Human capital, capital structure choice and firm profitability in developing countries: An empirical study in Vietnam

base that is 
yearly published. It consists of: the head office of a firm, the field of a firm, managers (age, qualification, nationality, etc.), firm 
type, labor information, financial reports (as long-term assets, short-term assets, debt, equity). Currently, the latest dataset was 
only published in 2016 (2017 and 2018 are unpublished yet). In addition, Vietnamese Firm Database was exclusively surveyed 
firm’s total debt instead of separately surveyed short- debt and long-term debt for 2016 whereby it may affect the selection of 
the independent variables in the analysis. 
4. Results and discussion 
4.1 Descriptive Statistics 
Table 2 represents the summary statistics of the sample used in the study, including number of observations, mean, std. deviation, 
min and max. The average ROA of the sample is -0.0014 (or -0.14%) or ROE is -0.0044 (or -0.44%), this further confirms that 
the business result in 2016 in the construction industry were not really good. The range of ROA is quite large with the lowest 
ROA -1.91 (-191%) and the highest ROA 1.52 (152%). Similarly, for the range of ROE, the lowest ROE -4.85 (-485%) and the 
highest ROE 1.97 (197%). Possible reasons of such low operational performance are originally from the depression of the real 
estate and bank system during the time 2008 – 2012 (source) or avoiding the tax burden. In terms of leverage, Table 2 shows 
that the mean of leverage is 38.46%, a large amount of firm is financed by not only equity but also debt. It is evident that 
Vietnam’s construction firms use only 38.46% debt to finance their assets and 61.54% equity to finance their assets. Table 3 
shows that a firm in the region of Ho Chi Minh City is financed by less debt and more shareholders’ equity in the capital 
structure. With regards to human capital, the mean of human capital is quite low at 2.38%, showing that construction firms use 
more unskilled workers, on the other hand, the number of observations of this variable is 28.213 and less than other variables 
due to Vietnamese companies are not willing to show the operational performance. The firm size has an average value of 8.14, 
but the range of the firm size is somewhat large. In respect to dummies in the analysis, most of construction firms are in operation 
(97.71%). The Industrial Park has an average value of 0.86% with a standard deviation 0.92%, indicating that most construction 
firms are not situated in the industrial park. Table 2 and Table 3 reveal that a majority of construction firms had located in the 
megalopolis of Hanoi and Ho Chi Minh City with constituting 25.85% and 40.85% of the sample, respectively. 
V. C. Nguyen /Accounting 6 (2020) 133
Table 2 
Summary Statistics 
Variable Observations Mean Std. Deviation Min Max 
ROA 48.673 -0.0014 0.0416 -1.9161 1.5255 
ROE 48.673 -0.0044 0.1225 -4.8586 1.9749 
LEV 48.673 0.3856 0.3045 0 1 
LEVSQ 48.673 0.2414 0.2698 0 1 
SIZE 48.673 8.1471 1.9340 -2.3026 16.7299 
HUMAN 28.213 0.0238 0.0425 2.94e-07 1.7142 
OPERATING 48.673 0.9771 0.1498 0 1 
HANOI 48.673 0.2585 0.4378 0 1 
HOCHIMINH 48.673 0.4084 0.4915 0 1 
INDUSTRIALPARK 48.673 0.0086 0.0925 0 1 
Source: Calculated by the author 
Table 3 
Number of Companies by Region 
 Number of Companies Percentage 
HANOI 12580 25.85% 
HOCHIMINH 19880 40.84% 
OTHERS 16213 33.31% 
Source: Calculated by the author. 
Table 4 
Capital Structure by Region 
 Number of Companies Mean Std.Dev Min Max 
HANOI 12580 45.55% 30.31% 0 99% 
HOCHIMINH 19880 30.22% 30.30% 0 99% 
OTHERS 16213 43.34% 28.27% 0 99% 
Notes: This ratio is counted by leverage (total debt over total assets) 
Source: Calculated by the author. 
4.2 Empirical Findings 
Based on regression model, the explanatory variable as ROA or ROE and the independent variables like LEV, LEVSQ, SIZE, 
HUMAN, OPERATING, HANOI, HOCHIMINH and INDUSTRIALPARK. Table 3 presents the regression results of test of 
the relationship between capital structure and ROA, ROE. 
Table 5 
Firm Performance Measured by ROA or ROE 
 ROA ROA ROE ROE 
C -0.018 
(-2.40)* 
-0.019 
(-2.40)* 
-0.074 
(-3.62) 
-0.074 
(-3.61) 
LEV 0.022 
(5.74)* 
0.022 
(5.74)* 
0.071 
(5.31)* 
0.071 
(5.28)* 
LEVSQ -0.031 
(-8.62)* 
-0.031 
(-8.62)* 
-0.127 
(-6.57)* 
-0.127 
(-6.57)* 
SIZE 0.004 
(13.00)* 
0.004 
(13.03)* 
0.01 
(16.07)* 
0.01 
(16.11)* 
HUMAN 0.027 
(3.52)* 
0.027 
(3.52)* 
0.055 
(2.99)* 
0.055 
(2.98)* 
OPERATING -0.012 
(-1.47) 
-0.012 
(-1.57) 
-0.006 
(-0.29) 
-0.006 
(-0.29) 
HANOI -0.005 
(-10.98)* 
-0.005 
(-11.17)* 
-0.015 
(-7.92)* 
-0.015 
(-8.16)* 
HOCHIMINH 0.002 
(3.01)* 
0.002 
(2.95)* 
0.002 
(1.49) 
0.002 
(1.35) 
INDUSTRIALPARK 0.002 
(0.71) 
 0.012 
(1.23) 
Notes: t-statistics in the parentheses; * significant at 1% level. 
4.3 Discussion about the Findings 
Leverage and Squared Leverage term 
The result shows that the coefficient of LEV is positive and significant. It is better to say that the impact of capital structure on 
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firm performance is actually positive. Similarly, a higher level of debt is related to better firm performance. This finding is 
consistent with Jensen (1986), Berger and Bonaccora (2006), Salim and Yadav (2012). This finding is in contrast with Nguyen 
and Nguyen (2015) who revealed that firm performance is negatively associated with capital structure. The coefficient of 
LEVSQ is negative and also significant. An inverted U-shaped relationship might be appeared from the influence of the leverage 
on firm performance. This evidence is explained that in the real life, appearing of taxes, a company can acquire benefit the tax 
so called tax shield (Westerfield & Jordan, 2011; Iavorskyi, 2013). In addition, the absence of bankruptcy cost, a firm with a 
higher level of debt in the capital structure is associated with a higher level of financial distress cost. 
Firm Size 
In respect to Firm Size, the coefficient is positive and significant. Showing that the firm size has positively significant 
relationship with the performance of the firm. It reveals that an increase in firm size will accelerate the performance of the firm. 
Besides the evidence, t-statistics is very high in consistent with a strong effect. It is correlated with the findings of Nguyen and 
Nguyen (2015) who conducting in 147 companies on Ho Chi Minh City Stock Exchange as well as the study of Emin (2016) 
who conducting in Turkey during 2006-2014. This finding is easy to explain in terms of micro-economy, a larger firm is often 
more efficient due to the economies of scale. 
Human Capital 
It is essential to understand human capital as a stock of technically qualified employees in employment, the level of education 
of the managers. In the construction industry, the finding is said that a firm with a higher level of human capital is positively 
associated with a higher level of performance which is in line with the findings of Gashi (2014) who indicated that human capital 
as assets does not follow the law of diminishing marginal utility. The evidence is also connected with the findings in the studies 
of Samagaio and Rodrigues (2016); Lehtimaki and Lehtimaki (2016); Ruíz et al. (2017); Khan and Quaddus (2017). 
Consequently, using optimal human resources, firms’ performance can strongly increase. 
Operating Status, Region (Hanoi, Ho Chi Minh) and Industrial Park 
A dummy of operating of the firm. An insignificant negative effect of operating status on firm performance is found. In addition, 
it is evident to conclude that a firm locating in Hanoi’s area may have a significant, negative impact on firm performance. A 
significant, positive relationship for a firm locating in the metropolitan of Ho Chi Minh and performance has been found. The 
results also indicate that firms locating in the region of Ho Chi Minh have a better performance than firms locating in the region 
of Hanoi. In fact, Ho Chi Minh is known as the better place to do business than Hanoi, especially for private companies like 
construction industry. Following is the business placement related to the performance, an insignificant positive effect of a firm 
locating in the industrial park on firm performance has been found. Similarly, the construction firm is not likely to situate in the 
industrial park. Table 2 presents that only 0.86 percent of construction firms (or 4186 companies) operating in the industrial 
park. As shown by Zheng et al. (2015), the proximity to the industrial park may reduce the costs of moving goods, ideas and 
people, however, this advantage of construction industry has not happened. 
5. Conclusion 
The study has estimated the impact of capital structure choice, human capital on firm performance in a developing country like 
Vietnam and using the dataset of 2016 Vietnamese Firm. Using a dataset of 48.673 observations and two accounting-based 
measures of firm performance; i.e. ROE and ROA. The empirical results present that a firm using more debt in capital structure 
can positively impact on firm performance but this effect is like an inverted U-shaped curve. Furthermore, a higher level of firm 
size as well as a higher level of human capital can increase the performance of the firm. The finding also indicated that a firm 
locating in the metropolitan of Ho Chi Minh had a significant positive impact on firm performance. In other words, a firm 
locating in the region of Hanoi may have significantly negative impact on firm performance. Finally, operating status and 
industrial park do not have any impact on the performance of the firm. 
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