Asymmetric information and investment decisions evidence from vietnam

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING PHAM THI ANH THU ASYMMETRIC INFORMATION AND INVESTMENT DECISIONS: EVIDENCE FROM VIETNAM BACHELOR THESIS MAJOR: FINANCE – BANKING CODE: 7340201 Ho Chi Minh City, November 2022 THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING Student name: PHAM THI ANH THU Student code: 050607190515 Class: HQ7-GE14 ASYMMETRIC INFORMATION AND INVESTMENT DECISIONS: EVIDENCE FROM VIETNAM BACHELOR THESIS Major: FINANCE – BANKING Code: 7340201 ACADEMIC ADVISOR DR VUONG THI HUONG GIANG Ho Chi Minh City, November 2022 ABSTRACT This paper investigates the impact of asymmetric information on the investment decisions of firms and analyzes the effect of several internal factors on investment decisions of firms Further, we come up with some new practical solutions, policy implications for the policy makers and recommendations for the managers of enterprises We use data from DataStream of 259 non-financial firms with 1,789 firm-year observations collected from two stock exchange markets in Vietnam covering a 10-year period from 2011 to 2021 We apply the least squares based on Pooled OLS (Pooled Ordinary Least Square), Fixed-Effect Model (FEM) and Random-Effect Model (REM), two-step GMM (two-step generalized method of moments) to analyze the data The findings reveal that fundamentally, information asymmetry in Vietnamese non-financial firms has a negative impact on the investment decisions of firms Further, the results also find that the financial leverage and cash is an important determinant of investment decisions and have a positive impact on firms‟ investment decisions The study is the first in Vietnam that contributes empirical evidence for the negative impact of information asymmetry on the investment decisions of non-financial firms in Vietnam – a typical emerging country JEL classification: G11, G14, G32 Keywords: Asymmetric information, Investment, Over-investment, Leverage, Non-financial firms, GMM, Vietnam i DECLARATION OF AUTHENTICITY This thesis with the topic “Asymmetric information and investment decisions: Evidence from Vietnam” is the author's research work and the research results are honest There are no previously published contents or contents made by other authors except for the cited references which are from clear sources presented in the thesis The author would like to be responsible for my commitment Ho Chi Minh City, November 2022 Student in charge Pham Thi Anh Thu ii APPRECIATION This thesis would surely not be possible without the dedicated help of my teacher First and foremost, I would like to express my deep gratitude to my advising instructor – Dr Vuong Thi Huong Giang who has always followed closely, supported, encouraged, and provided sincere comments so that I can finish this thesis Second, I would like to express my special thanks to Mr Nguyen Thanh Binh and Ms Ma Thi Thuy Trinh – mentors of my intern course at SSI security joint stock company They have encouraged me, while helping me find documents and giving me practical advices In addition, I would like to express my thanks to the lecturer at Banking University of Ho Chi Minh City for creating such favorable conditions in the process of study and as well as doing my thesis Finally, I would also like to thank my family for their encouragement in the process of doing my bachelor thesis as well as in my four-year journey in University of Banking Ho Chi Minh city, November 2022 Author Pham Thi Anh Thu iii TABLE OF CONTENTS ABSTRACT i DECLARATION OF AUTHENTICITY ii APPRECIATION iii TABLE OF CONTENTS iv LIST OF ABBREVIATIONS vii LIST OF TABLES viii LIST OF APPENDICES ix CHAPTER INTRODUCTION 1.1 Research background and research gap 1.2 Research objectives 1.3 Research question 1.4 Research scope and methodology 1.5 Research structure CHAPTER LITERATURE REVIEW 2.1 Theoretical literature review 2.1.1 The Lemons‟ theory 2.1.2 The Signaling theory 2.1.3 The Screening theory iv 2.1.4 The Pecking Order Theory 2.1.5 The Agency theory 10 2.1.6 The Free cash flow theory 10 2.2 Empirical literature review 11 2.2.1 The impact of information asymmetry on the investment of firm 11 2.2.2 The impact of leverage on the investment of firm 14 2.2.3 The impact of cash flow on the investment of firm 17 2.2.4 The impact of growth sale on the investment of firm 19 2.2.5 The impact of profitability on the investment of firm 20 2.2.6 The impact of size on the investment of firm 21 2.3 Research gap 24 2.4 Hypothesis development 26 CHAPTER RESEARCH METHODOLOGY 28 3.1 Research design 28 3.2 Sample 28 3.3 Variable measurement 29 3.3.1 Information asymmetry measurement 29 3.3.2 Investment measurement 30 3.3.3 Remaining variable measurement 31 v 3.4 Empirical methods and analytic model 33 CHAPTER RESULTS OF RESEARCH 37 4.1 Descriptive statistics and correlation 37 4.2 Regression 39 CHAPTER CONCLUSION AND RECOMMENDATION 46 5.1 Conclusion 46 5.2 Contribution 47 5.3 Recommendations 48 5.3.1 Policy implications for the policy makers 48 5.3.2 Recommendations for the corporate managers 50 5.4 Limitation and recommendation for further research 54 APPENDICES 55 ENGLISH REFERENCES 63 VIETNAMESE REFERENCES 71 vi LIST OF ABBREVIATIONS AEC ASEAN Economic Community ASEAN Association of Southeast Asian Nations FEM Fixed effects model HOSE Ho Chi Minh City Stock Exchange HNX Hanoi Stock Exchange GMM Generalized method of moments OECD Organization for Economic Co-operation and Development OLS Ordinary Least Square POT Pecking order theory REM Random effects model SSC State Securities Commission of Vietnam TPP Trans-Pacific Partnership VIF Variance inflation factor WTO World Trade Organization vii Appendix Estimated results from FEM regression 58 Appendix Estimated results from REM regression 59 Appendix Hausman test Appendix Multicollinearity test of FEM 60 Appendix Heteroskedasticity test of REM Appendix 10 Autocorrelation test of REM Appendix 11 Estimated results from GMM regression 61 Appendix 12 Robust test for GMM model 62 ENGLISH REFERENCES Ahmad, M M., Hunjra, A I., & Taskin, D (2021) Do asymmetric information and leverage affect investment decisions? 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EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING Student name: PHAM THI ANH THU Student code: 050607190515 Class: HQ7-GE14 ASYMMETRIC INFORMATION AND INVESTMENT DECISIONS: EVIDENCE FROM VIETNAM