I I I I UNIVERSITY OF ECONOMJS INSTITUTE OF SOCIAL STUDIES THE HAGUE THE NETHERLANDS HO CHI MINH CITY VIETNAM VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS AN EMPIRICAL STUDY ON COMPANY PERFORMANCE: LISTED COMPANIES ON HO CHI MINH STOCK EXCHANGE A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By CAO THI TUYET MAl Academic Supervisor: TRUONG TAN THANH HO ,CHI MINH CITY, December 2012 CERTIFICATION I hereby de !are that the substance of this thesis is my own work and knowledge This issertation has not been submitted for any other degree or diploma of the uni ersity or higher degree I certify that its contain has not been published or writte by another person CAO THI TUYET MAl 27 November 2012 - ACKNOWLEDGEMENTS During the time of studying in Vietnam- Netherlands programme for Master of Arts in Developing Economics, I have learned so much useful knowledge Therefore, I would like to thank to Programme and all the teachers that have taught me in this time I want to express my deepest gratitude to my academic supervisor, Dr Truong Tan Thanh, for his guidance and valuable comments in writing and finishing my M.A thesis His enthusiastic and encouraging has supported me during the process of this thesis to finish it on time Besides my supervisor, I want to acknowledge the tremendous support that I received from Prof Dr Nguyen Trong Hoai - Dean of Vietnam - Netherlands Programme and Dr Pham Khanh Nam - Academic Director of Vietnam Netherlands Programme for their assistance and great encouragement I also would like to appreciate Master Nguyen Thanh Hai, Director of Finance Advisory Department of Saigonbank Berjaya Securities Joint Stock Company His encourage and knowledge has supported me a lot during my thesis writing process My grateful thanks to my friends, Nguyen Thi Tuyet Van and Phan Bui Gia Thuy who help me overcome the difficulties to finish my thesis Last but not least, I am truly grateful to my family: my parents, my parents in law, my husband and my brothers for their love and spiritual support in my life ii ABSTRACT i The thesis determines which factors that affected the operations of the companies listed on Ho Chi Minh Stock Exchange during the period 2007-2011 and measures the level of the variables such as growth, leverage, leverage"2, risk, CEO duality and size that impacted on performance of listed companies It utilizes a panel data of 93 Vietnamese listed companies and two methods accounting (ROA) and market (Tobin's Q) to estimate the performance of firms It employs many models in panel data such as Pool regression, Random Effects Model (REM) and Fixed Effects Models (FEM) to control unobserved effects Three kinds of models are applied to find the most appropriate model and Fixed Effects Model is considered the most suitable model for further discussions and recommendations The findings of this thesis show the support for not only the results of empirical studies but also the trade off theory and stewardship theory Size factor is the most significant support for two metrics of firm performance ROA and Tobin's Qat 1% j i level The thesis also finds that there is existence of the optimal capital structure because of a non 'linear relationship between leverage and firm performance In I particular, at 22.77% value of the optimal capital structure, the performance of firm (measured by ROA) will get maximum value, or at 72.30% value of the optimal capital structure, the performance of firm (measured by Tobin's Q) will get maximum value Besides that, Growth and Risk are found to have effect at I% significant level to ROA only Moreover, CEO duality just has effect to Tobin's Q at 1% level of significance It is suitable in Vietnam condition because most of firms in Vietnam are family firms, therefore, there always has a phenomenon one person wears two hats It leads the firm operate more efficiently and effectively when the chairman serves as the CEO iii TABLE OF CONTENTS Certification Acknowledgements ii Abstract ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• Ill List of Tables •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• VII List of Figures VIII I I • Abbreviations CHAPTER 1010 1020 1030 1040 1050 1060 201 INTRODUCTION Problem statement Research rationale Research scope 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Oo 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 00 0 0 0 0 0 I 2 oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo 00000000000000 0000000 00000 000 0 000 000 00 oooo 0000 0000 00000 000 000000 00000 00 000 00000 ooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo 00000 000000 000 0000000000 000000000 00000 00000000 00000000000000 00000 00 oooo 00000 3 LITERATURE REVIEW AND EMPIRICAL STUDIES Theoretical relation between firm performance, corporate governance and "' 20102 201.3 201.4 20105 Structure of the research 20101 0 Research objectives capital structure Research questions CHAPTER IX 0 0 0 0 0 0 0 0 0 Firm performance M-M theory 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ° 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo Trade off theory Agency theory 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ° 0 0000 000000 0 00 0000 0000 000 0 00 0 000000 0 000 00 00000 0 0000 000 0 00 00 000000000 00 000000 Stewardship theory Empirical evidence 00 00000000000 iv 00 ooooooooooo 00000 00000000 000000 00000000 000 oooooooo 0000 10 2.3 Corporate governance in Vietnam 14 2.4 Chapter remarks 16 CHAPTER 3.1 RESEARCH METHODOLOGY 17 Variables 17 3.1.1 Dependent variable 17 3.1.2 Explanatory variables 18 3.2 The description of variables use in this research 24 3.3 Estimation strategy 25 3.4 Hypothesis statement and model specification 25 3.4.1 Hypothesis 25 3.4.2 Specified model 29 3.5 Data description 29 3.6 Chapter remarks 30 CHAPTER EMPIRICAL ANALYSIS RESULTS 31 4.1 The statistic descriptions of variables 31 4.2 The empirical analysis 32 4.2.1 Correlation matrix 32 • 4.2.2 Regression result 33 4.2.2.1Results of model robustness 33 4.2.2.2Analysis result 37 4.3 Conclusion 42 v CHAPTER SUMMARY AND RECOMMENDATION 43 5.1 Conclusion 43 5.2 Recommendations 44 5.3 Limitations 45 REFERENCE 47 APPENDIX I 93 LISTED FIRMS IN DATA SAMPLE 51 APPENDIX II REGRESSION RESULTS 55 APPENDIX III GENERAL INFORMATION RELATED TO LISTED FIRMS 66 vi LIST OF TABLES Table 01 The description of variables use in the thesis 24 Table 02 The descriptive statistics of data sample 31 Table 03 The correlation matrix between ROA, TOBIN's Q and variables 33 • Table 04 The White and Breusch-Godfrey test for Model 1A and 1B 34 Table 05 The Hausman test for Model 2A and 2B 34 Table 06 The Redundant Fixed Effects test for Model 3A and 3B 35 Table 07 The estimated coefficients of six regression models 36 Table 08 The Wald test for Model 3A and 3B 40 vii LIST OF FIGURES • Figure 01 The optimal amount of debt and the value of firm 07 Figure 02 Number of listed firms in the period 2006-2012 66 Figure 03 Number of new listed firms in the period 2006-2012 66 Figure 04 Market Capitalization 67 viii ABBREVIATIONS CEO Chief Executive Officer DIE Debt to Equity EBIT Earnings before Interest and Tax FEM Fixed Effects Model HOSE Ho Chi Minh Stock Exchange HNX Hanoi Stock Exchange MBVE Market Value of Equity and Book Value of Liabilities Divided by Book Value of Equity MBVR Market Value of Equity to Book Value of Equity MNC Multinational Company OLS Ordinary Least Square PIE Price per Share to the Earnings per Share PROF Earnings before Interest and Tax plus Depreciation to Total Assets REM Random Effects Model ROA Return on Total Assets ROE Return on Equity ROI Return on Investment SWOT Strengths, Weaknesses, Opportunities and Treats VND VietNam Dong ix 49 NAV Nam Viet Joint Stock Company 50 NSC National Seed JSC 51 PAC Dry Cell and Storage Battery Joint Stock Company 52 PET Petrovietnam General Services J s Corporation 53 PGC Petrolimex Gas Joint Stock Company 54 PJT Petrolimex Joint Stock Tanker Company 55 PNC Phuong Nam Cultural Joint Stock Corporation 56 PPC Pha Lai Thermal Power Joint Stock Company 57 PVD Petro VietNam Drilling and Well Services Joint Stock Company 58 RAL Rang Dong Light Sources and Vacuum Flask Joint Stock Company 59 REE Refrigeration Electrical Engineering Corporation 60 RIC Royal International Corporation 61 SAM SACOM Development And Investment Corporation 62 SAV Savimex Corporation 63 SC5 Construction Joint Stock Company No 64 SCD Chuong Duong Beverages Company 65 SFC Saigon Fuel Company 66 SFI Sea And Air Freight International 67 SJD Can Don Hydro Power Joint Stocks Company 68 SJS Song Da Urban & Industrial Zone Investment and Development Joint Stock Company 69 SMC SMC Trading- Investment Joint Stock Company 70 sse Southern Seed Joint-stock Company 71 TAC Tuong An Vegetable Oil Joint Stock Company 72 TCM Thanh Cong Textile Garment Investment Trading Joint Stock Company 53 ' 73 TCR T AICERA Enterprise Co., Ltd 74 TDH Thu Due Housing Development Corporation 75 TNA Thien Nam Trading & Import-Export Corporation 76 TNC Thong Nhat Rubber Joint Stock Company 77 TRC Tay Ninh Rubber Joint Stock Company 78 TRI SaiGon Beverages Joint Stock Company 79 TS4 Seafood Joint Stock Company No 80 TSC Techno- Agricultural Supplying Joint Stock Company 81 TTP Tan Tien Plastic Packaging Joint Stock Company 82 TYA Taya (VIETNAM) Electric Wire and Cable Joint Stock Company 83 VFC Vinafco Joint Stock Corporation 84 VIC VinGroup Joint Stock Company 85 VID Vien Dong Investment Development Trading Corporation 86 VIP VietNam Petroleum Transport Joint Stock Company 87 VIS Vietnam- Itaty Steel JSC 88 VNE Vietnam Electricity Construction Joint-stock Corporation 89 VNM Vietnam Dairy Products Joint Stock Company 90 VPK Vegetable Oil Packing JSC 91 VSH Vinh Son - Song Hinh Hydropower Joint Stock Company 92 VTB Viettronics Tan Binh Joint Stock Company 93 VTO Vietnam Tanker Joint Stock Company 54 - APPENDIX II REGRESSION RESULTS POOL REGRESSION MODEL Modell A with ROA pool regression model Dependent Variable: ROA Method: Least Squares Date: 11/09112 Time: 15:48 Sample: 465 Included observations: 465 Variable c Coefficient Std Error GROWTH LEVERAGE LEVERAGE"2 RISK DUALITY SIZE Y2011 Y2010 Y2009 Y2008 0.082875 0.027947 0.091998 -0.285819 -0.016087 0.028112 0.002456 -0.026344 -0.007279 -0.003792 -0.03595 I R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) 0.258776 0.242449 0.080143 2.9I6020 519.3912 15.85001 0.000000 0.046799 0.007298 0.077750 0.083394 0.004163 0.007659 0.003368 0.012045 0.011954 0.011916 0.011839 t-Statistic Pro b 1.770874 3.829573 1.183247 -3.427343 -3.864061 3.670192 0.729136 -2.187150 -0.608915 -0.3l82I5 -3.036599 0.0773 0.0001 0.2373 0.0007 0.0001 0.0003 0.4663 0.0292 0.5429 0.7505 0.0025 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter Durbin-Watson stat 55 0.074267 0.092079 -2 I 86629 -2.088645 -2 I48062 1.102377 Heteroskedasticity Test: White test for Model 1A F-statistic Obs *R-squared Scaled explained SS Prob F(53,411) Prob Chi-Square(53) Prob Chi-Square(53) 6.821183 217.6092 1637.204 0.0000 0.0000 0.0000 Breusch-Godfrey Serial Correlation LM Test for Model 1A: F-statistic Obs *R-squared Prob F(2,452) Prob Chi-Square(2) 59.16007 96.47014 56 0.0000 0.0000 MadellE with TOBIN's Q pool regression model 'Dependent Variable: TOBIN's Q Method: Least Squares Date: 11/09112 Time: 16:01 Sample: 465 Included observations: 465 Variable c GROWTH LEVERAGE LEVERAGE"2 RISK DUALITY SIZE Y2011 Y2010 Y2009 Y2008 R-squared Adjusted R-squared S.E of regression Sum squared resid Log likelihood F-statistic Prob(F-statistic) Coefficient Std Error t-Statistic Pro b -0.051108 0.804274 -0.971603 0.868291 -0.655973 2.140676 3.880842 -17.00603 -12.43368 -9.576447 -14.70969 0.9593 0.4217 0.3318 0.3857 0.5122 0.0328 0.0001 0.0000 0.0000 0.0000 0.0000 -0.012208 0.029957 -0.385561 0.369575 -0.013939 0.083686 0.066712 -1.045458 -0.758619 -0.582433 -0.888847 0.238858 0.037247 0.396829 0.425634 0.021249 0.039093 0.017190 0.061476 0.061013 0.060819 0.060426 0.450848 0.438752 0.409044 75.96201 -238.5620 37.27296 0.000000 Mean dependent var S.D dependent var Akaike info criterion Schwarz criterion Hannan-Quinn criter Durbin-Watson stat 57 0.181697 0.546000 1.073385 1.171368 1.111951 1.132076 Heteroskedasticity Test: White test for Model 1B F-statistic Obs *R-squared Scaled explained SS 5.340804 189.6430 858.5780 Prob F(53,411) Prob Chi-Square(53) Prob Chi-Square(53) 0.0000 0.0000 0.0000 Breusch-Godfrey Serial Correlation LM Test for Model 1B F-statistic Obs *R-squared 57.08658 93.77081 Prob F(2,452) Prob Chi-Square(2) 58 0.0000 0.0000 RANDOM EFFECTS MODEL Model 2A with ROA Random Effects Model Dependent Variable: ROA Method: Panel EGLS (Cross-section random effects) Date: 11/09/12 Time: 16:05 Sample: 465 Periods included: Cross-sections included: 93 Total panel (balanced) observations: 465 Swamy and Arora estimator of component variances Variable c GROWTH LEVERAGE LEVERAGE"2 RISK DUALITY SIZE Coefficient Std Error 0.143325 0.019920 0.065430 -0.216037 -0.012043 0.013465 -0.003194 0.066030 0.005734 0.083521 0.086614 0.003270 0.008835 0.004800 t-Statistic Pro b 2.170611 3.474039 0.783395 -2.494257 -3.683032 1.523994 -0.665298 0.0305 0.0006 0.4338 0.0130 0.0003 0.1282 0.5062 Effects Specification S.D 0.053270 0.059014 Cross-section random Idiosyncratic random Rho 0.4490 0.5510 Weighted Statistics R-squared Adjusted R-squared S.E of regression F-statistic Prob(F-statistic) 0.136327 0.125012 0.060071 12.04883 0.000000 Mean dependent var S.D dependent var Sum squared resid Durbin-Watson stat 0.032970 0.064219 1.652703 1.568302 Unweighted Statistics R-squared Sum squared resid 0.215068 3.087969 Mean dependent var Durbin-Watson stat 59 0.074267 0.839366 Model2B with TOBIN's Q Random Effects Model Dependent Variable: TOBIN's Q Method: Panel EGLS (Cross-section random effects) Date: 11109112 Time: 16:07 Sample: 465 Periods included: Cross-sections included: 93 Total panel (balanced) observations: 465 Swamy and Arora estimator of component variances Variable c r· GROWTH LEVERAGE LEVERAGE"2 RISK DUALITY SIZE Coefficient Std Error 0.680786 0.045653 0.588177 -0.454221 -0.002778 0.187049 -0.054572 0.374744 0.040195 0.532735 0.560315 0.022814 0.055068 0.027112 t-Statistic Pro b 1.816672 1.135797 1.104070 -0.810654 -0.121768 3.396669 -2.012854 0.0699 0.2566 0.2701 0.4180 0.9031 0.0007 0.0447 Effects Specification S.D Cross-section random Idiosyncratic random 0.250052 0.420304 Rho 0.2614 0.7386 Weighted Statistics R-squared Adjusted R-squared S.E of regression F-statistic Prob(F-statistic) 0.030369 0.017666 0.474431 2.390774 0.027626 Mean dependent var S.D dependent var Sum squared resid Durbin-Watson stat 0.109177 0.478679 103.0890 1.582401 U nweighted Statistics R-squared Sum squared resid -0.008425 139.4915 Mean dependent var Durbin-Watson stat 60 0.181697 1.169449 ~-~ • Correlated Random Effects - Hausman Test Equation: Model 2A Test cross-section random effects Test Summary Cross-section random Chi-Sq Statistic Chi-Sq d.f 22.548591 Pro b 0.0010 Correlated Random Effects- Hausman Test Equation: Model 2B Test cross-section random effects Test Summary Cross-section random Chi-Sq Statistic Chi-Sq d.f 131.558855 I - 61 Prob 0.0000 - '.i' -· - FIXED EFFECTS MODEL Model 3A with ROA Fixed Effects Model Dependent Variable: ROA Method: Panel EGLS (Cross-section weights) Date: 11109112 Time: 16:12 Sample: 465 Periods included: Cross-sections included: 93 Total panel (balanced) observations: 465 Linear estimation after one-step weighting matrix Variable c GROWTH LEVERAGE LEVERAGE"2 RISK DUALITY SIZE I - Coefficient Std Error 0.296489 0.018899 0.078298 -0.171912 -0.006875 0.000454 -0.015706 0.056556 0.003138 0.046355 0.046850 0.001636 0.004104 0.004247 t-Statistic Pro b 5.242359 6.021940 1.689082 -3.669436 -4.201119 0.110624 -3.698268 0.0000 0.0000 0.0921 0.0003 0.0000 0.9120 0.0003 Effects Specification Cross-section fixed (dummy variables) Weighted Statistics R-squared Adjusted R-squared S.E of regression F-statistic Prob(F-statistic) 0.838677 0.795481 0.058061 19.41567 0.000000 Mean dependent var S.D dependent var Sum squared resid Durbin-Watson stat 0.153855 0.147351 1.233812 2.155527 Unweighted Statistics R-squared Sum squared resid 0.673797 1.283300 Mean dependent var Durbin-Watson stat 62 0.074267 1.994622 • Model 3B with TOBIN's Q Fixed Effects Model Dependent Variable: LNTOBIN_SQ Method: Panel EGLS (Cross-section weights) Date: 11/09112 Time: 16:14 Sample: 465 Periods included: Cross-sections included: 93 Total panel (balanced) observations: 465 Linear estimation after one-step weighting matrix Variable c GROWTH LEVERAGE LEVERAGE"2 RISK DUALITY SIZE Coefficient Std Error 8.481964 -0.015854 2.796161 -1.933664 -0.012345 0.201399 -0.676512 0.599376 0.037553 0.614479 0.563077 0.017102 0.050873 0.044156 t-Statistic Pro b 14.15132 -0.422172 4.550455 -3.434103 -0.721867 3.958822 -15.32101 0.0000 0.6731 0.0000 0.0007 0.4708 0.0001 0.0000 Effects Specification Cross-section fixed (dummy variables) Weighted Statistics R-squared Adjusted R-squared S.E of regression F-statistic Prob(F-statistic) 0.656101 0.564018 0.418011 7.125151 0.000000 Mean dependent var S.D dependent var Sum squared resid Durbin-Watson stat 0.211537 0.627865 63.95234 2.388180 Unweighted Statistics R-squared Sum squared resid 0.529697 65.05517 Mean dependent var Durbin-Watson stat • 63 0.181697 2.196356 • Redundant Fixed Effects Tests · Equation: Model 3A Test cross-section fixed effects Effects Test Cross-section F d f Statistic 14.579565 (92,366) Pro b 0.0000 Redundant Fixed Effects Tests Equation: Model 3B Test cross-section fixed effects d.f Effects Test Statistic Cross-section F 7.077989 • • 64 (92,366) Pro b 0.0000 - • - - - - - - - - - - - - - - - - - - - Wald Test: Equation: Model 3A Test Statistic df Value F-statistic Chi-square 28.50726 57.01452 Probability (2, 366) 0.0000 0.0000 Value Std Err Null Hypothesis Summary: Normalized Restriction(= 0) C(3) 0.078298 -0.171912 C(4) 0.046355 0.046850 Restrictions are linear in coefficients Wald Test: Equation: Model 3B Test Statistic F-statistic Chi-square Value df 17.74239 35.48478 Probability (2, 366) 0.0000 0.0000 Value Std Err Null Hypothesis Summary: Normalized Restriction (= 0) C(3) C(4) 2.796161 -1.933664 Restrictions are linear in coefficients • 65 0.614479 0.563077 I I I I /APPENDIX III GENERAL INFORMATION RELATED TO LISTED 'FIRMS ' ;Figure 02 Number of listed firms in the period 2006-2012 800 700 600 500 400 •HOSE 300 •HNX 200 • HOSE+HNX 100 HOSE+HNX 2011 2012 Source: http://www cophieu68.com/stats_market_size php Figure 03 Number of new listed firms in the period 2006-2012 200 150 •HOSE 100 •HNX so • HOSE+HNX HOSE+HNX HNX 2011 • Source: http://www.cophieu68.com/stats_market_size.php • 66 2012 Figure 04 Market Capitalization roo,ooo I 600,000 500,000 ,400,000 •HNX ,300,000 •HOSE I 200,000 ' i •HOSE+HNX 100,000 HOSE+HNX 2011 2012 1it: Billion VND Sojrrce: http://www.cophieu68.com/stats_market_size.php 67 ... from financial reports of listed companies on Ho Chi Minh Stock Exchange (HOSE) through the website of the Ho Chi Minh Stock Exchange, the listed companies and Ho Chi Minh Securities Company The... relationship Another research of Son Tran and Hoang Tran (2008) studied about the capital structure and firm performance listed on Ho Chi Minh stock exchange, which used 50 non-financial listed. .. two listed companies, however, over one decade of operation at the end of 2011 there were 686 listed companies trading on the Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX) with