PROTOTYPE I MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY NGUYEN MINH NGUYET FACTORS AFFECTING PRICE TO EARNINGS RATIOS OF LISTED COMPANIES ON HO CHI MIN[.]
MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY NGUYEN MINH NGUYET FACTORS AFFECTING PRICE-TO-EARNINGS RATIOS OF LISTED COMPANIES ON HO CHI MINH CITY STOCK MARKET: PERIOD 2008 - 2016 GRADUATION DISSERTATION MAJOR: FINANCE - BANKING CODE: 7340201 HO CHI MINH CITY, 2018 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY NGUYEN MINH NGUYET FACTORS AFFECTING PRICE-TO-EARNINGS RATIOS OF LISTED COMPANIES ON HO CHI MINH CITY STOCK MARKET: PERIOD 2008-2016 GRADUATION DISSERTATION MAJOR: FINANCE - BANKING CODE: 7340201 SUPERVISOR DR NGUYEN TRAN PHUC HO CHI MINH CITY, 2018 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com i ABSTRACT This dissertation studies the impact of influence factors on P/E ratios and to build regression models for estimating and forecasting P/E ratios It employs data of 123 listed companies on HOSE over the period 2008 -2016 Besides, the purpose of the study is to provide empirical model foundations for investigating whether portfolios consisting of low P/E ratio stocks provide better than average returns The empirical researches are divided into two parts Firstly, descriptive analysis, correlation analysis and regression process are used to examine the correlations Regression estimation and selection of estimation are built up the estimation model Finally, the author build up empirical model that investment in low P/E ratio stocks provides higher returns than that in high P/E ratio stocks by using the comparison between mean of overvalued stock return and undervalued ones The empirical results demonstrate that dividend payout ratios, growth rate, beta and return on equity have effect on P/E ratios and it is possible to invest in low P/E ratios to beat the market Moreover, the research effect will be better with more factors employed LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ii DECLARATION OF AUTHENTICITY I declare that this dissertation is my original work, gathered and utilized especially to fulfil the purposes and objectives of this study, and has not been previously submitted to any other university for a higher degree I have mentioned all people who were significant facilitators of the work Ho Chi Minh City, May, 2018 Nguyen Minh Nguyet LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com iii ACKNOWLEDGEMENTS First of all, I want to send my gratitude and respect to Doctor Nguyen Tran Phuc for his sharing, understandings and considerate supports to give me useful recommendations and guidances during my study Finally, best regards to my lecturers, my friends, my classmates and my beloved BUH for their sharing and supports during my Bachelor program Ho Chi Minh City, May, 2018 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com iv TABLE OF CONTENTS ABSTRACT i ACKNOWLEDGEMENTS iii TABLE OF CONTENTS iv LIST OF ABBREVIATIONS vii LIST OF TABLES viii LIST OF FIGURES ix Chapter : INTRODUCTION 1.1 THE NECESSITY OF THE THESIS 1.2 RESEARCH OBJECTIVES 1.3 RESEARCH QUESTIONS 1.4 THE RESEARCH SUBJECT AND SCOPE OF THE STUDY 1.4.1 The research subject 1.4.2 Scope of the study .5 1.5 RESEARCH METHOD 1.6 RESEARCH CONTRIBUTION 1.6.1 The scientific contribution .6 1.6.2 The practical contribution .6 1.7 RESEARCH STRUCTURE Chapter : LITERATURE REVIEWS 2.1 Introduction 2.2 Theoretical background .8 2.2.1 The concept of P/E ratio 2.2.2 Use of P/E ratio for stock selection 2.2.3 Factors affecting P/E ratios 10 2.3 Previous empirical studies 15 2.3.1 Previous empirical studies in the international context 15 2.3.2 Previous empirical studies in the Vietnamese context 22 2.4 The position of this dissertation 25 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com v 2.5 Chapter conclusion .26 Chapter : RESEARCH METHOD AND DATA .27 3.1 Introduction 27 3.2 Estimation model 27 3.3 Measurement of variables and hypothesis 28 3.3.1 Measurement of variables 28 3.3.2 Hypothesis .30 3.4 Source of data .33 3.5 Steps of data analysis and estimation 33 3.5.1 Descriptive statistics .33 3.5.2 Multicollinearity Test .33 3.5.3 Residual Diagnostics .34 3.5.4 Selection of estimation method 34 3.5.5 Test of the obtained empirical model 35 3.6 Chapter conclusion .35 Chapter EMPIRICAL RESULTS AND DISCUSSIONS 36 4.1 Introduction 36 4.2 Descriptive statistics .36 4.3 Test of multicollinearity .42 4.4 Residual Diagnostics 42 4.5 Selection of estimation method 43 4.5.1 Pooled OLS .43 4.5.2 Random Effect Model (REM) .44 4.5.3 Fixed Effect Model (FEM) .45 4.5.4 Redundant Fixed Effect-Likelihood Ratio 46 4.5.5 Correlated Random Effects Hausman Test 47 4.6 Test of the obtained empirical model 51 4.7 Chapter conclusion .52 Chapter : CONCLUSIONS AND RECOMMENDATIONS 53 5.1 Conclusion .53 5.2 Recommendations 54 5.3 Limitations of this dissertation and new approaches in the future 55 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com vi 5.3.1 Limitations 55 5.3.2 Future studies 55 REFERENCE 57 APPENDIX 60 APPENDIX 1: The descriptive statistics for all variables .60 APPENDIX 2: The covariance of variables 60 APPENDIX 3: Breusch-Godfrey Serial Correlation LM Test .60 APPENDIX 4: Heteroskedasticity Test: White's result for empirical model61 APPENDIX 5: Pooled OLS's result for empirical model 61 APPENDIX 6: Random Effect Mode's result for empirical model 62 APPENDIX 7: Fixed Effect Mode's result for empirical model .63 APPENDIX 8: Fixed Effect-Likelihood Test' result for empirical model .63 APPENDIX 9: Hausman Test's result for empirical model 63 APPENDIX 10: Data for estimating P/E from the empirical model 65 APPENDIX 10: Data for estimating mean of ‘higher than normal’ P/E ratio stocks and ‘lower than normal’ 66 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com vii LIST OF ABBREVIATIONS CAPM Capital asset pricing model EPS Earnings per share FEM Fixed effect model g Expected growth rate GDP Gross domestic product HOSE Ho Chi Minh stock exchange NYSE New York Stock Exchange OLS Ordinary Least squares P/E Price-to-earnings POLS Pooled OLS R Required rate of return REM Random effect model ROE Return on equity S&P 500 The Standard & Poor‟s 500 market index LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com viii LIST OF TABLES Figure 3.1 : Factors affecting P/E raios………………………….……………………30 Figure 4.1: The value of average Dividend Payout Ratio and P/E ratio on 2008 2016 period.……………………………………………………………………………… 37 Figure 4.2: The value of average Growth Rate and P/E ratio on 2008 -2016 period……………………………………………………………………………………… 38 Figure 4.3: The value of average ROE and P/E ratio on 2008 -2016 period ……………………………………………………………………………………………… 39 Figure 4.4: The value of average Dividend Payout Ratio and P/E ratio on 2008 2016 period………………………………………………………………………………….40 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ... RESEARCH CONTRIBUTION 1.6.1 The scientific contribution This dissertation contributes to providing empirical evidence on the factors effecting P/E ratio of companies listed on Ho Chi Minh City Stock...MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM BANKING UNIVERSITY HO CHI MINH CITY NGUYEN MINH NGUYET FACTORS AFFECTING PRICE-TO-EARNINGS RATIOS OF LISTED COMPANIES ON HO CHI MINH CITY... studies 15 2.3.1 Previous empirical studies in the international context 15 2.3.2 Previous empirical studies in the Vietnamese context 22 2.4 The position of this dissertation