MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY  NgO thu giang IMPACT OF LISTED COMPANIES ’ ATTRIBUTES ON INFORMATION DISCLOSURE AND ITS CONSEQUENCES SPECIALTY: FINANCE - BANKING CODE: 62340201 HANOI, 2014 THE DISSERTATION IS IMPLEMENTED IN NATIONAL ECONOMICS UNIVERSITY Advisor: pROF. DR. cao cU bOi Appraiser 1: Appraiser 2: Appraiser 3: The dissertation is defended in Examination Committee in National Economics University, Hanoi at on 2014. Be referred in: National Library of Vietnam Library of National Economics University 1 INTRODUCTION Research idea For efficient operation of a stock market, the investors need adequate information for their investment decision making. Unsystematic information (market’s parties are not provided information inadequately) has negative impact on operation of the financial market. Vietnam stock exchange (VSE) has been operated since the year 2000 in a developing economy. With more than ten years of development, Vietnam stock exchange is under stable operation with participation of organizations and basic financial instruments as stocks and bonds. However, in recent years, there are several constraints which prevent efficient operation of VSE such as: “following behavior”, “internal trading”, “rumor – based trading”, etc. Facing with above constraints, the dissertation is focusing on studding “impact of the listed company’s attributes to its information disclosure (ID) in Vietnam Stock Exchange and consequences to Vietnam Stock Exchange and the listed company”. Research objective Managerial questions of VSE’s governmental organization and managers of listed companies is how to improve efficiency of market operation through transference of disclosed information and its benefit to listed companies and trading transactions in the VSE. To answer the question, VSE’s governor and listed companies’ managers need to understand comprehensively ID, measurements of ID level, factors impacting on ID and trading results of listed companies in VSE. Research subject and scope Research Subject of the dissertation is ID of listed companies in Vietnam Stock Exchange. The research period is from the year 2011 up to present. Research Sample is a group of listed companies which have been selected by random method in order to ensure representativeness of the sample in VSE. Research Questions Particular research questions are presented as follows: • Which factors/ measurements can be used to evaluate ID level of listed companies in VSE? 2 • How do attributes of listed companies in VSE impact on ID level in general or ID level of each type of disclosed information in VSE? • What are variables and measurements to be used for measuring consequences of ID level on listed companies and trading transactions of their listed stocks in VSE? Research Contributions * Theoretical contributions: The dissertation has generalized a complete theory about ID of listed companies in stock exchange. The dissertation also developed measurement criteria of ID; generalized, modified and supplemented listed companies’ attributes; and studied impact of the attributes to ID; and its consequences on the stock exchange and listed companies. The dissertation has developed a research model with research hypotheses with application of quantitative research methodology to test relations among variables of the model. Particularly, ID has been measured in three (3) aspects: informativeness; precision and understandability; and update of listed information while the previous researches have focused mainly on informativeness of disclosed information. Regarding to listed companies’ attributes impacting on ID, the dissertation has evaluated five categories of attributes: (1) Industry; (2) Ownership: except “foreign ownership”; the dissertation supplemented “state ownership”; and “relationship between state ownership and institutional ownership”; (3) Corporate governance: the dissertation modified concept of “independence” by defining another measurement for the factor as “Management board’s member cum Director board’s member”; (4) business performance: the dissertation consider money flow as supplemental measurement; (5) listing status: the dissertation modified measurement of the company scale to capitalized value and supplemented “listing organization” variable. Regarding to consequences of ID, the dissertation has not only considered impact of ID to cost of owner equity but also evaluated consequences of general ID and ID of each information group to oscillation of stock price. At present, there is no research considering macro and micro impact of ID on the stock price as proposed in the dissertation. * Empirical contributions 3 The previous researches implemented mainly in developed countries or/and in stock exchanges which are developed and have large scale. Implementing research in VSE is an empirical contribution of the dissertation. The achieved results have reflected new findings of ID of listed companies in VSE, as details: (1) Actual performance of ID by listed companies (2) Constructive impacts and destructive impacts of listed companies’ attributes on ID of listed companies (3) Constructive consequences of ID on the cost of owner equity and oscillation of stock price in VSE Coping with above actual conditions, the dissertation has developed recommendations to (1) State managerial organizations to improve contents, procedures regulated in managerial regulation on ID of listed companies; (2) Listed companies to improve perception and define key information to investors; and (3) research direction to be implemented in the future about ID of listed companies in VSE. CHAPTER 1 LITERATURE REVIEW AND THEORETICAL FRAMEWORK 1.1 Literature review 1.1.1 Foreign researches ID of listed companies has been researched more than 10 years in countries over the world. Foreign researches have focused on three main issues of ID as following: • Disclosure of Information: regulated ID and voluntary ID • Explanation of factors impacting on ID of listed companies • Impact of ID: direct impact of ID on information users and, indirect impact on ID on SE. 1.1.1.1 Disclosed information Information index in initial researches has been constructed for information disclosed as regulated. Coping with development of SE, researchers also have found out disclosure tendency of listed companies who disclosed not only mandatory information but also disclosed voluntarily other information due to the listed companies have been willing to get attention of stakeholders. 4 Following the demand of information users, researches have stated to build up a new information index which includes mandatory information and voluntary information needed by users and financial analyzers. 1.1.1.2 Factors impacting on ID Evaluating factors impacting on ID, many researches have implemented to evaluate impact of listed companies’ attributes on ID such as ownership structure, international listing, chartered capital, business field, company scale, capital structure, and business performance, independence between management board and director’s board; characteristics of members in director’s board. The researches have applied multi variables regression and liner regression to illustrate relationship between the factors and ID level. 1.1.1.3 Consequences of ID The third aspect considered in the research on ID is consequences of ID to investors in term of transaction performance in SE and to the listed companies. The researches have measured impact of ID on price oscillation in SE, to cost of capital, liquidity and value of listed companies. The result shows that there is a significant relation between ID and cost of capital, and with liquidity of listed stocks. 1.1.2 Domestic researches Most of the researches which have been implemented in Vietnam, study indirectly about ID, including research on corporate governance by World Bank in 2006, supervision of trading transaction by Le Trung Thanh in 2010; State governance with listed companies in Vietnam Stock Exchange by Vu Thi Thu Nga. 2011. The researches have concluded that Vietnam lacks a efficient management mechanism on quality of disclosed information or the SE responded very slowly with information disclosure, information is disclosed delayed and inadequately than as regulated. Researches focus directly on ID is research of Kelly Anh Vu,2011; and Ta Quang Binh in 2012 who has studied about impact of independent Director Board, ownership structure on voluntary ID, gap between information demand of financial analysts and viewpoints of financial manager of listed companies about voluntary ID in the annual reports, factors creating the gap and its consequences on stock price in the market and cost of capital of listed companies in the year 2009 and 2010. 5 1.2 Information Disclosure and its roles in listed companies 1.2.1 Information Disclosure In the stock exchange market (SE), information disclosure (ID) is considered as information transmission between listed companies and their stakeholders in the SE 1.2.2 Roles of ID in listed companies ID is considered as an efficient method to minimize and solve unsystematic information issue and agent problem. 1.3 Government policy in ID management 1.3.1 ID management following listing registration mechanism (1) Mandatory ID policy Purpose of the policy is focusing on solving information unsystematics. Following the policy, the listed companies should disclose information which is regulated in the regulation. (2) Voluntary ID policy The policy has been applied popularly in the early development stage of financial market of which scale and development level are very small and low. The purpose of the policy is focusing on solving agency problem, coping with exposure demand and prestige development of listed companies in stock market; and creating competitiveness in the stock market. (3) Mixing ID policy To overcome disadvantage of mandatory ID policy and voluntary ID policy, and cope with high development of perception and scale of the stock market, mixing ID policy is formed with participation and mutually supporting from above policies. 1.3.2 ID management following voluntary listing with full disclosure When the joint stock companies disclose fully information, the companies will be listed in the stock market. The purpose of the policy is constructing transparency environment of ID. 1.4 ID Strategy ID strategies applied in the listed companies are categorized as active strategy and passive strategy. Active strategy satisfies information demand of user unlimitedly and timely while passive strategy just discloses mandatory information limitedly. 6 1.5 ID components ID components are information to be disclosed, information disclosure channel and disclosure time. 1.5.1 Disclosed information Making decision relating to ID, listed companies have to consider and select information which will be disclosure. There are two information group under consideration: (1) mandatory disclosure (periodical disclosure; unusual disclosure, disclosure under request), and (2) voluntary disclosure. 1.5.2 Disclosure time Disclosure time is transmission time and appearance time of information the SE. 1.5.3 Disclosure channel Disclosure channels which are apply to transmits information are direct communication between the management board and investors; road show, press conference, telecom conference, newspaper, internet and brochure, flyer. 1.6 ID level To evaluating ID, previous researches developed different viewpoints and criteria’s for measuring ID. 1.6.1 “Transparency” viewpoint Transparency is evaluated basing on information items disclosed by listed company in comparison with information needed by investor. The measurement only ensures disclosure of information items, not meaning adequateness of information disclosed. 1.6.2 “Quality” viewpoint Information quality is evaluated with six aspects as informativeness, relevance, precision, rarity, frequency, and unexpectedness; or briefly evaluated with three aspects as: relevance, reliability, and understandability. A disadvantage of the method is feasibility of measuring reliability aspect. 1.6.3 “Efficiency” viewpoint Information disclosure is evaluated as efficient if the information is disclosed adequately, accurately and updated. The viewpoint considered “update” aspect as a supplement aspect for evaluating ID which is not reflected in the previous viewpoints. 7 1.6.4 Conclusion It is necessary to evaluate ID level basing on typical characteristics of information, including adequateness, precisiveness and update. Hence, the dissertation evaluates ID level with three aspects (1) informativeness, (2) precision and understandability; and (3) update. 1.7 Factors impacting on ID Considering factors impacting on ID, the dissertation has focused on impact of industrial environment and internal environment of listed companies. 1.7.1 Business industry Factor considered in industrial environment of the listed company is business industry. Relation between the business industry and ID is not consistent in various stock exchanges. 1.7.2 Ownership Structure of ownership is considered as ownership of managers, management board, foreign investors, local investor, family members and government. 1.7.3 Corporate Governance Considering corporate governance, the researches considered agency problem between management board and director board which are measured by circumstance of management board’s member cum CEO and percentage of Management board’s members participating in Director Board. 1.7.4 Business scale There is a relationship between business scale and ID. The business scale is measured by capitalized value of listed companies in the stock market. 1.7.5 Business performance Profitable ratios (ROA, ROE and ROS) are used popularly. However, ROS is only suitably using for evaluating companies which are in same industry. 1.7.6 Listing status Listing status includes listing market; listing time and listing value. 1.7.7 Quality of independent auditor Role of independent auditor is checking reliability of ID. However, impact of independent auditor’s quality on ID is not remarkable. 8 1.7.8 Conclusion After evaluating feasibility of applying above attributes of listed company in the research, the dissertation has selected following attribute categories: (1) Industry: Industry registered in business license of listed companies (2) Ownership: structure of liability and owner equity, state ownership; foreign ownership, and institutional ownership (3) Corporate governance: Management board’s member cum CEO; percentage of Management board’s members in director board. (4) Business performance: general business efficiency: ROA and net cash flow to revenue ratio; and owner equity efficiency: ROE, net cash flow to net income; and growth rate of net income (5) Listing status: listing year; listing market; and capitalized value per share 1.8 Consequences of ID Market operation is evaluated as perfect when (1) price and trading volume changes in coping with information disclosed in the market; (2) high liquidity; (3) minimizing transaction cost. In the viewpoint of listed companies, market operation is evaluated as good when it can minimize cost of owner equity; improve market value of the firm. However, strength of impact of ID is relating to the market development level. CHAPTER 2 ID IN VIETNAM STOCK EXCHANGE 2.1. Viet Nam stock exchange Development history of Vietnam stock exchange (VSE) is divided into two stages. Stage 1: preparation for opening official stock exchange (1990s). Stage 2: operation stage of VSE, starting from the year 2000. With more than 10 years of improvement, starting with 5 stocks, up to the end of 2013, the number of listed stocks is up to 983 stocks. 2.2. Government management in ID of listed companies in VSE 2.2.1.Government policy in managing ID of listed companies in VSE Market managerial organization decided to select full disclosure policy in replacement of mandatory ID policy. Purpose of government management is not only improving transparency of market, but also building up concrete base [...]... no concrete evidence showing that listed companies’ attributes have significant impact on precision and understandability of the annual reports Testing of hypothesis H1 for disclosure of unusual and requested information It is concrete to confirm that there is a significant impact of listed companies’ attributes on information volume and update of unusual and requested ID with confidence interval of. .. Research model Hypotheses on relationship between listed companies’ attributes and ID; and impact of ID on trading result of stock and listed companies as developed as follows: (1) Testing suitability of proposed model H1 Listed companies’ attributes have significant impact on ID level of listed companies in stock exchange (2) Testing impact of each attribute category on ID level H2 Listed companies in different... measurements, impacting variables of listed companies’ attributes on ID and consequences of ID on listed companies and listing stock exchange 5.2 Empirical contributions The research has described and tested ID of listed companies in VSE The result has shown concept of ID, impacting factors and actual consequences created by ID in VSE Basing on the result, the dissertation has developed recommendations to... (2012), Impact of ownership on Information disclosure of listed companies in Vietnam Stock Exchange”, No 186(II), Journal of Economics and Development, December 2012 6 Ngo Thu Giang, Dang Anh Tuan (2013), Consequences of information disclosure of listed companies in Vietnam Stock Exchange”, Special edition – School of Finance and Banking, National Economics University, Journal of Economics and Development,... updated information about business activities Disclosed information Regarding periodical disclosure, listed company should pay attention on presentation of annual report Regarding to disclosure of unusual and requested information, listed companies should concern carefully update of unusual information and changes in corporate governance Disclosure of information relating to trading transaction of large shareholders,... Management of Information Disclosure of listed companies in Stock Exchange – Vietnam and international Experience”, Proceedings of Conference on “Developing Vietnam Financial System for promoting macro economics stability and development”, National Economics University, April 2013 8 Ngo Thu Giang, Dang Anh Tuan (2013), Impact of listed companies’ attributes on information disclosure of listed companies... negative impact on beta of listed companies Hypothesis H8 ID level has significant and negative impact on oscillation of stock price However, in order to understand more clearly about impact of each ID categories on stock price, the research measures oscillation of stock price under disclosure of each information categories The result shows that disclosure of annual report and financial statements has strongest... macro economic factors; financial environment’s factors on ID of companies Concequences of ID in financial market: focusing on response of market with rumor information; economy’s decisions of the government, etc / 25 AUTHOR’S PUBLICATION 1 Ngo Thu Giang (2010), “Improving transparency of Information disclosure of listed companies in Vietnam Stock Exchange”, No 162(II) Journal of Economics and Development,... are information volume and update of periodic reports disclosed in the research period Testing result shows that there is a significant impact of listed companies’ attributes on periodical ID Testing of hypothesis H1 for disclosure of annual report Testing result shows that there is a significant impact of listed companies’ attributes on information volume in annual report with confidence interval of. .. of regulated information items - Scoring of other periodical reports (managerial reports and financial reports): checking reports disclosed actually in the checklist of regulated reports - Scoring of unusual information and disclosure requested information Precision and Percentage of understandability: presentation by figures presentation of and presentation by disclosed wording in annual reports information . MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY  NgO thu giang IMPACT OF LISTED COMPANIES ’ ATTRIBUTES ON INFORMATION DISCLOSURE AND ITS CONSEQUENCES . Regarding to consequences of ID, the dissertation has not only considered impact of ID to cost of owner equity but also evaluated consequences of general ID and ID of each information group to. findings of ID of listed companies in VSE, as details: (1) Actual performance of ID by listed companies (2) Constructive impacts and destructive impacts of listed companies’ attributes on ID of listed