INTRODUCTION
Problem Statement
The intriguing merger and acquisition (M&A) stories of well-known Vietnamese brands often leave financial researchers puzzled As reported by Kinhtedautu magazine in April 2014, foreign firms have negotiated these acquisitions at surprising prices, frequently exceeding the total tangible assets of the companies involved, exemplified by Phở 24.
Many businesses, such as those valued at $20 million or more, face challenges in accurately assessing their intrinsic value due to the complexities of intangible assets Often, firms either fail to recognize the full benefits of these assets or misunderstand the importance of investing in them This can lead to inaccuracies in calculating operational efficiency and project payback periods For instance, a strong brand, as an intangible asset, can significantly boost product sales and pricing If analysts overlook the strength of a brand, they may encounter difficulties in forecasting future revenue accurately.
Proper evaluation of intangible assets is crucial due to the volatile nature of the economy, impacting both management decisions and investor choices Companies must continually adapt their operations and expansion strategies to maintain market share and revenue However, traditional financial statements often fail to capture the full extent of these efforts, as highlighted by Baruch Lev and Paul Zarowin's research, which indicates a decline in the usefulness of balance sheets, income statements, and cash flow statements in recent years Significant investments in research and development or advertising are typically recorded as expenses rather than reflecting their true value Furthermore, as economic conditions evolve, companies must engage customers with innovative offerings to sustain sales Inadequate assessment of intangible assets could lead to violations of the matching principle in accounting, where revenues must align with the expenses incurred to generate them.
Valuing intangible assets is crucial for key sectors like financial reporting and commercial strategy, as it directly influences a company's financial position and shareholder expectations When these elements are clearly communicated, shareholder loyalty increases, potentially lowering the cost of equity Furthermore, intangible assets such as brand reputation and intellectual capital can enhance a firm's competitive edge by boosting customer loyalty and increasing profit margins A well-known brand can command higher prices and negotiate better input costs with suppliers In terms of strategic development, understanding and leveraging these intangible assets is essential for sustained growth.
(2014), manager of company could plan their investment strategy, how much for factory constructing and what proportion for marketing…
The demand for measuring the value of intangible assets is increasingly evident, highlighting the need for effective evaluation methods As noted by Parble Fernandez (2013), we are still in the early stages of assessing these assets Currently, three established methods exist for calculating their total value, but this research aims to introduce a new approach for more accurate evaluation.
Research Objective
This research examines the impact of intangible assets on company performance across various industries, providing valuable insights for firms to optimize their resource allocation By employing a novel indirect approach using panel data methods, the study aims to accurately assess the total value of intangible assets for selected companies in Vietnam.
This thesis also solves another objective related to development policies It rises a problem about supporting policies between small and medium enterprise (SME) and larger companies.
Research Questions
Base one research objectives above, this research will solve two questions:
• Why should companies allocate their resources in both tangible and intangible assets?
• What policies control market power of both SME and large companies?
Structure of Thesis
The study comprises four key components: a literature review, a conceptual framework, an econometric model, and an empirical study The initial section will highlight prior research conducted by various authors regarding intangible assets.
This article explores various methods for evaluating intangible assets, analyzing the strengths and weaknesses of each approach while emphasizing the advantages of T Yamaguchi's 2014 model It details improvements made to Yamaguchi's framework and generalizes the core concepts behind his valuation method A visual representation of the evaluation process is provided, alongside a discussion of the qualitative methods and specific econometric models employed in the study Finally, the article outlines the application of these evaluation methods to businesses on the Vietnam stock market, illustrating the calculation of intangible asset values across different industries and examining how these assets influence overall business performance.
LITERATURE REVIEW
What Are Intangible Assets
Intangible assets are defined differently due to varying perceptions, with accounting perspectives adopting a more rigorous definition based on prudence Conversely, investors and managers tend to assess and define intangible assets in a broader context, highlighting the diversity in understanding these valuable resources.
International Accounting Standard 38 (IAS 38) defines an intangible asset as an identifiable non-monetary asset that lacks physical substance Additionally, this standard emphasizes that a key characteristic of intangible assets is the expectation of future economic benefits.
According to OECD project (2011), with a different perspective, OECD defines
Intangible assets are non-physical resources that lack a tangible or financial form According to the OECD, there is a distinction between intangible assets and intellectual assets, with the latter being a subset of the former Intangible assets encompass various categories, including computerized information, which plays a vital role in the digital economy.
“innovative property”; “and economic competencies".
In this research, we will follow OECD’s definition to estimate aggregate value of intangible asset It means that we will use the word “intangible asset” instead of
“intellectual property” or “intellectual asset” This definition allows us not to have problem with matching concept and undervaluation of current financial reporting system.
Types Of Intangible Assets
Intangible assets can be categorized in various ways, with researchers often focusing on specific types such as brand names, customer lists, and company culture A notable contribution to this categorization is the work of Petros A Kostagiolas and Stefanos Asonitis (2009), who identified several distinct types of intangible assets.
Table 1: Category of Intangible Asset
This research focuses on the impact of total intangible assets on a company's income, despite the various types of intangible assets available Understanding the categorization of these assets is essential for selecting the appropriate valuation approach and will aid in interpreting the underlying factors contributing to industrial growth rates in subsequent sections.
Intangible Asset Valuation Approaches
According to the book Valuing Intangible Assets of Reilly, R F., and Schweis, R P.
In 1999, three primary approaches were established for evaluating intangible assets: the cost approach, the market approach, and the income approach Each of these methods relies on distinct data sources and involves various procedures, resulting in a range of reasonable valuations for intangible assets Typically, researchers tend to use only one of these valuation approaches due to constraints related to data availability and the costs associated with data collection.
Lev and Sougiannis (1996) propose that the cost approach to evaluating intangible assets is based on the total expenditure required to recreate or construct a similar asset with equivalent functionality They analyze the value of R&D activities in relation to a company's earnings, calculating the value of intangible assets by considering past R&D expenditures While this method can accurately reflect the value of certain intangible assets like R&D and advertising expenses, it poses challenges in valuing other intangible assets, such as brand names, employee expertise, or customer lists.
Determining the useful life of intangible assets poses a significant challenge, as it requires ongoing evaluation to identify the appropriate lag period for R&D expenses and their impact on operating earnings.
The market approach evaluates the value of intangible assets by referencing the market price of comparable assets within the same market According to Kossovsky (2002), this method can indirectly assess the value of intellectual assets by analyzing the difference between a firm's book value and its market equity value While this approach provides an objective measurement by comparing intangible assets to market prices, it is important to note that a company's stock price reflects not only its intrinsic value but also shareholder perceptions of future prospects, which can sometimes be influenced by temporary speculation Additionally, the effectiveness of this approach is limited if there are no comparable assets available, as it is often challenging to identify two similar intangible assets in practice.
The income approach evaluates the value of intangible assets by comparing the significant benefits derived from possessing these assets against the scenario where they are absent In essence, the value of an intangible asset is determined by subtracting the net present values of cash flows in both situations.
Interbrand’s valuation method employs an income approach to assess a brand's worth, incorporating various earnings linked to a new variable known as brand strength However, Paulo Fernandez highlighted certain issues with Interbrand’s methodology in his paper titled "Valuing Intangible Assets and Intellectual Property."
In 2013, Interbrand highlighted the significant advantages of intangible assets by comparing the EBITs of well-known brands to those of private label companies However, identifying private label companies poses a challenge, as these firms lack market power associated with their brand names, making them difficult to recognize Additionally, as noted by Paulo Fernandez, the methods used to assess a brand's strength are subjective and may be influenced by the appraisers, raising concerns about the reliability of such evaluations.
The panel data approach utilizes panel data analysis to compute unobservable firm effects, which Motohashi (2005) interprets as management ability, labor motivation, and R&D expenses While R&D expenses can be clearly identified, Motohashi includes them as an independent variable in his model His method examines the effects of labor, capital, and internet networks on a firm's value added, although he only interprets the effects of internet networks, with other intangible assets included in the error term Additionally, he recommends the use of cross-sectional data along with fixed and random effects for estimation.
Ramirez and Hachiya (2006) introduced an alternative method for valuing intangible assets by employing a fixed effects model This approach utilizes sales growth rate as the dependent variable, while incorporating production factors such as R&D expenses and sales and administrative costs as independent variables Although this method is linked to the market value of a firm and may exhibit bias similar to market approaches, it fundamentally starts with a production function and integrates key production factors.
Sadowski and Ludewig (2003) explored panel data by using added value as the dependent variable, focusing on capital, labor, human capital, and social capital as explanatory variables In contrast, Tomohiro Yamaguchi (2014) employed panel data to assess intangible assets through firm-specific fixed effects Yamaguchi's approach distinguishes itself by utilizing both production and cost functions to evaluate a firm's added value, considering the impact of intangible assets.
Calculate α and β in production Production Function
Equity of firm Equity of firm withour Intangible Asset Subtract
Book Value of Equity Tangible Asset
Conceptual Framework
T Yamaguchi's 2014 study offers a practical approach to evaluating a company's intangible assets by utilizing panel data and indirect methods to address previous research limitations His methodology involves a series of calculations starting with the production and cost functions to determine a firm's equity, followed by the exclusion of intangible assets from this equity calculation The value of intangible assets is then derived by subtracting the total value of tangible assets from the enterprise's overall value This indirect approach relies on realizable data, avoiding speculative assumptions about future economic values Finally, Yamaguchi assesses the significance of intangible assets through regression analysis, exploring the relationship between enterprise value—measured by revenue or stock price—and various asset types.
ECONOMETRIC MODEL
This study utilizes Tomohiro Yamaguchi's methodology to assess the value of intangible assets and explores their impact on a firm's added value and equity, juxtaposed with tangible assets.
The formula of growth of company is based on Cobb and Douglas production function (1928):
� 𝑖𝑖 = � 𝑖 � 𝑖𝑖 𝑖𝑖 � 𝑖 𝑖𝑖 (1) Where: � 𝑖𝑖 is added value of firm i in year t,
� 𝑖𝑖 stands for capital of firm i in year t,
� 𝑖𝑖 is labor of firm i in year t.
The parameter � 𝑖 in equation 1 indicates effects of total factor productivity
The growth rate of a company's value is influenced by several factors, including the advantages of internet usage, buyer and seller power, intellectual capital, and staff motivation, all of which are aspects of intangible assets According to Hulten (2000), a firm's growth rate is not solely dependent on its total assets but also on the changes in its value over time Consequently, the effects of intangible assets can be categorized into firm-specific effects and the growth rate of the industry at a given time.
Where: λ ℎ presents growth rate λ of industry h
� ℎ (𝑖) is dummy variable of firm i in industry h.
To estimate the function, we take the logarithmic form of equation 2 T Yamaguchi (2014) simplified the equation by substituting β with 1-α, assuming that the companies under study maintain constant characteristics.
19 economies of scale However, in this paper, αand β will be estimated separately to study aggregate market with assumption that we could bot primarily identify type of economic of scale.
The added value of the i-th firm is derived from its financial statements, beginning with operating profit This value encompasses depreciation, personnel expenses, and operating profit itself Additionally, it is essential to adjust the firm's added value for inflation, as it will be utilized in deflator form.
With p t is deflator in year t.
The primary focus of this research is to establish the value of the sum of intangible assets, which is crucial for the regression analysis of equation 3 To begin, we will estimate equation 3 to determine the parameters α and β By utilizing the difference form of the variables in this equation, we anticipate that the expectation of 𝑖 � 𝑖 will equal zero, allowing us to extract fixed effects effectively.
Where d(…) is difference form of variables.
Because firm’s added value includes cost of production factors, we couldn’t compute value of company by discount just firm’s added value flow Instead, we will use company’s profit.
= Operating Profit – Interest Rate – Tax (6)
= � 𝑖 � 𝑖𝑖 – (Depreciation Cost + Personnel Expense + Interest + Tax)
(7) We also have the firm’s total cost C excluding cost of goods sold:
So that, firm’s profit is available to compute via formula:
The cost of a company is determined using the duality approach, a key concept in microeconomics that addresses production and cost functions, as discussed by economists such as Samuelson, Shephard, and Uzawa This approach emphasizes that a product can be produced by optimally combining various production factors to minimize costs Consequently, the cost function is estimated based on the established production function.
Where � 𝑖𝑖 is nominal cost of capital of firm i in year t
� 𝑖𝑖 is nominal wage of firm i in year t
We will calculate cost function through equation 10 After that, firm’s added value
� 𝑖𝑖 and α, β will be obtained from estimating equation 5.
The next step involves estimating the equity nominal value of Eit, which accounts for the impact of intangible assets This estimation will be derived from the net present value of two key flows: the firm's added value flow and the total cost flow.
� 𝑖 is cost of equity of firm i in year t
However, � 𝑖𝑖 includes value of intangible assets To compute value of intangible assets, we will subtract value of tangible asset from � 𝑖𝑖 Nominal value of equity ���� without intangible assets
� 𝑖𝑖 will be obtained by below formula:
� �� � � � � � � � � � � � � � � � is nominal cost of capital without intangible assets.
� �� � � � � � � � � � � � � � � � is nominal wage of labor without intangible assets.
� � and � �� � � � � � � � � � � � � � � � are able to be identified by:
From equations 12 and 13, we could calculate value of intangible assets 𝑖 𝑖𝑖 by the
The equation \( i_{ii} = A_{ii} - L_{ii} \) allows us to analyze the proportion of intangible assets within a firm's total assets Building on this understanding, we will examine the impact of intangible assets compared to tangible assets on the market value and overall performance of the firm.
Where: 𝑖 𝑖𝑖 is value of firm’s tangible assets,
𝑖 𝑖𝑖 is firm’s stock price or firm’s added value.
EMPIRICAL RESEARCH
Data Sources
This research will be conducted for Vietnam listed companies in different industries These are 214 chosen companies and data are collected from 2008 to 2012.
We chose this time range to lower effect of economic recession from previous period.
The firm's operating profit multiplying deflator represents its added value, which can be calculated using Equation 4 Various studies have employed different proxies for firm added value within the Cobb-Douglas model For instance, Hsing and Yu (1996) utilized value added as a measure of output, while B Lev and S Radhakrishnan (2003) referred to revenue as a proxy Additionally, T Yamaguchi (2014) adopted earnings before tax, depreciation, and amortization to represent output in his research on intangible assets In this study, EBIT will be used as the output measure, as it reflects added value after accounting for the cost of raw inputs Data for Equation 4 will be sourced from the VEC database, including accounts TS131, TS132, TS161, TS162 (depreciation), TN11 (personnel expenses), and KQKD8, KQKD12 (operating profit).
Capital K and Labor L will be sourced from the VEC database, with net plant, property, and equipment (PP&E) representing capital K, as defined by B Lev and S Radhakrishnan (2003) The account of construction in process is excluded, as it does not currently generate profit For labor, the number of employees in the firm will be utilized to represent the labor component T Yamaguchi (2014) employed similar labor and capital data in his research This study will calculate total labor expenses to represent L, as this approach more accurately reflects the labor factor's impact on a firm's added value when applying the Cobb-Douglas function in its logarithmic derivative form This method effectively interprets the relationship between labor and capital factors concerning EBIT Additionally, K and L from the Cobb-Douglas function will be used to assess equity values, making total labor expenses a more fitting representation than merely counting the number of employees Data for K and L will be gathered from various accounts within the VEC database, including TS11 and TS12 for capital K, and LD11, LD13, TN11, and TN12 for labor L.
The nominal cost of capital (R) is determined using the Capital Asset Pricing Model (CAPM), which requires first calculating the firm's expected rate of return (r), also known as the cost of equity While r reflects the return that common shareholders anticipate from the firm's operations, R represents a weighted average of all capital flows, including equity, debt, and liabilities Estimating the firm's rate of return poses challenges due to the unpredictability of future cash flows, which can vary in both amount and timing To address this uncertainty, various methods can be employed, such as the Capital Asset Pricing Model, the Dividend Discount Model, and the Bond Yield Plus Risk Premium approach This research will focus on utilizing the Capital Asset Pricing Model for our analysis.
According to the Capital Asset Pricing Model (CAPM) developed by William Sharpe in 1964, the expected return of a firm is determined by the relationship between the risk-free rate and the market risk premium, expressed as beta multiplied by the difference between the market return and the risk-free rate (beta * (rm - rf)).
� = � � + ���� ∗ (� � − � � ) With: � is firm’s cost of capital,
The risk-free rate is derived from assets with minimal default risk, commonly represented by Treasury bonds or government debt instruments To accurately calculate a firm's rate of return, it is essential to select a bond that aligns with the duration of the firm's stock Typically, this involves using a Treasury bond that matches the stock's duration However, considering the accounting assumption of going concern, which implies that a firm's stock has an infinite duration, a long-term Treasury bond, specifically a ten-year bond, is used as the appropriate proxy for the risk-free asset.
To effectively assess risk premiums, it is essential to account for various risks such as inflation, business cycles, and credit risk The Fama-French three-factor model (Fama & French, 1992) is one approach that addresses multiple risks However, utilizing the historical equity risk premium method proves to be a reliable indicator for estimating risk premiums, as it analyzes long-term data on a country's average market return and risk-free rate A crucial aspect of this approach is ensuring that the data collection period encompasses both economic expansions and recessions Dimson, Marsh, and Staunton (2003) applied this method to calculate risk premiums for 16 countries, including the United States, from 1900 to 2002 Their findings provide a clear understanding of equity risk premiums in relation to Treasury Bonds, enhancing readers' comprehension of the concept.
This research utilizes the historical equity risk premium approach to calculate the equity risk premium, while acknowledging its limitations Key limitations include the fluctuating nature of stock indices, the unstable risk aversion among investors, and the restricted historical data coverage Despite these challenges, this method has demonstrated its validity over time and has been widely adopted by researchers Additionally, the IFS database will provide the necessary deflator data for the study period.
First estimation: Calculate α and β
To determine α and β, we will utilize equation 5, beginning with the derivation of the data The complexity of this regression arises from the large number of companies across three industry categories, making it challenging to sort and process time series data based on tax ID numbers To address this, I employed both SPSS and Excel Initially, necessary data will be collected and categorized by industry Subsequently, each firm's derivative will be computed separately, and dummy variables will be created for the industries, resulting in 49 dummy variables for 50 industries With the derivative forms of K, L, Q, and the dummy variable D established, we can proceed with equation 5.
In this research, we apply the fixed-effect model to regress equation 5 after conducting Hausman’s test to determine the efficiency between fixed and random-effect models, with results indicating that the fixed-effect model is more suitable The analysis focuses on firm-level cross-sections, as we lack consistent industry IDs and time periods An industrial dummy variable will be included to assess the impact of industry growth rates on firm performance, using the Panel Least Squares Method with Fixed Effects We will investigate the relationship among added value and inputs such as capital, labor, and industry growth rates, using both fixed-effect and random-effects models, with the Hausman test guiding our model selection Heteroskedasticity and multicollinearity tests will be conducted to address potential issues, while serial correlation will not be tested due to the micro panel's five-year span Our comparison of regression results reveals that labor and capital coefficients are similar, but the Hausman test results suggest that the random-effects model better explains the relationships among labor, capital, and firm performance Heteroskedasticity is confirmed through the Wald test, and adjustments are made accordingly, while multicollinearity tests indicate no significant issues Notably, the regression results from the random-effects model show that the sum of α (0.63) and β (0.24) is less than 1, suggesting that listed companies in Vietnam experience decreasing returns to scale, meaning that increasing labor and capital investments leads to lower operating profit turnover.
Table 3: Result of equation 5 using fixed-effects and random-effects model α β R 2
(1) Fixed effect model without 0.62 0.24 industrial dummy variables (11.63) (3.93) 0.46
(2) Random effect model without 0.63 0.24 industrial dummy variables (14.30) (4.78) 0.46
(3) Random effect model with 0.63 0.24 industrial dummy variables (14.03) (4.64) 0.46
Table 5: Testing for heteroskedasticity using Wald test
Modified Wald test for groupwise heteroskedasticity in fixed effect regressio model
H0: sigma(i)^2 = sigma^2 for all i chi2 (214) = 3.4e+37
Table 6: Testing for multicollinearity using VIF index
Table 7: Effect of Industry on Firm’s Output
Despite the sum of α and β being less than one, the dummy variables for various industries indicate that many sectors are experiencing positive growth rates This is a promising indicator for the Vietnamese economy, suggesting that the development of listed companies is driven not only by tangible assets but also by intellectual contributions T Yamaguchi (2014) posits that the primary source of sustainable and significant growth will stem from intangible assets Table 9 presents the growth rates of Vietnamese industries, and we will analyze specific sectors that have demonstrated remarkable growth in recent periods to uncover the underlying factors contributing to their success.
The five high-growth industries—consumption, industrial machinery, chemicals, banking, and steel—experienced significant development from 2008 to 2012 due to various influencing factors Understanding these factors is essential for comprehending the business environment of companies within these sectors By recognizing the drivers of industrial growth, we can better interpret the scope of intangible assets linked to corporate activities.
Vietnam's consumption market is rapidly developing, outpacing its neighboring countries with a consistently high growth rate According to the Global Retail Development Index (GRDI), Vietnam's retail market was ranked 23rd in 2011, dropped to 32nd in 2012, and improved to 28th in 2014, indicating significant potential for future growth in this sector Various factors have influenced the past progression of the consumption industry in Vietnam.
Vietnam's population growth rate is a key driver of the country's retail market development As the population continues to expand annually, the demand for retail products is also on the rise, creating significant opportunities for growth in the sector.
As of 2011, Vietnam's population reached approximately 87.84 million, marking a 1.04% increase from the previous year, with citizens numbering around 26.88 million, constituting about 30.6% of the total population By 2012, the population grew to around 90 million, highlighting the significant expansion and potential of the Vietnamese market.
- Spending on consumption: Average income per capita in 2002-2007 periods was about 7.3% per year and lead to 10.3% per year in the next period from
From 2008 to 2012, increased earnings enhanced customer purchasing power, positively impacting the consumption industry’s revenue The proportion of consumption relative to total personal income remained stable at approximately 14.8% during both the 2002-2007 and 2008-2012 periods, ultimately generating $89.7 billion by the end of 2012.
Vietnam's economic development plays a crucial role in the growth of its retail market, with a GDP growth rate of approximately 6-7% annually From 2000 to 2011, Vietnam's GDP surged from $31 billion to $140 billion Despite global economic challenges, the country's growth forecast remains optimistic at around 5%.
Urbanization is a key driver of economic growth, significantly increasing demand in various sectors Retail models are primarily focused on urban areas due to their larger market size and the propensity of urban consumers to adopt new products more readily than their rural counterparts This trend presents a substantial opportunity for the development of Vietnam's retail market, with the World Bank reporting an annual urbanization rate of approximately 3.4% in the country.
- Labor force: Young population structure is the main factor to earn more money and create permanent demand for economic According to GSO report, Vietnam
35 labor force is about 46.48 million people in 2013, and will maintain its growth in the next few years.
Travel significantly boosts the retail market in Vietnam, particularly in the food, beverage, and clothing sectors Despite a low-growth economic environment, the country welcomes approximately 6 million international tourists annually, alongside catering to around 30 million domestic travelers In 2010, the travel industry generated a total revenue of about 130 trillion Vietnamese dong.
Vietnam's retail market is becoming increasingly open due to its engagement with the WTO, despite the government's strict control over foreign companies As of January 1, 2009, foreign investors were allowed to establish fully foreign-owned firms in the retail sector Following this, from November 1, 2010, foreign service companies gained the ability to introduce new brands and franchises in Vietnam This heightened competition is driving domestic retailers to enhance their technology, boost productivity, improve control systems, and adapt their business strategies with a greater emphasis on advertising and after-sales services.
The development of Vietnam's banking system has significantly enhanced payment facilities, making the country more appealing to foreign retailers As reported by the State Bank of Vietnam, the nation had approximately 11,000 ATMs and over 24 million banking cards by the end of 2010 Consequently, the reliance on cash payments has rapidly declined, dropping from 31.6% in 1991 to just 15% in 2010, a trend that is expected to continue.
A strong distribution channel is a crucial intangible asset for success in the consumption industry, enabling firms to boost revenue and enhance the likelihood of successful product launches However, establishing a distribution channel in Vietnam demands significant investment and resources, leading to increased distribution and administrative expenses that can reduce overall profits Companies with extensive distribution networks typically exhibit a distribution and administration expense ratio to revenue ranging from 15% to 33%, as highlighted in the HSC analysis report.
Vietnam's distribution channels consist of four main categories: packaging products, milk, frozen products, and beverages, with beverages further divided into alcoholic and non-alcoholic segments Each category operates through modern and traditional distribution methods, where modern distribution—encompassing supermarkets, shopping malls, and convenience stores—has seen remarkable growth in recent years, despite being a relatively new development in the country Traditional distribution, while still commanding 85% of the market, is experiencing a gradual decline, projected to lose 1% of its market share annually according to Ho Chi Minh Stock Company For example, the number of supermarkets in Vietnam rose from 71 in 2009 to 163 in 2012, with forecasts suggesting an increase to 240 by 2015.
Estimate Cost Function
According to Samuelson (1947), firms primarily aim to achieve maximum profit, which is influenced by production and cost factors To optimize profit, a company can either increase revenue or reduce total costs Utilizing the Cobb-Douglas formula, the optimal output is determined by the specific combination of labor and capital This combination is crucial for reaching the profit-maximizing point, underscoring its significance as the firm's primary objective The profit function of a firm can be expressed as follows:
We take first derivative to find out maximizing profit point.
Firm will come to maximum profit when (19) and (20) equal zero We will change these two equation a little bit and have two equations as below:
We multiplied K in both side of equation 21 and L in both side of equation 22, then
�� 𝑖𝑖 � � � � = �� (24) From equation 23 and equation 24, factor labor L could be expressed via factor capital K:
The marginal product of capital (MPK) and labor (MPL) are determined using equations 21 and 22, leading to the cost minimization condition where the ratio of MPK to MPL equals the ratio of labor cost to capital cost This relationship highlights the importance of optimizing resource allocation in production processes.
Base on equation 2 and substitute L for K as equation 25, formula of target output will become:
Take power 1/(� + �) for both side of equation 28, we have:
It comes to number of labor (number two input), we will replace equation 29 to equation 25:
Up to now, we could measure cost of company base on cost function as below:
With B in equation 30 is expressed as:
Equation 30 is similar to equation 10 Data for calculating cost function includes�, �, � 𝑖𝑖 , � 𝑖𝑖 , � 𝑖𝑖 and � ℎ �, � and � 𝑖𝑖 are regression results of equation 5 � 𝑖𝑖 could be collected from VEC database and � 𝑖𝑖 will be computed using CAPM model It is another input we need to compute for equation 30, � ℎ � ℎ is presented in equation 𝑖 −1/(�+�)
31 and data we need to finish this computation is [� 𝑖 � ∑ ℎ λ ℎ � ℎ (𝑖)𝑖] formula of equation 2 to do this calculation.
Equation 30 show total cost of company with effect of both intangible asset and tangible asset To determine value of intangible asset, value of intangible asset need to be subtracted from total firm’s equity We will calculate equity with and without intangible asset to compute intangible asset value in the next steps.
Compute Firm’s Equity Value
The equity value of a firm represents the total value it can generate throughout its lifetime, calculated as the present value of its future operating profit streams Although the calculation method is straightforward, challenges may arise in accurately determining these future profits.
� � identifying appropriate forecasting operating profit On the other hand, determining appropriate discount rate is also another problem.
In 2014, T Yamaguchi's research on discounted cash flow assumed an infinite growth rate, simplifying calculations amidst fluctuating economic conditions However, applying this method to Vietnamese listed companies reveals challenges, particularly regarding the unrealistic expectation of sustained high growth rates While companies may currently experience sales success, external factors such as competition, substitute products, and changing macroeconomic policies create cyclical business environments Each product also has its own life cycle, and although some companies can extend their growth through effective management and mergers and acquisitions, these cases are exceptions rather than the norm Many industries are in an expansion phase, but such trends are not sustainable long-term Therefore, a more realistic approach is to project that companies will maintain their current growth rates for the next five years, aligning with Vietnam's government economic plans After this period, firms are expected to stabilize, capturing market share and achieving consistent annual profits, prompting a slight adjustment in the formula for calculating firm equity value.
With n is the number of year that company still remains it growth speed.
The weighted average cost of capital (WACC) is commonly utilized to discount a company's cash flow In this study, we adopt WACC, similar to other researchers, and assume that variations in the cost of equity and cost of liability are minimal and do not significantly affect WACC This assumption is crucial as it simplifies the model.
Compute Firm’s Equity Value with Non Intangible Asset
The total value of a firm's equity reflects its potential for future profitability, derived not only from tangible assets like property, plant, and equipment (PP&E) and labor force size but also from intellectual properties and intangible assets In the early stages of a business, the company is typically small, allowing for manageable growth primarily through expansion, with owners able to address daily operations effectively As the company scales, it must explore new markets, develop additional brands, and hire more staff, leading to increased management complexities that encompass financial and marketing strategies Each decision can significantly impact profitability, necessitating careful allocation of resources within budget constraints Therefore, in addition to fostering a strong brand and corporate culture, hiring exceptional leaders, such as a CEO or CFO, becomes crucial as they represent key intangible assets Furthermore, the impact of growth varies by company size; a percentage increase in a small firm differs from that in a larger one At this stage, the equity value is assessed without considering intangible assets, essentially answering what the company's worth would be based solely on labor and capital inputs.
13 In the left-hand side of equation 13, added value of firm’s equity is computed using Cobb-Douglas model with just two components, L and K We also use WACC as discount rate to discount future added value flow In formula of added value of firm’s equity with non-intangible asset, company’s growth rate will not exist Cobb-Douglas function indicates optimal output with each combination of K and L In the rest of equation 13, total firm’s expense with non-intangible asset will be calculated by the same formula as total firm’s expense These two expenses are just different from nominal cost of capital and nominal cost of labor Cost of capital and cost of labor in non-intangible asset condition will be adjusted from cost of capital and cost of labor in normal condition.
Evaluating Firm’s Intangible Asset
To determine the value of a firm's intangible assets, we can use the equation that defines intangible asset value as the total asset equity value minus the firm's equity value excluding intangible assets By applying this calculation, we arrive at the firm's intangible asset value Figure 5 illustrates the proportion of intangible assets relative to total assets across various industries.
Examine Relationships among Firm’s Revenue, I ntangible Asset and Tangible
In the final analysis, the role of intangible assets in enhancing a firm's value is significant Yamaguchi (2014) established a correlation between a company's revenue and its intangible assets through regression analysis, initially focusing on the book value of equity and later incorporating additional factors such as industry growth rates The findings indicate that intangible assets have a greater influence on a firm's value compared to its book equity While the growth rate of the industry also positively affects firm value, its impact is notably less than that of intangible assets Consequently, Japanese firms' performance is more reliant on their asset structure, including strong brand recognition, effective management systems, and a diversified distribution network, rather than solely on industry trends.
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Figure 4: Change of total factor of production (TFP)
Figure 5: Ratio of Intangible asset on Total asset
This study investigates the impact of intangible assets on the added value of listed companies in Vietnam, emphasizing the distinct effects of tangible versus intangible assets by utilizing the value of tangible assets rather than the book value of equity A non-linear model is theoretically employed for estimation, as firms simultaneously decide on inputs to optimize revenue and minimize expenses However, as noted by Samuelson (1947), practical implementation of non-linear estimation is complex; thus, a linear approach with logarithmic transformation of variables is proposed The estimation process will begin with all variables included, followed by a reduction in the number of variables to assess the individual impact of each factor on the firm's added value.
This analysis encompasses data from 214 companies across various industries, focusing on the factors influencing earnings before interest and taxes (EBIT) in 2012 A limitation of this dataset is its singular observation in 2012, which may not account for seasonal factors or the effects of the business cycle Expanding the data range could mitigate these issues and provide a more comprehensive understanding.
Table 8: Estimation with all variables
REVENUE Coefficient Std Error t-Statistic Prob.
Table 9: Effect of intangible asset and industry development on firm’s added value
REVENUE Coefficient Std Error t-Statistic Prob.
Table 10: Effect of intangible asset on firm’s added value
REVENUE Coefficient Std Error t-Statistic Prob.
The analysis reveals that intangible assets significantly enhance a firm's added value, while tangible assets exhibit a less clear impact A positive correlation exists between intangible assets and profitability; specifically, a 1% increase in intangible asset investment can lead to a 0.04% rise in profits This effect is likely to extend beyond a single year, though limitations in the data restrict our observation to just one year For instance, when a consumption firm expands its distribution network into new markets, it initially attracts a younger demographic that is more adaptable to new products, as older consumers tend to be more cautious This phenomenon aligns with Rogers' (1983) concept of innovators, who represent about 2.5% of customers willing to try new products As these early adopters share their experiences, brand recognition grows, leading to increased interest from older consumers Ultimately, the expansion of the distribution network is expected to yield greater financial returns over time, a trend that similarly applies to investments in other intangible assets.
The growth rate of industries significantly influences a firm's EBIT, contrasting with findings in Yamaguchi's research The development resources for Vietnam's listed companies stem from unstable factors, particularly industry profitability The attractiveness of each industry is closely tied to its position in the business cycle; for instance, during economic recovery, sectors like financials and transportation thrive initially, followed by technology and capital goods, while basic industries and energy excel at the peak Conversely, certain industries, such as utilities and financials, perform better during recession phases Consequently, the growth rate of Vietnam's listed companies remains unpredictable and volatile.
In analyzing the market value of a company, we explore the relationship between independent variables and stock price, as illustrated in Table 11 The findings reveal an inverse correlation, where tangible assets demonstrate a significant positive coefficient, while intangible assets and industry growth rates do not play a substantial role.
Table 11: Association among intangible asset, tangible asset, industrial growth rate and stock price.
Stock Price Coefficient Std Error t-Statistic Prob.
Table 12: Association between tangible asset and stock price
Stock Price Coefficient Std Error t-Statistic Prob.
Stock prices are influenced by various factors, including company performance, financial position, cash flow, and policies Each country's stock market has unique characteristics, and Vietnam's market, being relatively small, is easily swayed by major financial entities A significant number of investors in Vietnam focus on short-term gains, which can distort investment decisions and detach them from a company's fundamental value and future profitability Consequently, certain critical information, such as administrative expenses and brand value, often remains overlooked in investment analyses.
Tables 8 and 11 illustrate the varying impacts of intangible assets on a company's performance and stock price The analysis indicates that intangible assets represent potential future profits for firms Therefore, in addition to enhancing manufacturing capabilities, companies should prioritize the accumulation of intangible assets to foster long-term growth.
4.8 Firm’s Intangible Asset and Policy Implications
Intangible assets are crucial to a company's operations, significantly influencing its potential for future growth Understanding why these assets have such a profound impact on business requires a long-term analysis of specific cases A key concept related to this is "market power," which is often associated with monopolistic markets In perfectly competitive markets, individual businesses hold minimal market share and do not significantly influence market dynamics, resulting in a lack of market power However, when firms or groups of firms gain the ability to control prices, they become price makers, thereby introducing the concept of market power into the competitive landscape.
Market power refers to a company's ability to earn excess profits by leveraging the difference between price and marginal cost (Lawrence, May 2012) This power stems from product differentiation, as highlighted by Bain's (1956) research, which identifies barriers to entry and product differentiation as key factors In the absence of differentiation, products compete solely on price, leading to market equilibrium and the erosion of excess profits, thereby negating market power Lawrence outlines several origins of product differentiation, emphasizing its role in creating intangible assets.
A resources-owned monopoly can serve as a vital source of exclusive inputs, such as proprietary trade rights granted by the government, like taxi service licenses, or exclusive patents Companies seeking these inputs must demonstrate strong social capital and financial stability, along with a robust brand reputation to ensure that suppliers prefer to conduct business with them Additionally, the relationship between businesses and government plays a crucial role in securing proprietary trade rights, representing an essential aspect of social capital Patents, which may arise from research and development activities or acquisitions, are significant intangible assets that reflect a company's commitment to long-term innovation and leadership Overall, a firm's portfolio of patents highlights its focus on developing structural capital, which is essential for sustained competitive advantage.
- Economic of scale: This is the origin of "natural monopoly" To participate in the industry, enterprises have accumulated an amount of capital needed and thereby create barriers to entry.
Entering the beverage industry requires significant investment, often resulting in substantial sunk costs that cannot be recovered if the venture fails Businesses must be prepared to face high expenses related to research and development, market research, advertising, and brand building For instance, companies like Coca-Cola and Pepsi illustrate the challenges of establishing a strong brand presence; while creating a similar product may not be difficult, the extensive investment in branding and advertising makes it challenging for new entrants to compete According to game theory, potential competitors must allocate considerable financial resources to develop their advertising strategies and brand identities to survive in a market dominated by these established giants, highlighting the financial barriers to entry in this industry.
Lawrence's 1956 study highlights the strong connection between a firm's intangible assets and its market power To achieve profits that exceed the norm, businesses must focus on developing strategies that enhance these intangible assets.
Market power significantly influences a company's operations, sparking diverse opinions among economists regarding its effects on the economy While some view market power positively, highlighting its potential to drive innovation and efficiency, others express concerns about its negative implications for competition and consumer choice.
Market power can have negative consequences, particularly in monopoly situations where competition is eliminated In a perfectly competitive market, prices are optimized, and no single entity can achieve excessive returns However, in monopoly markets, companies like Microsoft have significant pricing power, as demonstrated by their control over the web browser market Microsoft Internet Explorer (IE) was pre-installed with Windows, leading to a staggering 95% market share in 2004, which hindered the growth of competing browsers Despite efforts from other companies to innovate, IE maintained an 85% share two years later, showcasing the stronghold of monopoly power This dominance prompted policymakers to implement antitrust laws to foster competition, as monopolies create deadweight loss (DWL) and stifle innovation Microsoft faced global backlash and legal challenges, resulting in fines totaling nearly $2.2 billion These antitrust measures gradually reduced IE's market share to 24% by 2013, while competitors like Firefox and Chrome gained traction, with market shares of 35% and 29%, respectively.
Table 7: Effect of Industry on Firm’s Output
Despite the sum of α and β being less than one, the dummy variable analysis indicates that many industries in Vietnam are experiencing positive growth rates This is a promising indication for the Vietnamese economy, suggesting that the development of listed companies is driven not only by tangible assets but also by intellectual contributions According to T Yamaguchi (2014), the primary source of long-term and sustained high growth is expected to stem from intangible assets Table 9 illustrates the growth rates across various Vietnamese industries, and we will analyze specific industries that have shown remarkable growth in recent periods to uncover the underlying reasons for their success.
The five high-growth industries—consumption, industrial machinery, chemicals, banking, and steel—experienced significant development from 2008 to 2012 due to various influential factors Understanding these factors is essential for gaining insights into the business environment of firms within these sectors By recognizing the drivers of industrial growth, we can better interpret the scope of intangible assets associated with a company's activities.
Vietnam's consumption market is rapidly developing, outpacing its neighbors and maintaining a high growth rate According to the Global Retail Development Index (GRDI), the Vietnam retail market ranked 23rd in 2011, fell to 32nd in 2012, and improved to 28th in 2014, indicating significant potential for future growth in this sector Several factors have influenced the past progress of the consumption industry in Vietnam.
Vietnam's population growth rate is a crucial driver of the country's retail market development As the population continues to expand annually, the demand for retail products is also on the rise, creating significant opportunities for growth in the sector.
As of 2011, Vietnam's population reached approximately 87.84 million, marking a 1.04% increase from the previous year, with around 26.88 million citizens, or 30.6% of the total population By 2012, this number grew to about 90 million, highlighting the significant expansion and potential of the Vietnamese market.
- Spending on consumption: Average income per capita in 2002-2007 periods was about 7.3% per year and lead to 10.3% per year in the next period from
Between 2008 and 2012, increased earnings enhanced customers' purchasing power, positively impacting the consumption industry’s revenue The share of consumption relative to total personal income remained steady at approximately 14.8% from 2002 to 2012, ultimately generating $89.7 billion by the end of 2012.
Economic development plays a crucial role in the growth of the retail market, particularly in Vietnam, which is one of Asia's emerging economies With an annual GDP growth rate of approximately 6-7%, Vietnam's GDP surged from $31 billion in 2000 to $140 billion in 2011 Despite the global economic recession, Vietnam's growth forecast remains resilient at around 5%.
Urbanization is a key driver of Vietnam's high-growth economy, with an annual urbanization rate of approximately 3.4% according to the World Bank This rapid urban development leads to increased demand, particularly in the retail sector, which tends to focus on urban areas due to their larger market size and the tendency of urban citizens to adopt new products more readily than those in rural areas Consequently, this trend presents significant opportunities for the robust growth of Vietnam's retail market.
- Labor force: Young population structure is the main factor to earn more money and create permanent demand for economic According to GSO report, Vietnam
35 labor force is about 46.48 million people in 2013, and will maintain its growth in the next few years.
Travel significantly contributes to the retail market in Vietnam, particularly in the food, beverage, and clothing sectors Despite economic challenges, the country continues to attract approximately 6 million international visitors annually, alongside catering to around 30 million domestic travelers In 2010, the travel industry generated a total profit of about 130 trillion Vietnamese dong.
Vietnam's retail market is becoming increasingly open due to its engagement with the WTO, despite the government's strict control over foreign companies Since January 1, 2009, foreign investors have been allowed to establish fully foreign-owned firms in the retail sector Additionally, from November 1, 2010, foreign companies in the service segment gained the ability to introduce new brands and franchises in Vietnam This increased competition is driving domestic retailers to enhance their technology, boost productivity, improve their control systems, and adopt new business strategies that emphasize advertising and after-purchase services.
The development of Vietnam's banking system, characterized by an increase in payment facilities, has successfully attracted foreign retailers As reported by the State Bank of Vietnam, the country had approximately 11,000 ATMs and over 24 million banking cards by the end of 2010 Consequently, the share of cash payments in total transactions has been steadily declining, dropping from 31.6% in 1991 to 15% in 2010, a trend expected to persist in the coming years.
A strong distribution channel is a crucial intangible asset for success in the consumption industry, enabling firms to boost revenue and improve the chances of successful product launches However, establishing a distribution channel in Vietnam demands significant investment and resources, leading to increased distribution and administration expenses that can reduce overall profitability Firms with extensive distribution networks typically exhibit a distribution and administration expense ratio to revenue ranging from 15% to 33%, as highlighted in the HSC analysis report.
Vietnam's distribution channels are primarily categorized into four main areas: packaging products, milk, frozen products, and beverages, with beverages further divided into alcoholic and non-alcoholic options Each category operates through modern and traditional distribution methods Modern distribution, encompassing supermarkets, shopping malls, and convenience stores, has seen remarkable growth in recent years, despite being a relatively new development in Vietnam In contrast, traditional distribution, which currently holds 85% of the market share, is experiencing a gradual decline, projected to decrease by 1% annually according to Ho Chi Minh Stock Company For instance, the number of supermarkets in Vietnam rose from 71 in 2009 to 163 in 2012, with forecasts suggesting an increase to 240 by 2015.
In the future, leading companies in the consumption industry, such as Vinamilk, Masan, and Kinhdo, are expected to increase their revenue by optimizing their distribution channels For instance, Masan has successfully enhanced its EBITDA and market share by expanding its points of sale These large companies can either boost productivity or diversify their product lines, leveraging their substantial intangible assets, including strong brand recognition and robust distribution networks This strategic advantage allows them to incur lower distribution and administrative costs compared to smaller firms when launching new products There are two primary methods to capitalize on existing distribution channels: mergers and acquisitions (M&A) and outsourcing While outsourcing offers a cost-effective solution by utilizing the excess capacity of smaller companies, M&A serves as a long-term strategy to expand market share and strengthen supply capabilities.
Figure 1: Relationship between distribution channel and business of Masan Group
The consumption industry is poised for significant growth, driven by the increasing value of intangible assets In the short term, leading companies will leverage outsourcing to boost production, while smaller firms may lose their brand identity as they become suppliers for larger entities However, these smaller companies could benefit financially by selling more products and reducing the costs associated with establishing expensive distribution channels In the long term, major players in the consumption industry are expected to engage in numerous mergers and acquisitions to dominate market segments and enhance the efficiency of their brand and distribution networks.