Chi Dieu Thi NGUYEN, Hong Thuy Thi DANG, Nghi Huu PHAN, Trang Thuy Thi NGUYEN / Journal of Asian Finance, Economics and Business Vol 7 No 11 (2020) 801–808 801 801 Print ISSN: 2288-4637 / Online ISSN 2288-4645 doi:10.13106/jafeb.2020.vol7.no11.801 Factors Affecting Financial Leverage: The Case of Vietnam Firms Chi Dieu Thi NGUYEN 1 , Hong Thuy Thi DANG 2 , Nghi Huu PHAN 3 , Trang Thuy Thi NGUYEN 4 Received: August 01, 2020 Revised: October 05, 2020 Accepted: October 15, 2020 Abstract The purpose of the study is to find the factors that influence the financial leverage of Vietnam firms. The dependent variable is the financial leverage and the independent variables are firm size, asset structure, liquidity, growth opportunities, profitability, and firm age. The data are collected from Vietnam firms’ annual financial reports in the period from 2010 to 2019. The study uses a sample of 448 Vietnam listed firms in the period. We also employ a panel regression model with pooled OLS and fixed effect to analyze the firms’ financial data. The results of the model showed that financial leverage (FL) has a negative relationship with some factors such as asset structure (AS), liquidity (LQ), growth opportunities (GRW), profitability (ROA), and firm age (AGE) in the fixed effect regression. It means that when liquidity, profitability, and firm age increase, firms’ financial leverage will decrease. While firms’ financial leverage has still a positive relationship with the firm size (SIZE) in the model. As a result, when firm size increases, financial leverage will increase, too. The results showed that models are fit for the research and can be used to predict future findings. It is also useful for enterprises, financial advisors, investors, as well as the financial managers. Keywords: Capital Structure, Financial Leverage, Financial Structure, Vietnam Firms JEL Classification Code: C58, G30, G32 including the trade-off theory of Modigliani and Miller (1963) as well as Miller (1977), agency theory of Jensen and Meckling (1976), signaling theory of Ross (1977), pecking order theory of Myers and Majluf (1984) and free cash – flows theory of Jensen (1986) have evolved. Despite, each theory having a different opinion, indicates the importance of capital structure on firms’ performance as well as firms’ value. The general result from the various capital structure studies is that the combination of financial leverage related costs and the tax advantage of debt produces an optimal capital structure below 100% debt financing. Therefore, the tax advantage is traded against the likelihood of incurring bankruptcy costs. As a result, there have been many studies about financial leverage as well as determinants of this issue in developed and developing countries. However, there is a lot of difference in views, results, and conclusions of studies. Some studies of Bevan and Danbolt (2002), Akhtar and Oliver (2009), Serghiescua and Văidean (2014) in developed countries, and Booth, Aivazian, Demirguc-Kunt, and Maksimovic (2001), Chen (2003), Tran and Tran (2008), Nguyen, Dang, Luong, and Nguyen (2019), Nguyen, Bui, and Pham (2019), Dao and Ta (2020), Nguyen and Nguyen (2020) in developing countries indicated that there is a difference in the determinant of capital structure influence on firms’ performance. While studying this issue, it was done in context of Vietnam being a developing country, so this is 1. Introduction One of the toughest challenges that business firms face is the choice of financial structure. Financial structure decision is important because it affects the financial performance of the firms. Abor (2005) defined financial structure or capital structure as a specific mix of debt and equity that a firm uses to finance its operations. Although firms have many options of capital structures, they tend to rely on borrowings from financial institutions. Modigliani and Miller (1958) first deeply studied the issues on capital structure. And since their study, some theories 1 First Author and Corresponding Author. Lecturer, School of Banking and Finance, National Economics University, Vietnam [Postal Address: No. 910, A1 Tower, 207 Giai Phong, Hai Ba Trung, Hanoi, 100000, Vietnam] Email: chintd@neu.edu.vn 2 Lecturer, School of Trade and International Economics, National Economics University, Vietnam. Email: hong.dangtt@neu.edu.vn 3 Lecturer, School of Banking and Finance, National Economics University, Vietnam. Email: nghiph@neu.edu.vn 4 Lecturer, Faculty of Mathematics Economics, National Economics University, Vietnam. Email: thuytrang@neu.edu.vn © Copyright: The Author(s) This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial License (https://creativecommons.org/licenses/by-nc/4.0/) which permits unrestricted non-commercial use, distribution, and reproduction in any medium, provided the original work is properly cited.