Page 23 - Vol 7- issue 1

FINANCIAL LEVERAGE AND OTHER DETERMINANTS

OF FINANCIAL PERFORMANCE OF REAL ESTATE FIRMS

ON HO CHI MINH STOCK EXCHANGE

LE THI MY NUONG, BUI TIEN THINH, NGUYEN THI THU HUONG

Abstract: This study evaluates the impact of financial leverage and other factors such as total asset turnover ratio, sales growth, firm
size and firm age on firm performance. By analyzing a secondary database of 52 listed real estate companies on Ho Chi Minh Stock
Exchange from 2017 to 2023, the empirical results reveal that financial leverage negatively affects firm performance proxied by
return on asset. Additionally, total asset turnover ratio, sales growth and firm size have a strong positive effect on return on assets,
while firm age has a negative and insignificant influence. Based on the empirical findings, this study discusses the results in detail
and proposes several solutions to enhance the profitability of Vietnamese real estate firms listed on Ho Chi Minh Stock Exchange.

Keywords: Financial leverage, firm performance, Return on Assets, Real Estate Firms
Received: January 9 , 2025
th
th
Revised: February 10 , 2025 debt acts as a tax shield that helps reduce tax liabilities
Accepted: March 3 , 2025 and maximize after-tax cash flow (Modigliani & Miller,
rd
1958). Conversely, firms can carry the interest burden that
Introduction
leads to the risk of default and bankruptcy (Modigliani &
Maximizing profits is an important aspect of Miller, 1963; Myers, 2001). Furthermore, debt is associated
Vietnamese firms through which financial leverage with financial risk, thus, according to the pecking-order
plays a major role. Specifically, financial leverage is theory (Myers & Majluf, 1984), firms can utilize their
related to borrowing debt, this helps firms not only retained earning when needing a significant amount of
increase financial flexibility (Odhiambo et al., 2025) capital before considering debt financing options.
but also reduce taxes payable (Mule & Mukras, 2015). Research hypothesis
However, financial leverage can lead to significant
risks, such as the loss of liquidity or the loss of Financial leverage represents the degree of debt
control of the firm (Odhiambo et al., 2025). Therefore, financing (Odhiambo et al., 2025). Specifically, many
determining and choosing an appropriate and optimal studies have shown the negative relationship between
financial leverage ratio is extremely important for financial leverage and operating efficiency measured
firm performance. by ROA (Mule & Mukras, 2015). Therefore, this study
The literature on Vietnamese firms indicates that there proposes the hypothesis:
are very few studies focusing on financial performance H1: Financial leverage negatively affects firm
of real estate firms listed on the Ho Chi Minh Stock performance of Vietnamese real estate firms
Exchange (HOSE). These studies on Vietnamese real listed on HOSE.
estate firms have different research periods, with the most Asset turnover is the most general financial ratio that
recent study performed in 2021. Therefore, to fulfill this reflects the efficiency of asset use. A higher total asset
literature gap and missing periods, this study is aimed turnover ratio leads to improved business performance
at identifying and evaluating the impact of financial (Putri & Kusumawardani, 2024). Therefore, the second
leverage and other determinants on Vietnamese real hypothesis is formulated to express this prediction:
estate firms’ performance of enterprises from 2017 to H2: Total asset turnover ratio positively affects
2023. The empirical findings of this study can support firm performance of Vietnamese real estate firms
corporate managers in analyzing and making appropriate listed on HOSE.
financial policies. Sales growth is also a part of business development.
Sales growth rate is proven to have a positive impact on
Theoretical background and research hypothesis
corporate performance (Putri & Kusumawardani, 2024).
Theoretical background Thus, the next hypothesis is recommended as follows:
H3: Sales Growth positively affects firm performance
The classical trade-off theory dictates that companies of Vietnamese real estate firms listed on HOSE.
have to face trade-offs when determining capital Firm size is an important factor in capital structure,
structure to balance the costs and benefits. Specifically, firm size is shown to have a positive relationship with

22