1343 Asymmetric Information And Investment Decisions Evidence From Vietnam 2023.Docx

MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING HOCHIMINH UNIVERSITYOF BANKING PHAM THI ANH THU ASYMMETRIC INFORMATION AND INVESTMENT DECISIONS EVIDENCE FROM VIETNAM BACHELOR THES[.]

INTRODUCTION

Research background andresearch gap

Investment decisions are considered the most important decisions in corporate financial management due to they create the value of the business And the enterprise’s value is the basic and inevitable goal that any manager, shareholder or investor of the business is aiming for Investment decisions affect the working capital, inventory, cash balance of the business, financial leverage and many other decisions Therefore, a right investment decision will contribute to increasing the enterprise value, thereby increasing the asset value for the owner, whereas a wrong investment decision will cause loss of business value, resulting in property damage to the business owner Although, every business strives to make better investment decisions, deviates from investment efficiency resulting in over-investment or under-investment There are many literatures that identify the reasons for investment inefficiency, and in this paper, the author focuses on studying the influence of information asymmetry on firms' investment decisions.

This thesis is conducted in the context of Vietnam, an emerging country with rapid development in recent decades Driven by the opening and reforming economy since

1986, Vietnam proactively participates in many international organizations and agreements such as WTO, TPP, ASEAN, AEC, etc To meet the requirements of these international organizations and agreements, Vietnam positively commits towards financial integration with international standards and transparency in information disclosure and Vietnam's stock market also strives to upgrade the market by 2025 (according to the press release of July 4, 2022 by the Ministry of

Finance) However, from the beginning of 2022 up to now, Vietnam's stock market has

2 entered a period of significant depression Compared to the peak point at June 4, 2022, VN-Index at November 16, 2022 has decreased significantly by merely 38% In many times, Vietnam's stock market ranked first in terms of price decline worldwide (according to Blomberg).

In the information announced on November 11, 2022, the State Securities Commission of Vietnam informed that fluctuations in Vietnam's stock market in the past stem from many reasons, both domestic and international events Specifically, according to the SSC, after the economic support policy after the Covid-19 pandemic, inflation has increased sharply in many parts of the world The Fed and many countries around the world stepped up tightening monetary policy to control inflation, leading to a wave of increasing interest rates Concerns about slowing global economic growth due to high inflation, supply chain disruptions, global tightening, the world geopolitical situation, and especially negative market sentiment due to the arrests of several major company presidents related to stock manipulation and corporate bond issuance The SSC informed that information disclosure violations still account for a high proportion of over 50% of the total sanctioned violations From that, it can be seen that the information asymmetry that exists on the Vietnamese stock market and becomes more and more urgent Because, the more transparent the market is, the more investors can participate, especially foreign investors Only then, our country's stock market will develop sustainably and be able to compete with the stock market in the region, aiming to upgrade the market in 2025.

Understand the importance of information asymmetry to the stock market in general and to the investment decisions of enterprises in particular In addition, noting that the findings of research in developed economies cannot be generalized to apply to emerging economies like Vietnam And finally, there is no research paper in Vietnam to analyze the relationship between information asymmetry and investment decisions of enterprises while this issue is burning recently Therefore, with the desire to apply economic knowledge in practice to contribute to solving the difficulties of financial managers in companies in Vietnam today, we chose to study the topic: Asymmetric information and investment decisions: Evidence from Vietnam Aiming to examine the

3 impact of asymmetric information to the investment of firms Further, we explore the impact of leverage on firm investment and also examine the impact of the variables such as growth, profitability, cash and size to investment (Ahmad, Hunjra, and Taskin, 2021). Finally, we come up with some new practical solutions to improve the financial management efficiency of Vietnamese's non-financial firms and increase knowledge.

Our firm-level data include 259 non-financial listed companies with 2,216 firm- year observations collected from two stock exchange markets in Vietnam (HOSE andHNX) covering a 10-year period from 2011 to 2021 Least squares based on Pooled OLS(Pooled Ordinary Least Square), Fixed-Effect Model (FEM) and Random-Effect Model(REM), Two-step Generalized Method of Moments (GMM) are employed to analyze data This study would provide us with comprehensive insight into the relationship between information asymmetry and firm’s investment in Vietnam - a less developed market.

Research objectives

The study investigates the impact of asymmetric information on the investment decisions of Vietnamese non-financial firms.

Further, we examine the effect of firm’s characteristics (including leverage, cash flow, growth, profitability and size) on the investment of firms.

Subsequently, evaluate solutions to the problem of asymmetric information in investment decisions of non-financial firms in Vietnamese and come up with some new practical solutions, policy implications for the policy makers and recommendations for the corporate managers.

Research question

This thesis is aimed to solve some issues:

- Does asymmetric information affect the investment decisions of Vietnamese non- financial listed firms and how it affected?

- How do the firm’s characteristics affect investment decisions of Vietnamese non- financial listed firms?

- What are the policy implications and recommendations to be drawn from the

Research scope and methodology

The thesis conducts research based on a data sample of non-financial firms listed on Ho Chi Minh City Stock Exchange and Ha Noi Stock Exchange over the period of2010-2021 This research applies the Least squares based on Pooled OLS, FEM andREM, Two-step GMM to analyze data following Huynh, Wu, and Duong (2020).

Research structure

The first chapter depicts the background of the research, research question, research objectives, general methodology and scope and research structure.

LITERATURE REVIEW

Theoretical literature review

The concept of asymmetric information was first introduced by Akerlof George (1970) from the study of The Market for Lemons’ theory By researching the situation of buying and selling used cars in the market, he identifies that the seller has more information than the buyer in a market of both high-quality cars and "lemons" The use of "lemon" refers to a slang term for a vehicle that has many problems and is low-quality In a transaction, the sellers always have full information about their product, so they can sell poor used cars at the same price as good used cars to the buyers who have less information And when buyers are aware of this problem, they will take precautions by buying used cars at low prices because they think they will limit the damage of buying the wrong product This is an adverse selection and its consequence is that very few good quality used cars are available in this market because high-quality products will not be sold at reasonable prices Since then, the amount of low-quality goods will exist more, leading to the risk of buying poor products also increases When the market becomes unstable, buyers will withdraw and make the market more gloomy.

The theory by Arkelof demonstrates the problem of information asymmetry when the seller has more information than the buyer, which leads to adverse selection and depressing the market It opened up a whole new branch of economics called information economics and applied it to solve a multitude of issues For example, a pair of shoes without a label will be many times cheaper than a pair of branded shoes even though the design may be better and the quality is similar That lower price is the premium for the less information provided to the user.

To complement Akerlof's theory, some influential theories relating to information asymmetry have been developed Michael Spence (1973) inherited the idea of Akerlof when he suggested that to limit the effect of adverse selection, good products should have a mechanism to be able to distinguish from poor quality products that is a signaling mechanism When employers cannot know the exact qualifications of an applicant, a degree is a necessary information Or in the stock market, paying dividends may be a good sign, because it will ensure that profits will be received in the future Since then, “Signaling” is a term used to describe the fact that the seller presents his meaningful information to the buyers in order to reduce the process of information asymmetry.

Continuing to develop the theory of Michael Spence, Bini et al (2010) that firms with high profitability will provide signals through the financial statement to increase their competitiveness Thus, signaling theory is based on asymmetric information For instance, in a joint stock company, asymmetric information appears in the relationship between managers and shareholders and in the relationship between the company and its related parties. Managers have a lot of information about the company because they are executives, if they intentionally cover it up, it may affect the decisions of shareholders, thereby causing disadvantages to shareholders Moreover, the enterprises that do not signal or send incorrect signals to the outside may influence decisions and cause losses to For example, enterprises disclose incorrect financial statement information, especially profit targets, dividends that will not accurately reflect the business reality of enterprises, creditors or investors may make wrong decisions about disbursement or investment.

Thus, according to Signaling theory, to minimize information asymmetry, the party with more information would signal to the other However, the companies often tend to signal in favor of themselves Companies hide weaknesses and increase the competitiveness of the company, in order to attract investment capital In other words, the Signaling theory explains how managers can use tools to provide investors with the most beneficial information about the business.

To limit the problem of asymmetric information, Spence (1973) suggested that the party with more information would perform some costly operation, called "signaling". Meanwhile, Stiglitz (1975) suggested that the party with less information will use some classification tools so that the party with more information can signal, thereby helping them to classify the quality of goods or partners called "screening".

With Screening theory, investors can limit losses by providing many conditions in commercial transaction contracts Consider the following example: insurers will offer multiple policies with different premiums and claims, if low-risk customers have a preference for cheaper policies and vice versa In addition, taking an example when a bank lends money.

In order to better understand customers’ ability to repay, they will collect information about the customer such as financial status, qualifications, work, reasons for borrowing money, family, etc in order to decide on the level of loan This method is often used for high-risk situations such as insurance, finance, etc.

Pecking order theory which has a great influence on firm leverage and investment and derived from Myers (1984) According to Myers (1984), managers of a company must make decisions of funding sources for investment projects which include 3 feasible capital sources preferred by the managers: Firstis retained earnings, then loans and finally equity The reason for such decentralization is due to the problem of asymmetric information.

Hypotheses of the theory include: (i) Information asymmetry exists between corporate managers and outside investors; (ii) The corporate administrator will act in the best interests of the current owner.

This theory does not seek the optimal capital structure, but instead determines a priority order in the selection of capital sources in the financing decision According to this theory, firms prefer to finance with internal funds over external sources In the case of having to choose an external source of capital, the enterprise will choose in an order that achieves the goal of minimizing the increase in costs due to asymmetric information.

The focus of this theory is not on the optimal capital structure (since reinvested returns are at the top of the pecking order and equity is at the bottom of the pecking order), but on the current financial decision The capital structure decision is not based on the debt ratio but on the pecking other of the market.

The agency theory published by Jensen and Meckling (1976) Accordingly, it is the model of moral hazard implying that managers prioritize their own interests over the interest of shareholders Therefore, asymmetric information reported investment efficiency. Specifically, the agency problem is a scenario of a conflict of interest which is inherent in all relations where one party is anticipated to operate in the best interests of another party In the field of corporate finance, the agency problem generally points out the conflict of interest among the company’s shareholders and the management of the company The managers, who act as the shareholders’ agents, are tasked with the responsibility of making decisions that are going to maximize the wealth of the shareholders despite them acting in their best interest in order to enhance their own fortune.

2.1.6 The Free cash flow theory

Free cash flow is actual cash flow after the company has done all the investment in new products, working capital activities, fixed assets necessary to maintain the operation company's performance and actual cash flows usable allocation for all investors (Brigham and Houston, 2009) In other words, free cash flow is another name for the total cash flow of a business, it is the operating cash flow taken into account, adjustments for both capital expenditures and working capital Free cash flow is a signal showing financial performance and liquidity of that company Free cash flow is important and meaningful when they allow the company to pursues investment opportunities that increase company value and at the same time maximize value for shareholders If the company has no cash, then they will fall into troubles such as lack of capital when investing in projects, developing new products, implementing the debt obligations or payments to shareholders (Jensen, 1986).

Issues related to free cash flow and the free cash flow theory have been implemented in the first study by Jensen (1986) In other words, each business will have a different relationship between profit and free cash flow because it depends on the opportunity investment of each enterprise If businesses have available projects, then managers will use the free cash flow they have invested in projects, thereby helping the company increase value.

In contrast, when the business does not have the projects, then there will be conflicts of interest between shareholders and management because the manager wants to keep cash flow for personal gain, and shareholders want to get this cash flow back (Talebian, Valipour and Askariz, 2012).

Empirical literature review

2.2.1 The impact of information asymmetry on the investment of firm

Ahmad, Hunjra, and Taskin (2021) extract data from 280 non-financial firms listed at Pakistan Stock Exchange over the period of 2000 to 2018 They apply the Fixed Effect Model to analyze the data and System Generalized Method of Moments to check the robustness of the results Their research points out that asymmetric information negatively affects the investment decisions of firms Due to asymmetric information investment decreases rapidly as compared to increase in investment.

Leland and Pyle (1977) state that markets are characterized by different levels of information, and some users exhibit a higher level of information than others Because of information asymmetry, “prices do not accurately convey all information necessary to coordinate economic decisions” More specially, scholars discriminate between two types of information asymmetry: moral hazard and adverse selection.

A paper by Ryen, Vasconcellos, and Kish (1997) is considered as the further development of the information asymmetry and its relationship related to investment decisions as well as firm valuation This research proves that insiders of a firm have more information than outside investors leading to newly issued shares undervalued Hutton et al.

(2009) indicated that managers tend to conceal ‘bad news’ because of career concerns, job promotion, and option exercise When negative news accumulates to a limit that cannot be concealed, it will erupt in the external market, and the company’s share price will be hit.

Fosu et al (2016) explored the data of UK firms and found that asymmetric information adversely impacts the firm’s value and this impact decreases with the leverage of firms He identifies that in a firm with a higher degree of information asymmetry, managers are more realistic and more likely to propose newly issued equity capital under-priced, and they also tend to invest in projects having potentially positive NPV (Myers, 1984) However, shareholders in the firm do not have the same level of information and cannot agree with the decision of the managers As such, they are more likely to reject these projects with potentially positive NPV to ensure benefits for existing shareholders, rather than issue new shares to invest in all projects with NPV Consequently, the firm would lose excellent investment opportunities and resources are misallocated Therefore, information asymmetry is costly to firms because of adversely selecting cost, which prevents the firms from opting cheap financing and consequently reduces the firm value Fosu et al (2016).

Biddle, Hilaryand Verdi (2009) analyze 34 countries to find that there is a negative impact of accounting report quality on the association of investment and cash flow They also find that increase in the quality of accounting reports reduces the sensitivity in equity- dominated markets, as compared debt denominated markets.

Morellec and Schurhoff (2011) develop a model of investment and financing in an asymmetric information environment and reveal that asymmetric information motivates firms to increase investment Kong, Xiao, and Liu (2011) explore the impact of asymmetric information on the relationship between investment and stock prices They conclude that asymmetric information negatively affects firm investment sensitivity to share price and positively impacts the share price sensitivity to firm investment.

Dwijayani, Surachman, Sumiati, and Djawahir (2017) using the data companies listed on the stock exchanges of Indonesia to conduct They report that asymmetric information has no effect on the firm value because the adverse effect of asymmetric information can be mitigated with good investment policies They further report that investment has a positive impact on firm value Meanwhile, Huynh, Wu, and Duong (2020) conclude to the opposite result, when working on similar research on the Vietnamese market, which is an emerging market He believes that information asymmetry in Vietnamese firms has a negative impact on firm value He also found that the financial leverage in Vietnamese firms is higher than in other developed countries but can only play a limited role in mitigating the negative impact of information asymmetry on firm value Nguyen Hoang Thai et al.

(2021) also has the same idea with Huynh, Wu, and Duong (2020) as indicating that two variables measuring information asymmetry (Asy-disp, Asy-dummy) negatively impact Vietnamese firm value Besides, control variables such as return on assets, leverage, firm size, and intangible assets, are found to have significant effects on Vietnamese firm value.

Clarkson, Gao, and Herbohn (2020) study the association between the information environment and the cash-holding behavior of firms They record that the decrease in asymmetric information decreases financial constraints and the cash ratio of firms Drobetz et al (2010), study the marginal value of cash in connection with firm specific and time varying information asymmetry They also test two contradictory hypotheses According to the pecking order theory, asymmetric information leads to adverse selection and provides a value increasing role for internal funds However, the free cash flow theory predicts that abundant cash bundled with asymmetric information leads to moral hazard and consequently to a lower marginal value of cash Their results indicate that information asymmetry decreases the marginal value of cash and thus strongly support the free cash flow theory They remarkably indicate the calculation methods and employing quantitative techniques for measuring variables can convey asymmetric information This study uses the dispersion of analysts’ forecasts and error in analysts’ estimates as the primary measurements of information asymmetry and Fosu et al (2016), Huynh, Wu, and Duong (2020); Nguyen Hoang Thai et al.

2.2.2 The impact of leverage on the investment of firm

Numerous studies explore the leverage - investment nexus (Firth et al., 2008). Leverage decreases the investment of firms because investing in new projects is more beneficial for bond holders than for equity holders (Myers, 1977), and this leads to underinvestment Jensen (1986) shows that directors prioritize their benefit so they often tend to expand the size of the company, even implementing projects that harm the interests of shareholders, leading to overinvestment.

Ahmad, Hunjra, and Taskin (2021) examine Pakistan non-financial firms and point out that leverage has a negative impact on the investment decisions of firms Firth et al (2008) analyze Chinese firms and find a negative relationship between leverage and investment in the case of non-state-owned enterprises, but not for state- owned enterprises.

Vo Xuan Vinh (2019) finds a negative impact of leverage on firm investment and shows that leverage has a stronger negative impact on corporate investment for firms with high growth opportunities as compared to low growth opportunities Moreover, young financially constrained firms face less growth opportunities than financially unconstrained firms (Aivazian et al., 2005; Strebulaev, Zhu, and Zryumov, 2014) argue that firms finance risky projects with equity whereas they finance safe investment projects with debt.

Olmo et al (2015) demonstrate that investment behavior is different across each financially troubled firm and its dependence on opportunities investment available to the company They found that firms with greater opportunities will keep their investment behavior when taking advantage of investment opportunities Meanwhile, managers of fewer investment opportunities companies tend to underinvest because they only undertake projects that they think can keep the company far from bankruptcy This behavior causes them to miss out on profitable opportunities that could help improve a struggling company's situation.

Baxamusa, Mohanty, and Rao (2015) report that firms use equity finance to fund projects that have greater asymmetry information about their risk, for example, research and development Whereas they use debt for investments that have lower asymmetry information about their risk, for example, marketable securities.

Research gap

Akerlof’s pioneering work (1970) first defines the concept of information asymmetry and demonstrates in a market where sellers hold better information than buyers about the quality of products which can cause an adverse selection of low- quality products Obviously, a prerequisite for investors to make investment decisions is to identify appropriate and accurate information However, when information asymmetry occurs, firms can deviate from their investment expectations and fall into underinvestment or overinvestment (Myers, 1977) Myers and Majluf (1984) develop the theoretical model to show that the existence of asymmetric information among the fund providers leads to an under-investment problem Jensen (1986) presents the free cash flow theory and highlights the overinvestment problem, he argues that firms with large free cash flows will cause conflicting relationships between owners and managers of the business, thereby affecting firm performance Following agency theory, models of moral hazard imply that managers prioritize their own interests over the interest of shareholders (Jensen and Meckling, 1976) Specifically, Jensen points out that if firms have free cash flow but few investment opportunities, managers will tend to abuse this cash flow and invest in projects that are likely to have low returns, possibly even negative NPV, rather than paying it back to shareholders Talebian, Valipour and Askariz

(2012) also agree with Jensen's point of view that when enterprises do not have feasible projects, then it will lead to conflicts of interest between shareholders and managers because management wants to keep cash flow for personal gain, and shareholders want to receive this cash flow back Moreover, Richardson (2006) also identifies that firms with the highest levels of free cash flows have been found to over-invest It appears that information asymmetry and agency problems can hamper investment efficiency.

Information asymmetry is a kind of market failure It is because information asymmetry could cause making wrong financial decisions with loss of their investment (Huynh, Wu and Duong, 2020) Understanding the vital effect of asymmetric information on different aspects of business, many scholars decided to examine the linkages of information asymmetry and firm’s investment decisions, leverage level, free cash flow, firm value and so on in many countries around the world For example, US (Botosan, 1997; Bharath et al., 2009), Germany (Lechner

& Gatzert, 2018), the UK (Fosu et al., 2016), Australia (He et al., 2013), China (Chang et al., 2020; Chen, Sun and Xu, 2016), some emerging markets, for instance, Pakistan (Ahmad, Hunjra, and Taskin, 2021), Thailand and India (Prommin et al., 2016; Farooq et al., 2017), and across different countries (Drobetz et al., 2010; Gao & Zhu, 2015) In Vietnam, a number of research papers on information asymmetry can be mentioned such as Huynh, Wu and Duong (2020) examine the negative relationship between information asymmetry and firm value, the research of Nguyen Hoang Thai et al (2021) also confirm this conclusion, Nguyen and Nguyen (2020) report a negative impact of over-investment on firm performance, point out information asymmetry also negatively impact Vietnamese firm value Beside that,Pham The Anh (2021) confirms the existence of information asymmetry has affected the risk level in Vietnam’s stock market However, in Vietnam, there is no research paper that answers the question about the relationship between asymmetric information and investment decisions of companies in Vietnam.

RESEARCH METHODOLOGY

Research design

The general research process of this graduation thesis is described. According to this process, the special tasks must be done as follows:

- Analyzing the actual situation to recognize the problem that needs to be solved through previous studies and research, then identifying the situation which will be applied into the research (has been solved in Chapter I).

- Summarize previous research and related background theory as the fundamental for building up models and hypotheses From these, choose the model which is suitable to the issues that needed to be done (decided in Chapter II).

- Based on the previous theories, propose research hypotheses to answer research questions in the Introduction.

- Collecting, synthesizing and arranging panel data into Stata 17.0 software.

Sample

We investigate the impact of asymmetric information on firm investment decisions and the role of leverage in the nexus of asymmetric information and investment We extract data of non-financial firms listed on Ho Chi Minh and

Hanoi Stock Exchange over the period 2011–2021.

Following a standard approach suggested by other scholars such as Ahmad, Hunjra, and Taskin (2021), Huynh, Wu, and Duong (2020), Fosu et al (2016), Drobetz et al (2010), financial firms are excluded because their businesses may be more potentially affected by government policies and regulations Then we access Data Stream to conduct financial data collection And to maintain data quality, we have applied additional criteria For example, we remove companies from the sample if (1) their financial statements are not disclosing the following accounting standard, (2) the companies with negative equity (these firms are most likely extremely distressed, and their inclusion will potentially bias the results), (3) the firms with missing values for 5 consecutive firm-year observations , and (4) the enterprises with profit, growth sale are negative will also be excluded from the sample In this case, our final firm-level data include 2,216 firm-year observations (i.e yearly data for 259 firms) and the investigation period is 10-year long from

Variable measurement

According to Huynh, Wu, and Duong (2020), Krishnaswami, Spindt, and Subramaniam (1999), Drobetz et al (2010), we use the analysts’ forecast error (Asy- Er) as the leading measures of information asymmetry in order to examine its relationship with firm investment.

The error of analysts forecast (Asy-Er) is the difference between the forecast of analysts earnings per share and the actual earnings per share for the fiscal year(Huynh, Wu, and Duong (2020), Drobetz et al (2010), Krishnaswami, Spindt, and

Subramaniam (1999)) A higher level of error forecast suggests a higher level of asymmetric information For each fiscal year, the latest forecast has been used to make sure the representativeness of the forecast at the year-end Besides, to ensure the comparability across sample companies relating to the asymmetric information measures, we have adjusted to the median forecast of analysts in the fiscal year (Drobetz et al., 2010; Fosu et al., 2016) The error of analysts forecast (Asy-Er) can be formulated as:

EPS forecast is a principal value used by the authors to estimate the calculation of Asy variables for model testing in this paper EPS forecast is calculated by using the previous year’s EPS results and combined with EPS (g) growth through ROE and retained rate of return, parameters collected and processed from information asymmetry published For example, to calculate the EPS forecast for year N, we use:

- The actual EPS of year N-1 is named “a”

- The ROE value in year N-1 is named “b”

Then the calculated result is formulated as: EPS forecast, N = a*(1 + (b*c))

The variables used in this study are described as an investment is measured by taking the change in property, plant and equipment which is scaled by the beginning of period property, plant and equipment (Ahmad, Hunjra, and Taskin

(2021), Fosu, Danso et al (2019), Firth et al (2008)).

Leverage (LEV) is the ratio of the book value of debts to the book value of

Asy = ln(1 + assets The adoption of book value is to reduce the potential reverse causation from firm value to leverage (Ahmad, Hunjra, and Taskin (2021), Huynh, Wu, and Duong (2020), Fosu et al (2016); Opler and Titman (1994); Danso et al (2019), Phan Quynh Trang (2018)).

We further control for several variables not included in the hypotheses which consist of firm size, and sales growth, cash and profitability followed by Huynh, Wu, and Duong (2020) and Ahmad, Hunjra, and Taskin (2021).

Growth (GR) is the change in sales scaled by prior period sales (Ahmad, Hunjra, and Taskin (2021)) Sales growth (Growth) is the annual growth rate of a firm’ sales which is expressed by fractions A positive relationship between sales growth and firms investment is expected because firms with high growth are turned to having higher investment (Maury and Pajuste, 2005).

Profitability (PR) is earnings before tax and interest scaled by sales (Ahmad, Hunjra, and Taskin (2021)) Due to a result that profit provides new cash for more investments in the future (Grzegorzek 2022), therefore we can expect a positive relationship between firm size and firm investment.

Cash flow (CA) is the ratio of cash and cash equivalents scaled by total assets (Ahmad, Hunjra, and Taskin (2021)) The availability of cash motivates the firms to make further investment, which confirms that firm’s managers use free cash flows to invest as reported by Vo Xuan Vinh (2019) Thus, we can expect a positive relationship between firm size and firm investment.

Size (SZ) is calculated by taking the natural log of total assets (Ahmad,Hunjra, and Taskin (2021), Chen et al (2016)) Firm size (Size) is measured as the natural logarithm of the book value of total assets (Hermuningsih, 2012) argues that companies that have a large size will be easy to obtain outside funding sources With easy access to external funding, causing companies to be able to increase their investment and operational activities Therefore, we can expect a positive relationship between firm size and firm investment.

Variable Measurement Expected sign Reference

IN Investment Δ PPẸự + DepriciationitPPE it

Asy = ln(1 + | EP$forecast EPSgctual | ) | Median

Total Book Debt it Total Assets it

Earnings Before ỉnterest and Taxes

Aivazian et al. (2005), Sasidharan et al. (2015)

RESULTS OF RESEARCH

Descriptive statistics and correlation

Variable Obs Mean Std dev Min Max

In Table 4.1, we present descriptive statistics of the variables used in this paper The company's average annual investment is 0.2899 and the average leverage is 0.2038 The average annual revenue growth is 18.20%, the average annual profit is 12.14% Because using the criteria to eliminate negative values, the business has the lowest revenue and profit growth are 0.01% and 0.09%, respectively The size of the business has an average value of 20,5513 The mean value of the variable measuring information asymmetry (AS) is 0.2707, the lowest is 0.0002 while the highest is up to 2.2355.

IN LV GR PR CA SZ AS

Gujarati (2004) suppose that if the correlation coefficient between the variables independence in the regression model exceeds 0.8 can lead to multicollinearity in the estimation model Thus, the sign of the regression coefficients in the model can be changed, leading to research results are misleading In general, from the table 4.2 results, the coefficient correlation between all pairs of independent variables are less than 0.8, andrange from -0.4106 to 0.4285 This reflects a relatively low level of linear correlation between variables, suggesting that there is less chance of multicollinearity In which, the positive relationship between profitability and cash is the strongest with the correlation coefficient up to 0.4285 Most of the factors have negative correlation, which means most factors have opposite volatility.

Next to determine whether multicollinearity between variables exists The author performed the Variance Inflation Factor (VIF) test to check for panel data through commands in Stata The results of the VIF test show that all coefficients are

3 9 less than 10, which means that multicollinearity does not occur in the studied number (Kennedy, 1992).

Regression

Firstly, we run Pooled OLS regression for the model formulated in section 3.4 The purpose of employing Pooled OLS regression is to evaluate the impact of independent variables on dependent one The results are shown in table 4.4 below.

Table 4.4 Estimated results from Pooled OLS regression

IN Coefficien t Std err T-statistic P-value

From the above results table, we see that most of the variables are statistically significant, but the most important variable is asymmetric information (AS) which is not statistically significant Therefore, the author performs statistical hypothesis testing to check what the errors that the model has, the results are shown in Table 4.5.

Table 4.5 Statistical hypothesis testing table of the Pooled-OLS model

The specific results are shown in Appendix 2, 3 and 4 Reading the results in Table 4.5, the variable measuring information asymmetry is not statistically significant At the same time, when testing the phenomenon of multicollinearity, autocorrelation and variance of the Pooled-OLS model, we found that the model does not have multicollinearity because the VIF coefficients are all less than 10 However, the model has autocorrelation and variable variance because both P-values are less than 0.05.

In this case, we decide to apply Fixed-Effect Model (FEM) and Random- Effect Model (REM) to further assess the impact of asymmetric information on dependent variable Although the same regression purpose, however, the difference of the FEM and REM methods is the variation of the units FEM to analyze the correlation between the residuals of each unit with the explanatory variable to control and separate the effects of the individual characteristics from the explanatory variable so that the actual effects of the variables can be estimated explanatory

4 1 variable on the dependent variable If the variation between units is correlated with the independent variable - the explanatory variable in the fixed effect model, in the random effect model the variation between the units is assumed to be random and not correlation with the explanatory variables, the REM model is applied The results are shown in Table 4.6 and 4.7.

Table 4.6 Estimated results from FEM regression

IN Coefficient Std err T-statistic P-value

Table 4.7 Estimated results from REM regression

From the regression results table of FEM and REM, it can be seen that the variable leverage (LV) has a significant positive impact on firm investment, this result is also consistent with the Pooled-OLS model and the variable has a high confidence level of 1% Variable growth (GR) and cash (CA) have significant negative impact on firm investment, respectively, in both models Although size (SZ) is not statistically significant in FEM, but in REM, the results show a negative impact on firm investment and are statistically significant Meanwhile, profitability (PR) is not statistically significant in both models Notably, the most important variable is asymmetric information (AS) is not significant Hence, we further employ a different set of estimations (Hausman - test, LM - test and F - test) to identify the best-fitted regression results for interpretation.

Table 4.8 Evaluating the suitability of regression models

Compare the suitability of the two models Test Result

Pooled-OLS and FEM F - test Prob > F = 0.0000 < 0.05

Conclusion: FEM is more suitable

Pooled-OLS and REM LM – test Prob > Chibar2 = 0.0000 < 0.05

Conclusion: REM is more suitable

FEM and REM Hausman - test Prob > Chi2 = 0.0000 < 0.05

Conclusion: FEM is more suitable

The result reveals that Hausman p-value in models is less than 0.05 Therefore,the null hypothesis (H0) is rejected which means the coefficients estimated by theFixed Effect model are more efficient than the coefficients in the Random Effect

4 3 model, applying the FEM method in models will bring a more consistent result After that, we tested the errors inside the FEM model, the results are shown in Table 4.9.

Table 4.9 Statistical hypothesis testing table of the FEM model

After verifying homoscedasticity, autocorrelation and endogeneity errors in the models, we found that the FEM model does not have multicollinearity but has heteroskedasticity and autocorrelation Therefore, the two-step GMM method is applied to fix errors presented in the models FEM The results of two-step GMM and Robust tests for GMM model are reported in Table 4.10 and 4.11.

Table 4.10 Estimated results from GMM regression

Table 4.11 Robust test for GMM model

Following the result in Table 4.11, the P-value of AR-1 is 0.0000 and less than 0.05, and the value of AR-II is 0.4020 is more than 0.05, so using the GMM two-step has overcome the first order autocorrelation And the p-value of the Hansen test is 0.6520 > 0.25, so we can conclude that variables that are not over-estimated, in other words, the instrumental variables are robust enough to overcome the phenomena in the model.

According to hypothesis 1 (H1: Information asymmetry in Vietnamese firms is negatively correlated with firm investment), the coefficient of asymmetric information should be negative, reflecting that firm investment with an increase in the level of asymmetric information Regarding to the result in Table 4.10, asymmetric information (AS) is statistically significant at a reasonable level, and as expected it has a negative impact on the investment decision of the enterprise with a coefficient of -0.0620 This confirmation that asymmetric information has a significant negative impact on the investment of a firm (Ahmad, Hunjra, and Taskin

(2021), Morellec and Schürhoff (2011)) This also has economic significance, as an increase in asymmetric information will decrease the investment of a firm Because asymmetric information increases the dependence on internal funds, the firms, that have less liquidity, will lose the investment opportunities, and in consequence, a decrease in investment The result is broadly consistent with the findings in other studies mentioned in 2.2 (Ahmad, Hunjra, and Taskin (2021), Huynh, Wu, and Duong (2020), etc.).

With regards to firms' financial leverage (LV), the variable is positively

4 5 correlated with the firm investment (IN) with a coefficient value of 0.1643 Therefore, we can say that in Vietnamese firms, financial leverage can help increase investment decisions, thereby offsetting or mitigating the negative impact of information asymmetry (Huynh, Wu, and Duong (2020)) Cash flow shows the significant positive impact of asymmetric information on firm investment with a coefficient of 0.1425. Cash flow plays a significant role in driving investment decisions, in agreement with investment theories and results reported in the literature (Ahmad, Hunjra, and Taskin (2021), Fazzari, Hubbard, and Petersen, (2000), Vo, 2019, Aivazian (2005) ), Firth et al (2018)) The availability of cash flow motivates the firms to make further investment, which confirms that firm's managers use free cash flows to invest as reported by Vo Xuan Vinh (2019) Therefore, the dependence of investment on cash flow in an asymmetric information environment is confirmed.

Although sales growth has an inverse relationship with investment decisions, profitability and size positively impact on investment decisions These variables are found not statistically significant.

Our results show that asymmetric information has an adverse effect on investment The leverage has a direct influence on investment and thus, causing the reduction of negative information asymmetry and firm investment nexus Our results for the control variables show that leverage and cash flow have a significant positive impact on the investment of firms, whereas size, growth, and profitability is insignificant These results agree with the existing literature (Ahmad, Hunjra, and Taskin (2021), Huynh, Wu, and Duong (2020), Arif Khan et al (2019), Chang et al.

CONCLUSION AND RECOMMENDATION

Conclusion

With this study, the author wants to add more empirical evidence on the impact of information asymmetry on investment in 259 non-financial companies listed on Ho Chi Minh and Hanoi Stock Exchanges since 2015 2011 to 2021, using POOL OLS, FEM, REM and System-GMM two-step techniques Our results provide important insights into firms' investment determinants First, we find that asymmetric information has a significant negative impact on investment decisions. This can lead to companies over-investment and under-investment and the performance of enterprises is inefficient This negative relationship is consistent with that in other studies mentioned earlier and supports POT and agent cost theories. Secondly, the study has investigated that in Vietnamese enterprises, financial leverage has a positive effect that can help increase investment decisions Thirdly, we found cash flow plays a significant role in driving investment decisions.

The availability of cash flow motivates the firms to make further investment, which confirms that firm's managers use free cash flows to invest.

Contribution

Information asymmetries and corporate values are still widely noticed in the academic world More and more scholars are exploring their relationship theoretically and experimentally in different contexts They identified the impact of information asymmetry on firm investment that can be influenced by many factors, for example banking competition (Ahmad, Hunjra, and Taskin (2021), Fosu et al.

(2018), risk-taking behavior of banks (Fosu, Ntim, Coffie, and Murinde (2017), capital structure (Lemmon and Zender (2019) In the absence of this type of research in emerging countries, our paper sheds light on the relationship between information asymmetry, other internal factors and investment decisions of non-financial firms in

Vietnam - a typical emerging stock market with high capital growth and increased foreign investment.

My research contributes the following novelties through the research process:

(1) It is the first work in Vietnam that addresses a less explored area by examining the impact of information asymmetry on firms' investment decisions in Vietnam The implications of undertaking such research are to provide an impression of how far these developing countries lag behind developed countries in terms of the relationship between information asymmetry and investment Our findings confirm the negative correlation between asymmetric information and firm value in Vietnam, and it is consistent with that in other studies mentioned earlier and supports POT and agent cost theories as well.

(2) This study uses the 2-step GMM method to overcome the defects of the model to give the most suitable model.

(3) The author uses the method of measuring the value of information asymmetry according to one of the latest methods from 2016 in the world to estimate this important variable in the model.

(4) My research investigates in Vietnam - an emerging but catching up economy Therefore, it adds to the current literature that is specifically relevant to emerging economies, and suggests research directions with similar research topics in other emerging markets.

Recommendations

5.3.1 Policy implications for the policy makers

From the conclusion of this study, information asymmetry has a negative impact on investment decisions of firms Therefore, reducing information asymmetry will bring up to investment decisions As a result, information transparency on the

4 8 stock market is necessary and an objective requirement in order to move towards an efficient market in the long term Transparency can not only protect investors, but also enhance business value Because information transparency helps businesses reduce capital costs and increase operational efficiency Research by Christian Leuz

(2009) has also shown that the cost of capital of enterprises decreases due to increased information disclosure In addition, corporate efficiency also increases due to information transparency that helps businesses choose suitable investment projects, creates an effective monitoring mechanism for managers in the enterprise, and forces managers to operate for the benefit of shareholders And moreover, information transparency helps regulators to manage and monitor the market more effectively Hence, the author gives several implications and recommendations for the policy makers as follows:

Firstly , to step up the work of information, propaganda and provision of official and accurate information on the policy, operating orientation and the macro- economic situation, the stock market, safety of the financial system, currency to stabilize investor sentiment and improve the transparency of the stock market.

Second, strengthen inspection and supervision to correct and strictly handle violations on the stock market, ensure the market's safe and transparent operation, and protect legitimate rights and interests of investors Coordinate with investigating agencies to verify, investigate and clarify serious violations in the stock market and handle false rumors in order to reassure investor sentiment and show the determination of the Party and State in building a transparent, safe and efficient securities market.

Thirdly , comprehensively review the provisions of the Securities Law and guiding documents to immediately resolve inadequacies and conflicts, thereby restoring trust, ensuring strong and transparent development of the stock market.

Fourthly , develop specific rules for implementing regulations on accounting,

4 9 auditing and clarifying accounting information, and complete legal regulations to protect the legal rights and interests of accountants, clarify the legal status of accountants in the corporate.

Due to the root of public companies' improper disclosure of information is the illegal interference of business managers in the accounting process Therefore, it is necessary to strengthen law enforcement, especially to prosecute the managers of companies that have forced or suggested the accountants to do contrary to their professional knowledge, in order to conceal or fake financial information, thereby restoring the status of corporate accounting information.

Fifthly , strengthen the sanction for violations in the stock market One of the most common violations in the stock market today is disclosure violations (account for more than 50% of fines according to SSC) Decree No 156/2020/ND-CP of the state sets the maximum fine for administrative violations in the securities sector at 3 billion VND for organizations and 1.5 billion VND for individuals In addition, an additional sanction is to suspend securities trading for a period of from 01 to 03 months or from 03 months to 05 months depending on the transaction value. Compared with the previous regulations, the level of administrative violations on the Vietnamese stock market is now much stricter, but compared with the illicit profits that the violators have earned by their actions such as concealing information, manipulating the market, etc it can be seen that this fine is still too light Therefore, we propose to increase the penalty for these violations.

Finally , develop a separate set of indicators to assess the openness of information and transparency in the market Based on the available indicators of theOECD that many Asian development banks such as Singapore, Thailand, etc have conducted, in order to self-assess the level of information disclosure and transparency to make appropriate adjustments to reality Investors will also look at this index to assess the credibility of the business And business managers will also

5 0 have more responsibility in transparent information to achieve high indexes and bring prestige to the business So, we recommend an indicator system to assess the level of openness of information and transparency of firms.

5.3.2 Recommendations for the corporate managers

First of all , listed companies should be aware that transparency and disclosure are not only their responsibilities but also their interests Transparency in information disclosure will help companies reduce agency costs, thereby improving business performance Therefore, companies need to improve transparency, decrease information asymmetry, fully and timely disclose information to generate trust for shareholders.

According to a new announcement by Hanoi Stock Exchange, information disclosure and transparency scores have a positive relationship with business results (measured by ROE and ROA), the market's assessment of businesses are measured by TobinQ index and stock price The results also show that every 1% increase in disclosure and transparency scores means a 0.08% increase in ROA and a 0.19% increase in ROE This is a good example for us to encourage and push businesses to better enforce regulations and practices on information disclosure and transparency, thereby improving their investment.

Mr Pham Anh Duong - Business Integrity Program Manager, towards Transparency affirmed while introducing the Corporate Integrity Program that

“Business integrity and transparency will bring great benefits to enterprise" Not stopping there, also according to a survey conducted by the coordination program,60% of consumers are willing to pay higher prices to buy products of transparent companies As a result, a transparent company will attract more partners and customers, gain investors' trust, and raise capital more efficiently leading to better investment According to a research paper by Nguyen Thuy Anh et al (2021),through measuring the level of information transparency of corporate social

5 1 responsibility (CSR), determining the cost of equity, the study has shown a negative effect of the level of corporate disclosure of CSR information to the cost of capital. This shows that enterprises that are transparent about CSR information will reduce the cost of capital, thus creating an incentive for businesses to better disclose information and make better investments.

In particular, enhancing the transparency of the stock market becomes even more important in the context that Vietnam is receiving good opportunities from

FDI inflows The stock market is a very important capital mobilization channel for the economy, especially for businesses In order for the capital channel to become more and more effective, businesses need to be transparent and proactive in information, towards sustainable development Enterprises need to have transparent information to strengthen trust with investors, improve corporate governance to take advantage of opportunities In the era of globalization and integration, international partners always prioritize integrity when establishing partnerships Thus, information transparency helps the corporates and the stock market develop more sustainably.

Limitation and recommendation forfurther research

Firstly , this study has not found out the relationship of financial leverage to investment decisions in the influence of information asymmetry in the Vietnamese context.

It has not been found out whether firms have the ability to use financial leverage to offsetting or minimize the negative impact of asymmetry information to investment decision, while in Fosu et al (2016), the results indicate that firms in the UK can use financial leverage as a tool to mitigate the negative impact of asymmetric information. Therefore, the reason behind this difference requires a separate study to find out.

Secondly , this study has not investigated the relationship between corporates’ financial characteristics and investment decisions in depth into each industry Because Vietnam's economy is a small market with many small and medium sized enterprises The sample used in this thesis is a collection of non-financial companies listed on HOSE, these companies have good business performance and positive positions in the Vietnamese economy The following studies can continue to study information asymmetry for state- owned enterprises or enterprises in the technology or cryptocurrency industry - the industry which are extremely developing and sensitive to information asymmetry.

Thirdly , this research has not examined the impact of asymmetric information on overinvestment and under investment of firms While Ahmad, Hunjra, and Taskin (2021) find that investment decreases rapidly as compared to increase in the presence of asymmetric information, and overinvestment firms are found to be more sensitive than under-investment firms, as reported in the results of Chen et al (2016) Therefore, we suggest further research to classify separately the overinvestment and under-investment firms and investigate the impact of asymmetric information on overinvestment and under investment of firms in Vietnam.

Finally , my study has not compared the difference between our results with other similar studies done in other countries to see the differences between markets and learn

5 4 from the experiences of the developing countries Hence, future research on asymmetric information could also extend to other areas and conduct cross- country comparisons on the relationship between information asymmetry and investment decisions, which can be a good direction for us to deepen our understanding of this issue in more complex environments.

Multicollinearity test of Pooled-OLS

Heteroskedasticity test of Pooled-OLS

Cameron & Trivedi's decomposition of IM-test

Autocorrelation test of Pooled-OLS

Wooldridge test for autocorrelation in panel data H0: no first-order autocorrelation

Estimated results from Pooled-OLS regression

Sourc e ss df MS obs Number of = 2,216

N Coefficíe nt std err t p>ltl Beta

Estimated results from FEM regression

Fixed-effects (within) regression Group variable: NAME

N Coefficient std err t p>| t| [95% conf ỉnterval] L

22560371 07922109 89322825 (fracti on of variance due to u_ỉ)

Appendix 5 Estimated results from FEM regression

Obs per group: min = avg = max = Wald Chi2(6)

N Coefficient std err z p>|z| [95% conf interval]

(fraction of varỉance due to u_i)

0008729 b = Consistent under H0 and Ha; obtained from xtreg.

B = Inconsistent under Ha, efficient under H0; obtained from xtreg.

Test of H0: Difference in coefficients not systematic chi2(6) = (b-B)'[(V_b-V_B) A (-l)](b-B) = 36.86

Appendix 8 Multicollinearity test of FEM

Appendix 9 Heteroskedasticity test of REM

Modified Wald test for groupwise heteroskedasticity in fixed effect regression model

Appendix 10 Autocorrelation test of REM

Appendix 11 Estimated results from GMM regression

Dynamic panel-data estimation; two-step System GMM

Group NAME Number of obs = 112

Time YEAR Number of groups = 256

Number of Instruments = 58 Ob ' group: 1

Marning: Uncorrected two-step Standard errors are unreliable1787

Appendix 12 Robust test for GMM model

Instruments for first diííerences equation

GMM-type (missing=0j separate Instruments for each period unless collapsed) L.(L.LV L.GR L~sz)

GMM-type (missing=0j separate Instruments for each period unless collapsed) D. (L.LV L.GR l-7sz)

Arellano-Bond test for AR(1) in first differences: z = -4.09 Pr > z = 0.000 Arellano-Bond test for AR(2) in first differences: z =0.84 Pr > z = 0.402

Sargan test of overid restrictions: chi2(50) = 73.64 Prob > chi2 = 0.016 (Not robust, but not weakened by many Instruments.)

Hansen test of overid restrictions: chi2(50) = 52.26 Prob > chi2 = 0.386 (Robustj but weakened by many Instruments.)

Difference-in-Hansen tests of exogeneity of instrument subsets:

Hansen test excluding group: Chi2(23) =

Differen ce (null H = exogenous): Chi2(27) =

Hansen test excluding group: chi2(47) =

Differen 9 ce (null H = exogenous): chi2(3) = Pro b > chi2

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Hausman test

0008729 b = Consistent under H0 and Ha; obtained from xtreg.

B = Inconsistent under Ha, efficient under H0; obtained from xtreg.

Test of H0: Difference in coefficients not systematic chi2(6) = (b-B)'[(V_b-V_B) A (-l)](b-B) = 36.86

Multicollinearity test of FEM

Heteroskedasticity test of REM

Modified Wald test for groupwise heteroskedasticity in fixed effect regression model

Autocorrelation test of REM

Estimated results from GMM regression

Dynamic panel-data estimation; two-step System GMM

Group NAME Number of obs = 112

Time YEAR Number of groups = 256

Number of Instruments = 58 Ob ' group: 1

Marning: Uncorrected two-step Standard errors are unreliable1787

Robust test for GMM model