The decision-making of capital structure is significantly important in financial decisions for firms. Thus, finance managers always want to find an optimal capital structure that minimizes the cost of capital and maximize firm’s value. This study examines the choice of capital structure, including firm size, tangibility, profitability, tax rate, liquidity, and growth opportunity for Petro Vietnam (PV), one of the biggest companies in Vietnam. We find that the profitability level of the firm affects their leverage ratio negatively. In addition, our test result reveals that the variation on the capital structure of PV Drilling can be explained by the pecking order theory of capital structure, supporting the pecking order theory that takes information asymmetry into consideration. Our results conclude that a highly profitable firm relies more on both internally generated funds and equity capital than debt capital to be the source of financing.
Volume 11 | 05-Special Issue
Pages: 834-845