Economic and political uncertainty and firm-level stock returns in Vietnam: The moderating role of leverage

This study examines the impact of economic and political uncertainty on firm-level stock returns in Vietnam and explores the moderating role of financial leverage. Using a dynamic panel dataset of 380 Vietnamese listed firms, the study employs the System Generalized Method of Moments (SGMM) to address endogeneity concerns. The findings reveal a significant negative relationship between uncertainty, measured by the World Uncertainty Index (WUI), and annual stock returns. However, firms with higher leverage experience a weaker negative effect, indicating that financial leverage serves as a buffer against uncertainty-driven stock fluctuations. Other firm-specific characteristics, including firm size, liquidity, and state ownership, do not exhibit consistent moderating effects. These results highlight the importance of capital structure in mitigating the adverse effects of uncertainty on stock market performance. The study provides practical implications for investors, policymakers, and corporate managers, suggesting that leverage can be strategically managed to reduce vulnerability to economic and political uncertainty. Investors should consider firms' leverage when making decisions during volatile periods, while policymakers can implement measures to support financial stability in uncertain environments. Corporate managers may leverage financial strategies to enhance firms' resilience to uncertainty.

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Publication Details

Journal
The Economics and Finance Letters
Published
2025-04-15
DOI
https://doi.org/10.18488/29.v12i1.4165
Citations
2
Primary Topic
Financial Markets and Investment Strategies
Type
article
Field-Weighted Citation Impact
4.42
Controls
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article

Economic and political uncertainty and firm-level stock returns in Vietnam: The moderating role of leverage

Ho Hoang Gia Bao, Thanh Huu Phu Nguyen
2 citations
The Economics and Finance Letters
Financial Markets and Investment Strategies
4.42
article

Economic and political uncertainty and firm-level stock returns in Vietnam: The moderating role of leverage

Ho Hoang Gia Bao, Thanh Huu Phu Nguyen
article en
2 citations

Abstract

This study examines the impact of economic and political uncertainty on firm-level stock returns in Vietnam and explores the moderating role of financial leverage. Using a dynamic panel dataset of 380 Vietnamese listed firms, the study employs the System Generalized Method of Moments (SGMM) to address endogeneity concerns. The findings reveal a significant negative relationship between uncertainty, measured by the World Uncertainty Index (WUI), and annual stock returns. However, firms with higher leverage experience a weaker negative effect, indicating that financial leverage serves as a buffer against uncertainty-driven stock fluctuations. Other firm-specific characteristics, including firm size, liquidity, and state ownership, do not exhibit consistent moderating effects. These results highlight the importance of capital structure in mitigating the adverse effects of uncertainty on stock market performance. The study provides practical implications for investors, policymakers, and corporate managers, suggesting that leverage can be strategically managed to reduce vulnerability to economic and political uncertainty. Investors should consider firms' leverage when making decisions during volatile periods, while policymakers can implement measures to support financial stability in uncertain environments. Corporate managers may leverage financial strategies to enhance firms' resilience to uncertainty.

The Economics and Finance LettersVol. 12(1)
Ho Chi Minh City University of Law (VN)
Openalex Percentile: Top 7%
Financial Markets and Investment Strategies
4.42
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Economic and political uncertainty and firm-level stock returns in Vietnam: The moderating role of leverage — Ho Hoang Gia Bao, Thanh Huu Phu Nguyen · The Economics and Finance Letters (2025) | TGRS Research Map | TGRS