Dynamics of Capital Structure, Risk-Taking Behavior, and Profitability across the Vietnamese Banking System: Evidence from a Panel Vector Autoregression

  • Minh Phu PHAM Department of Sector and Field Economics, Central Institute for Economic Management (CIEM), Ba Dinh district, Hanoi, Vietnam
  • Cuong Van HOANG Department for Social Issues Studies, Central Institute for Economic Management (CIEM), Vietnam
  • Chung Kim TRAN Central Institute for Economic Management (CIEM), Vietnam
  • Hung Van VU Thuong Mai University (TMU), 79 Ho Tung Mau Street, Cau Giay district, Hanoi city Vietnam
  • Nga Thuy Thi LE Faculty of Political Theory, Trade Union University (TUU), 169 Tay Son street, Dong Da district, Hanoi city, Vietnam
  • Bo Cong NGUYEN Greenwich University, Nam Tu Liem district, Hanoi city, Vietnam


The paper examines the interdependence between the profitability, risk-taking behavior, and capital structure across the Vietnamese banking sector, using panel vector autoregression with quarterly data of the 22 banks over 2014Q1–2019Q3. The outcomes indicate profit or solvency shock increases leverage, while the profit and solvency respond negatively to the leverage shock and their movement over time path is pretty similar. This reflects that the insolvency risk is sensitive to the wellbeing volatility due to the weak capital.

Moreover, the forecast variance in the leverage is mainly predicted by the profitability shock, while that of solvency is by the leverage one. The estimated variance in prosperity is mainly explained by the inefficiency shock. Thus, regarding policy recommendations, in the long run, Vietnamese financial regulators need to be continuously consistent with capital strength-supporting policies. However, other policies facilitating an effective financial environment are also simultaneously established to help banks minimize operating costs for higher management efficiency and thereby profitability. This supports the banks to partially offset the negative impact of increased capital which might reduce their profitability. Finally, strengthened supervision policies are also necessary, especially when the banks are more profitable because they intentionally relax borrowing and leverage restrictions.



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How to Cite
PHAM, Minh Phu et al. Dynamics of Capital Structure, Risk-Taking Behavior, and Profitability across the Vietnamese Banking System: Evidence from a Panel Vector Autoregression. Journal of Advanced Research in Law and Economics, [S.l.], v. 10, n. 8, p. 2474 – 2489, dec. 2019. ISSN 2068-696X. Available at: <https://journals.aserspublishing.eu/jarle/article/view/5293>. Date accessed: 26 may 2024. doi: https://doi.org/10.14505/jarle.v10.8(46).25.