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Nguyen Van Duy., Pham Thi Lan Huong & Le Minh Tu.

(2015), Impact Of Leverage On Firm’s

Investment Decision Of Food - Beverage Industry, International Conference on Emerging
Challenges: Managing to Success, 1, 325-331



Nguyen Van Duy1*, Pham Thi Lan Huong2, Le Minh Tu3

1. Viet Nam Quantitative Analysis Joint Stock Company

2. Bachelor of National Economics University
3. School of Economics and Management, Hanoi University of Science and Technology, Hanoi

Author's contact information: Email:

Researching impacts of leverage on firm’s investment decision is very important to business. The author
estimates the leverage with factors: firm’s performance (Tobin’s Q, ROA), cash flows (CF), sales growth
(Sale) and liquidity (Liq) on firm’s ivestment decision (I) of Food – Beverage (F&B) industry which are
listed on Vietnam Stock Exchange on period of 2008-2014. The researching method using GMM model
(Generalized method of moments) indicates that leverage has only immediate impacts and has affects on
lag 1 to investment decisions. Besides, the factors of cash flow and sales growth also have impacts on
investment decision. The other factors do not have affects on firm’s ivestment decision of food - beverage

Từ khóa: GMM Model, Investment Decision, Leverage.

1. INTRODUCTION companies: Vietnam Dairy JSC (VNM); Kinh Do

Corporation (KDC) and Masan Group (MSN)
In the context of the Trans-Pacific
Partnership (TPP) and the Asian Economic
Community (AEC) is being deployed to signing
period for Vietnam, domestic enterprises are
facing opportunities and challenges after joining
the economic alliance. Thus, the enterprise
belongs to food & beverages industry (F & B)
also gets significant impacts by this agreement.
For the current situation, companies in the F & B
are promoting investment in expanding business
model, diversifying commodities to create
strongly steps for joining the TPP [1]
By the end of 2014 there are twenty eight F
& B enterprises listed on Stock Exchange. The
statistical data of the whole industry shows three

Nguyen Van Duy., Pham Thi Lan Huong & Le Minh Tu. (2015), Impact Of Leverage On Firm’s
Investment Decision Of Food - Beverage Industry, International Conference on Emerging
Challenges: Managing to Success, 1, 325-331
account for 92.23% of net profits of the whole managed. In the era of global competition,
industry [2]. In particular, net profit of VNM companies need to make major investments in
takes account for 72.74%, MSN is the second tangible fixed assets and other intangible assets in
largest (12.95%) and the third is the KDC order to enhance enterprises’ competitiveness.
(6:54%). [3] Studying on how debt (Leverage) Besides, the capital and debt are main resources
and debt maturity structure influences on the for this investment category. [5]
investment decisions of the company is the However, there have been various
fundamental problem in corporate finance [4]. discussions on Leverage and investment decisions
To achieve the growth in performance and of businesses. Accordingly, in perfect competitive
productivity, leverage needs being well environment, the policies including debt ratio has

not significant meaning on affecting investment author separates those companies into two groups:
decisions of businesses. Besides, in non-perfect high-growth companies and low-growth
competitive market, the issues of leverage will companies. The research shows that the debt ratio
cause an impact on investment decisions (leverage negatively impacts on investment decision of low-
can cause underinvestment or overinvestment. [6] growth firms (the bigger the debt ratio is, the less
There have be many researchers, who make the investment is) while this trend becomes a
studies with different approaching methods, also positive factor in promoting investment in high-
give various oppinions. If debt matures after the growth companies. These high-growth companies
expiration of the firm's investment option, it seems to invest more when the debt ratio is bigger
reduces the incentives of the shareholder- (financial leverage has a positive impact). [5]
management coalition in control of the firm to Studies of Firth, Lin and Wong are done in
invest in positive net-present-value investment China market also indicates negative impacts of
projects since the benefits accrue, at least partially, debt on investment decisions for firms listed on
to the bondholders rather than accruing fully to the Shanghai Stock Exchange or the Shenzhen
the shareholders. [7] Stock Exchange in China from 1991 - 2004.
According to Jensen, the assets of large [9].The other study results also give the same
companies will create investment opportunities conclusions as Firth, Lin and Wong’s. The
which will bring better value (investments in researches of Yuan and Motohashi also point out
projects with positive net present value). In case if reverse relationship existing between financial
the debt ratio occupies a large proportion in the leverage and investment decisions [10]. Or even
capital structure of the company, it will push as the most recent research did by Naeemullah
managers to make investment decisions by using Khan also refer the opposite relationship between
debt as the fund (possibly, this debt is being used Leverage and investment decisions of companies
in the project with a negative NPV, or causing listed in Pakistani. [11]
damage to shareholders and overinvestment is In Vietnam market, at present, there are
increasing burden of debt). Therefore, it shows studies by Nguyen Thi Ngoc Trang and Trang
clearly that the debt ratio had a negative impact on Thuy Quyen who research on relationship
the value of the company. [8] between financial leverage and investment
There are many researchers who study on decisions of the public companies listed on
impacts of financial leverage on the investment Vietnam's stock exchanges during 2009 - 2011.
decisions of the business all over the world. the authors values financial leverage affects on
Among them, Aivazian is the typical author who investment decisions at the significant level of
gave an important report by doing research on US 10% [12]. However, because the time factor used
financial company on Compustat in the period in research is quite short (only 3 years) and
1982 to 2002. The results showed that long-term research methods do not have appropriate testing
debt ratio has reduced the impact of investment in (the authors used Pooled effect, Fixed effect and
companies with high growth. Nevertheless, random effect model), research results do not
leverage factor has not significant meaning in achieve high reliability.
affecting investment decisions of lower growth Although there have been studies on impact
enterprises. [4] of financial leverage on investment decisions, no
An experimental study in the Republic of studies have been made for food and beverage
Mauritius Odit & Chitoo shows that Leverage has industry. In Vietnam market, due to limitations of
both positive and negative effects on investment studies by Trang and Quyen, a study with
decisions of twenty-seven companies listed on the expanding the number of researching year and
exchange Mauritius (SEM) 1990 - 2004. The more-closely research method is required to be
conducted. Therefore, the authors conducted a
study "Impact of Investment Firms Levrage on
decission of Food - Bererage Companies" in the opportunity.
period of 2008-2014.
LEVi, t-1: Variable Leverage represents for
leverage at time t-1.
2. RESEARCH METHOD SALEi, t-1: represents for growing in sales.

2.1 Research Model ROAi,t-1: Variable Profitability, return on

total assets.
Basing on researching model Avizian 2005,
this research is conducted to estimate the impact Variable LEV (called Leverage): long-term
of financial leverage and immediate impact on or short term debt ratio on total assets.
investment decisions; and this research is salso
Tobin’s Q: stands for growth opportunity.
considered the impact of the performance
variables (Tobin's Q, Cash Flow (CF), Sale, Authors’ expectation about results when
Liquidility and Return on total assets on
using this model is as below:
investment decision (I). Models are presented as
below: Table 1. Authors’ expectation
Variable Symbol Expectation
1 Net Investment Ii,t / Ki, t-1
2 CF CF=CFi,t/Ki,t-1 +
Tobin’s Q
3 Tobin’s Q Qi, t-1 +
4 Leverage LEVi, t-1 -
Net revenue on
CF tangible fixed SALEi, t-1
Investment 5 assets +
Return on total
Growth 6 ROAi,t-1 +
Thanh khoản
7 LIQi,t-1 +
2.2 Data-analyzing method.

ROA Because the unique characteristics of this

research is proceeded on time data (2008-2014)
Hình 1 Research Model and space data (in F&B companies), regression
equation with panel data is made of use is an
Regression Estimation: Ii,t / Ki, t-1 = (CFi,t
entirely reasonable choice .[13]
/ Ki, t-1) + β1Qi, t-1 + β2LEVi, t-1 +β3SALEi, t-1 + Regarding for table-data, there are three
β4ROAi,t-1 + β5LIQi,t-1 + uit models can be used: (1) Pooled OLS; (2) Fixed
effect Model; (3) Random Model; However; using
panel data often causes defects due to endogenous
Ii,t: Net Investment of the company i at the variables which internally exist in this model.
time t Hence, in case of meeting these defects, we apply
the Generalized Method of Moments (GMM)
Ki, t-1: Net tangible fixed assets.
developed by Arellano & Bond in 1991 [14]. This
CFi,t: Variable cash flow of the company i at method first differences the data to eliminate the
the time t. individual effect, and then utilizes all the lagged
values of the regress as instruments.
Tobin’s Q i, :
t-1 variable Tobin’s Q,
representing for company’s growth
3.1 Descriptions Data 3.3 Result of estimating
Statistical result shows that the rate of net In the original model of Aivazian, he only
investment of all stages at average is as 0.18 times uses variables with lag 1 year for researching. In
as tangible assets. The period of time which had this research, the author will evaluate two models
the highest net investment rate 3.69 times was in using lag 1 year towards original model and
2008, this rate belongs to VHC stocks; while the evaluate immediate impacts of variables on
lowest rate belongs to CLC stocks (-0.41). As for investment decision:
Leverage, it reached the highest point in 2012
(belonged to VTL stock – 76%) and fell at the 3.3.1 Estimate immediate impacts:
lowest point in 2013 (belonged to SGC stocks-
The result of Hausman test with p-value at
14%). Similarly, the indicators are described in the
0.018 less than 0.05 shows that fixed effect model
below statistical table:
is more suitable than the random effect model.
Table 2: Descriptions Data The author uses fixed effect model to analyze and
implement the inspections. Besides, both
heteroskedasticity test and autocorrelation test
Variable Mean Dev. Min Max
I 0.19 0.58 -0.41 3.69 give p-value less than 0.05, Fixed effect model
CF 1.02 1.04 -0.16 5.01 does not match reliability require to testing.
TobinQ 1.34 0.77 0.60 5.15 Therefore; the author uses GMM model to address
LEV 0.46 0.17 0.14 0.76
SALE 15.29 15.37 1.44 79.28 this phenomenon (remove the effects of
ROA 0.11 0.08 -0.07 0.34 endogenous variables in the model). Basing on the
LIQ 1.87 0.93 0.56 5.71 correlation coefficient and testing each
Source: Results of STATA software independent variable as endogenous variables, the
author obtains the most suitable endogenous
3.2 Correlations variable is CF and LEV.
AR(2) test with p-value 0.609 and
The correlation coefficient indicates a two- Endogenous test (Sargan test) at 0.089 bigger than
way relationship between each pair of variables. 0.05, VIF less than 10 shows that GMM model is
The bigger coefficient is, the more tightly the pair an entirely suitable choice for estimating impacts
of variables gets. The result presents that I- of Leverage and other variable on Investment
variable correlates the most strongly with CF decisions. The regression result indicates
(0.283), followed is with Leverage (0.205) and Leverage as a positive effect on Investment
lowest correlates wit-0.021) (table 2). decisions (p-value is 0.026 and Coefficient is
Table 3. Correlations matrix 2.222). Furthermore; Variable CF also has positive
impact on Investment decisions at significant level
Corr I CF TobinQ LEV SALE ROA LIQ 5% (p-value is 0.000 and Coefficient is 0.367).
Variable Sale has negative impact on Investment
decisions (p-value is 0.000 and Coefficient is
I 1 -0.027). Other variables: Tobin’s Q, ROA, LIQ is
CF 0.283 1 not statistically significant at 5% (p-value >0.05)
TobinQ 0.031 0.075 Table 4. Regression Results: Independent
LEV 0.205 -0.291 -0.405 1
SALE -0.108 0.646 -0.168 -0.019 1 Variable (Net Investment)
ROA -0.021 0.305 0.654 -0.685 -0.042 1
LIQ -0.149 0.331 0.317 -0.770 0.100 0.621 1 Fixed effect GMM model
Variable Coef sig Coef sig
Source: Results of STATA software
CF 0.54 0.000 0.367 0.000
TobinQ -0.191 0.258 -0.238 0.106
LEVResults of
2.222 0.026 1.339 0.020 STATA software
SALE -0.014 0.035 -0.027 0.000
ROA -2.025 0.134 -2.706 0.113 3.4 Discussion
LIQ -0.097 0.514 0.191 0.122
_cons -0.515 0.018->
0.448 fixed-0.136
effect 0.785 Leverage Statistical Data of F& B
enterprises shows that leverage of these
companies are at safe range. (The highest rate has
just reached
Hetero 0.000-> heteroskedasticity 76% of total asset of the business). This number
Auto 0.000-> Autocorrelation indicates that F&B companies have taken a very
AR(1) 0.669 high caution in investing by external loan.
AR(2) 0.609
there are still companies using Leverage but at
0.089 quite low rate 14%. This reality clearly reflected
<10 that companies are quite weak in deploying
Leverage or in other words, they do not know how
Source: Results of STATA software to raise capital by debt.
By means that the Net investment only
3.3.2 Estimate impacts at Lag 1.
reaches 0.19 of tangible fixed assets at average, it
AR(2) test with p-value 0.768 and refers that investment rate of F&B enterprise
Endogenous test at 0.478 bigger than 0.05, VIF remained rather low. Still; there were periods
less than 10 shows that GMM model is totally when companies boosted up to 3.69 tangible fixed
suitable for estimating impacts of Leverage and asset is on the first stage of operation. At this
other variables at lag 1 on Investment decisions. period, most of companies have a common trend
The research shows Leverage has a positive effect to promote investment as well as extend
on Investment decisions (p-value is 0.044 and company’s scale in order to create a long-term
Coefficient is 1.176). Other variables: CF, Sale, growth in the future.
Tobin’s Q, ROA, LIQ is not statistically The regression results indicate that leverage
significant at significance level 5% (p-value affects Net investment in the same direction
>0.05). (immediate impact and last influence for one year
later). This issue refers when Leverage has signs
Table 5. Regression Results: Independent
of decreasing motivation, F&B companies will
Variable (Net Investment) limit their investment on fixed assets as well as
other long-term assets. It can be considered that
Fixed effect GMM model F&B industry seems rather hesitated in investing
Variables Coef sig Coef sig
CF t-1 0.125 0.061 0.125 0.061 to increase their competitiveness in the period of
TobinQ t-1 0.024 0.786 0.024 0.786 pre-signing TPP agreements. Also, in an opposite
LEV t-1 1.176 0.044 1.176 0.044 assumption when leverage increases, the industry
SALE -0.005 0.305 -0.005 0.305
continues to promote Net Investment; this
ROA t-1 0.772 0.493 0.772 0.493
LIQ t-1 0.081 0.391 0.081 0.391 phenomenon occurs suggesting that the F& B
_cons -0.745 0.096 -0.745 0.096 sector is heavily depending on debt. Many
0.04094-> Random companies do not have enough effort to fund
projects, they are forced to use Leverage as the
0.1000-> No
Hetero main source to investment. This outcome is
0.000-> similar to Lang’s research when he studied on
Autocorrelation Leverage, Investment and Firm Growth [14] and
AR(1) 0.000
AR(2) 0.768 the research
Sargan by John & Muthusamy when they did a research
test 0.478
on Indian pharmaceutical companies during the
VIF <10 period from 1998 to 2009. [16]
Growth in sales has opposite and immediate First of all, I would like to express my
impacts on Net Investment once again reflected thanks to the organizers of international
hesitation in investment decision of companies in conferences ICECH2015 who support us a lot in
F&B sector (although there is growth in sales but publishing our works. Finally, we would also like
investment is still limited because they concerns to thank to all members of the Quantitative
about their current debt). It can be realized that Research Center who has distributed and
F&B sector is facing enormous pressure from encouraged me in finishing this thesis in the best
enlarging the scale as well as its competitiveness way.
in economics.
Among all variables, only variable CF has 6. REFERENCE
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[1] A race among F&B industry,
investment). This sign, according to pecking order
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[2] F & B industry,
available. The remaining variables such as Tobin’s
Q, ROA, and LIQ have not impacts on Net
Investment in F&B sector. It shows that
performance result or liquidity is not a cause
[3] Statistics on the Stock
deciding on Net Investment.
4. Conclusion do-uong-2014-vnm-va-msn-chiem-86-lai-toan
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