Nguyet Thi Minh Bui

Type of the article: Research Article

Abstract
In bank-based emerging economies, firms’ financing decisions are closely linked to bank credit conditions and government interventions intended to reduce borrowing costs. Interest rate subsidies may ease access to external finance, yet borrowing responses need not be uniform when firms differ in their financing conditions. This study examines changes in corporate financial leverage during the implementation of Vietnam’s 2022 Interest Rate Subsidy Program and whether these changes vary with firm size. The analysis draws on 1,160 firm-year observations from non-financial firms listed on the Ho Chi Minh City and Hanoi stock exchanges between 2016 and 2024. A two-way fixed-effects model with firm-clustered robust standard errors is used, alongside supplementary analyses. The main estimates show that, for a firm of average size, financial leverage was lower in 2022 than in the reference year of 2016. The decline was greater among larger firms, indicating that leverage adjustments differed by firm size. Profitability is negatively associated with leverage, whereas firm size is positively associated with it. The supplementary analyses are consistent with the negative direction of the main association but provide less consistent evidence of size-related differences. These results suggest that lower borrowing costs alone may not be sufficient to increase firms’ use of debt when credit demand and business conditions remain weak. The study adds firm-level evidence on financing behavior during a credit-support intervention in a bank-based emerging economy, although the findings reflect changes during the policy period rather than the standalone effect of the subsidy program.

Acknowledgments
The authors thank Vietstock for providing the financial data used in this study. The authors are solely responsible for the analysis and conclusions presented in this paper.