An analysis of the interaction between leverage and market value: Evidence from the Ho Chi Minh City Stock Exchange in Vietnam

Abstract

This paper analyzes the relationship between leverage and market value among all firms listed on the Ho Chi Minh City Stock Exchange in Vietnam. Leverage and firm value are crucial concepts in the business world, making this topic of great interest to many researchers. However, previous studies have mainly focused on the impact of leverage on individual firms, neglecting the potential influence of industry-level leverage on firm value. We analyze the impact of leverage on firm value at both the firm and industry levels. We use two econometric models: one-step linear regression and hierarchical regression. Hierarchical regression, also known as a multilevel model, allows us to examine how firm value determinants affect market value at three levels: observation, firm, and industry. If this is the case, single-level regression estimation may produce biased results. Our prediction holds: the research data show stratification. Both firm-level and industry-level leverage have significant negative effects on firm market value. Here, the multilevel model can provide more precise and unbiased results than single-level regression. We contribute to the literature on the relationship between leverage and firm value in the Vietnamese market, where managers consider not only firm-level leverage but also industry-level leverage when making capital structure decisions.