An empirical study on company performance listed companies on ho chi minh stock exchange

CERTIFICATION I hereby declare that the substance of this thesis is my own work and knowledge This dissertation has not been submitted for any other degree or diploma of the university or higher degree I certify that its contain has not been published or written by another person CAO THI TUYET MAI 27 November 2012 i 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 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 Q at 1% 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 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 1% 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 TABLE OF CONTENTS Certification .i Acknowledgements ii Abstract iii List of Tables vii List of Figures .viii Abbreviations ix CHAPTER 1.1 Problem statement 1.2 Research questions 1.3 Research rationale 1.4 Research objectives 1.5 Research scope 1.6 Structure of the research CHAPTER 2.1 INTRODUCTION .1 LITERATURE REVIEW AND EMPIRICAL STUDIES Theoretical relation between firm performance, corporate governance and capital structure .4 2.2 2.1.1 Firm performance 2.1.2 M-M theory 2.1.3 Trade off theory 2.1.4 Agency theory 2.1.5 Stewardship theory Empirical evidence 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 4.2.2.1esults of model robustness 33 4.2.2.2Analysis result 37 4.3 Conclusion 42 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 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 ABBREVIATIONS CEO Chief Executive Officer D/E 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 P/E 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 Viet Nam Dong Heteroskedasticity Test: White test for Model 1A F-statistic Obs*R-squared Scaled explained SS 6.821183 217.6092 1637.204 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 1A: F-statistic Obs*R-squared 59.16007 96.47014 Prob F(2,452) Prob Chi-Square(2) 0.0000 0.0000 Model 1B with TOBIN’s Q pool regression model Dependent Variable: TOBIN’s Q Method: Least Squares Date: 11/09/12 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 Prob -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 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) 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 Prob 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 Cross-section random Idiosyncratic random S.D 0.053270 0.059014 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 0.074267 0.839366 Model 2B with TOBIN’s Q Random Effects Model Dependent Variable: TOBIN’s Q Method: Panel EGLS (Cross-section random effects) Date: 11/09/12 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 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 Prob 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 Unweighted Statistics R-squared Sum squared resid -0.008425 139.4915 Mean dependent var Durbin-Watson stat 71 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 Prob 22.548591 0.0010 Chi-Sq Statistic Chi-Sq d.f Prob 131.558855 0.0000 Correlated Random Effects - Hausman Test Equation: Model 2B Test cross-section random effects Test Summary Cross-section random FIXED EFFECTS MODEL Model 3A with ROA Fixed Effects Model Dependent Variable: ROA Method: Panel EGLS (Cross-section weights) Date: 11/09/12 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 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 Prob 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 0.838677 0.795481 0.058061 19.41567 Mean dependent var S.D dependent var Sum squared resid Durbin-Watson stat 0.153855 0.147351 1.233812 2.155527 R-squared Sum squared resid 0.673797 1.283300 Mean dependent var Durbin-Watson stat 0.074267 73.99462 62 Prob(F-statistic) 0.000000 Unweighted Statistics R-squared Sum squared resid 0.673797 1.283300 Mean dependent var Durbin-Watson stat 62 0.074267 74.99462 Model 3B with TOBIN’s Q Fixed Effects Model Dependent Variable: LNTOBIN_SQ Method: Panel EGLS (Cross-section weights) Date: 11/09/12 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 Prob 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 0.656101 0.564018 0.418011 7.125151 Mean dependent var S.D dependent var Sum squared resid Durbin-Watson stat 0.211537 0.627865 63.95234 2.388180 R-squared Sum squared resid 0.529697 65.05517 Mean dependent var Durbin-Watson stat 0.181697 75.19635 63 Prob(F-statistic) 0.000000 Unweighted Statistics R-squared Sum squared resid 0.529697 65.05517 Mean dependent var Durbin-Watson stat 63 0.181697 76.19635 Redundant Fixed Effects Tests Equation: Model 3A Test cross-section fixed effects Effects Test Cross-section F Statistic 14.579565 d.f Prob (92,366) 0.0000 d.f Prob (92,366) 0.0000 Redundant Fixed Effects Tests Equation: Model 3B Test cross-section fixed effects Effects Test Statistic Cross-section F 7.077989 77 Wald Test: Equation: Model 3A Test Statistic Value F-statistic Chi-square 28.50726 57.01452 df Probability (2, 366) 0.0000 0.0000 Value Std Err Null Hypothesis Summary: Normalized Restriction (= 0) C(3) C(4) 0.078298 -0.171912 0.046355 0.046850 Restrictions are linear in coefficients Wald Test: Equation: Model 3B Test Statistic F-statistic Chi-square Value 17.74239 35.48478 df Probability (2, 366) 0.0000 0.0000 Value Std Err Null Hypothesis Summary: Normalized Restriction (= 0) C(3) C(4) Restrictions are linear in coefficients 2.796161 -1.933664 0.614479 0.563077 APPENDIX III GENERAL INFORMATION RELATED TO LISTED FIRMS Figure 02 Number of listed firms in the period 2006-2012 800 700 600 500 400 300 237 183 175 147 95 119 88 118 200 100 2006 2007 2008 Source: http://www.cop hieu68.com/stat s_market_size.p hp Figure 03 Number of new listed firms in the period 2006-2012 200 150 150 87 100 54 63 50 30 24 29 2006 2007 2008 Source: http://www.cophieu68.com/stats_market_size.php Figure 04 Market Capitalization 700,000 600,000 500,000 400,000 300,000 200,000 100,000 - 477,774 370,714 218,708 179,700 107,060 39,008 2006 2007 617,837 514,145 659,271 586,269 491,802 464,036 392,666 383,400 HNX HOSE HOSE+HNX 214,694 169,355 45,339 2008 121,479126,035 80,636 2009 2010 73,002 HOSE+HNX HNX 2011 2012 Unit: Billion VND Source: http://www.cophieu68.com/stats_market_size.php ... 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