THE SECOND INTERNATIONAL CONFERENCE ON THE SUSTAINABLE ECONOMIC DEVELOPMENT AND BUSINESS MANAGEMENT
IN THE CONTEXT OF GLOBALISATION (SEDBM 2019)
Volume 1
INTERNATIONAL CONFERENCE 2019
FINANCIAL PUBLISHING HOUSE
PROCEEDINGS
THE SECOND INTERNATIONAL CONFERENCE ON THE SUSTAINABLE ECONOMIC
DEVELOPMENT AND BUSINESS MANAGEMENT IN THE CONTEXT OF GLOBALISATION
(SEDBM 2019) Volume 1
INTERNATIONAL CONFERENCE 2019
Dear Friends and Colleagues,
We are pleased to welcome you to the 2ndInternational Conference: “Sustainable Economic Development and Business Management in The Context of Globalisation” (SEDBM 2019).
The 2nd International Conference SEDBM 2019 brings together the world-leading experts in finance, accounting, audit, economic and business administration, serving as a point of convergence for researchers, practitioners and policymakers to meet, share and exchange their ideas. The 2nd International Conference SEDBM 2019 will strive to offer not only plenty of networking opportunities, providing you with the opportunity to interact with the leading researchers from both academia and universities, but also an environment to engage in stimulating discussions about research topics and practices. We are especially honoured to have:
Associate Professor Simone Domenico Scagnelli - School of Business and Law, Commerce Discipline, Edith Cowan University, Australia.
PH.D., Senior Lecturer Jaime Yong, Course coordinate for Finance, School of Business and Law, Edith Cowan University, Australia.
We are indebted to members of the Organizing Committee for their support to make this International Conference a great success.
We wish you all an intellectually stimulating and productive conference!
On behalf of the Organizing Committee, Nguyen Trong Co
PRESIDENT OF ACADEMY OF FINANCE
Assoc. Prof. Nguyen Trong Co is the President of Academy of Finance. He has been working for the Academy since his graduation and in different positions such as lecturer, Head of Financial Analysis Department, Deputy Head of Human Resources Department before becoming Vice President of the Academy. He was nominated as the President of Academy of Finance in 2014 and has been in that position to present.
He is the Editor-in-Chief of the Journal of Finance and Accounting Research, Vice President of the Scientific Board of Finance Research and member of the Scientific Board of Banking Research.
He was awarded the honor membership of FCPA Australia.
Assoc. Prof. Nguyen Trong Co is the author/co-author of more than 21 valuable textbooks and reference books such as “Financial Analysis”, Finance Publishing House, 2017; “Auditing Management and the use of Mineral Resources for Sustainable Development in Vietnam”, Finance Publishing House, 2016, etc.
He has completed and published more than 20 research projects covering a wide range of research topics such as corporate finance, public finance and technological market, etc. He has also published more than 70 articles in both local and international journals.
SCHOOL OF BUSINESS AND LAW, COMMERCE DISCIPLINE, EDITH COWAN UNIVESITY, AUSTRALIA
Dr Scagnelli got awarded his Ph.D in 2005 from the University of Turin, in Italy, with a thesis focussing on the accountability and measurement issues of Management Information Systems.
Prior to joining ECU as Associate Professor, Dr Scagnelli was Associate Professor at the Department of Management, University of Turin, Italy, and was the Head of International Relations and Director of the International Bachelor in Business & Management.
From 2012 to 2018, he was also Adjunct Professor of Financial & Managerial Accounting at ESCP Europe, one of the top Business Schools in the World.
Dr Scagnelli’s research has been mostly in Accounting, with a particular focus on Corporate Social Responsibility. He has presented at leading international conferences and published in scholarly international journals such as the Australian Accounting Review, Corporate Social Responsibility and Environmental Management, and Pacific Accounting Review. His international research partnerships span the countries of Italy, UK, Germany, Russia, Australia and Japan, where has obtained a number of research grants.He has also supervised research students to completion at the PhD level.
Dr Scagnelli has also developed an extensive experience in the industry. Prior to joining Academia, he was associate partner at a leading Italian Law and Accounting firm, providing advisory services to national and multinational companies in the Automotive, Aerospace and ICT industries.
COURSE COORDINATOR FOR FINANCE, SCHOOL OF BUSINESS AND LAW, EDITH COWAN UNIVESITY, AUSTRALIA
Jaime started as a sessional academic at ECU, Perth Institute of Business and Technology and Curtin University. She has been with ECU on a full-time basis since 2009 and has been granted the Award of Excellence in Postgraduate Teaching in 2013.
Her research focus is on direct and securitised real estate investments in Australia and implications on portfolio choices. In addition, her research areas and interests may also include:
commercial real estate, index construction, real estate investment trusts (REITs), asset pricing, and portfolio allocation.
Over the past decade she has taught economics and finance units at both the undergraduate and postgraduate level.
Currently, Dr. Jaime Yong is also a member of the Financial Services Institute of Australasia (FINSIA)
1. DETERMINANTS OF CAPITAL STRUCTURE OF LISTED CONSTRUCTION FIRMS IN VIETNAM
Ngo Thi Kim Hoa ...5 2. Growth and Market Share Matrix, CEO Power, and Firm Performance
Abey Gunasekarage, Luong Anh Hoa, Thanh Tan Truong ...20 3. TAX MANAGEMENT WITH E-COMMERCE ACTIVITIES IN VIETNAM UNDER THE LEGAL VIEW
Le Thi Thanh, Tran Thi Thu Huong ...22 4. IDENTIFY CROSS-BORDER TAX ARBITRAGE OF MULTI-NATIONAL ENTERPRISES IN GLOBAL BUSINESS CONTEXT
Nguyen Van Hieu ...31 5. ELECTRONIC TAX PAYMENT THROUGH VIETNAM NATIONAL SINGLE WINDOW
Nguyen Thi Thuong Huyen, Nguyen Tran Hieu ...36 6. Evaluating the credibility of sustainability reporting for global companies
Imane Allam ...47 7. CURRENT STATE AND DIGITAL FUTURE OF VNPT’S FINANCE AND ACCOUNTING SYSTEM
Vu Thuy Linh, Nguyen Minh Dzung ...59 8. INNOVATION OF PUBLIC DEBT AUDITING OF SAV CONTRIBUTING TO THE SUSTAINABILITY OF VIETNAM’S PUBLIC FINANCE
Nguyen Huu Hieu ...68 9. BLOCKCHAIN IN BANKING AND FINANCE - THE GAP BETWEEN RESEARCH AND IMPLEMENTATION
Vu Thi Vinh, Hoang Lan Huong ...76 10. Using artificial neural network in financial heath prediction: envidence from Vietnamese manufacturing companies
Pham Thi Hoai Thu, Tran Doan Hieu, Tran Son Ninh ...84 11. LOGISTICS DEVELOPMENT SOLUTIONS IN MARINE ECONOMY IN QUANG NINH PROVINCE
Luong Quang Hien, Nguyen Trong Tuan, Do Xuan Hien , Vuong Thanh Tu ...92 12. TOWARDS SUSTAINABLE DEVELOPMENT - THE GOAL OF VIETNAMESE BANKING SECTOR
Trinh Thanh Huyen...103 13. FACTORS IMPACT ON AUDIT FEE: CASE IN VIETNAM
Le Quang Dung ...111 14. DO PHARMACEUTICAL COMPANIES LISTED ON VIETNAM STOCK EXCHANGE HAVE OPTIMAL CAPITAL STRUCTURE?
EVIDENCE FROM THRESHOLD REGRESSION MODEL
Dam Thanh Tu, Bui Thi Ha Linh ...116 15. AN APPLICATION OF SINGLE INDEX MODEL IN RISK MEASUREMENT ON VIETNAMESE STOCK MARKET
Nguyen Thu Thuy, Dinh Thi Hai Phong ...123 16. FINTECH AND FINANCIAL INCLUSION IN VIETNAM
Bui Thanh Huyen ...135
17. YOUNG CONSUMERS AND THE WILLINGNESS TO PAY FOR ECO-FRIENDLY APPAREL
Pham Thi Cam Anh, Le My Huong, Ngo Manh Tuan ...144 18. A LITERATURE REVIEW ON WORKING CAPITAL MANAGEMENT EFFICIENCY AND SOME IDEAS FOR FUTURE RESEARCH
Ta Đinh Hoa ...157 19. INDUSTRY 4.0’S IMPACT ON THE ACCOUNTING AND AUDITING PROFESSION AND EDUCATION IN VIETNAM
Giang Thi Xuyen ...166 20. PROFESSIONAL ETHICS OF ACCOUNTING - AUDITING WITH SUBSTAINABLE ECONOMIC
DEVELOPMENT AND BUSINESS MANAGEMENT
Ly Lan Yen ...176 21. HUMAN RESOURCE DEVELOPMENT OF BANKING SECTOR IN THE CONTEXT OF INDUSTRIAL REVOLUTION 4.0
Nguyen Huu Tan, Nguyen Thu Thuong ...182 22. SUSTAINABLE DEVELOPMENT OF POSTS AND TELECOMMUNICATIONS INDUSTRY OF VIETNAM IN GLOBALIZATION
Ngo Tien Dung, Tran Phuong Lien, Nguyen Mai Phuong ...187 23. IMPACT OF BLOCKCHAIN TECHNOLOGY TO FIELD ACCOUNTING AND AUDITING
Duong Thi Quynh Lien ...191 24. ESTABLISHING WASTE AUDIT PROCESS IN VIETNAMESE ENTERPRISES TOWARDS TO SUSTAINABLE DEVELOPMENT
Thi Tam Le, Thi Mai Anh Nguyen ...196 25. REVIEWING LITERATURE ON EXPLORING WOMEN’S PARTICIPATION AND TRANSITION INTO FORMAL EMPLOYMENT:
CASE STUDIES IN REGIONAL INDONESIA
Endah Prihatiningtyastuti ...204 26. THE STRUCTURE AND ADMINISTRATION OF THE GREEN CLIMATE FUND AND ITS IMPLICATION ON DEVELOPING COUNTRIES
Mohammad Zulfikar Ali ...215 27. MACROECONOMIC ENVIRONMENT - AN ANALYSIS FOR VIETNAM AND SOME AEC MEMBERS IN FDI ATTRACTING
Cao Phuong Thao ...225 28. CORPORATE SOCIAL RESPONSIBILITY (CSR) TOWARD EMPLOYEE SATISFACTION OF TEXTILE MANUFACTURERS IN VIETNAM
Do Thi Phi Hoai, Do Khac Huong ...235 29. INFORMATION AND COMMUNICATION TECHNOLOGY ADOPTION BY WOMEN ENTREPRENEURS IN INDONESIA
Maya Irjayanti, Linley Lord, Kerry Pedigo, Niki Hynes ...244 30. VIETNAMESE FAMILY FIRMS’ FINANCING DECISIONS: WHAT ARE DIFFERENCES FROM NON-FAMILY FIRMS?
Trang Tran ...256 31. SOLUTIONs FOR SUSTAINABLE DEVELOPMENT OF THE PRIVATE ECONOMY IN VIETNAM IN GLOBALIZATION CONDITIONS
Nguyen Anh Tuan, Dong Thi Phuong Nga ...268 32. DEVELOPING SHARING ECONOMY IN VIETNAM
Tran Phuong Anh ...278 33. DIAGRAM OF CIRCULAR FLOW BETWEEN ECONOMIC AND NATURAL SYSTEMS - MEASURING SUSTAINABILITY OF AN ECONOMY
Nguyen Thi Thuy Huong ...284 34. KNOWLEDGE SPILLOVERS: A REVIEW OF EMPIRICAL STUDIES
Pham Thi Thanh Hoa, Nguyen Truong Giang ...292 35. INDUSTRIAL PARKS AND ECONOMIC ZONES DEVELOPMENT TOWARDS SUSTAINABILITY IN VIETNAM
Vu Viet Ninh, Tran Thi Phuong Mai ...307
36. IMPACT OF FOREIGN DIRECT INVESTMENT ON ENSURING ECONOMIC SECURITY OF BAC NINH PROVINCE IN THE NEW SITUATION Luong Quang Hien, Nguyen Huyen Trang, Luong Thi Minh ...313 37. DEVELOPING A SUSTAINABLE ECONOMY AND BUSINESSES IN THE CONTEXT OF THE DIGITAL ECONOMY
Ngo Thi Thu Hong, Le Thi Yen Oanh ...322 38. THE IMPACTS OF FOREIGN DIRECT INVESTMENT ON THE ENVIRONMENT IN VIETNAM AFTER MORE THAN THREE DECADES OF
INNOVATION AND NEW ISSUES
Tran Phuong Thuy, Tran Thu Hoai ...331 39. ATTRACTING FOREIGN DIRECT INVESTMENT ON AGRICULTURE SECTOR IN VIETNAM IN THE CONTEXT
OF THE FOURTH INDUSTRY REVOLUTION
Pham Thi Kim Len ...342 40. PROMOTING FLEXIBLE WORKING ARRANGEMENTS FOR WORKING PARENTS UNDER VIETNAM
LABOUR LAW - REGULATING THE UNREGULATED
Hoang Phuong Anh , Vu Ngoc Quynh ...346 41. COMPLETING THE STATE BUSINESS REGULATIONS IN VIETNAM LAW ON ENTERPRISES 2014
BY MEANS AND INTERNATIONAL ECONOMIC PRINCIPLES
Pham Thi Hong Nhung, Bui Phuong Thao ...357 42. STARTING A BUSINESS IN VIETNAM UNDER THE IMPACT OF THE FOURTH INDUSTRIAL
REVOLUTION - THE OPPORTUNITY AND CHALLENGE
Hoang Thi Hong Hanh, Nguyen Chi Thien, Hoang Thi Hong Dao ...364 43. ATTRACTING FDI FOR LOW-CARBON GREEN GROWTH IN VIETNAM
Hoang Phuong Anh, Ngo Thi Kim Hoa ...372 44. SUSTAINABLE DEVELOPMENT IN GLOBALIZATION CHALLENGES TO VIETNAM
Nguyen Ho Phi Ha, VuThi Phuong ...385 45. UTILIZING AUTOMATION MARKETING IN NEW DIGITAL MARKETING STRATEGY FOR VIETNAMESE ENTERPRISES
Dang Huong Giang ...394 46. THE IMPACT OF THE INTERNAL FACTOR TO THE PROFITABILITY OF SMALL SCALE SECURITIES
COMPANIES - VIETNAMESE CASE STUDIES
Nguyen Le Cuong, Nguyen Phuong Anh ...405 47. ENVIRONMENTAL ACCOUNTING AT VIETNAMESE ENTERPRISES IN THE TREND OF GLOBALIZATION
Nguyen Ba Linh, Nguyen Ba Minh, Le Vu Thanh Tam ...414
CONSTRUCTION FIRMS IN VIETNAM
Ngo Thi Kim Hoa1
ABSTRACT: The study aims to identify the capital structure determinants of the listed construction firms in Vietnam. The determinants of capital structure are factors affecting firm financial leverage, including firm profitability, size, growth rate, fixed assets, liquidity, interest coverage and state ownership. The study is based on a data of 74 listed construction firms in the Hanoi and Ho Chi Minh Stock Exchange over the period 2014-2018. It is found that listed construction firms in Vietnam have high level of financial leverage and mainly rely on short-term debts. The study also found that profitability, the level of investment in fixed assets, liquidity and interest coverage negatively affect the firms’ total leverage whereas firm size, growth and state ownership positively affect the firm’s total leverage. In other words, firms with high profitability, high liquidity, high interest coverage ratio and high level of investment in fixed assets, tend to use less debt and vice versa. In addition, large and high growth firms still are more leveraged and state-controlled enterprises rely on external debt rather than equity, especially short-term debt.
Keywords: capital structure, leverage, capital structure determinants, construction firms.
1. INTRODUCTION
Vietnamese economy has experienced dramatic changes in recent years and one of the most important industries in the economy is the construction sector. The development of Vietnam’s construction enterprises has created a great contribution to the growth and development of the country’s economy. Capital structure is not a new topic and study on capital structure is very necessary for corporate governance, because capital structure has a significant impact on the performance, existence and development of firms. At present, the financial market in Vietnam has developed a lot compared to the past. Although the development of Vietnamese financial market is still at a nascent stage, it has created a capital supply to meet the needs of production and business activities of enterprises including construction businesses. However of looking at the balance sheets of Vietnamese construction firms, it can be seen that the proportion debt is extremely high.
There is mainly short-term debt whereas the proportion of long-term debt is zero or very small number. The capital structure with very high leverage level is questionable because it can create a high level of financial risk. Thus, this paper studies the capital structure determinants of listed
1 Academy of Finance, 58 Le Van Hien Street, Duc Thang Ward, Bac Tu Liem District, Hanoi 100000. Email: ngothikimhoa@
gmail.com
construction firms in Vietnam to examine what factors influencing their capital structure and how these factors affecting the firms’ capital structure. The study findings are expected to support the firm financial managers in adjusting the financing policies to determine appropriate capital structure choice, in order to improve the firms’ performance. To do so, the paper employs panel regression methods to analyze the determinants of capital structure of 74 construction firms listed on the Hanoi and Ho Chi Minh Stock Exchange for the period 2014-2018. The rest of the paper is organized into three sections: section 2 reviews the empirical literature on capital structure; section 3 describes methodology used in the study including the hypotheses, data and the econometric models utilized; section 4 discusses the results and provides conclusion of the research.
2. LITERATURE REVIEW
Since Modigliani and Miller’s theory of capital structure laid the groundwork for the capital structure theory, there has been a large number of researches on firm capital structure and capital structure determinants.
Research on the factors affecting the capital structure of enterprises has been carried out very early in developed economies. Some works of authors in the US are: Titman and Wessels (1988) with 469 enterprises in the period 1976-1982; research by Frank and Goyal (2009) with the data of 50 years from 1950 to 2003. Results from the research of Titman and Wessels show that firm size, transaction costs and business characteristics have a significant impact on firm capital structure, while factors such as the interest tax shield and growth rate have no relation to the capital structure.
In their research, Frank and Goyal looked at the impact of many factors including profitability, firm size, growth, taxes, asset structure, risk, and inflation, and found a statistically significant impact of growth rate, asset structure, profitability, inflation rate on the capital structure of enterprises. In addition, Rajan and Zingales (1995) studied the factors affecting capital structure in G7 businesses (USA, Japan, France, Italy, UK and Canada), showing the strong positive relationship between firm leverage level and firm size, the proportion of fixed assets and growth rate, while firm leverage level is negatively related to profitability and growth.
In developing economies, there are also a lot of researches on the capital structure determinants. Huang and Song (2002) studied 1,000 listed enterprises in China during the period of 1994-2000. The research results show that capital structure is positively related to firm size, the proportion of fixed assets and profitability, while there is a negative relationship with taxes. The author also argued that trade-off theory is better than pecking order theory in explaining the capital structure of Chinese enterprises. This result is also similar with research in Libya of Buferna et al (2008). The study was conducted by Salwani (2015) and colleagues considering factors affecting capital structure of 106 listed manufacturing enterprises in Malaysia in the period of 2003-2012, found that the proportion of fixed assets and size have a positive impact on debt ratios while profitability and liquidity have a negative effect on debt ratios. Mashar and Nasr (2010) studied in Pakistan enterprises found that fixed assets and profitability have a negative relationship with capital structure; while size, growth and taxation have a negative relationship with the capital structure of enterprises. Nunkoo and Boateng (2010) studied the factors affecting the capital structure of businesses listed on the Toronto stock exchange in the period 1996-2004, found the
inverse relationship of growth rate, firm size and the capital structure, and a positive relationship between profitability, fixed assets and the capital structure.
In Vietnam, capital structure determinants are also concerned by many authors. Most common factors in international empirical literature such as profitability, size, fixed assets and growth, are applied in studies for Vietnam market. The results from the studies vary among researches. Nguyen and Ramanchandran (2006) studied the factors affecting the capital structure of small and medium enterprises in Vietnam, with a sample of 558 enterprises in 1998-2001. The results show that the level of debt usage of these businesses is positively related to growth, business risks, firm size and relationship with banks. At the same time, the study pointed out the negative impact of investment in fixed assets with capital structure and did not find a statistically significant impact of profitability on the level of debt usage. In line with this research, Doan Ngoc Phi Anh (2010) studied the factors affecting the capital structure and the impact of capital structure on the performance of enterprises with a sample of 428 listed companies in Vietnam, and found a statistically significant impact of profitability factors, business risks, asset structure and firm size on capital structure. In addition, Nguyen Thi Hang and Rern Jay Hung (2016) studied capital structure determinants of 420 non- financial enterprises listed on Vietnam’s stock market in the period 2010-2014. The study found the positive effects of growth and firm size, but the negative effect of profitability, business risk, current solvency and non-debt tax shield on capital structure. Furthermore, Nguyen Thi Thuy Dung et al. (2014) found that Vietnamese enterprises mainly use short-term loans, profitability and liquidity have a negative impact on capital structure while the growth rate and state ownership have a positive impact on the debt ratio of enterprises. Le Trung Thanh (2017), studied the factors affecting the capital structure of listed companies in Vietnam, using data related to 228 enterprises listed on Ho Chi Minh Stock Exchange in period 2010-2014. The results of the study indicate that pecking order theory explains the behavior of Vietnamese enterprises’ decision making on capital structure. The author concluded that large-scale and high-growth enterprises often use more debt.
Le Dat Chi (2013) studied 178 non-financial enterprises listed on Hanoi Stock Exchange (HNX) and Ho Chi Minh City (HOSE) in the period of 2007-2010. The results find factors affecting capital structure, including: macro factors (tax rates, inflation), internal factors (profitability, market to book ratio), business factors and governance behavior. The author also pointed out that tax factors, industry leverage, and managerial behavior have a positive effect on the debt ratio, while inflation, the market value ratio on the book price, the ROA have the opposite effect.
To sum up, studies of the capital structure determinants in different economies considered similar factors, but the empirical results were very different. Most of the studies look at the impact of factors on capital structure and the explanatory variables often focus on internal factors such as size, asset structure, profitability, liquidity, etc. Some studies concerned about explanatory variables of macro factors such as interest rates, taxes and inflation. In fact, the empirical studies in Vietnam have just been conducted in recent years and the number of research is small, so the implementation of quantitative research is necessary to contribute results for comparison and development of quantitative research in Vietnam. With the specific characteristics of a regulated market economy and the development of construction firms in Vietnam, the research of the capital structure determinant is appropriate and topical.
3. METHODOLOGY 3.1. Hypotheses
Hypothesis H1: Profitability has a negative effect on the capital structure of Vietnamese listed construction firms.
In theory and empirical studies, profitability has a positive or negative effect on firms’ capital structure. For example, according to trade-off theory, businesses with high profitability tend to use more debt to take advantage of the interest tax shield, in other words, profitability has a positive effect on capital structure. In contrast, according to the pecking order theory, profitability has a negative effect on capital structure. According to pecking order theory, the source of internal capital (retained earnings) is considered the most preferred capital of enterprises. Businesses with high profitability often use more retained earnings to reinvest and use less debt. In empirical studies, a number of studies have found that profitability has a positive effect on firms’ leverage, such as those by Buferna (2008), Nunkoo and Boateng (2010). However, a large number of studies found the opposite effect of profitability on firms’ leverage, including Fama and French (2002), Rajan and Zingales (1995), Huang and Song (2010), Salwani (2015), Le Dat Chi (2013), Doan Ngoc Phi Anh (2014), etc.
Hypothesis H2: Firm size has a positive effect on the capital structure of Vietnamese listed construction firms.
It can be seen that large enterprises are more likely to have access to loans than small businesses.
Banks and credit institutions prefer to provide loans to large businesses because of their solvency, creditworthiness, and transparency in their financial information. Looking at the results from empirical studies, firm size also has a positive impact on the firm’s level of debt use. For example, in the research of Nguyen and Ramachandran (2006); Buferna (2008), Le Trung Thanh (2017).
Hypothesis H3: The growth rate of an enterprise has a positive effect on the firm’s capital structure.
According to the pecking order theory, the growth rate has a positive effect on the level of corporate debt use. Firms with high growth rates often maximize the use of retained earnings to reinvest, and to meet the demand for development, they tend to use additional loans.
According to the results of empirical studies, some studies show the opposite relationship of the growth rate with the debt ratio, but the result is often found in developed economies, such as the research of Rajan and Zingales (1995), Wald (1999). At the same time, numerous studies in developing economies have shown a positive relationship of firm growth with the level of debt use, for example Chen (2004); Nguyen and Ramachandran (2006); Delcour (2007) and some studies in Vietnam such as Le Trung Thanh (2017), Le Thi Kim Thu (2012).
Hypothesis H4: The degree of investment in fixed assets has a positive effect on the capital structure of the business.
The higher the level of enterprises’ investment in fixed assets, the more likely it is to use debt.
Generally, the more fixed assets an enterprise has, the better it is able to mortgage assets, the more collateral available for loans and the easier it is to access loans.
According to the study of some authors, the level of investment in fixed assets has a positive impact on the firms’ leverage, such as: Rajan and Zingales (1995), Frank and Goyal (2009), Huang and Song (2012), Cortez and Susanto (2012), Salwani (2015), Buferan (2008). Other authors have found a negative relationship, such as Nguyen and Ramachandran (2006).
Hypothesis H5: Liquidity has a negative effect on the capital structure of the business.
Liquidity represents the level of guarantee for short-term debts by current assets of the company. Enterprises with high liquidity ratio are rated by banks or credit institutions for their safety and easier to get loans. However, according to pecking order theory, enterprises with high liquidity often prefer internal capital over debt, in other words, liquidity has opposite impact on the firms’ leverage. There are many empirical studies also showing this negative relationship, such as those of Paudyal and Pescetto (2004), Kabir and Nguyen (2008), Salwani (2008), and Nguyen Thi Thuy Dung el (2014).
Hypothesis H6: Firms with high interest coverage ratio have higher debt ratio than firms with low interest coverage ratio.
Interest coverage ratio provides information on the firms’ ability to generate profit before tax and interest to cover interest expenses. Businesses with hight interest coverage ratio are more likely to access loans because they have a higher level of trust and appreciation of their ability to repay debts from banks and credit institutions.
Hypothesis H07: State-owned firms are more leveraged than non-state-owned firms.
In Vietnam, state-owned enterprises are more likely to have access to loans than businesses that do not have state capital or have a small portion of state capital. The fact is that the financial market in Vietnam is not really developed and the state still holds dominant capital of enterprises in key industries. The positive effect of the state’s ownership level on the capital structure is a fairly appropriate hypothesis. Some empirical studies also show this relationship, such as that of Nguyen Thi Thuy Dung et al (2014).
3.2. Model specification
In this study, three variables are used to measure capital structure of firms, those are total leverage (total debt to total assets ratio), short-term leverage (short-term debt to total assets ratio) and long-term leverage (long-term debt to total assets ratio). Factors affecting firms’ capital structure include profitability, firm size, firms’ growth, firms’ level of investment in fixed assets, liquidity, interest coverage ratio and level of state ownership.
Model 1: Determinants of firms’ total leverage
TDTAit = α + β1 PROFITit + β2 SIZEit + β3GROWTHit + β4 FATAit + β5 CRit + β6ICRit + β7STATEi + εit
Model 2: Determinants of firms’ short-term leverage
SDTAit = α + β1 PROFITit + β2 SIZEit + β3GROWTHit + β4 FATAit + β5 CRit + β6ICRit + β7STATEi + εit Model 3: Determinants of firms’ long-term leverage
LDTAit = α + β1 PROFITit + β2 SIZEit + β3GROWTHit + β4 FATAit + β5 CRit + β6ICRit + β7STATEi + εit
Table 1: Measurement of variables
Dependent Variables Abr. Measurement
Total leverage (Total debt to total asset ratio) TDTA Total debt/Total assets Short-term leverage (Short-term debt to total
assets ratio) SDTA Short-term debt/Total assets
Long-term leverage (Long-term debt to total
assets ratio) LDTA Long-term debt/Total asset
Independent Variables
Profitability PROFIT Profit before tax/Total assets
Firm size SIZE Ln(Total assets)
Firm growth GROWTH (Total assetst - Total assett-1)/Total assett-1
Level of investment in fixed assets FATA Net fixed assets/Total assets Liquidity (Current ratio) CR Current assets/Current liabilities
Interest coverage ICR EBIT/I
State ownership STATE 1= State-owned (State capital is > 50%), 0 = Non-state-owned (State capital is < =50%)
3.2. Data
The data used are from the audited financial statements of Vietnamese construction firms that are listed on Hanoi Stock Exchange and Ho Chi Minh Stock Exchange in the period from 2014 to 2018. These listed construction enterprises have main operation in civil, industrial and infrastructure sectors. There are 74 firms which are chosen with enough available information for the period 2014-2018.
Table 2: Data Descriptive Statistic
state 370 .3513514 .4780389 0 1 firm 370 37.5 21.38893 1 74 ownership 370 .2682432 .2553883 0 .88 icr 357 41.72541 614.746 -1191.25 11523.37 cr 370 1.407404 .6489271 .529153 8.26193 fata 370 .1420383 .1399484 .002883 .911464 growth 370 .1021667 .3922806 -.391454 5.844515 size 370 13.4295 1.431105 10.25365 16.94627 profit 370 .0679643 .2731505 -.369708 3.198099 ldta 370 .1032002 .1445586 0 .68348 sdta 370 .5659066 .1886039 .047987 .879865 tdta 370 .6691069 .1602994 .047987 .913946 year 370 2016 1.416129 2014 2018 companyname 0 Variable Obs Mean Std. Dev. Min Max
Source: Result from STATA 12
Table 2 presents statistic information of data including 370 observations of 74 listed construction firms over a 5-year period from 2014 to 2018. It can be seen that the mean of to tal debt to total assets ratio (TDTA), short-term debt to total assets ratio (SDTA) and long-term debt to total assets ratio (LDTA) are 0.67, 0.57 and 0.10 respectively. It illustrates that many construction firms in the research sample have a high level of financial leverage and the proportion of short- term debt is high compared to the proportion of long-term debt.
Table 3: Correlation Coefficents between Variables
TDTA SDTA LDTA PROFIT SIZE GROWTH FATA CR ICR STATE TDTA 1.0000
SDTA 0.6676* 1.0000
LDTA 0.2378* -0.5643* 1.0000
PROFIT -0.0752 -0.0466 -0.0225 1.0000
SIZE 0.4088* -0.0095 0.4658* 0.0358 1.0000
GROWTH 0.0514 -0.2091* 0.3298* 0.0466 0.1507* 1.000
FATA -0.2505* -0.5625* 0.4561* -0.0534 0.0760 0.0350 1.000
CR -0.6199* -0.5089* -0.0234 0.0371 -0.2855* 0.0982 -0.0097 1.0000
ICR -0.0679 -0.0191 -0.0468 0.0370 0.0961* 0.0598 -0.0258 -0.0230* 1.0000
STATE 0.2539* 0.1534* 0.0814 0.1092** 0.1963* -0.1028** 0.0049 -0.1492 -0.1457 1.0000
* indicates significance at the 1% level
** indicates significance at the 5% level
Source: Peason Correlation Coefficents between variables from STATA 12
Table 3 provides the correlation coefficient between variables. The correlation coefficient between two variables provides information on the degree of strength or weakness in the relationship of interaction between the two variables. This section focus on the relationship of independent variables with dependent variables.
Relationship between independent and dependent variables TDTA:
Variables that are negatively related to total leverage (TDTA) include: Liquidity (CR), level of investment in fixed assets (FATA), profitability (PROFIT) and interest coverage (ICR).
In particular, the relationship of liquidity and total leverage is quite strong at the significane level of 1%.
Variables that are positively related to total leverage (TDTA) include: Firm size (SIZE), growth rate (GROWTH) and state ownership (STATE). The size of the business and the level of State ownership have a positive relationship with total leverage at a high level of significance 1%.
This shows that the large enterprises and high growth enterprise are more leveraged and the state- owned enterprises use more debt than the non-state-owned enterprises.
Relationship between independent and dependent variables SDTA:
The variables having a negative effect on the use of short-term debt (SDTA) include:
profitability (PROFIT), firm size (SIZE), growth rate (GROWTH), level of investment in fixed assets (FATA), liquidity (CR), interest coverage (ICR). In particular, the impact of liquidity and the level of investment in fixed assets on short-term leverage are quite strong at a high significance level of 1%. It can be said that firms with high liquidity and high proportion of fixed assets, use less short-term debt. At 1% significance level, the higher the growth rate of the business, the less the use of short-term debt.
State ownership (STATE) has a positive relationship with SDTA at significance level of 1%.
This shows that the enterprises that have the dominant capital contribution of the State, the higher the level of short-term debt is used.
Relationship between independent and dependent variables LDTA:
The independent variables that have a negative impact on the level of long-term debt use (LDTA) include: profitability (PROFIT), current ratio or liquidity (CR), ability to pay interest (ICR), however the relationships are not strong.
Variables that have a positive impact on LDTA include: firm size (SIZE), growth rate (GROWTH), level of investment in fixed assets (FATA) and state ownership (STATE). The variables SIZE, GROWTH, FATA have relatively significant impact at a high significance level of 1%, showing that firms with high growth rate, large size and large investment in fixed assets prefer to use long- term debt. In addition, state-owned firms also use more long-term debt than non-state counterparts.
3.4. Research methodology
Quantitative research method is used to find empirical evidence on the factors affecting the capital structure of listed construction firms in Vietnam. The regression methods on the panel data are used that include Pooled OLS (Pooled Ordinary Least Square), FGLS (Feasible Generalized Least Squares), FEM (fixed-effect model) and REM (random-effect model).
Hausman test
In order to select the type of panel estimator (FEM or REM), Hausman test is applied. The difference of these two estimation models depends on the difference in the assumptions made when constructing these two models. With the FEM, it is assumed that the independent variables and errors are correlated with each other, while the REM assumes that there is no correlation between independent variables and errors (Greene, 2007).
The Hausman test for 3 models are applied on the research data using STATA12, the P values of model 1, 2 and 3 are 0.000, 0.000 and 0.4331 respectively. Thus, with the Hausman test results for models 1 and 2, at the 5% significance level, there is a rejection of the null hypothesis, the FEM model option will be better than the REM model to conduct regression for models 1 and 2.
Meanwhile, the Hausman test results for model 3 accept the null hypothesis, which supports the REM model.
Table 4: The Hausman test
Model 1 Model 2 Model 3
Chi2(6) 92.02 117.10 5.91
Prob>chi2 0.0000 0.0000 0.4331
Source: Result for Hausman test - STATA 12 Multi-collinear test
To check the multi-collinearity of the models, the information of the Variance Inflation Factor (VIF) are used. The result of VIF shown in Table 5 shows that the VIF of all independent variables is less than 10. Therefore, it is concluded that there is no multi-collinearity problem in the models
Table 5: VIF coefficients of independent variables
Variables VIF 1/VIF
SIZE 1.19 0.8375
CR 1.14 0.8793
STATE 1.09 0.9181
GROWTH 1.07 0.9304
FATA 1.02 0.9767
PROFIT 1.02 0.9774
ICR 1.02 0.9819
Mean VIF 1.08
Source: VIF from STATA 12 Autocorrelation test
To test for autocorrelation, the Wooldridge Test is used. According to the results from Table 6, the P value of the models 1, 2 and 3 are all 0.0000, less than 0.05. Thus, null hypothesis is rejected, proving that there is an autocorrelation between variables in all three models.
Table 6: Wooldridge test for autocorrelation in panel data
Model 1 Model 2 Model 3
F(1,70) 79.784 185.672 74.045
Prob>F 0.0000 0.0000 0.0000
Source: Wooldridge test - STATA 12 Heteroscedasticity test
To test for heteroscedasticity of models 1 and 2, the Modified Wald test is performed. The test results are P value of 0.000 for both modek, so there is heteroscedasticity in both models.
In order to test for the problem of heteroscedasticity in model 3, the White test is conducted.
The test result with P value is 0.0000, proving that the model has heteroscedasticity problem.
Table 7: Testing for heteroscedasticity Model 1
(Modified Wald test) Model 2
(Modified Wald test) Model 3 (White’s test) Chi2(74) = 1.3e+06 Chi2(74) = 56375.76 Chi2(34) = 158.26 Pro>Chi2 = 0.0000 Pro>Chi2 = 0.0000 Pro>Chi2 = 0.0000 Source: Heteroscedasticity test - STATA 12
To sum up, all three models have problems of autocorrelation and heteroscedasticity, therefore FGLS method is implemented to overcome these defects. Regression results are shown in the following table:
Table 8: Econometric Results Model 1
Dependent variable TDTA
Model 2 Dependent variable
SDTA
Model 3 Dependent variable
LDTA
Constant 0.471104*** 1.153936*** -0.6768272***
PROFIT -0.0555244*** -0.0439452** -0.0115794
SIZE 0.0310763*** -0.0173871*** 0.0484635***
GROWTH 0.0447614*** -0.433847*** 0.088146***
FATA -0.3492056*** -0.8085311*** 0.4593251***
CR -0.1341983*** -0.1754642*** 0.041266***
ICR -0.0000278*** -6.70e-06 -0.0000211**
STATE 0.0440118*** 0.0388656*** 0.0051463
Waldchi2(7) 413.01 606.41 381.98
Prob>chi2 0.0000 0.0000 0.0000
*, ** and *** indicate significance level of 10%, 5% and 1%
Source: Regression results from STATA12
3.5. Results and Discussion
All three models have Prob> chi is 0.0000, proving that the models are suitable and have good explanations. Model 1 provides information about the impact of factors (profitability, firm size, growth rate, level of investment in fixed assets, liquidity, interest coverage, the level of ownership of the state in businesses) on Vietnamese listed construction firms’ total leverage, while model 2 and model 3 study the impact of those factors on the firms’ short-term and long-term leverage.
Impact of profitability (PROFIT):
Regression results of models 1 and 2 show that at 1% and 5% significance level, the profitability of businesses has a negative effect on the firms’ total leverage and short-term leverage. From model 3, profitability also negatively affects the firms’ long-term leverage, but this effect is not statistically significant. It can be seen that, listed construction firms with high profitability, tend to use less debt and less short-term debt. The result is consistent with the pecking order theory, which concerns about the information asymmetry affecting investment decisions and financing decisions of businesses. The firms’ managers usually have an information advantage over outside investors.
Therefore, new investors often require a higher rate of return when businesses want to raise capital by issuing securities, and this makes share issuing become more expensive. Thus, when businesses have high profitability, businesses often prefer to use the internal capital source (retained earnings) for reinvestment rather than using debt securities and loans. Also, issuing common stock is the last choice. This result is in line with most previous studies, both in developed and developing economies such as research of Rajan and Zingales (1995), Huang and Song (2002), Salwani (2015), Le Dat Chi (2013), Doan Ngoc Phi Anh (2014), Nguyen Thi Thuy Dung et al (2014). It is concluded that the results for the impact of profitability on capital structure are in line with hypothesis H1.
Impact of firm size (SIZE):
The regression results show that firm size has a significant impact on the capital structure of construction firms. Firm size positively affects the firms’ total leverage and long-term leverage, but negatively affects the firms’ short-term leverage. In other words, large construction firms usually have higher leverage than small construction firms and they prefer to use long-term debt rather than short-term debt. This result supports the viewpoint of trade-off theory when it is assumed that large-scale enterprises have more economic advantages, greater information transparency and easier access to loans rather than small businesses. According to trade-off theory, large-scale businesses often have a lower risk of bankruptcy than small businesses do. Large companies also have the advantage of cooperating with financial institutions compared to small businesses because transaction costs will often decrease when businesses buy and sell a large number of goods and services and loan interest rates tend to decrease when the size of loans and the frequency of transactions is large. This result is similar to the result from research of Buferna (2008), Salwani (2015) and Le Trung Thanh (2017). Thus, it is found that hypothesis H2 is true for Vietnamese listed construction firms.
Impact of growth rate (GROWTH):
The effect of the growth rate on the capital structure is statistically significant at 1%. Growth rates have a positive effect on the firms’ total leverage and long-term leverage, but have a negative
effect on short-term leverage. This indicates that high growth firms still rely on debt and they prefer to use long-term debt rather than short-term debt. This result is consistent with pecking order theory. Companies with high growth rates are generally well appreciated by investors, banks and credit institutions, making it easy to access loans. These businesses also tend to use long-term loans to invest in development and maintain high growth opportunities in the future. The similar results are also found in other studies, for example: Nguyen and Ramachandran (2006), Le Thi Kim Thu (2012), Le Trung Thanh (2017). Thus, the finding is in line with hypothesis H3.
Impact of investment in fixed assets (FATA):
This is the factor that has the strongest impact on the capital structure of Vietnamese listed construction firms with a high statistical significance level of 1%. According to model 1, the level of investment in fixed assets inversely impact the firms’ total leverage. This shows that firms with high level of investment in fixed assets, is less likely to use debt. This result is in line with the past results of several researches such as Nguyen and Ramachandran (2006); Biger, Nguyen and Hoang (2008). Also, model 2 result shows that the level of investment in fixed assets has a negative impact on the use of short-term debt. Enterprises with little investment in fixed assets often have a high proportion of short-term debt. In contrast, model 3 result shows a positive effect of the level of investment in fixed assets on long-term debt use. In other words, businesses with high levels of fixed asset investment often have high long-term debt to total assets ratio. Enterprises with high value of fixed assets will have many collaterals and mortgages for loans, thus having a higher chance of accessing long-term loans. It can be seen that businesses that invest less in fixed assets will tend to use more debt, and mainly use short-term debt. Thus, the result shows that hypothesis H4 is true for long-term leverage but not true for total leverage and short-term leverage.
Impact of liquidity (CR):
The result presents that liquidity has a negative effect on the firms’ total leverage at a high level of significance 1%. Therefore, the enterprises with high liquidity, tend to use less debt. This result is consistent with the pecking order theory, which suggests that enterprises with high current ratio are often prefer to use internal capital (retained earnings) for reinvestment rather than capital borrowed from outside. This result is also found in some previous studies such as Nguyen Thi Thuy Dung et al (2014), Salwani (2015).
According to the regression results of models 2 and 3, liquidity has a negative effect on the firms’ short-term leverage, but has a positive effect on long-term leverage. Enterprises with high current ratio often have higher proportion of long-term debt than short-term debt in the capital structure. Generally, enterprises with high liquidity are better evaluated by banks and credit institutions when considering loan projects. Thus, quantitative results support the hypothesis H5.
Impact of interest coverage (ICR):
The result finds the inverse relationship between interest coverage and the firms’ total leverage and long-term leverage. This shows that enterprises with high ability to pay loan interests have low debt usage. However, the impact of this factor on capital structure is very small. The regression results did not find a statistically significant effect of firms’ interest coverage on short- term leverage. It can be said that quantitative results negate the hypothesis H6.
Impact of ownership level on enterprises (STATE):
The regression results show the state ownership has positive influence on the firm’s total leverage and short-term leverage but has no statistically significant impact on long-term leverage.
It means that state-owned firms are more leveraged than non-state-owned firms and they prefer to use short-term debt. This is also very understandable, in Vietnamese economy, the State is still holding key sectors, including construction industry, and enterprises with dominant capital contribution of the State often have advantages in mobilizing loan capital. Research by Nguyen Thi Thuy Dung et al (2014) also found a positive relationship between the state ownership and capital structure. Thus, quantitative results are in line with the hypothesis H7.
3.5. Conclusion
This paper explores the determinants of capital structure of 74 Vietnamese listed construction firms during the period 2014-2018. The determinants of three different measure of firm leverage (total leverage, short-term leverage and long-term leverage) are profitability, firm size, growth rate, level of investment in fixed assets, liquidity, interest coverage and the level of state ownership.
From the analysis, it is presented that the listed construction firms in Vietnam have high level of leverage and there is a high level of short-term debt usage. It is also found that the level of investment in fixed assets has the strongest impact on the firms’ leverage, followed by the firms’
liquidity. The factor that has the least impact is the ability of enterprises to pay interest on loans (interest coverage ratio). In addition, the regression results found the negative effect of profitability, the level of investment in fixed assets, liquidity and interest coverage on firms’ capital structure.
In contrast, firm size, growth rate and state ownership have a positive effect on capital structure.
Enterprises with large scale, high growth rate and dominant capital contribution of the State often have more advantages when mobilizing loans, reflecting a fact in Vietnam.
Considering the impact of the factors on the firms’ short-term and long-term leverage, it is found that the level and direction of the impacts are different for short and long-term leverage.
Particularly, profitability has the negative effect on the firms’ short-term leverage and has no impact on long-term leverage. Meanwhile, factors such as firm size, growth rate, level of investment in fixed assets, liquidity have a negative impact on the firms’ short-term leverage, but have positive impact on long-term leverage. The factor of liquidity has a negative effect on long-term leverage but has no impact on short-term leverage. Also state ownership has a positive impact on short-term leverage but has no impact on long-term leverage.
It is concluded that the decision to raise capital and select the capital structure of the Vietnamese listed construction firms can be explained by both pecking order theory and trade off theory.
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References in Vietnamese:
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21. (Le Thi Kim Thu, “Analyse factors impacting capital structure of real estate companies listed on Ho Chi Minh stock exchange”, master thesis, Da Nang University, 2012).
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AND FIRM PERFORMANCE
Abey Gunasekarage1 Luong Anh Hoa2 Thanh Tan Truong3
ABSTRACT: A firm’s performance is influenced by the vision of its CEO, who is responsible for the overall operations of the institution. The personal traits and philosophies of the executives who have decision- making authority play an influential role when they evaluate alternative decision choices. Being the architect of the firm’s overall strategy, a powerful CEO could exert a substantial amount of influence on the decision-making process of the firm, which, in turn, could affect its future performance. Consequently, the question of whether the existence of a powerful CEO is beneficial, or detrimental, to firm performance has been a subject of considerable debate in the literature, with the evidence pointing to both positive and negative effects. Although the agency theory argues that CEO power could exacerbate the conflict of interest between investors and management, the managerial ability theory proposes that CEOs should be entrusted with decision-making authority to make strategic decisions under the condition of internal and external uncertainty. It is also claimed that whether CEOs use their power for the benefit of the firm, or to accumulate personal gains, depends on the product market conditions faced by the firm. In this context, a firm’s life cycle position could contextualise the impact that CEO power has on firm performance.
Therefore, in the current study, we argue that, to better understand the CEO power-firm performance relationship, the influence of CEO power on firm performance needs to be analysed in the context of a firm’s position in the business life cycle, as presented in the Boston Consulting Group (BCG) matrix.
The chosen Australian setting offers a good research scenario in which to analyse the CEO power-firm performance relationship from the perspective of the BCG framework.
We first constructed a CEO power index for each ASX-listed firm on an annual basis for the period 2001-2015. We use eight CEO and governance characteristics to capture the four dimensions of CEO power, including structural power, ownership power, expert power, and prestige power. In contrast to the evidence uncovered in a number of previous studies, we find that CEO power is uneconomically and insignificantly related to firm performance when a firm’s growth and market share is not controlled for.
However, interesting results emerge when companies are allocated to four quadrants (star, cash cow, question mark, and dog) based on the BCG matrix. We report that, compared with their dog counterparts, CEO power has a more pronounced positive and significant influence on both financial and return
1 Monash University, Australia
2 Curtin University, Australia, corresponding author, email: hoa.luong@curtin.edu.au
3 RMIT University, Australia
performances in the star (high-growth/high market share) and question mark (high-growth/low market share) firms. Conversely, a significant negative influence was uncovered for the return performance of cash cow (low-growth/high market share) firms. This main finding remains robust after addressing issues such as industry concentration, sample stickiness, and endogeneity. However, the introduction of a two- strike rule curtailed the ability of CEOs in cash cow firms to use the power entrusted in them for personal benefits.
We find that the power entrusted in value-creating CEOs of star and question mark firms is rewarded with significantly higher market valuations compared with the value allocated to CEO power of dog firms. On the other hand, the power entertained by value-destroying CEOs of cash cow firms is allocated significantly lower market valuations. Taken together, the findings of our study show that the implications of relevant theories on the relationship between CEO power and firm performance needs to be assessed by considering a firm’s position in the business life cycle.
UNDER THE LEGAL VIEW
Le Thi Thanh1 Tran Thi Thu Huong2
ABSTRACT: For sustainable economic and business development in the context of economic globalization with the 4.0 revolutions, e-commerce is increasingly playing an important role, contributing with increasing proportion to the state budget. However, in Vietnam at present, tax management for e-commerce activities still faces many difficulties and inefficiencies, creating inequality among business entities. One of the reasons is that e-commerce law and tax administration law for e-commerce activities are inadequate as well as not strictly implemented. This paper studies in a comprehensive manner and suggest feasible solutions.
Keywords: Tax administration; e-commerce; digital economy, law on tax management with e-commerce activities
1. INTRODUCTION
Commercial activities are activities for profit purposes, including goods sale and purchase, services provision, investment, trade promotion and other profitable activities. Unlike traditional commerce, e-commerce is characterized by technology-based and internet-based platforms.
The rapid growth of e-commerce contributes to the socio-economic development and creates more revenue for the state budget. However, in the context of digital economy, new models of e-commerce continues to appear with many types of participants and complex activities, requiring suitable legal framework to adjust.
Entities conducting commercial activities in general and e-commerce activities in particular are obliged to pay taxes to the state budget. In order to implement the fairness in fulfilling tax obligations between traditional commerce and e-commerce activities, the tax management on e-commerce activities must be increasingly strengthened.
1 Academy of Finance, 58 Le Van Hien Street, Duc Thang Ward, Bac Tu Liem District, Hanoi 100000. Email: lethithanh@hvtc.
edu.vn. Tel: +084912006503
2 Banking Academy of Vietnam, 12 Chua Boc Street, Quang Trung Ward, Dong Da District, Hanoi 100000. Email: tranhuong@
hvnh.edu.vn. Tel: +084988913831
E-commerce, that is a business based on digital platform, in many forms such as buying and selling goods, providing services via social media, television, websites... with new forms of payment, has increasingly developed. Determining the right nature of transactions, the right legal events for tax calculation and management is not small challenges in many countries around the world, including Vietnam.
E-commerce makes trade transactions (including trade in goods and services) between entities (firms and firms, firms and consumers) easier and closer, regardless of national borders. Currently, many corporations with many e-commerce business models in the world have run business in Vietnam, such as Google, Yahoo, Facebook, Grab, Traveloka, Booking,...As a result, e-commerce activities has become more developed and difficult to manage, especially on tax management.
E-commerce has some special features such as the scale, borderless, digital platforms, resulting in higher possibility to change, conceal, and delete transaction data.... It could lead to differences between tax administration for e-commerce activities and for traditional commerce activities. Thus, the law on tax administration for e-commerce must conform to the nature of these activities. However, in Vietnam, the current law system for e-commerce and tax administration for e-commerce has not met the requirements of development, especially in the context of globalization.
It is a new problem that past researches have not mentioned. This paper has studied this problem to find out solutions to create a suitable legal environment for developing e-commerce in Vietnam and increase revenues for the state budget.
2. CURRENT SITUATION OF LEGISLATION ON TAX MANAGEMENT FOR E-COMMERCE ACTIVITIES IN VIETNAM
Tax administration in general and tax administration for e-commerce in particular must be governed by law. In Vietnam, the law on tax administration for e-commerce has gradually been improved and promoted its role in reality. It is the legal basis for collecting taxes from e-commerce business entities, making an important contribution to ensuring revenue for the state budget. It is also a legal basis for handling entities that violate tax laws. For example, the Hanoi Tax Department has requested an individual who has over 80 billion dong revenue from Youtube, Google .... to perform tax obligations.
The current legal documents have many provisions that create not only a legal basis for the development of e-commerce but also a legal framework for effective tax management, such as implementation of e-commerce contracts, data messages, electronic signatures, authentication of electronic signatures, customs procedures in e-commerce, tax declaration and management for e-commerce...
However, there are also problems in the current legal system of tax administration for e-commerce in Viet Nam. It lacks appropriate regulations to meet practical requirements in the context of 4.0 revolution and integration.
Firstly, the legal system on e-commerce is still inadequate and insufficient to determine tax obligations of e-commerce business entities.
Many e-commerce relations have not yet been regulated by law. Some regulations are general;
others are mentioned in different legal documents leading to conflict. For example, according to the
Commercial Law 2005, in commercial activities, data messages that meet the prescribed technical conditions and standards are legally valid as documents; or the display and introduction of goods and services on the internet are also considered to be the form of display and introduction of goods and services. However, how the data messages meet the conditions, technical standards is a problem. Lack of legal regulations governing e-commerce makes the entities participating in commercial relations and state agencies, including tax authorities, lack the legal basis when performing their functions.
Furthermore, the e-commerce legal system has not really met the requirements of trade integration, not really been compliant with the Model Law on e-commerce of the United Nations Commission on International Trade Law - UNCITRAL. Therefore, it creates inequality between domestic entities and foreign business entities. Specifically, foreign corporations such as Grab, Google, Facebook, Agoda, Traveloka... may run cross-border business in Vietnam, while Vietnamese laws still lack many regulations to adjust.
Lack of comprehensive legal system for e-commerce. Such as:
- The law on e-contracts (legal value, effective time, certification...) is incomplete, making it difficult for e-commerce activities and for determining the legal events that incur tax obligations.
- The law on digital signatures, electronic documents, and electronic evidences... are inadequate and cause disputes...
- Laws on tax, tax administration, accounting, auditing, disputes resolution, handling of violations... for e-commerce activities in the digital economy are also limited. In fact, tax revenue has been lost for the state budget or not be managed, leading to some prohibition regulations that are contrary to the adjustment principle of the law on commercial activities in general, and e-commerce activities in particular.
- The legal framework for digital banks has not met the requirements for e-commerce.
Secondly, there are not enough legal bases for tax administration on e-commerce activities.
Regulations on Vietnam’s economic sector codes are incomplete, causing difficulties in business registration. Under the Enterprise Law, corporations have right to run business in all sectors that are not prohibited by Law. But when individuals and organizations register their business on digital platforms, it is almost difficult. The identification and classification of industries and industry codes as currently in Vietnam are no longer suitable for e-commerce. Vietnam lacks regulations on business lines and defining the nature of e-commerce activities. Therefore, it is difficult for tax authorities to determine tax obligations for individuals and business organizations that do not yet have economic sector c
