Testing the Pecking Order Theory of capital structure: Evidence from listed firms in Vietnam

This thesis investigates the validity of the Pecking Order Theory (POT) of capital structure using empirical data from 116 non-financial firms listed on the Ho Chi Minh and Hanoi Stock Exchanges during the period 2018-2024. The study addresses two key research questions: (1) To what extent does the pecking order theory explain the capital structure decisions of Vietnamese listed firms? and (2) What financial factors influence these decisions? By applying a deductive approach and utilizing panel data regression techniques, the study tests two main models based on prior literature: one using a consolidated financing deficit variable and another employing disaggregated financial components, including dividend payments, investment cash flow, net working capital changes, and operating cash flow. The findings suggest partial empirical support for the pecking order theory, particularly in explaining the financing behaviors of firms during periods of investment and liquidity constraints. However, results vary across industries and are influenced by the macroeconomic environment, including the impacts of the COVID-19 pandemic. The thesis contributes to the limited body of literature on capital structure theories in emerging markets and offers recommendations for corporate financial management, investors, and policymakers to optimize capital structures in Vietnam's developing financial system.