The impact of debt financing on business performance in the emerging market: evidence from Vietnam

Abstract

This study investigates how debt financing influenced the performance of manufacturing and industrial firms in the emerging market, Vietnam, from 2017 to 2023. Data is collected from the Refinitiv Eikon dataset. The results reveal a negative relationship between short-term and long-term debt ratios to total assets and business performance, measured by return on assets (ROA), return on equity (ROE), and return on sales (ROS). The findings support trade-off theory, agency theory, and pecking order theory, indicating that high debt levels increase financial risk and agency costs, thereby reducing firm profitability. This study enriches current literature by providing evidence from Vietnam's manufacturing and industrial sectors, highlighting the inverse impact of debt structure on firm performance in the emerging market contexts. The findings offer important implications for managers in optimizing capital structure decisions, investors assessing firm performance, and policymakers drafting financial policies.