THE IMPACT OF FINANCIAL LEVERAGE ON FIRM PERFORMANCE: A CASE OF CONSTRUCTION FIRMS IN VIETNAM
Le Thai Phong
The debt situation of Vietnam construction sector is analyzed by the study. Construction
firms in Vietnam are very familiar with using debt. They diversify their capital structure by
7:3 or 70% of leverage and 30% of owners’ equity.In spite of the high financial leverage
rate, the increase in sales revenue and the ability to liquidate current debts, the profitability,
return on equity rate and book value decreased considerably. With the sample of 45 listed
construction companies in Vietnam, this paper analyzes the effects of financial leverage
on financial performance of construction industry in Vietnam from 2007 to 2011. GLS
estimation has been carried out to analyze the relationship between financial leverage and
financial performance in Vietnam construction industry during five years from 2007 to 2011.
From the results, the financial leverage is positively correlated to return on equity, earnings
per share, and negatively related to return on asset and quick ratio..
Key words: financial leverage, financial performance, construction industry
Date of submission: 9th September 2015 – Date of approval: 10th March 2016