IMPACTS OF FINANCIAL LEVERAGE ON STOCK RETURNS: EVIDENCE FROM VIETNAM LISTED FIRMS

Abstract

The paper examined the effects of financial leverage on the stock return of listed firms in Vietnam during 2014-2019. The paper employed regression models including Pooled Ordinary Least Squared, Random-effect Model and Fixed-effect Model at first, and then applied The Breusch Pagan Lagrangian multiplier test, Modified Ward test and Hausman test to select the suitable model among the three, finally used Robust test to fix the defect in model. The finding shows that leverage in total had a negative and significant impact on the return of stock, but the two factors of total leverage which are short-term debt and long-term debt both resulted in positive effect to stock return. In addition, the firm performance variables such as growth and return on assets delivered good signal to stock return, while the size of firm showed the opposite. From these results, listed firms in Vietnam know how to bring value to investors and stock investors also have a wide view of company basis to make decisions. Other stakeholders such as stock market entities or the government gain suggestions to improve trading market.