Title: Capital Structure and Corporate Investment Efficiency: Panel Evidence from Vietnam's Emerging Stock Market
Authors: Xuan Hieu NGUYEN
Volume: 9
Issue: 7
Pages: 115-127
Publication Date: 2025/07/28
Abstract:
This study examines the relationship between capital structure decisions and corporate investment efficiency using a comprehensive panel dataset of 450 Vietnamese listed firms from 2008 to 2017. Employing advanced panel data econometric techniques, including fixed effects estimation with Driscoll-Kraay standard errors and system GMM approaches, this research investigates how leverage ratios influence investment efficiency in Vietnam's emerging stock market context. The analysis reveals a significant inverted U-shaped relationship between leverage and investment efficiency, suggesting an optimal capital structure that maximises investment effectiveness whilst minimising both underinvestment and overinvestment problems. The findings demonstrate that moderate leverage levels (25-35% debt-to-assets ratio) enhance investment efficiency by mitigating agency costs and improving managerial discipline, whilst excessive leverage creates financial distress costs that impair investment decisions. The study contributes to the capital structure literature by providing robust empirical evidence from an emerging market characterised by unique institutional features, including concentrated ownership structures, limited external financing options, and evolving corporate governance mechanisms. The results have significant implications for corporate financial policies, regulatory frameworks, and investment strategies in emerging markets, particularly regarding optimal capital structure decisions that enhance firm value through improved investment efficiency.