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Impact of Capital Structure and Debt Characteristics on Default Risk of Listed Real Estate Firms in Vietnam

In: Proceedings of the 11th International Conference on Emerging Challenges: Smart Business and Digital Economy 2023 (ICECH 2023)

Author

Listed:
  • Giang Nguyen Thuc Huong

    (Hanoi University of Science and Technology, School of Economics and Management)

  • Lan Anh Nguyen Thi

    (Hanoi University of Science and Technology, School of Economics and Management)

  • Ngan Nguyen Thu

    (Hanoi University of Science and Technology, School of Economics and Management)

Abstract

Research purpose: This study aims to examine the impact of capital structure and debt characteristics on the default risk of listed real estate firms in Vietnam stock market. Research motivation: The real estate industry in Vietnam has experienced significant growth and transformation over the past decade, contributing to the country’s economic development and attracting both domestic and international investors. However, various challenges and risks appear, especially since the Covid-19 outbreak, lead to the risk of default of real estate firms. Besides, research on the impact of capital structure and debt characteristics on default risk of listed real estate firms are still limited and not up to date, in particular for the Vietnamese context. Research methodology: The assessment of default risk is conducted in using KMV model to measure the distance to default (DD) and the probability of default (PD). The research focuses on various dimensions of capital structure and debt characteristics, including debt maturity, source of debt, and cost of debt. The study sample includes 42 listed firms in the real estate industry in the period from 2018–2022. Main findings: Regression model shows that a firm’s capital structure, including long-term debt to assets (LTDA) and short-term debt to assets (STDA), significantly influences its likelihood of default. Balancing LTDA and STDA is crucial for mitigating default risk. Larger firms (SIZE) have a reduced probability of default due to their financial resources. Volatility (Vol) also impacts financial stability, emphasizing the need for robust market risk management. Practical/managerial implications: This research contributes valuable insights for businesses, investors, financial decision-makers, financial institutions, and other stakeholders. It emphasizes the critical importance of debt management, financial stability, and risk mitigation strategies in reducing the probability of default among real estate companies.

Suggested Citation

  • Giang Nguyen Thuc Huong & Lan Anh Nguyen Thi & Ngan Nguyen Thu, 2023. "Impact of Capital Structure and Debt Characteristics on Default Risk of Listed Real Estate Firms in Vietnam," Advances in Economics, Business and Management Research, in: Nguyen Danh Nguyen & Pham Thi Thanh Hong (ed.), Proceedings of the 11th International Conference on Emerging Challenges: Smart Business and Digital Economy 2023 (ICECH 2023), pages 327-344, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-348-1_25
    DOI: 10.2991/978-94-6463-348-1_25
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