value relevance of accounting information for investors by large listed company in vietnamese stock market

1 VALUE RELEVANCE OF ACCOUNTING INFORMATION FOR INVESTORS BY LARGE LISTED COMPANY IN VIETNAMESE STOCK MARKET BY LAM THI BICH NGOC E0600096 Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfillment of the Requirements for the Degree of Bachelor of Business (Accounting) Hons JUNE 2010 2 DECLARATION I hereby declare that this graduation project is based on my original work except for quotations and citation which have been duly acknowledged. I also declare that it has not been previously or concurrently submitted for any other courses/degrees at HELP University College or other institutions. The word count is: 10125 words Lam Thi Bich Ngoc Date: 3 VALUE RELEVANCE OF ACCOUNTING INFORMATION FOR INVESTORS BY LARGE LISTED COMPANY IN VIETNAMESE STOCK MARKET BY LAM THI BICH NGOC June 2010 Supervisor: Dr. Dang Duc Son Abstract Value relevance of accounting information is not a new concept. There are many researchers who have been trying to build up different aspect of value of accounting information for investors by providing surveys and assumptions. These theories have similar basic knowledge. But there are still a gap of investors usage of accounting information between Vietnam and other countries. By taking applicable theories and practicing from previous studies, the researcher does a research by dividing 100 questionnaires to investors in Hanoi Securities Trading Center (HASTC). The aim of the research is to determine whether accounting information affects the investor‟s decision and the frequency of the use of information by investors. The result of this research show that Accounting information is an important reference source when investors make investment decisions. This also shows that investors did not completely rely on accounting information for their investment investors because they worried about information disclosed. 4 TABLE OF CONTENTS Page Declaration of Originality and Word Count ii Abstract iii Table of Content iv List of Figures viii List of Abbreviations ix CHAPTER 1 INTRODUCTION 1 1.1 Research background 2 1.2 Problem Statement 3 1.3 Objective and Scope of Research 5 1.3.1 Objectives of Research 5 1.3.2 Scope of Research 5 1.4 Research Methods 5 1.5 Structure of Research 6 5 CHAPTER 2 LITERATURE REVIEW 7 2.1 Financial Statements – The Important Source of Accounting Information for Investors in Vietnamese Stock Market 8 2.1.1 Balance Sheet 8 2.1.2 Income Statement 9 2.1.3 Cash flow Statement 9 2.1.4 Note to the Financial Statements 10 2.1.5 Disclosure of Information of Public Companies under Vietnamese Accounting Standards 11 2.1.5.1 Periodical Disclosures of Information 11 2.1.5.2 Extraordinary Disclosures of Information 14 2.1.6 Financial Ratios 16 2.1.6.1 Liquidity Ratios 16 2.1.6.2 Profitability Ratios 18 2.1.6.3 Financial Leverage Ratios 21 2.1.6.4 Dividend Policy Ratios 22 2.1.6.5 Asset Turnover Ratios 22 6 2.2 Value-relevance Literature 24 2.3 Requirements of Investors about the Quality of Accounting Information Disclosure 26 2.3.1 Truthfulness 27 2.3.2 Objectivity 27 2.3.3 Materiality 28 2.3.4 Relevance 28 2.3.5 Timelines 28 2.3.6 Understandability 29 2.3.7 Comparability 29 CHAPTER 3 RESEARCH METHODOLOGY 30 3.1 Research Objectives 31 3.2 Research Strategy 31 3.3 Data Source 31 3.3.1 Secondary data 31 3.3.2 Primary data 32 7 3.4 Research Methodology 32 3.5 Research Tool 33 3.6 Data Collection 34 3.7 Sampling 34 3.7.1 Sample Population 34 3.7.2 Sample Frame 35 3.7.3 Sample size 35 CHAPTER 4 RESULTS AND DISCUSSION 36 4.1 Introduction 37 4.2 Results and Discussion 35 4.2.1 Part A 35 4.2.2 Conclusion of Part A 40 4.2.3 Part B 42 4.2.4 Conclusion of Part B 44 4.2.5 Part C 45 4.2.6 Conclusion of Part C 50 4.3 Conclusion of the Survey 56 8 CHAPTER 5 CONCLUSION AND RECOMMEDATION 58 5.1 Conclusion 59 5.2 Recommendation 61 5.3 Limitation of Study 63 5.4 Suggestion for Future Research 64 REFERENCES & BIBLIOGRAPHY 65 APPENDICES 68 9 LIST OF FIGURES Figure Title Page Chapter 1 N/A N/A Chapter 2 N/A N/A Chapter 3 Figure 3.1 Data collection 34 Chapter 4 Figure 4.1 Age 38 Figure 4.2 Gender 38 Figure 4.3 Occupation 39 Figure 4.4 Annual Income 39 Figure 4.5 Time 42 Figure 4.6 Type of Market 43 Figure 4.7 Investment Form 43 Figure 4.8 Usage of accounting information 45 Figure 4.9 Interest Level 46 10 Figure 4.10 Effect of Accounting Information 46 Figure 4.11 Investment Channels 47 Figure 4.12 Financial Statements 47 Figure 4.13 Analysis Types 48 Figure 4.14 Financial Ratios 49 Figure 4.15 Satisfaction Levels 50 [...]... Stock Market 2.2 Value – Relevance Literature 2.4 Requirements of Investors about the Quality of Accounting Information Disclosure 18 2.1 Financial statements – the important source of accounting information for investors in Vietnamese stock market Financial statements, are always created in compliance with accounting standards, must be studied and interpreted if they are to be used as a basis of comparisons... evaluate and making investment decisions Accounting information is seen as a kind of basic information provided to investors on the stock market Through the analysis of accounting information, investors will find out: how business activities of enterprise are? How much expected income is? Where competitive position is? It has capability of improving the competitive position or not? And the final decision... to the financial statements may also be stated more information on stock ownership by employees, stock options…, these things are also important for investors 22 Other matters are given in the note to the financial statements including all errors in the earlier accounting report involved laws that business related Investor could not miss this kind of information 2.1.5 Disclosure of information of public... operations of that economic entity The purpose of financial accounting information is to support investors and creditors in deciding where to put their scarce investment resources (blogspot.com) The goal of financial statements is to provide useful accounting information to investors in making economic decisions However, when the principles, requirements and instructions for compiling and presenting the financial... types of accounting information Financial accounting information is the major type that investors need in the stock market It illustrates the financial resources, financial situation and activities of an organization ( or an individual) The role of accountants is to summarize and analyze the financial accounting information of the economic entity Then, the users can have an overview about financial resources... companies under Vietnamese Accounting Standards The following are two provisions of information disclosure of public companies in accordance with Vietnamese Accounting Standards 2.1.5.1 Periodical disclosures of information No later than ten (10) days from the expiry of the period for completion of annual financial statements, a public company must make a disclosure of information about its annual financial... of a subsidiary company or on investment in an affiliated company A public company must disclose information about the events stipulated in Clause 2.1.1 and 2.1.2 of Section II of Circular number 38/2007/TTBTC in the publication and on the electronic information site of the company and on the information disclosure media of the SSC and SE When a public company makes an extraordinary disclosure of information. .. 2.1.2 Income statement Income statement reflects the business situation and results of operations of the enterprise including business results and other results Investors are always interested in income statement most in the investment decision Through the income statement data, investors have the financial information (revenue, cost of good sold, interest, profit, etc) is used to calculate the financial... about whether invests in such enterprise or not? 15 Accounting field gives information for financial decision making For example, application of DCF model to analyze whether to invest in a government bond or not; or CAPM model to examine and determine the cost of using capital in order to decide whether to mobilize capital by issuing shares or not (Peter Jennergren, 2008) Accounting information is reliable... not affected by the principles of accounting Using cash flow statements, investors can assess the quality of income that business generated It will help investors eliminate doubts about the use of accounting methods to make profit 2.1.4 Notes to the financial statement Notes to the financial statements must present the full required criteria by Accounting Standard No.21 – Presentation of financial statements . 1 VALUE RELEVANCE OF ACCOUNTING INFORMATION FOR INVESTORS BY LARGE LISTED COMPANY IN VIETNAMESE STOCK MARKET BY LAM THI BICH. Ngoc Date: 3 VALUE RELEVANCE OF ACCOUNTING INFORMATION FOR INVESTORS BY LARGE LISTED COMPANY IN VIETNAMESE STOCK MARKET BY LAM THI BICH NGOC