Announcements on the stock price of listed companies on vietnam stock exchange

Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON THE EFFECT OF M&A ANNOUNCEMENTS ON THE STOCK PRICE OF LISTED COMPANIES ON VIETNAM STOCK EXCHANGE NAME OF STUDENT: Nguyen Tuan Nam ID No: 21071836 Intake Supervisor: Prof Dr Tran Thi Xuan Anh September 2022 Tai ngay!!! Ban co the xoa dong chu nay!!! 17014125827151000000 ABSTRACT This paper analyzes the influence of merger and acquisition announcements on the stock price of 15 seller's companies listed on a stock exchange in 20 cases of M&A from 2017 to 2021 in a developing Vietnamese market by using an event research method Before the announcement of the merger and acquisition announcement, the cumulative average abnormal returns of the target companies were all positive and had very good statistical significant, it is possible that the CAAR was affected by an insider who leaked the private information for personal benefit The finding that the target price run-up before M&A announcements is associated with insider trading measures raises the concern that rampant illegal insider trading may undermine corporate governance The pre-announcement run-up could add significant costs to mergers and acquisitions, which may have a negative effect on the target firm Those findings help investors to form appropriate expected returns and policy makers to detect insider trading prior to M&A announcements and protect their capital 1|Page ACKNOWLEDGEMENTS I have received enthusiastic help and support from lecturers at University of the West of England Completing a thesis is a very meaningful thing for me, and I really appreciate it I would like to express my sincere thanks to University of the West of England, Banking Academy for giving me the opportunity to gain more knowledge about economics as well as finance, which will help me a lot for my career as well as higher education In particular, I would like to thank Associate professor PhD Tran Thi Xuan Anh, Dean of the Faculty of Finance, Banking Academy for helping, instructing, overcoming errors and wholeheartedly guiding me throughout the process of researching and completing this thesis 2|Page STATUTORY DECLARATION I hereby declare that the thesis is the result of the research, study and research process Independent research under the guidance of Associate professor PhD Tran Thi Xuan Anh, Dean of the Faculty of Finance - Banking Academy The research content in this article is thoroughly reviewed and the results of the research are completely honest; The data in tables and figures are collected, statistically and calculated by me Evaluations and conclusions of other authors will be cited with full references and sources I hereby declare that this entire study has not been presented or published anywhere before 3|Page Table of Contents Chapter 1: INTRODUCTION 1.1 Rationale of the research 1.2 Research objective 1.3 Thesis disposition 10 Chapter 2: LITERATURE REVIEW 11 2.1 Theoretical background 11 2.1.1 Mergers and acquisitions 11 2.1.2 Impact of merger and acquisition announcements 19 2.1.3 Market efficiency theory 28 2.2 Empirical research 33 2.2.1 Domestic research 33 2.2.2 Foreign research 36 Chapter 3: DATA AND METHODOLOGY 48 3.1 Data collection 48 3.2 Methodology 51 3.2.1 Event study 51 3.2.2 Event window 53 3.2.3 Abnormal return 54 3.2.4 Cumulative abnormal return 55 3.2.5 Inspection standards 56 3.2.6 Research hypothesis 56 3.2.7 Research implementation 57 Chapter 4: RESULT AND DISCUSSION 59 4|Page 4.1 Overview of M&A in Vietnam 59 4.2 Result analysis 66 4.2.1 Data description 66 4.2.2 Changes in stock prices upon M&A announcement 67 4.2.3 Abnormal return and Cumulative abnormal return 70 4.3 Discussion 79 Chapter 5: RECOMMENDATION 83 5.1 Recommendation for listed companies in Vietnam stock exchange market 83 5.2 Recommendation for investors 84 5.3 Recommendation for Vietnam government 84 Chapter 6: CONCLUSION 87 6.1 Main findings and conclusion 87 6.2 Research limitation and recommendation for the future research 88 6.2.1 Research limitation 88 6.2.2 Recommendation for the future research 90 REFERENCES 91 APPENDIX 95 5|Page ABBREVIATIONS HSX Ho Chi Minh Stock Exchange M&A Merger and Acquisitions IMF International Monetary Fund EMH Efficient Market Hypothesis AR Abnormal Return CAR Cumulative Abnormal Return CAAR Cumulative Average Abnormal Return CPTPP Comprehensive and Progressive Agreement for Trans-Pacific Partnership EVFTA EU–Vietnam Free Trade Agreement EVIPA EU-Vietnam Investment Protection Agreement FIA Foreign Investment Agency CEO Chief Executive Officer PPP Purchasing Power Parity OLS Ordinary Least Squares 6|Page LIST OF TABLES & FIGURES Table 3.1: Statistics of 20 M&A deals from 2017 to 2021 used in the research 49 Table 3.2: Industry distribution of seller companies used in the research 50 Table 3.3: The timing sequence of an event in event study 53 Table 4.1: Observe the stock prices of the companies around the M&A 67 announcement Table 4.2: AR and CAR of 20 deals with event window [t-1;t+1] 70 Table 4.3: CAAR of 20 deals with event window [t-5;t+5] 72 Table 4.4: CAAR of 20 deals with event window [t-10;t+10] 74 Table 4.5: CAAR of 20 deals with event window [t-15;t+15] 76 Figure 3: Market capital of firms used in the research in 2021 51 Figure 4.1: CAAR around 10 days of the date of the M&A announcement 73 Figure 4.2: CAAR around 20 days of the date of the M&A announcement 75 Figure 4.3: CAAR around 30 days of the date of the M&A announcement 78 7|Page Chapter 1: INTRODUCTION 1.1 Rationale of the research Since the outbreak of Covid-19 has directly affected economies around the globe, companies even large or small have merged to diversify their business lines so that they can overcome the pandemic together In the three years since the Covid-19 epidemic appeared, the number and value of mergers and acquisitions (M&A) deals has increased rapidly in emerging Asian developing markets, including Vietnam Mergers and acquisitions are useful tools to attract capital from domestic and foreign sources to expand the business scale of enterprises Due to the increasing popularity of M&A activities, researches on topics related to mergers and acquisitions are increasing In particular, recent studies show that M&A activities create resonance mainly on the financial position of related companies Is the Vietnamese market affected by the merger and acquisition announcement? When most studies mainly focused on developed regions such as North America, Europe and countries such as Japan, Korea, and India, I chose the topic “Impact of merger and acquisition announcements on share prices of listed companies on Vietnam stock exchange” for the following reasons First, Vietnam is a fast-growing country with GDP (PPP) ranked 25th in the world and 14th in Asia (according to World Economic Outlook Database, IMF) Next, Vietnam has witnessed a hot growth in the number and value of M&A deals in the past five years Mergers and acquisitions are also considered as a channel for investment to expand the scale of enterprises, restructure and promote investment beyond Vietnam's borders for further development in the future Moreover, the issue of benefits for shareholders from successful mergers 8|Page and acquisitions is still controversial A part of investors believes that many benefits from facilitating the development of business systems of enterprises will bring to shareholders when performing M&A While the opposite party argues that this will make the shareholders of the buying company face losses from the seller's company 1.2 Research objective M&A activity is on the rise worldwide, and it leads to a growth by globalization and continuous technology breakthrough In finance, merger events are one of the most researched areas, most of the empirical research on mergers generally emphasizes on daily stock returns nearby announcement dates and after mergers Researchers from all around the world have investigated the impact of M&A on the value of both the acquired firm and the bidder firm The evidence on mergers indicates that the stockholders of target firms have earned significant abnormal/excess return not only around the announcement period, but also in the weeks after the announcement Furthermore, when a target company is acquired, its stock price frequently skyrockets However, a great portion of the run-up occurs prior to M&A announcements The preannouncement run-up is enormous, indicating either an extremely observant financial market or leaked information about potential deals Some research find the pre-announcement run-up is associated with prevailing rumors and toe-hold acquisitions Some research finds that the price-volume dynamics before M&A announcements are more consistent with market anticipation hypothesis rather than insider trading hypothesis The purpose of this study is to examine the effect of M&A announcements on the stock price of listed companies on Vietnam stock exchange This study covers the 9|Page