Date Received: May 11, 2022
Date Published: Mar 29, 2023
Views
Download
Section:
How to Cite:
The Impact of Capital Investments on Firm Financial Performance – Empirical Evidence from the Listed Food and Agriculture Companies in Vietnam
,
Nguyen Thi Huong
1
,
Dao Thi Hoang Anh
1
Keywords
Capital investment, Firm financial performance, Profit margin, CapEx, panel data
Abstract
Capital investment is one of the most important financial decisions of a firm, which effects the business survival. This paper investigates the impact of capital investments on firm performance to provide an insight for future capital investment decisions of companies. The study uses unbalance panel data gathered from 62 companies which covered 688 observations of listed food and agriculture sector in Vietnam stock exchange during the period 2009 – 2020. To control for unobserved individual effects, the random effect estimator was employed. Profit margin (PM) is used as a proxy for firm performance, while independent variables are capital investment rate in both short-term and long-term effect, equity to total assets ratio, firm size and tangible to fixed assets ratio. The results indicate that capital investments have statistically significant positive impact on long-term performance of the analyzed enterprises. This outcome is in accordant with many previous studies. Especially in the context of Vietnam listed food and agriculture companies have high level of capital investment, a portion increase in capital investment rate will increase the company profit margin. Other variables also have statistically significant relationship with profit margin, in details, equity ratio and size have positive effect while tangible assets ratio has negative effect on firm performance. Therefore, the research suggest firm managers should choose the appropriate capital investment strategies in long-term perspective, within the consideration of equity ratio, economics of scale and tangible assets investment ratio to get the most efficient performance.
References
Anh N. H. & Hieu N. T. (2020). Determinants of Firm’s Capital Expenditure: Empirical Evidence from Vietnam. Management Science Letters. 10(5): 943-952. DOI: 10.5267/j.msl.2019.11.017.
Al-Matari E. M., Al-Swidi A. K. & Fadzil F. H. B. (2014). The Measurements of Firm Performance’s Dimensions. Asian Journal of Finance and Accounting. 6(1): 24. DOI: 10.5296/ajfa.v6i1.4761.
Chung K. H., Wright P. & Charoenwong C. (1998). Investment Opportunities and Market Reaction to Capital Expenditure Decisions. Journal of Banking and Finance. 22: 41-60.
Cooper M. J., Gulen H. & Schill M. J. (2008). Asset Growth and the Cross-Section of Stock Returns. The Journal of Finance. 63(4): 1609-1651. DOI: 10.2139/ssrn.760967.
De La Bruslerie H. & Latrous I. (2012). Ownership Structure and Debt Leverage: Empirical Test of a Trade-off Hypothesis on French Firms. Journal of Multinational Financial Management. 22(4): 111-130. DOI: 10.1016/j.mulfin.2012.06.001
Fazzari S. M. & Athey M. J. (1987). Asymmetric Information, Financing Constraints, and Investment. The Review of Economics and Statistics. 69(3): 481-487. Retrieved from http://www.jstor.org/stable/1925536 on January 3, 2021.
Grozdić V., Marić B., Radišić M., Šebestová J. & Lis M. (2020). Capital Investments and Manufacturing Firms’ Performance: Panel‐Data Analysis. Sustainability. 12(4): 1689. DOI: 10.3390/su12041689.
Hsiao C. (2007). Panel data analysis - advantages and challenges. TEST 16 (1-22). DOI: 10.1007/s11749-007-0046-x.
Jiang C., Chen H. & Huang Y. (2006). Capital Expenditures and Corporate Earnings: Evidence from the Taiwan Stock Exchange. Managerial Finance. 32(11): 853-861. DOI: 10.1108/03074350610703812.
Kapelko M., Oude Lansink A. & Stefanou S. E. (2015). Analyzing the Impact of Investment Spikes on Dynamic Productivity Growth. Omega (United Kingdom). 54: 116-124. DOI: 10.1016/j.omega.2015.01.010.
Kartikasari D. & Merianti M. (2016). The Effect of Leverage and Firm Size to Profitability of Public Manufacturing Companies in Indonesia. International Journal of Economics and Financial Issues. 6(2): 409-413.
Lin F. L. & Chang T. (2011). Does Debt Affect Firm Value in Taiwan? A Panel Threshold Regression Analysis. Applied Economics. 43(1): 117-128. DOI: 10.1080/00036840802360310.
Vy L.T.P. & Nguyet P.T.B. (2017). Capital Structure and Firm performance: Empirical Evidence from a Small Transition Country. Research in International Business and Finance, 42(July): 710-726. DOI: 10.1016/j.ribaf.2017.07.012.
Prasetyantoko A. & Parmono R. (2008). Determinants of Corporate Performance of Listed Companies in Indonesia. MPRA Paper (6777).
Taipi E. & Ballkoci V. (2017). Capital Expenditure and Firm Performance Evidence from Albanian Construction Sector. European Scientific Journal, ESJ. 13(28): 231. DOI: 10.19044/esj.2017.v13n28p231.
Titman S., Wei K. C. J. & Xie F. (2004). Capital Investments and Stock Returns. Journal of Financial and Quantitative Analysis. 39(4): 677-700. DOI: 10.1017/S0022109000003173.
Yao T., Yu T., Zhang T. & Chen S. (2011). Asset Growth and Stock Returns: Evidence from Asian Financial Markets. Pacific-Basin Finance Journal. 19: 115-139. DOI: 10.1016/j.pacfin.2010.09.004.
Yu X., Dosi G., Grazzi M. & Lei J. (2017). Inside the Virtuous Circle Between Productivity, Profitability, Investment and Corporate Growth: An Anatomy of Chinese Industrialization. Research Policy. 46(5): 1020-1038. DOI: 10.1016/j.respol.2017.03.006.
Zeitun R. & Tian G. G. (2007). Capital Structure and Corporate Performance: Evidence from Jordan. 1(4). DOI: 10.2139/ssrn.2496174.
World Bank (2022). World Bank National Accounts data, and OECD National Accounts data files. Retrieved from https://data.worldbank.org/indicator/NE.GDI.TOTL.ZS?locations=VN on March 24, 2022.