THE EFFECTS OF EQUITY ISSUES ON STOCK PRICES: CASES OF LARGEST COMMERCIAL BANKS IN VIETNAMESE STOCK MARKETS45490

IN TERNATIONAL CONFERENCE ON - CIFBA 2020 THE EFFECTS OF EQUITY ISSUES ON STOCK PRICES: CASES OF LARGEST COMMERCIAL BANKS IN VIETNAMESE STOCK MARKETS Nguyen Phu Ha University of Economics and Business ABSTRACT The market reaction to equity issues of listed firms has gained a lot of focus from empirical researches, but there are still few studies about the effects of equity issues on stock prices of commercial banks listed in stock exchanges In this study, the author applies event-study method and uses data of all secondary equity issues conducted by three largest commercial banks listed in stock exchanges of Vietnam over the period between 2009 and 2019 to examine their effects on cumulative returns of these banks’ stocks surrounding the announcement events Findings of the study revealed that equity issues applied to the three largest banks have negative impacts on common stock prices, especially in 2009-2010 period and in 2013 The results also found that the BOM and managers of these financial institutions have not supported for current shareholders’ benefits at the time of issuing as they decided to issues stocks when the general market prices are in the downtrend In this regard, the study also recommends all fund managers and management board should make decisions to issue equities based on the benefits of shareholders Keywords: INTRODUCTION Firms in stock markets engage in equity issues as a strategic way to generate more capital for financing their growth plan and internal undertakings (Ramirez, 2011; Pathak & Giri, 2008) As for Vietnamese commercial banks, equity issues offer an opportunity to the current shareholders to purchase additional stocks in a bank at a reduced price In the theoretical of finance, a lot of economists assume that capital markets are to be efficient, with all available information reflected in securities prices (White & Lusztig, 1980) Moreover, empirical researches in both local and global framework were coherent with the signalling theory signifying that capital markets show reaction about equity issues in the market, specifically when additional equity is offered to the existing shareholders (Hanaa M Adam, 2010) * Corresponding author Email address: haphuvcu@gmail.com 124 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS This paper investigates the effect of equity issues on stock prices applied to the case of three largest commercial banks in Vietnam16, which include Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Joint Stock Commercial Bank for Industry and Trade of Vietnam (VietinBank), and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) Historically, Vietnamese commercial banks decided to list in the stock exchanges later than firms in other industries Of which, Vietcombank and VietinBank officially listed in HOSE17 in 2009, while BIDV officially listed in HOSE in 2014 As of December, 2019, there are totally 12 commercial banks listed in stock exchanges of Vietnam and 03 other commercial banks trading in the UpCOM Though the banking and financial institutions of Vietnam have not dominated the Vietnamese stock market since the beginning like case of Napalese banks (Pathak and Gupta, 2018), there are 10 Vietnamese banks belonging to groups of 30 leading shares in terms of size of market capitalization by the end of 2019 (VN30 and HnX30) Due to the facts that shares of listed banks in Vietnam gained a lot of interest from the market participants associated with the evolution to raise equity and banks’ size are considered as the requirements during internationalization of Vietnamese financial sectors, the motivation of the study is to investigate the effects of equity issues on stock prices of these largest banks surrounding the announcement periods of issuing It also focuses on analysis and discussions on the cumulative returns of 2-day announcement interval and 10-week trading cumulative returns surrounding the announcement According to Barclay and Litzenberger (1986), the advantages of using 2-day interval including the official announcement and the preceding trading day underlying at two reasons First, it permits to collect data and ensures the greater component of the variance attributable to extraneous factors relative to the announcement Second, it allows examination of the within day pattern of common stock price adjustment to new information In terms of methodology, it is able to measure within day return and corresponding significant tests The study’s outcome is to recommend appropriate decisions in equity issues and market timing to banks as issuers in the future LITERATURE REVIEW In financial economics, several theories developed in 1960s and a number of empirical studies examined the relationship between equity issues and stock price behaviour of firms listed in stock exchanges Specifically, efficient markets hypothesis assumes that there is no price effect of issuing new equities on a firm’s share price as the case is consistent with close substitutes It is interpreted that in the efficient capital markets, investors can find securities that share similar risk and return characteristics with the firm’s share or a composited portfolio Thus, associated with close substitute is the essentially horizontal the demand curve for a firm share, and its share price should be independent of the number of shares issues or choose to sell (Asquithe and Mullins, 1986) However, theory on the downward slopping demand curve of firm’s shares developed by Scholes (1972) mentions the negative price effect between new equity issues and the stock prices with an explanation that the supply of shares increases would cause a decline in a firm’s stock price Besides, the capital structure hypothesis assumes that a new equity issue may reduce a firm’s stock price, especially when the firm’s debt ratio reduces (Modigliani and Miller, The term “the largest commercial banks” is defined by measurements of the bank’s largest total assets and market capitalization 16 17 HOSE- Ho Chi Minh Stock Exchange 125 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 1963; DeAngelo and Masulis, 1980; and Masulis 1980, 1983) Similarly, higher debt ratios give more pressure on paying interest, so binding constraints to management boards and may give positive signal for the future cash flows (Galai and Masulis, 1976) Besides, behavioural finance approach suggests that in a world of asymmetric information, superior information of insiders in association with management’s decision of managers would causes negative effects on outsider investors as the fears about decline of a firm’s intrinsic value (LeLand and Pyle, 1977) Therefore, as long as information about new equity issues is announced, rational investors would decide to hedge against the risk that managers and insiders using their superior information to benefit existing shareholders at the expense of new shareholders, leading to mixed results (i.e., either the negative or positive signal) to new and large equity issues In empirical researches, findings about the effects of equity issues are differ among different issuing methods, information effects and the economic conditions under which a firm raises additional external equity, institutional differences, and industry effects (Malhotra, Thenmozhi and Gopalaswamy, 2012) Hansen (1988) found that the underwritten right offerings are associated with a price decline of more than 4% just prior to the sale Smith (1977), Logue and Jarrow (1978), Marsh (1979), Hess and Frost (1982) check behaviour of stock prices during the period surrounding the time of issuing primary equities by corporations and conclude that it exists price deduction Not focusing on the issue date, Korwar (1983) does focus on the announcement date and applies a sample of 424 equity issues to check price effect, and shows that the stock price decreases approximately 2.5% on the announcement day Asquithe and Mullins (1986) focus on three priorities, which include determinants of predictions of price effects in case of firms in the U.S markets, and the effects of size, announcement date and issue date on a firm’s share price In African stock exchange, study of Njoroge (2003) found abnormal negative stock return immediately before the announcement day of the rights issue and a moderate negative return thereafter Apart from various researches on negative price effects of new equity issues, a lot of studies show the positive relationship between sale of seasoned equity and stock prices Thenmozhi, Malhotra, and Gopalaswamy (2007) confirm that share prices should not fall if the firm issues safe debt to finance investment Lukose and Rao (2013), Heron and Lie (2004), Holderness and Pontiff argue that sated management issue new shares only when the market overvalues the share Barn & Walker (2006), Kang &Stulz (1996) observe positive stock price movements in the case of seasoned equity issue Kraus and Stoll (1972), Dann, Mayers and Raab (1977) show positive price effects consistent with a favourable information effect associated with investment Moreover, a value enhancing reduction in financial leverage due to a reduction in the expected costs of financial distress Ndua (2012), Bashir (2013), Sakwa (2013) investigate rights issue announcement market reaction by using rights issues’ performance in stock exchanges and the results provide evidences in existence of positive abnormal returns on date of event DATA AND METHODOLOGY This study analyses 20 registered common stock issues and offerings conducted by three largest commercial banks in HOSE These equity issues are collected with the whole population of new issues of seasoned equity by Vietcombank, VietinBank and BIDV during 2009-2019 It satisfies with the following requirements: (i) The time span to capture equity issues is counted from the first day of the listing for each commercial bank to the end of third quarter 2019; (ii) The three largest banks listed in HOSE at the time of stock offering; 126 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS (iii) The offering of new issues includes internal, public, underwritten and must be registered with VSD and State Security Committee of Vietnam; (iv) The equity issues applied to common stock and excluded the priority stocks The whole population of common stock issues collected from official websites of Vietstock, CafeF and database of Fiin Group to make sure the offerings were for common stock only The data include: (i) Prices of share at the opening of the market; (ii) Prices of share at the closing of the market; (iii) Stock prices of those listed commercial banks surrounding the announcement date Based on methodology developed by Asquithe and Mullins (1986) and Barclay and Litzenberger (1986), the market response of stock prices to equity issue announcement is measured by the daily excess stock return Of which, the stock returns are measured as: Then, the excess stock returns are estimated by , where is day measured relative to the event; is excess return to share at each announcement event18 for day ; is return on share during day t and at each announcement event, while is expected rate of return on Vn-Index at each announcement event of share for day t Both and are estimated by the percentage changes in daily price Therefore, is then calculated as the difference between the actual return to a security and the return to the market as a whole Average excess returns for each relative day for share during data collected period are calculated by = where N is the number of observations from share price changes of three largest banks For example, the excess returns from 10-day trading preceding to 10-day after the announcement day The cumulative excess returns (for each share at each announcement events are formed by summing average excess returns over each event time as , where the is for the period from t = day K until t =day L In this study, day K is counted at day 51th preceding the announcement and day L is counted at day 50th after the announcement Average cumulative excess returns over the event time from day K until day L are calculated as According to Asquithe and Mullins (1986), a two-day average return is generated for each equity offering announcement should be applied Barclay and Litzenberger (1986) also address that in the U.S market, the announcement day is identified as the date of publication of the announcement in the Wall Street Journal, while in Vietnam the announcement is regulated on Circular 155/2015/TT-BTC dated 6th Oct, 2015 by Ministry of Finance about financial disclosure of equity issues and offer to Vietnamese security market, the issuers of stock must officially announce the information about equity issues within days since the official approval of new equity issues by SSC In addition, the news must be published in either an electronic journal or a paper journal in a three consecutive issues If t=0 is the day the news of an announcement is firstly published, and if the new equity offering is announced before the market closes, then the market’s response to the news can be captured t=0; and if the news is announced after the market closes, the market will response the next day and the reaction is indeed on day t=1 For cases of three largest commercial banks in Vietnam, the number of announcement events is counted along with the passage of time and totally, there are 20 events form 2009 to the end of Sep, 2019 18 127 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Table Common share issues of three largest listed in Vietnam stock exchanges during 2009-2019 Bank Announcement date V i e t i n B a n k 30th Sep, 2009 (CTG) 4th Apr, 2010 Amount of issuing shares Bidding 391,860,500 Private offering 297,500,000 Apr, 2010 Stock dividend 76,900,000 4th Apr, 2010 Rights for CS1 315,100,000 4th Apr, 2010 Private offering 168,600,000 Jun, 2011 Private offering 357,000,000 31 May, 2011 Rights for CS 337,162,027 28 Feb, 2012 Stock dividend 404,594,432 28th Feb, 2012 Bonus stock 194,205,327 28 Feb, 2012 Private offering 462,700,000 13rd Jul, 2013 Rights for CS 457,260,208 14 Apr, 2015 Issues for M&A 300,000,000 23 Apr, 2019 Stock dividend 298,989,385 th nd st th th th rd Vietcombank 13 Nov, 2009 (VCB) 9th Nov, 2010 Rights for CS 112,285,426 Rights for CS 436,382,579 22nd Apr, 2011 Stock dividend 211,050,483 22 Apr, 2011 Private offering 492,451,128 23 Apr, 2014 Bonus stock 347,612,561 15 Apr, 2016 Private offering 359,777,745 1st Sep, 2016 Bonus stock 932,757,116 18 Nov, 2018 Private offering 359,776,787 26 Apr, 2019 Bonus stock 26 Apr, 2019 Private offering 337,507,848 17 Apr, 2015 Rights for CS 104,193,492 17 Apr, 2015 Issues for M&A 336,921,100 24th Jun, 2016 Issues for employees 102,600,000 24 Jun, 2016 Stock dividend 290,590,803 22 Apr, 2017 Private offering 102,600,000 21 Apr, 2018 Issues for employees 170,900,000 16 Nov, 2018 Private offering 603,302,706 th nd rd th th th th BIDV (BID) Types of stock issues th th th nd st th 1,483,550,979 Source Vietstock (2019) Table sum up common stock issues of three largest commercial banks There are announcement events for VietinBank and announcement events for Vietcombank during 2009-2019, while there are announcement events for BIDV during 20152019, leading to total 20 announcement events from 2009-2019 RESULTS 4.1 Announcement day effects Table summarises the effect of announcement day on average excess returns and accumulative excess return for three largest banks during 2009-2019 All calculation is based on the adjusted prices done by HOSE after adjustment for prices of share i at each issue, and the results of XRt and average CERK,L are concentrated in the 128 -0.9% -1.1% -2.7% -4.7% -1.1% -0.6% -0.1% 0.0% 0.0% -0.9% 1.0% -0.1% -1.4% 0.8% -0.2% 0.5% -0.3% -0.3% 0.0% -0.8% -0.1% 0.1% -1.9% -1.5% 0.267 -8 -7 -6 -5 -4 -3 -2 -1 AD +1 +2 +3 +4 +5 +6 +7 +8 +9 +10 2-day AD return Shapiro Wilk Sig.(>0.05) 0.292 -0.5% 1.8% -2.3% 0.2% -0.6% -0.5% 0.3% -0.4% -0.7% 0.8% 0.1% 0.4% -0.9% -0.8% 0.3% -0.3% 0.3% 0.2% -0.9% 0.0% -0.3% -0.5%   -3.9% -5.7% -3.4% -3.6% -3.0% -2.6% -2.8% -2.4% -1.7% -2.5% -2.6% -3.0% -2.1% -1.3% -1.6% -1.2% -1.5% -1.7% -0.8% -0.8% -0.5% Closing   CERK,L XRt 0.099 -1.1% -0.6% 1.6% -1.1% -0.2% 0.5% 0.2% -0.5% -0.7% -0.2% -0.9% -0.6% -0.5% -1.3% 1.0% -0.7% 0.2% -0.1% -1.1% 1.5% -0.1% 0.0%   -3.4% -2.8% -4.4% -3.3% -3.1% -3.5% -3.8% -3.3% -2.6% -2.4% -1.5% -0.9% -0.4% 0.9% -0.1% 0.5% 0.3% 0.4% 1.5% -0.1% 0.0% Opening CERK,L XRt 0.251 -1.3% -1.1% -1.1% 1.2% -0.3% -0.2% 0.2% 0.4% -0.8% -0.4% -0.5% -0.7% -0.6% -1.1% -0.1% 0.4% -0.4% 0.1% -0.6% -0.5% 1.0%   -5.1% -4.0% -2.9% -4.1% -3.8% -3.6% -3.7% -4.1% -3.3% -2.9% -2.4% -1.7% -1.1% 0.0% 0.1% -0.3% 0.1% 0.0% 0.6% 1.1% 0.1% Closing XRt CERK,L 0.1% VCB Source Author’s calculation based on adjusted prices provided by Fiin (2019), AD = announcement date Note (*) Data is excluded new issues in the year 2019   -2.8% -2.7% -2.0% -2.0% -1.6% -1.3% -1.8% -1.6% -2.4% -1.9% -1.0% -1.0% -1.1% -1.0% -0.4% 0.7% 1.0% -9 -0.3% -0.3% Opening CERK,L XRt -10 Day t CTG BID 0.422 -0.2% -1.7% 1.6% -2.0% 1.2% -0.2% -1.6% 0.0% -0.2% -1.6% 2.4% 1.4% -1.6% 0.2% -0.6% -0.5% -1.2% -0.1% 1.0% -0.4% 0.1% -0.2%   -3.7% -2.0% -3.6% -1.7% -2.9% -2.7% -1.1% -1.1% -0.9% 0.6% -1.8% -3.2% -1.6% -1.8% -1.2% -0.8% 0.4% 0.5% -0.5% -0.1% -0.2% Opening CERK,L XRt Table Average excess return XRt and average CERK,L for 10 days surrounding announcement date* during 2009-2018 0.187 3.4% 0.8% -0.4% 1.6% -2.1% 0.1% 0.8% -1.5% -0.3% -0.1% -0.9% 2.2% 1.2% -1.7% -0.3% -0.6% -0.7% -0.6% 0.0% 0.7% -0.4% -0.1%   -2.3% -3.1% -2.7% -4.2% -2.2% -2.2% -3.0% -1.5% -1.2% -1.1% -0.1% -2.4% -3.6% -1.9% -1.6% -1.0% -0.4% 0.2% 0.2% -0.5% -0.1% Closing CERK,L XRt VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS 129 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 2-day and 10-day surrounding the announcement date The population of equity issues and stock prices during the event announcement are selected at both the opening and closing price of the market In order to test the normal distribution for XRt and average CERK,L the author decide to apply Shapiro Wilk test to check the condition of normal distribution if p-value of the null hypotheses is larger than 0.05 (p-value>0.05) The results show that population data for BIDV is significant at p-value equal to 0.267 at opening price and 0.292 at closing price For the case of Vietcombank and VietinBank, the distribution of population data is considered normal distribution as they are significant at p-values for the opening price and closing price equivalent to 0.099 and 0.251 and 0.422 and 0.187 accordingly (see Appendix 1) For the case of BIDV, the 2-day XRt is -0,2% at the opening price and 3.4% at the closing The average 2- day XR2 for the case of Vietcombank is -1.1% at the opening and -1.3% at the closing, while it is -1,5% at the opening and -0.5% for the case of VietinBank 4.2 Bank and stock market performance 4.2.1 Case of VietinBank Table describes the cumulative access stock returns of VietinBank from 10-week trading (equivalent to 50 days of trading) preceding the announcement to 10-week trading following the announcement during 2009-201519 The results show that as of the first two issues on 30th Sep, 2009 and on 4th Apr, 2010 (before 2010) and the two issues on 13rd Jul, 2013 and 14th April 2015 (after 2013), negative CER-50,50 are mostly observed in the 10- week trading preceding the announcement of the issue Especially, CER-50,50 for the period from 50th day until 5th day preceding the announcement issue on 30th Sep, 2009 are substantially negative with -24.3% for the opening price and -26.3% for the closing price As for all three issues on 30th Sep, 2009, on 4th Apr, 2010 and on14th Apr, 2015, the down trend in stock prices continues from 5th day to 50th day following the announcement date There is a big and negative CER-50,50 associated with the issue on 30th Sep 2009 at -32.5% (opening) and -34.5% (closing) However, the positive cumulative access returns can be observed in association with two issues on 31st May, 2011 and on 28th Feb, 2012 (from 2010 to 2012), in which there is a relatively increasing trend in CER-50,50 surrounding 28th Feb, 2012 at 20.3% (opening) and 23.5% (closing) from 50th day until 5th before the announcement date, and this trend continues from 5th day until 50th day following the announcement date at the rate of 23% (opening) and 25.8% (closing) Along with data in table 3, data in table provides insight in the market timing of equity sales It also reflects pre-announcement market adjusted returns exceeding post-announcement market-adjusted returns As for the opening price, the cumulative average value weighted market returns are negative for average of 45 days preceding the Announcement date and for 50 days following the announcement date As for the closing price, the general level of stock price for days before the announcement date shows positive at 0.48% After the announcement, it decreases at first, then slightly positive after 25th day of the announcement 19 In this data, the latest issue announcement in 23rd Apr, 2019 is excluded 130 5.1% 2.4% -2.4% -5.4% -12.3% -15.7% -16.7% -19.0% -24.3% -27.0% -27.1% -31.8% -33.8% -32.1% -35.0% -34.7% -37.6% -46.8% -31.7% -32.5% -45 -40 -35 -30 -25 -20 -15 -10 -5 AD 10 15 20 25 30 35 40 45 50 -34.5% -36.9% -45.6% -40.6% -37.0% -34.3% -34.0% -35.7% -30.9% -29.2% -27.7% -26.3% -19.5% -18.4% -16.9% -13.1% -6.6% -4.8% 1.1% 2.7% 0.7% -12.6% -13.6% -12.6% -12.9% -9.7% -11.0% -12.1% -10.3% -8.1% -7.8% -5.4% -4.0% -4.1% -0.1% 2.4% 9.7% 0.2% -4.7% -3.4% -3.6% -2.2% -9.1% -10.4% -9.7% -8.7% -3.2% -6.9% -8.4% -8.6% -5.1% -2.1% -4.5% 0.8% -0.4% 4.4% 3.5% 16.2% 4.3% -1.4% -0.9% -1.2% 2.3% 10.2% 12.8% 9.5% 5.3% 8.3% 5.6% 7.6% 5.7% 3.8% 5.0% 2.5% 9.2% 7.7% -0.6% -2.2% 5.0% 4.1% 4.5% 1.4% 8.6% 8.3% O 11.1% 13.6% 9.8% 3.9% 9.4% 6.7% 7.4% 6.9% 4.3% 6.5% -0.6% 9.7% 8.1% -1.7% -3.1% 3.4% 4.6% 4.6% 1.4% 9.2% 7.8% C 31st May, 2011 Source Author’s calculation based on data provided by Fiin (2019); Note “O” means opening price, while “C” means closing price 0.7% C O O C 4th Apr, 2010 30th Sep, 2009 -50 Day 23.0% 23.0% 25.5% 26.5% 27.1% 33.6% 25.7% 18.5% 17.0% 24.9% 19.7% 20.3% 18.5% 19.7% 22.3% 17.8% 8.4% 3.5% -3.7% -5.5% -7.2% O 25.8% 23.9% 26.5% 27.9% 28.5% 33.2% 26.4% 21.2% 19.9% 25.8% 22.8% 23.5% 21.4% 24.4% 21.9% 23.3% 12.6% 1.4% -1.4% -0.8% -3.5% C 28th Feb, 2012 -0.3% 1.8% 4.1% 6.8% -0.4% -1.2% -0.8% 0.8% 2.3% 3.6% 4.0% 3.4% 6.6% -0.1% -3.0% 0.2% -9.0% -5.1% -1.8% -2.4% 1.1% O -1.1% -0.4% 3.2% 5.2% -0.3% -2.4% -2.6% -0.3% 0.9% 0.4% 2.4% 2.5% 6.0% -0.2% -3.3% 0.9% -8.2% -5.7% -2.0% -3.3% -1.1% C 13th Jul, 2013 18.4% 12.4% 10.6% 2.8% 11.2% 10.6% 4.6% 2.9% 3.1% -1.9% -1.0% -1.0% -3.8% -0.9% -0.6% -1.9% -1.0% -3.5% -0.4% -3.9% -0.5% O 16.2% 11.6% 9.3% 6.0% 9.3% 9.7% 2.3% 1.2% 5.6% -1.0% 1.1% -0.6% -4.3% -2.0% -0.5% -2.8% -2.4% -3.9% -0.4% -1.8% -1.2% C 14th Apr, 2015 Table CER K,L from 10-week-trading preceding to 10-week trading after the annoucement date of VietinBank’s stock during 2009-2015 1.0% 0.8% -1.6% -1.5% 0.3% 0.4% -1.2% -2.7% -2.3% -0.6% -1.2% 0.6% 1.0% 0.2% 0.6% 3.1% -0.5% -1.3% -0.9% -0.3% 0.0% O 1.4% 0.2% -1.1% -1.0% 1.1% 1.0% -1.5% -2.6% -0.9% 0.1% -1.1% 1.6% 1.9% 1.1% 0.3% 4.6% 0.7% -1.6% -0.4% 0.8% 0.8% C Average (2009-2015) VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS 131 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 4.2.2 Case of Vietcombank After officially listed in HOSE in the year 2009, Vietcombank has carried out new equity issues and there are announcements during 2009-2018 As it has indicated in table 4, the price deduction surrounding the announcement date are easily interpreted for three issues prior to the year 2012 (i.e., on 13rd Nov, 2009; 11st Sep, 2010 and 22nd Apr, 2011) CER-50,50 is at rate of -9.1% for the opening price and -8.7% for the closing price, then the trend continues and decrease at rate of -15.4% (opening) and at -17.5% (closing) until the 10th week trading following the announcement The timing pattern might be seen for the 5-day trading associated with the issue on 22nd Apr, 2011 as CER-0,5 ends at a positive rate of 11.3%; at positive rate of 13.6% (opening) and at 15.5% (closing) for the issue on 1st Sep, 2016 However, surrounding the issue on 22nd Apri, 2016, CER0,5 decrease steadily to the rate of -18.5% (opening) and at -25.8% (closing), and the similar decreasing trend associated with the announcement event on 1st Sep, 2016 as CER0,5 ends at -1% (opening) and 0.2% (closing) The stock returns are actually improved during 2014-2016 with the positive returns after 50-day trading since the announcement on 23rd Apr, 2014 and on 15th Apr, 2016 In other words, those investors who keep stocks of Vietcombank between the year 2009 to the end of 30th Jan, 2019 have to take the loss of 3.3% on average (based on opening prices) and 4.7% based on (closing prices) As for the general level of Vietcombank’s stock prices, data in table reflects outperformance during 5th day after the announcement (opening) Although the superior performance is never observed with the market-adjusted returns exceeding post announcement for Vietcombank’s stock price during 2009-2018, the timing pattern for the general level of this stock prices can be observed after the announcement date 132 -12.6% -16.1% -15.4% -13.0% -10.5% -13.8% -9.1% -13.1% -16.5% -12.6% -9.9% -7.3% 2.0% -8.2% -5.5% -11.2% -12.5% -15.4% -25 -20 -15 -10 -5 AD 10 15 20 25 30 35 40 45 50 -9.8% 4.9% -0.5% -3.5% -0.3% -4.0% -1.9% -0.4% 1.6% -2.9% 0.8% 2.9% 0.8% 1.7% 0.6% -1.2% 2.5% 5.2% -1.0% 0.1% 0.4% -1.6% -1.9% 3.5% -4.9% 0.5% -3.2% -0.8% -1.3% -1.6% 5.9% -4.7% -0.4% -5.9% 1.5% 5.2% 2.8% -0.1% -2.5% -1.3% -0.4% -0.6% 2.0% -13.9% -18.5% -10.8% -4.5% -4.1% -0.2% 0.4% 2.9% 4.7% 6.8% 9.6% 11.3% 13.9% 0.2% -10.7% -7.5% -7.1% -6.1% -5.2% -2.8% 3.9% O -29.0% -25.8% -16.9% -8.2% -6.2% -1.2% -0.9% 1.3% 6.6% 5.5% 10.1% 11.3% 16.6% -1.6% -13.9% -15.5% -19.4% -10.8% -10.1% -6.6% 2.2% C 22/4/2011 O 8.7% 6.6% 10.3% 4.2% 2.0% 3.9% 0.3% 1.5% -7.2% -4.9% 1.0% 1.6% 3.2% 5.2% 3.5% 0.4% 3.6% 2.0% -0.4% -0.7% 7.0% 5.5% 8.4% 4.0% 0.1% 2.5% 2.2% 0.5% -6.9% -6.1% 0.0% -0.3% 2.1% 5.4% 1.7% 0.4% 1.9% 2.5% 0.9% -1.1% 1.0% C 23/4/2014 0.2% Source Author’s calculation based on data provided by Fiin (2019); Note “O” means opening price, while “C” means closing price -12.6% -17.5% -11.5% -9.2% -9.3% 0.7% -9.5% -10.9% -12.2% -8.7% -8.8% -13.2% -12.9% -14.7% -10.6% -7.5% -8.3% -10.1% -5.5% -40 -8.4% -30 -7.4% -45 -2.4% -35 -3.0% C O C O -50 Day 11/9/2010 13/11/2009 1.1% 4.0% 1.1% 4.6% 3.5% 2.2% 3.5% 7.1% 8.4% 4.8% 2.6% 1.4% -3.4% 0.4% 0.9% 2.3% -2.2% -1.5% 0.7% -4.1% -1.4% O 1.3% 6.1% 5.8% 5.4% 4.6% 3.7% 2.0% 6.9% 7.3% 6.1% 8.3% 1.9% -2.1% -0.4% 2.7% 2.5% -1.0% -0.9% -0.5% -2.0% 0.1% C 15/4/2016 -0.8% 1.0% 0.3% 1.5% 2.0% 4.4% 4.8% 4.2% 2.3% 8.4% 6.6% 13.6% 7.7% 12.1% 12.0% 11.8% 12.0% 11.9% 3.3% -0.2% 1.4% O 1.3% 0.2% 0.3% 0.2% 0.5% 4.5% 4.3% 4.3% 4.6% 6.2% 3.2% 15.5% 8.9% 11.7% 9.4% 11.1% 7.6% 8.9% 3.7% -0.7% 0.9% C 1/9/2016 0.4% 0.1% 0.7% 0.7% -0.4% -0.8% 0.3% 0.3% 0.9% 1.7% 0.0% 1.0% 1.9% 2.6% 5.9% 4.6% 3.1% 4.6% 3.2% 2.8% 4.7% O -5.2% -4.9% -5.9% -5.4% -5.3% -7.0% -6.3% -6.1% -3.8% -6.1% -4.8% -2.3% -2.7% -3.4% 0.5% 0.7% -0.2% -0.3% -1.2% -2.1% -1.0% C 18/10/2018 Table CERK,L from 10-week-trading preceding to 10-week trading after the annoucement date of Vietcombank’s stock during 2009-2018 -1.7% -3.3% -1.9% 0.1% -1.3% 1.4% 0.2% 1.1% -0.9% 0.2% 1.4% 2.9% 1.6% 1.5% -0.4% -0.2% 0.6% 0.4% -0.5% -1.7% 0.6%   -5.6% -4.7% -3.5% -1.8% -2.7% 0.4% -1.4% -0.8% 0.2% -2.2% 0.5% 1.7% 2.2% 0.5% -1.4% -2.2% -3.4% -1.7% -2.3% -3.1% 0.4%   Average (2009-2018) VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS 133 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 4.2.3 Case of BIDV In the period from 2015 until 2019, BIDV conducted new equity issues and offerings to the market Overcoming the downturn of the market during 20092011 and in 2013, data in table reflects the superior performance of BIDV’s stock, especially in the period surrounding the issue on 17th Apr, 2015 In this period, CER-50 ends at the rate of 14.3% for the opening price and at 7.38% for closing price, then the upward trend continues associated with performance of 27.37% (opening) and of 25.61% (closing) The timing pattern for BIDV’s stock is easily interpreted as the data shows outperformance during the announcement on 22nd Apr, 2017 and on 16th Nov, 2018 It is likely that the board of management and directors of the bank have appropriate decision to issue new equities during the above performance of the market Table CERK,Lfrom 10-week-trading preceding to 10-week trading after the announcement date of BIDV’s stock during 2009-2018 Day 17/04/2015 24/04/2016 22/4/2017 21/4/2018 16/11/2018 Average (20152019) O C O C O C O C O C O C -50 6.34% -0.91% -1.72% 1.41% -0.9% 1.0% 0.5% -1.9% -0.5% 2.4% 0.7% 0.4% -45 -6.22% -10.58% -4.49% -1.01% -1.8% -0.7% 8.6% 9.1% 4.4% 2.9% 0.1% 0.0% -40 4.63% -4.39% 7.52% 10.41% -5.1% -3.1% 13.1% 12.2% 4.0% 3.1% 4.8% 3.7% -35 8.14% -0.50% 4.16% 5.92% -6.3% -4.3% 12.9% 6.5% 0.5% 1.5% 3.9% 1.8% -30 2.94% -0.60% 2.13% 3.42% -2.6% -3.3% 14.3% 13.0% 4.7% 3.3% 4.3% 3.2% -25 7.59% 1.27% 1.10% 3.85% -5.8% -2.1% 22.8% 18.2% 3.6% 2.4% 5.9% 4.7% -20 3.78% -0.80% -1.05% 1.58% 1.0% 3.3% 21.4% 24.8% 5.5% 6.1% 6.1% 7.0% -15 10.05% 2.75% -0.53% 0.97% 1.4% 1.3% 23.6% 23.0% 3.9% 0.3% 7.7% 5.7% -10 10.81% 3.79% -3.01% -1.96% -2.4% -2.9% 22.9% 21.0% 2.2% 4.2% 6.1% 4.9% -5 14.30% 7.38% -7.71% -4.86% -2.2% -3.7% 19.5% 15.6% 5.3% 3.1% 5.8% 3.5% AD 16.36% 8.02% -1.69% -0.82% -4.0% -3.8% 19.8% 14.0% 5.4% 6.7% 7.2% 4.8% 11.81% 6.96% -4.31% -2.24% -4.4% -3.7% 9.4% 10.5% 4.0% 3.0% 3.3% 2.9% 10 8.82% 5.46% 0.13% 3.36% -4.8% -1.3% 12.5% 7.7% 0.2% 1.1% 3.4% 3.3% 15 14.50% 9.32% 1.68% 4.35% -3.8% -4.1% 9.5% 8.6% 6.9% 5.0% 5.8% 4.6% 20 16.15% 6.58% -1.97% 0.86% 3.6% 8.3% 7.6% 2.7% 8.0% 6.3% 6.7% 4.9% 25 21.89% 18.54% -3.11% 0.01% 3.4% 4.8% 1.6% 3.6% 11.9% 10.9% 7.1% 7.6% 30 27.62% 18.57% -4.55% -1.23% 7.7% 7.9% 8.0% 3.6% 12.8% 14.4% 10.3% 8.6% 35 29.49% 21.77% -4.33% -1.29% 8.1% 10.0% 2.0% -3.9% 10.8% 7.9% 9.2% 6.9% 40 29.87% 20.98% -4.16% -3.56% 10.7% 10.7% 0.2% -4.4% 7.1% 7.0% 8.7% 6.2% 45 34.13% 28.00% -8.02% -5.25% 7.9% 8.8% -2.2% -6.3% 9.5% 8.2% 8.2% 6.7% 50 27.37% 25.61% -9.33% -8.01% 9.3% 9.9% -12.4% -17.9% 6.3% 3.9% 4.2% 2.7% Source Author’s calculation based on data provided by Fiin (2019); Note “O” means opening price, while “C” means closing price 134 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS Obviously, the cumulative average value weighted excess returns for BIDV’s stock show upward trends, and it also reflect differently from cases of VietinBank and Vietcombank during 2015-2019 Table Average cumulative access returns for banks from 10-week-trading before until 10-week trading after the annoucement date Day VietinBank (2009-2015) BIDV (2015-2019) Vietcombank (2009-2018) -45 0.39% 0.61% 0.24% -0.54% -0.62% -1.62% -40 -0.21% 0.15% 1.70% 0.97% -0.58% -1.68% -35 -0.57% -0.31% 2.38% 1.43% -0.39% -1.54% -30 -0.86% -0.47% 2.69% 1.71% -0.45% -1.82% -25 -0.48% 0.03% 3.09% 2.16% -0.53% -1.90% -20 -0.11% 0.30% 3.63% 2.73% -0.49% -1.90% -15 -0.07% 0.38% 4.17% 3.18% -0.35% -1.77% -10 -0.13% 0.36% 4.37% 3.25% -0.12% -1.44% -5 -0.02% 0.48% 4.58% 3.41% 0.19% -1.01% AD -0.06% 0.39% 4.62% 3.42% 0.37% -0.81% -0.10% 0.35% 4.67% 3.42% 0.35% -0.81% 10 -0.19% 0.26% 4.63% 3.36% 0.26% -0.88% 15 -0.31% 0.12% 4.74% 3.45% 0.27% -0.84% 20 -0.42% -0.01% 4.83% 3.51% 0.26% -0.86% 25 -0.40% 0.02% 4.95% 3.63% 0.32% -0.80% 30 -0.33% 0.06% 5.22% 3.90% 0.31% -0.84% 35 -0.32% 0.06% 5.49% 4.13% 0.27% -0.91% 40 -0.34% 0.02% 5.68% 4.28% 0.19% -1.03% 45 -0.31% 0.04% 5.82% 4.41% 0.05% -1.24% 50 -0.28% 0.08% 5.85% 4.39% -0.10% -1.44% Source: Author’s calculation based on data provided by Fiin (2019); Note: “O” means opening price, while “C” means closing price 4.2.3 Price effects Table provides evidences on the price effects from equity issues by three largest banks It also indicates how the 2-day announcement period excess returns are correlated with the cumulative excess returns for the previous 10-week trading to the announcement As it shows, the 2-day announcement period excess returns positively related to the cumulative excess returns in 10-week preceding the announcement For the population of all equity issues observed during 2009-2019, the coefficient is significant at the 5% level and the regression is also significant at the 5% level for case of the opening price The result implies that, if the poorly performed stocks prior to the announcement would result in the price reduction in the 2-day announcement returns Although the regression for the equity issues associated with the closing prices is not significant when the regression is conducted, it is likely to suggest unfavourable signals associated with equity issues by the three largest banks 135 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Table Estimated coefficients and t-statistics (in parentheses) from regressing the 2-day XR-2,0 and average CERK -50,0 for the announcement of equity issues 2-day XR -2,0 = α+β (10 -week trading CERK -50,0) Secondary issues Opening α β +0.0041 0.552 (0.559) (2.112) N = 20, Stationary R-square = 0.208, Significance of t-statistics = 0.050 (see Appendix 2) -0.0042 2.389 (-0.205) (1.081) Closing N = 20, Stationary R-square = 0.068, Non-significance of t-statistics ( = 0.296) (see Appendix 2) CONCLUSIONS AND DISCUSSIONS The results of this study confirm previous studies in the past that announcement of equity issues reduce stock prices (Logue and Jarrow, 1978, Hansen, 1988; Njoroge, 2003) These findings of the study serve as empirical evidences in the banking industry of Vietnam during 2009-2019 that the whole population of secondary equity issues are associated with negative announcement day excess returns Specifically, the average announcement day excess return applied to the opening prices for cases of BIDV, Vietcombank and VietinBank are -0.2%, -1.1% and -1.5% accordingly and they are statistically significant Though these price effects seem to be small, the aggregate reduction during announcement day for equity issues of three largest banks is associated with price deduction at the announcement day While evidences in developed markets also suggest that issuers should sell stocks following the period in which the stock outperforms the market and a timing of the market should be reasonable, the issuing case of the three largest banks in Vietnamese capital market is different especially during 2009-2010 (after the collapse of Vietnamese stock market) Results also prove that price deduction is not only affected by the decision of issuing more stocks, it is also affected by the macroeconomic factors and general trend of the market before 2010 Therefore, the study could provide evidence of an appropriate market timing of banks in issuing new stocks In addition, the findings for price effect following the equity issues have important implications for listed banks’ decisions According to Bhattacharaya (1980), Asquith and Mullins (1986), the reduction in firm value associated with equity issues represents a substantial “cost of false signalling” in dividend signalling models Normally, if the board of management and managers of the banks act in the best interest of shareholders, they will decide to issue new securities only when the net benefits to shareholders are positive In Vietnamese cases, process to increase equity and size of big banks following the internationalization in financial services may follow commitments of Vietnam since the country become official member of WTO, in association with restructuring issues followed Decree 254 rationalize a reluctance on the part of Vietcombank and VietinBank to issue equity Therefore, in these cases, 136 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS BOM and managers act to maximize some other objective functions To some extents, new equity issues would be bad news as investors belief about the negative net present value of their investment It is also consistent with argument that firms should time equity issues to minimize the attendant adverse stock prices effects, because issuing equity following a rise in stock prices would narrow the gap in price reduction after the announcement REFERENCES [1] Dann, L, D, Mayers and R.Raab, 1977, Trading rules, large blocks, and the speed of adjustment, Journal of Financial Economics 9, 113-138 [2] DeAngelo, H and R Masulis, 1980, Optimal capital structure under corporate and personal taxation, Journal of Financial Economics 8, 3-29 [3] Galais, D and R Masulis, 1976, The option pricing model and the risk factor of stock, Journal of Financial Economics 3, 53-82 [4] Hanaa M Adam, 2010, The effect of rights issue on stock prices of firms listed at East Africa Securities Exchanges, Unpublished MBA project, Nairobi University [5] Hansen, R, S.,1988, The demise of the right issue, Review of Financial Studies, 1, 289-309 [6] Heron, R, A and E, Lie, 2004, A comparison of the motivations for and the information content of different types of equity offerings, The Journal of Business, 77-605-632 [7] Holderness, C, G and J, Pontiff, 2013, Shareholder non-participation in valuable rights offerings, doi: 10.2139/ssrn.2173543 [8] Kraus, Alan and Hans R Stoll, 1972, Price impacts of blocks trading on the New York Stock Exchange, Journal of Finance 27, 569-588 [9] Leland, Hayne and David Pyle, 1977, Information asymmetries, financial structure, and financial intermediation, Journal of Finance 32, 371-387 [10] Logue, D.E and R.A Jarrow, 1978, Negotiation versus competitive bidđing in the sale of securities by public utilities, Financial Management 7, 31-39 [11] Lukose, P, J,J and S, N, Rao, 2003, Operating performance of the firms issuing equity through right offer, Vikalpa, 28, 24-40 [12] Marsh, P.R, 1979, Equity rights issues and the efficiency of the UK stock market, Journal of Finance 34, 839-862 [13] Masulis, Ronald W, 1980b Stock repurchase by tender offer: An analysis of the causes of common stock price changes, Journal of Finance 35, 305-311 [14] Modigliani, Franco and Merton H Miller, 1963, Dividend policy under asymmetric information, Unpublished working paper (university of Chicago, Chicago II) [15] Ndua, D.N, 2012, The effect of rights issue on market returns of firms listed at Nairobi securities exchange, Unpublished MBA Project, University of Nairobi [16] Njoroge, C, 2003, The impact of right issue announcements on share prices of companies listed at the Nairobi Stock Exchange http://erepository.uonbi.ac.ke:8080/ xmlui/handle/123456789/22519 [17] Pathak, H., D, Giri, 2008, Right share issue practices in Nepal, The journal of Nepalese Busniess Studies, 5, 93-100 137 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 [18] Ramirez, J, 2011, Handbook of Corporate Equity Derivatives and Equity Capital Markets, United Kingdom, John Wiley and Sons [19] Sakwa, C, 2013, The effect of rights issue announcement on stock returns of companies listed at the Nairobi securities exchange, Unpublished thesis [20] Thenmozhi, M., Malhotra, M., A.K, Gopalaswamy, 2007, Announcement effect of rights issue on stock returns: A study of selected Indian manufacturing companies, Journal of Service Research, 7, 215-231 138 VIETNAM NATIONAL UNIVERSITY - UNIVERSITY OF ECONOMICS AND BUSINESS Appendix Normal Distribution Tests for XRt and average CERK -50,0 Tests of Normality Closing BIDV Opening BIDV Kolmogorov-Smirnova Statistic df Sig .166 22 117 142 22 200* Shapiro-Wilk Statistic df 948 22 946 22 Sig .292 267 * This is a lower bound of the true significance a Lilliefors Significance Correction Tests of Normality Kolmogorov-Smirnova Shapiro-Wilk Statistic df Sig Statistic df Sig Opening VietinBank 173 21 101 955 21 422 Closing VietinBank 140 21 200* 937 21 187 * This is a lower bound of the true significance a Lilliefors Significance Correction Tests of Normality Opening VCB Closing VCB Kolmogorov-Smirnova Statistic df Sig .136 21 200* 124 21 200* Shapiro-Wilk Statistic df Sig .923 21 099 943 21 251 * This is a lower bound of the true significance a Lilliefors Significance Correction 139 IN TERNATIONAL CONFERENCE ON - CIFBA 2020 Appendix Model Statistics Model Fit statistics Number of Predictors Model Two-day excess return-Model_1 Ljung-Box Q(18) Stationary R-squared Statistics 208 33.245 DF Sig Number of Outliers 18 016 ARIMA Model Parameters Two-day excess return-Model_1 Two-day No excess return Transformation No Transformation CERO Estimate SE t Sig Constant 004 008 559 583 Difference Numerator Lag 522 247 2.112 050 Model Statistics Model XRETC2-Model_1 Number of Predictors Model Fit statistics Ljung-Box Q(18) Stationary R-squared Statistics DF Sig Number of Outliers 068 ARIMA Model Parameters XRETC2 No Transformation CERC No Transformation XRETC2-Model_1 140 Estimate SE t Sig Constant -.004 021 -.205 840 Difference Numerator Lag 389 360 1.081 296 ... other commercial banks trading in the UpCOM Though the banking and financial institutions of Vietnam have not dominated the Vietnamese stock market since the beginning like case of Napalese banks. .. of Vietnamese financial sectors, the motivation of the study is to investigate the effects of equity issues on stock prices of these largest banks surrounding the announcement periods of issuing... for common stock only The data include: (i) Prices of share at the opening of the market; (ii) Prices of share at the closing of the market; (iii) Stock prices of those listed commercial banks