Study the Impact of Growth, Firm Size, Capital Structure, and Profitability on Enterprise Value: Evidence of Enterprises in Vietnam

AuthorHung Ngoc Dang,Van Thi Thuy Vu,Xuan Thanh Ngo,Ha Thi Viet Hoang
Date01 January 2019
Published date01 January 2019
Study the Impact of Growth,
Firm Size, Capital Structure,
and Protability on Enterprise
Value: Evidence of Enterprises
in Vietnam
Hung Ngoc Dang, Van Thi Thuy Vu, Xuan Thanh Ngo and Ha Thi Viet Hoang
A business always
aims at maximizing
the owners assets or
maximizing the busi-
ness value. What is
the business value of
a joint-stock com-
pany? Some said that:
Maximizing business
value is to maximize
prots,the more
protable the business
is, the higher the
value of the business.
However, if the busi-
ness is only pursuing
prot maximization,
it will raise several
issues as follows:
For prot, com-
monly, businesses
can either increase
sales revenue or
reduce costs. First,
how do businesses
increase sales? If
increasing sales on
credit, businesses can
raise revenue, yet,
may also face credit
risks, in which their
buyers are unable to
repay in cash on time
or at all. On the other
hand, risk increases if
there is no cash ow
into the business for
a long period of time
while waiting to
receive money from
buyers. Second, how
do businesses reduce
costs? The company
can cut down the
costs of staff training,
This article studies the effect of growth, rm
size, capital structure, and protability on
enterprise value (EV) in Vietnam. The study
used a panel of 1.070 observations at 214 com-
panies listed on the Vietnamese stock market
for the period of 20122016. According to
regression results by generalized least squares
and structural pathways analysis, the results
detected size and protability are positively
correlated with the enterprise value, while capi-
tal structure is a factor that negatively affects
the enterprise value. On the other hand, growth
factor does not have any impact on enterprise
value. However, when measuring enterprise
value under EV or TobinsQ,thestatistical
results are not entirely consistent. In addition,
the results of the study have also shown that
the measurement of EV on enterprise value will
be more appropriate. The results of empirical
research are useful to help businesses improve
their values. © 2019 Wiley Periodicals, Inc.
© 2019 Wiley Periodicals, Inc.
Published online in Wiley Online Library (
DOI 10.1002/jcaf.22371
or maintenance costs of
machinery and equipment, and
so on. This will only increase
prots in the short term, yet, in
the long run, the business is
unable to grow or even lose
more money from improper
operation. At the same time,
the future cash ow that
owners receive will become less
and less when cash are not
invested and spent reasonably.
As a result, the value of equity
is not maximized but reduced,
corresponding to the reduction
of enterprise value. Can a com-
pany increase its future prot-
ability by reducing its dividend
payout and retaining prots for
reinvestment? If the business
only aims at short-term prot-
ability, then it is very likely
that they will miss out many
long-term investment opportu-
nities. They can be such good
projects that require companies
to take a loss in the early years
in order to get a much larger
cash ow in the future. In addi-
tion, when the business retains
prots for reinvestment without
paying investors their expected
returns via dividend payout,
the value of the business will
also ultimately decrease.
Prots do not always accu-
rately reect the cash inows
or outows of the business,
leading to the situation that
many businesses have a prot
on books without actual cash.
And so, the goal of maximizing
prots sometimes does not help
to achieve the goal of maximiz-
ing enterprise value
(or maximizing the value of
equity) but instead, reducing
the value of equity.
In addition, there is a view
that maximizing enterprise
value is maximizing earnings
per share (EPS) or maximizing
return on equity (ROE).How-
ever, EPS does not consider the
time value of money, the
waiting period for expected
prot, and the amount of capi-
tal spent to make that prot.
Additionally, EPS maximiza-
tion does not consider the risk
factors in doing business.
Finally, EPS maximization
does not allow the use of divi-
dend policy to inuence stock
prices in the market. If only for
the purpose of maximizing
EPS, perhaps the business
would never pay dividends. On
the other hand, the goal of
maximizing ROE is also to
consider net prot alone, so it
does not consider the time
value and risk factor of the
Enterprise value maximiza-
tion addresses the aspect of
increasing the value of an
owners assets in a sustainable
manner. What is the goal of
maximizing enterprise value
and maximizing stakeholders
equity? Maximizing enterprise
value is maximizing market
value. The value of assets of
the owner of a shareholding
company is determined by the
market through the share price.
Thus, the value of share-
holdersassets is maximized,
equivalent to maximizing stock
prices in the market. In other
words, a businessgoal is to
maximize the value of the
ownersassets, and for a joint-
stock company, its goal is to
maximize the price of its stock
in the market. The formula for
determining the value of an
enterprise is given by the cur-
rent market capitalization of
the enterprise:
Enterprise value is a topic
of great interest to business
executives and researchers,
what factors affect enterprise
value? There have been a num-
ber of studies by authors such
as Varaiya, Kerin, and Weeks
(1987), Liow (2010), Her-
muningsih (2014), Kodongo,
Mokoaleli-Mokoteli, and
Maina (2015), (Mule, Mukras,
& Nzioka, 2015), and Sucuahi
and Cambarihan (2016), study-
ing the effect of growth, size,
and capital structure on enter-
prise value. The results of these
studies have both similarities
and differences with one
another due to the use of differ-
ent measurements.
In Vietnam, studies on the
relationship and impact of
growth, size, capital structure,
and protability on enterprise
value are not fully complete.
While the results of oversea
studies are not similar, they are
sometimes contradictory to the
situation of Vietnam. On the
other hand, the measurement
of enterprise value used in
researches is different, such as
return on assets (ROA), ROE,
EPS, Tobins Q, EV, and so
on. Based on the results of the
study, there is evidence that in
a developing economy, matters
regarding legal regulations,
business environment, and the
development of the stock mar-
ket have not been nalized.
Studying the effects of growth,
rm size, capital structure, and
protability on enterprise value
will have many meanings for
Vietnamese companies. More-
over, in Vietnam, there has not
been any comprehensive
research on the impact of
increasing capital, size, capital
structure, and protability to
the value of the enterprises.
Some Theories
Agency Theory
One of the fundamental
theories involved in the invest-
ment selection of shareholders
The Journal of Corporate Accounting & Finance / January 2019 147
© 2019 Wiley Periodicals, Inc. DOI 10.1002/jcaf

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