Impact of external financing on the risk level of Viet nam wholesale and retail industry during and after the global crisis 2007-2009


By Dinh Tran Ngoc Huy 1


This research analyzes the impact of external financing on market risk for the listed firms in the Viet nam wholesale and retail industries as it becomes necessary, esp. after the financial crisis 2007-2009.

Firstly, by using quantitative and analytical methods to estimate asset and equity beta of the total 9 listed companies in Viet nam’s wholesale and retail industry with a proper traditional model, we found that the beta values, in general, for many institutions are acceptable.

Secondly, under 3 different scenarios of changing leverage (in 2011 financial reports, 30% up and 20% down), we recognized that the risk level, measured by equity and asset beta mean, decreases (0,282) when leverage increases to 30% and vice versa.

Thirdly, by changing leverage in 3 scenarios, we recognized that the dispersion of risk increases if the leverage increases to 30%.

Finally, this paper provides some outcomes that could provide companies and government with more evidence in establishing their policies in governance.


Together with the development of the whole economy and the growth of FDI, as well as the process entering WTTO, throughout many recent years, Viet nam’s wholesale and retail industry is considered as one of the active economic sectors, which has some positive effects for the economy.

This paper is organized as follows. The research issues and literature review will be covered in the next sections (2 and 3), for a short summary. Then, methodology and conceptual theories are introduced in sections 4 and 5. Section 6 describes the data in empirical analysis. Section 7 presents empirical results and findings. Next, section 8 covers the analytical results. Then, section 9 presents the analysis of risk. Lastly, sections 10 and 11 will present discussion and conclude with some policy suggestions. This paper also supports readers with references, exhibits and relevant web sources.

Research issues

Some issues on the estimating of the impact of external financing on the beta for listed wholesale and retail companies in the Viet nam stock exchange are as follows:

Issue 1: Whether the risk level of wholesale and retail firms under the different changing scenarios of leverage increase or decrease dramatically.

Issue 2: Whether the dispersal of beta values becomes large in the different changing scenarios of leverage estimated in the wholesale and retail industry.

Furthermore, we also propose some hypotheses for the above issues:

Hypothesis 1: Because using leverage may strongly affect business returns, changing leverage scenarios could strongly affect firm risk.

Hypothesis 2: As external financing is vital for the business development, there will be large dispersal in beta or risk values estimated.

Literature review

Black (1976) proposes the leverage effect to explain the negative correlation between equity returns and return volatilities.

Peter and Liuren (2007) mentions that equity volatility increases proportionally with the level of financial leverage, the variation of which is dictated by managerial decisions on a company’s capital structure based on economic conditions. And for a company with a fixed amount of debt, its financial leverage increases when the market price of its stock declines.

Reinhart and Rogoff (2009) pointed out that the history of finance is full of boom-and-bust cycles, bank failures, and systemic bank and currency crises. Adrian and Shin (2010) stated a company can also proactively vary its financial leverage based on variations on market conditions.

Then, Thorsten (2011) found that it is increasing the likelihood of a financial crisis rather than reducing it. Marginal rates in corporate and top personal income decline have stopped.

Finally, financial leverage can be considered as one among many factors that affect business risk of wholesale and retail firms.

Conceptual theories

The impact of financial leverage on the economy

A sound and effective financial system has a positive effect on the development and growth of the economy.

In a specific industry such as wholesale and retail industry, on the one hand, using leverage with a decrease or increase in certain periods could affect tax obligations, revenues, profit after tax, technology innovation, compensation and jobs in the industry.

During and after financial crises such as the 2007-2009 crisis, concerns are raised about the role of financial leverage in many countries, in both developed and developing markets. On the one hand, lending programs and packages might support the business sectors. On the other hand, it might create more risks for the business and economy.


In order to estimate systemic risk results and leverage impact, in this study, we use the live data during the crisis period 2007-2011 from the stock exchange market in Viet nam (HOSE and HNX and UPCOM).

In this research, analytical research methods, philosophical methods and specially, leverage scenario analysis methods are used. Analytical data is obtained from the situation of listed wholesale and retail firms in VN stock exchange and the curent tax rate is 25%.

Finally, we use the results to suggest a policy for these enterprises, relevant organizations and government.

General data analysis

The research sample has a total of 9 listed firms in the wholesale and retail market with live data from the stock exchange.

Firstly, we estimate equity beta values of these firms and use financial leverage to estimate asset beta values of them. Secondly, we change the leverage from what reported in F.S 2011 to increasing it to 30% and reducing it to 20% to see the sensitivity of beta values. We found out that in 3 cases, asset beta mean values are estimated at 0.355, 0.282 and 0.463 which are negatively correlated with the leverage. But in 3 scenarios, we find out equity beta mean values (0.641, 0.714 and 0.735) increase more with the 20% leverage down. Leverage degree changes definitely have certain effects on asset and equity beta values.

Empirical research findings and discussion

In the section below, data used is from the total of 9 listed wholesale and retail companies on VN stock exchange (HOSE and HNX mainly). In scenario 1, the current level of financial leverage is kept as in the 2011 financial statements which is used to calculate market risk (beta). Then, two (2) FL scenarios are changed up to 30% and down to 20%, compared to the current FL degree.

Market risk (beta) under the impact of the tax rate, includes: 1) equity beta; and 2) asset beta.

7.1 Scenario 1: current financial leverage (FL) as in financial reports 2011

In this case, all beta values of 9 listed firms on VN wholesale and retail market as viewed as follows:

Table 1 – Market risk of listed companies on VN wholesale and retail market

Order No. Company stock code Equity beta Asset beta (assume debt beta = 0) Note Financial leverage
1 HHS 0,818 0,538 PIT as comparable 34,2%
2 IMT 0,509 0,492 TH1 as comparable 3,4%
3 TH1 0,501 0,196 60,8%
4 BSC 0,469 0,381 FBA as comparable 18,7%
5 PET 1,170 0,322 72,4%
6 BTT 0,722 0,557 PIT as comparable 22,8%
7 CMV 0,341 0,109 PIT as comparable 67,9%
8 PIT 0,881 0,447 49,2%
9 VT1 0,358 0,152 BTT as comparable 57,5%
Average 43,0%


7.2. Scenario 2: financial leverage increases up to 30%

If leverage increases up to 30%, all beta values of the total 9 listed firms on VN wholesale and retail market are as follows:

Table 2 – Market risks of listed wholesale and retail firms (case 2)

Order No. Company stock code Equity beta Asset beta (assume debt beta = 0) Note Financial leverage (30% up)
1 HHS 0,818 0,455 PIT as comparable 44,4%
2 IMT 0,505 0,483 TH1 as comparable 4,4%
3 TH1 0,283 0,059 79,1%
4 BSC 0,550 0,416 FBA as comparable 24,3%
5 PET 1,170 0,068 94,2%
6 BTT 0,670 0,471 PIT as comparable 29,6%
7 CMV 0,881 0,104 PIT as comparable 88,2%
8 PIT 0,881 0,317 64,0%
9 VT1 0,670 0,169 BTT as comparable 74,8%
Average 55,9%


7.3. Scenario 3: leverage decreases down to 20%

If leverage decreases down to 20%, all beta values of the total 9 listed firms on the wholesale and retail market in VN are as follows:

Table 3 – Market risk of listed wholesale and retail firms (case 3)

Order No. Company stock code Equity beta Asset beta (assume debt beta = 0) Note Financial leverage (20% down)
1 HHS 0,818 0,594 PIT as comparable 27,4%
2 IMT 0,512 0,498 TH1 as comparable 2,7%
3 TH1 0,634 0,326 48,6%
4 BSC 0,372 0,316 FBA as comparable 15,0%
5 PET 1,170 0,492 58,0%
6 BTT 0,881 0,721 PIT as comparable 18,2%
7 CMV 0,466 0,213 PIT as comparable 54,3%
8 PIT 0,881 0,534 39,4%
9 VT1 0,881 0,476 BTT as comparable 46,0%
Average 34,4%


All three of the above tables and data show that values of equity and asset beta in the case of increasing leverage up to 30% or decreasing leverage degree down to 20% have a certain fluctuation.

Comparing statistical results in 3 scenarios of changing leverage:

Table 4 – Statistical results (FL in case 1)

Statistic results Equity beta Asset beta (assume debt beta = 0) Difference
MAX 1,170 0,557 0,6124
MIN 0,341 0,109 0,2314
MEAN 0,641 0,355 0,2858
VAR 0,0765 0,0288 0,0477
Note: Sample size : 9


Table 5 – Statistical results (FL in case 2)

Statistic results Equity beta Asset beta (assume debt beta = 0) Difference
MAX 1,170 0,483 0,6867
MIN 0,283 0,059 0,2238
MEAN 0,714 0,282 0,4318
VAR 0,0668 0,0332 0,0337
Note: Sample size : 9


Table 6- Statistical results (FL in case 3)

Statistic results Equity beta Asset beta (assume debt beta = 0) Difference
MAX 1,170 0,721 0,4489
MIN 0,372 0,213 0,1591
MEAN 0,735 0,463 0,2718
VAR 0,0655 0,0242 0,0413
Note: Sample size : 9


Based on the above results, we find out:

Equity beta mean values in all 3 scenarios are low (< 0,8) and asset beta mean values are also small (< 0,5) although max equity beta values in some cases might be higher than (>) 1. In the case of reported leverage in 2011, equity beta values fluctuate in an acceptable range from 0,341 (min) up to 1,170 (max) and asset beta values fluctuate from 0,109 (min) up to 0,557 (max). If leverage increases to 30%, equity beta moves from 0,283 (min) up to 1,170 (max unchanged) and asset beta moves from 0,059 (min) up to 0,483 (max). Hence, we note that there is a decrease in asset beta min values if leverage increases. When leverage decreases down to 20%, the equity beta value changes from 0,372 (min) up to 1,170 (max unchanged) and asset beta changes from 0,213 (min) up to 0,721 (max). So, there is a small increase in asset beta min when leverage decreases in scenario 3.

Exhibit 5 informs us that in the case of 30% leverage up, the average equity beta value of the 9 listed firms increases up to 0,073 while the average asset beta value of these 9 firms decreases a little more to -0,073. Then, when the leverage reduces to 20%, the average equity beta value of the 9 listed firms goes up to 0,094 and the average asset beta value of the 9 firms up to 0,108.

The chart below (chart 1) shows us : when the leverage degree decreases down to 20%, the average equity and asset beta values increase slightly (0,735 and 0,463) compared to those at the initial rate of 25% (0,641 and 0,355). Then, when the leverage degree increases up to 30%, the average equity beta value increases a little more and the average asset beta value also decreases further (to 0,714 and 0,282). However, the fluctuation of the asset beta value (0,033) in the case of 30% leverage up is higher than (>) the results in the other two leverage cases.

Chart 1 – Comparing statistical results of three (3) scenarios of changing FL (2007-2009)


Chart 2 – Comparing statistical results of three (3) scenarios of changing FL (period 2009-2011)


Chart 3 – Comparing statistical results of three (3) scenarios of changing FL (period 2007-2011)


(source: Viet nam stock exchange 2012)

Risk analysis

In short, the using of financial leverage could impact either negatively or positively on the financial results or return on equity of a company. The more debt the firm uses, the more risk it takes.

On the other hand, in the case of increasing leverage, the company will expect a higher return. Financial leverage becomes worthwhile if the cost of additional financial leverage is lower than the additional earnings before taxes and interests (EBIT).


Looking at chart 2, it is noted that in the case illustrating leverage up 30%, during the 2007-2009 period, the asset and equity beta mean (0,282 and 0,714) of wholesale and retail industry are higher than those in the period 2007-2011 (0,242 and 0,587). Looking at exhibit 7, we can see asset beta mean and equity beta mean are higher than those of the consumer goods industry (0,222 and 0,630). This generally shows us that financial leverage does affect asset beta values.

Conclusion and policy suggestion

In summary, the government has to consider the impact on the mobility of capital in the markets when it changes its macro economic policies whilst continuing to increase the effectiveness of building the legal system and regulation supporting the plan of developing the wholesale and retail market. The Ministry of Finance continues to increase the effectiveness of fiscal policies and tax policies which must be combined with other macro economic policies at the same time. The State Bank of Viet nam continues to increase the effectiveness of capital providing channels for wholesale and retail companies as we could note that in this study when leverage is increased up to 30%, the risk level decreases considerably, compared to the case where it is decreased to 20%.

Furthermore, efforts among many different government bodies need to be coordinated.

Finally, this paper suggests implications for further research and a policy suggestion for the Viet nam government and relevant organizations, economists and investors.


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Other web sources

  6. ;
  7. ;


Exhibit 1 – Interest rates in banking industry during crisis

Year Borrowing Interest rates Deposit Rates
2011 18%-22% 13%-14%
2010 19%-20% 13%-14%
2009* 9%-12% 9%-10%
2008 19%-21% 15%-16,5%
2007* 12%-15% 9%-11%

*Note: Approximately (2007: required reserves ratio at SBV is changed from 5% to 10%)
(2009: special supporting interest rate is 4%)
(source: Viet Nam commercial banks)


Exhibit 2 – Basic interest rate changes in Viet nam

Year Basic rate Note
2011 9%
2010 8%
2009 7%
2008 8,75%-14% Approximately, fluctuated
2007 8,25%
2006 8,25%
2005 7,8%
2004 7,5%
2003 7,5%
2002 7,44%
2001 7,2%-8,7% Approximately, fluctuated
2000 9%

(source: State Bank of Viet nam and Viet nam economy)


Exhibit 3 – Inflation, GDP growth and macroeconomics factors

Year Inflation GDP USD/VND rate
2011 18% 5,89% 20.670
2010 11,75% (Estimated at Dec 2010) 6,5% (expected) 19.495
2009 6,88% 5,2% 17.000
2008 22% 6,23% 17.700
2007 12,63% 8,44% 16.132
2006 6,6% 8,17%
2005 8,4%
Note approximately

(source: Viet nam commercial banks and economic statistical bureau)


Exhibit 4: GDP growth Viet nam 2006-2010


(source: Bureau Statistic)

Exhibit 5 – Increase/decrease risk level of listed wholesale and retail firms under changing scenarios of leverage : in 2011 F.S reports, 30% up, 20% down in the period 2007 – 2009

Order No. Company stock code FL keep as in F.S report FL 30% up FL 20% down
Equity beta Asset beta Increase /Decrease (equity beta) Increase /Decrease (asset beta) Increase /Decrease (equity beta) Increase /Decrease (asset beta)
1 HHS 0,818 0,538 0,000 -0,084 0,000 0,056
2 IMT 0,509 0,492 -0,004 -0,009 0,003 0,006
3 TH1 0,501 0,196 -0,218 -0,137 0,133 0,129
4 BSC 0,469 0,381 0,081 0,035 -0,097 -0,065
5 PET 1,170 0,322 0,000 -0,254 0,000 0,169
6 BTT 0,722 0,557 -0,052 -0,086 0,160 0,163
7 CMV 0,341 0,109 0,540 -0,006 0,125 0,103
8 PIT 0,881 0,447 0,000 -0,130 0,000 0,087
9 VT1 0,358 0,152 0,312 0,017 0,523 0,324
Average 0,073 -0,073 0,094 0,108


Exhibit 6- VNI Index and other stock market index during crisis 2006-2010


Author note: My sincere thanks are for the editorial office and Lecturers/Doctors at Banking University and International University of Japan. Through the qualitative analysis, please kindly email me if any error are found.

[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][1] MBA, PhD candidate, Banking University, HCMC – GSIM, International University of Japan, Japan[/fusion_builder_column][/fusion_builder_row][/fusion_builder_container]