data with 55 companies and 3 years.
Evidence shows that capital structure was negatively correlated with ROE and EE at the 5% significance level. The negative association between capital structure and profitability is in line with the findings of Myers (1984). Though the coefficient of capital structure is found negative in the ROA and EPS equations, it is statistically insignificant even at the 10% level. Those firms established earlier tend to have less profitability whereas those firms with larger scale tend to have more profitability no matter what proxy of profitability is used. Evidence also shows that debt maturity structure has no influences on profitability even at the 10% significance level in the four equations.
