Overview of the stock market, securities companies and main activities 4 1.1 Overview of stock market
Overview of Vietnamese economy
Evaluating a country's macroeconomic factors is crucial for making informed investment decisions and understanding enterprise performance In Vietnam, this analysis is particularly significant for assessing business groups, especially within the financial sector.
The years 2020 and 2021 were particularly challenging globally, including in Vietnam, as the world faced the most severe economic recession in history due to the Covid-19 pandemic Consequently, Vietnam's GDP growth rate fell below 5%, recording 2.85% in 2021 and 2.91% in 2020.
Figure 1 GDP growth rate in Vietnam in the period 2011-2020 (source: Tổng cục thống kê)
Since late April 2021, the Covid-19 epidemic has significantly complicated commercial and service activities, leading to a notable decline in several service industries This negative growth has substantially impacted the overall economy, particularly affecting the growth rate within the service sector.
Figure 2 Total GDP growth and in each industry (source: Tổng cục Thống kê)
In 2021, the agricultural sector experienced a robust growth of 3.18%, significantly boosting the overall economy's growth rate by 0.29 percentage points The forestry sector also showed positive performance with a growth rate of 3.88%, contributing an additional 0.02 percentage points, while the fisheries sector grew by 1.73%, adding 0.05 percentage points This strong performance in agriculture, forestry, and fisheries, alongside improved export turnover of various agricultural products, underscores the region's leading growth rate.
The processing and manufacturing industry remains the primary growth driver for the economy, achieving a 6.37 percent growth rate and contributing 1.61 percentage points to the overall growth in the industry and construction sector Meanwhile, electricity generation and distribution increased by 5.24 percent, adding 0.19 percentage points to the total rise In contrast, the mining sector experienced a decline of 6.21 percent, resulting in a decrease of 0.23 percentage points, while crude oil production fell by 5.7 percent and gaseous natural gas output dropped significantly by 19.4 percent The construction industry also saw modest growth at 0.63 percent, contributing an additional 0.05 percentage points to the overall growth.
Covid-19 pandemic developed complicated since the end of April, which has seriously results in commercial and service activities This negative growth of some
Quý I Quý II Quý III Quý IV
GDP Nông, lâm nghiệp và thủy sản Công nghiệp và xây dựng Dịch vụ
The service sector's overall growth rate has been adversely affected by significant declines in six key industries Notably, the wholesale and retail industry experienced a 0.21% decrease, impacting the total economic growth by 0.02 percentage points The transportation and warehousing sector saw a substantial drop of 5.02%, resulting in a 0.3 percentage point decline, while the accommodation and food service industry plummeted by 20.81%, contributing a 0.51 percentage point reduction Conversely, the health sector and social assistance activities surged by 42.75%, adding 0.55 percentage points to the service sector's growth Additionally, financial, banking, and insurance activities rose by 9.42%, contributing 0.52 percentage points, and the information and communication industry increased by 5.97%, adding 0.36 percentage points.
Figure 3 CPI in each quarter from 2018Q4 to 2021Q4 (Based year 2014) (Source: Synthetic private author)
In 2020, the inflation rate, measured by the Consumer Price Index (CPI) growth rate, peaked at approximately 6% before plummeting to nearly 0% by year-end This trend is reflected in the CPI index, which uses 2014 as its base year Notably, certain quarters during this period experienced a decline in the CPI index, indicating a phase of deflation.
Figure 4 Exchange rate USD/VND (Source: tradingview)
Vietnam's trade balance showed significant figures over the years, with values of $10.9 billion in 2019, $19.94 billion in 2020, and a decrease to $9.08 billion in 2021 The notable growth in 2020 was largely driven by the Vietnam-America trade relationship However, the global outbreak of Covid-19 in 2021 led to cargo congestion and customs shutdowns in various countries, resulting in a decline in the trade balance Throughout these years, foreign direct investment (FDI) remained stable, contributing to a relatively consistent exchange rate of around 23,000 VND per USD from 2019 to 2021.
Overview of Vietnamese stock market
The financial market system is crucial to the Vietnamese economy, serving as a catalyst that channels capital from surplus areas to those in need This mechanism enhances the overall efficiency and smooth operation of the economic system Financial markets facilitate the flow of funds and can be divided into two primary dimensions.
The primary market is where investors raise funds through the issuance of new financial instruments like stocks and bonds In contrast, the secondary market facilitates the trading of these instruments after their initial issuance The money market specializes in trading short-term debt securities with maturities of less than one year, while the capital market focuses on the trading of long-term debt and equity instruments with maturities exceeding one year.
Financial markets are defined by their free market structure, resembling perfect competition, and facilitate both direct finance and various financing options, including long-term and short-term solutions The securities market plays a crucial role by mobilizing funds for governments, corporations, and other entities, while also providing a conducive investing environment and ensuring liquidity for securities Its operations hinge on principles of accurate, adequate, and timely information disclosure, as well as intermediaries and auctioning processes.
Secondary markets bring benefits for both investors and issuing corporations For the holders, secondary markets provide opportunities to trade securities at their market values quickly and purchase securities
In the last two decades, Vietnam's stock market has significantly evolved, enhancing its structure and achieving substantial growth, making it a sizable market relative to the country's GDP This development has played a crucial role in strengthening the national financial system, promoting balance and sustainability, while also serving as a vital channel for capital mobilization within the economy.
The Vietnamese stock market has experienced significant growth, with the number of listed companies increasing from around 200 in 2006 to over 2,200 by 2021 By the end of 2021, the market capitalization reached VND 7,729 trillion, marking a 39.38% increase from 2020 and representing 149.84% of the country's GDP Liquidity surged in 2021, driven by domestic investors, with the average trading value rising from VND 19,000 billion per session in January to VND 40,000 billion by November.
November 19, 2021, the market recorded a record trading session of VND 56,105 billion
In recent years, the Vietnamese stock market has emerged as a promising investment destination, attracting a surge of investors From 2019 to 2021, the number of new accounts opened significantly increased, despite the challenges posed by the Covid-19 pandemic Foreign investors saw a remarkable recovery after hitting a low in April 2020, with account openings peaking at around 230,000 by March 2021 Meanwhile, domestic investors experienced steady growth from October 2019 to November 2020, followed by a dramatic surge from December 2020 to December 2021, averaging nearly 200,000 new accounts per month.
In Vietnam, the total number of securities accounts has surged to 4.08 million, reflecting a remarkable 47.3% increase since the end of 2020, with an average of 550,000 new accounts created each month This growth signifies an improvement in the quality of both investors and businesses, leading to the expansion of large-scale enterprises domestically and internationally Notable companies such as HPG, FPT, VNM, VIC, SAB, and GAS have emerged as key players in this thriving market.
Figure 5 Number of new opening accounts per month from 01/2019 to 01/2020 (source: Trung tâm lưu ký Chứng khoán Việt Nam (VSD))
Figure 6 Liquidity and index of VN-index over the period (source: trading view)
Overview of securities companies
The development of Vietnam's stock market lays the foundation for securities companies to grow stronger and play a larger role in the economy
1.2.1 Introduction to the activities of securities companies
A securities company is a business entity that operates as a member of the stock exchange, defined in Clause 1, Article 2 of Decree 86/2016/ND-CP According to this decree, a securities company is established and operates under securities law to conduct one or more of the following activities: securities brokerage, proprietary trading, underwriting securities, and providing investment advisory services, along with other financial services as regulated by securities law.
A securities company serves as an intermediary financial institution in the stock market, operating as either a Joint Stock Company or a Limited Company, and is established in compliance with legal regulations These companies engage in various securities business operations under the supervision of regulatory authorities Additionally, a financial institution (FI) is defined as a company involved in financial and monetary transactions, including deposits, loans, investments, and currency exchange.
Financial institutions encompass a broad range of business operations within the financial services sector
Securities companies play an important role in security markets with market in general as well as investors in particular
Securities companies play a crucial role in mobilizing capital for corporations and the economy by facilitating the circulation of securities to investors Their expertise enables issuers to save time and effort, ensuring successful issuance and increasing stock market supply By listing on the stock market, enterprises can effectively raise capital, while securities companies act as financial intermediaries, connecting issuers with investors This process eliminates the need for direct transactions between investors and issuers, reducing capital mobilization costs and allowing businesses to swiftly acquire necessary funds for production and operations.
Securities companies play a crucial role in stabilizing stock prices within the market Their self-trading activities not only enhance the stability of securities prices but also facilitate a robust market for newly issued securities.
Securities brokerage activities enable stockbrokers to understand customer needs, allowing them to communicate insights to the company's product research and development team This collaboration leads to the creation of new products and services tailored to meet customer demands effectively.
Investors in the stock market face frequent fluctuations in commodity prices, and not all possess the necessary skills or resources to effectively analyze market information and trends for sound investment decisions As an intermediary organization, we leverage our expertise to assist investors in navigating these complexities.
12 high specialization as a bridge for buyers and sellers to meet, helping investors save costs, time and effort in each transaction, and improve market liquidity
Securities companies, empowered by their authority, facilitate trading transactions and manage customer accounts, thereby gaining access to crucial information regarding market activities, various stocks and bonds, and details about issuers and investors They are required to share this information with competent authorities when requested This data source enables market management agencies to effectively monitor and supervise the stock market, allowing them to make informed, timely decisions and policies that ensure orderly and efficient market operations.
The different operating conditions, which may even exist only for securities companies, are the characteristics that distinguish the business activities of securities companies from other types of enterprises
To safeguard the market and investor interests while ensuring the operational integrity of securities firms, countries establish specific legal capital requirements for these companies Each business operation within a securities firm also mandates its own legal capital, ensuring sufficient financial strength to effectively conduct professional activities that protect investors In Vietnam, these stipulations are outlined in specific legal clauses.
1 and 2, Article 71 of Decree 58/2012/ND-CP, the legal capital for business operations of a securities company is:
+ Investment consulting service: 20 billion VNĐ
- Characteristics of the company's leadership team and personnel: With working in an intricate market, it impacts the monetary security of a whole country The authority
The personnel of protection organizations must possess advanced training, specialized skills, and relevant qualifications that comply with national legal requirements Additionally, they should uphold professional ethics to ensure the effective execution of their responsibilities.
Conflicts of interest are inherent in business operations, particularly within financial services where activities like brokerage and investment consulting can lead to situations that compromise client trust These conflicts arise when professionals prioritize their own interests over those of their clients, potentially causing harm To mitigate these risks, it is essential for personnel in financial organizations to uphold strong professional ethics, ensuring that client welfare remains the top priority.
To ensure the seamless, accurate, and timely transmission and processing of electronic data, technical facilities must prioritize modern technology and safety This focus not only protects the interests of investors but also enables them to access information quickly and efficiently.
Securities companies can be established in various legal forms, including joint stock companies, limited liability companies, partnerships, private enterprises, or state enterprises, depending on the legal regulations of each country Most often, they opt for joint stock or limited liability company structures to leverage the benefits these forms offer These companies are organized into two main functional blocks: Block I (front office), which engages directly with customers to generate income through tailored services and products, and Block II (back office), which supports the front office by handling administrative tasks without direct customer interaction.
Brokerage activities play an important role in facilitating the buying and the selling of financial securities traded in stock market between a buyer and a seller (Dahiyat,
In brokerage operations, securities companies establish trading accounts for customers based on signed contracts, with brokerage fees calculated as a percentage of transaction value There are two main types of stockbrokers: those dealing with listed securities and those with unlisted securities Essentially, these brokers act as intermediaries, facilitating the buying and selling of securities on behalf of customers while earning commissions for their services.
In this activity, securities companies receive orders from customers then sending them to Securities Depository Center Finally, when the orders completed, commission they received would become their brokerage revenue
Following the law of securities in 2019: “Tự doanh chứng khoán là việc công ty chứng khoán mua, bán chứng khoán cho chính mình”
Self-trading refers to the practice where a securities company invests directly in the market to generate profits through trading and arbitrage By utilizing order-matching mechanisms and agreements on stock exchanges or decentralized markets, these companies buy and sell securities for their own benefit The primary objective of self-trading is to capitalize on arbitrage opportunities while enhancing market liquidity In some instances, the trading activities of securities firms also align with market-making functions Authorized to engage in self-trading, these companies help orient and regulate market activities, ultimately contributing to price stabilization.
Theo luật chứng khoán năm 2019, "Bảo lãnh phát hành chứng khoán" là cam kết của tổ chức bảo lãnh với tổ chức phát hành trong việc mua một phần hoặc toàn bộ chứng khoán để bán lại, hoặc mua số chứng khoán còn lại chưa được phân phối, nhằm tối đa hóa việc phân phối số chứng khoán cần phát hành của tổ chức phát hành.
Main activities in Vietnamese securities companies
In Vietnam, securities companies primarily operate in three key sectors: brokerage, margin lending, and self-trading This research focuses specifically on the activities of brokerage and margin loan services.
Figure 9 Brokerage revenue of each securities company from 2019Q1 to 2021Q4
Total assets of 25 securities companies
Figure 10.Brokerage cost of each securities company from 2019Q1 to 2021Q4
Figure 11.Brokerage profit of each securities company from 2019Q1 to 2021Q4
Securities companies experienced a general upward trend in brokerage profits, peaking in the fourth quarter of 2021, while HCM reached its highest profit in the third quarter of 2021.
AGR APS BSI CTS FTS HCM MBS PSI SSI TVS VDS VIX WSS
AGR APS BSI CTS FTS HCM MBS PSI SSI TVS VDS VIX WSS
Figure 12 Margin loan profit of each securities company from 2019Q1 to 2021Q4
In the fourth quarter of 2021, the margin loan sector achieved its highest brokerage profits, with standout performances from companies such as HCM, MBS, SSI, VCI, and VND Notably, SSI and VND, both with charter capital comparable to mid-sized banks, reached the top two profit levels in Q4 2021.
The reputation of brokerage firms significantly influences customer trust and, consequently, their revenue, with larger, well-regarded companies generally performing better Conversely, companies with a poor reputation struggle to gain customer trust and may face challenges in optimizing profits due to lower leverage Additionally, rising inflation prompts the State Bank of Vietnam (SBV) to increase interest rates, which reduces money supply and leads to higher savings interest, causing individuals to decrease stock purchases In the margin loan sector, larger firms can offer substantial borrowing resources, enabling customers to trade more stocks, as increased trading activity necessitates additional capital for stock purchases.
A G R A PG A PS A R T BS I BV S CT S EV S FT S HBS H CM IV S MBS O R S PSI SH S SS I TV B TV S V CI V DS V IG V IX V N D W SS
Literature review
Indicators to evaluate the profitability of securities companies
Profitability can be assessed through various key indicators, including return on total assets (ROA), return on equity (ROE), net profit margin (NIM), and operating profit margin (OPM) These metrics enable shareholders, investors, and economic managers to evaluate the efficiency of financial institutions effectively.
Rowshonara Akter Akhi and Mabia Khatun (2021) demonstrated that profitability is crucial for commercial organizations as it reflects their capacity to generate returns on investments This ability not only improves their financial condition but also enhances owners' equity and promotes sustainability by reducing risks.
Ali Saleh Alarussi and Sami Mohammed Alhaderi (2018) emphasized that a primary objective for companies is to achieve sustainability in competitive markets To accomplish this, it is crucial for businesses to create, execute, and uphold strategies that improve their overall performance.
High profitability enables securities companies to expand their market shares and enhances their ability to raise capital This favorable condition allows them to invest in profit-generating assets and technology development Additionally, strong profitability bolsters their reputation and fosters greater trust among investors and customers.
The securities industry plays a crucial role in the economy, driving profitability and ensuring stable growth for securities firms This stability not only enhances investor confidence but also mobilizes capital, providing essential funding for production development and overall economic advancement.
As mentioned by Hofstrand (2009), the first goal of a business venture is generating profit Without it, the business could not survive in long term
Securities companies prioritize maximizing profits as their primary objective, focusing on effective profit generation strategies This involves careful observation and analysis of profit trends to develop appropriate plans that enhance overall financial performance.
High profits establish a strong foundation for reinvestment, capital growth, and technological advancement, serving as a catalyst for enhanced credibility and customer trust Additionally, they help expand market share by attracting new customers.
Raising capital in the stock market is crucial for economic stability, as it significantly impacts overall economic growth Effective profitability not only supports the development of securities firms but also facilitates the flow of capital to production companies, thereby contributing to a more stable economy and driving motivation for further advancement.
Return on Equity (ROE) evaluates the capacity of securities companies to convert equity into returns, calculated as returns divided by equity (where equity equals total assets minus total debt) A high ROE does not necessarily indicate effective operations According to Ong Tze San, the ROE of small versus large companies is not a reliable measure of corporate performance in the Malaysian construction sector This is illustrated by the DuPont analysis, which shows that while a company may have a high profit after tax, its profit from core operations can be low, resulting in low equity Furthermore, a high ROE can stem from a company's ability to generate returns from total assets, often due to high leverage, suggesting that elevated ROE may be misleading and linked to increased debt levels.
Return on Assets (ROA) is a key metric that assesses the efficiency of a securities company's asset management in generating returns A high ROA indicates strong business performance and effective asset utilization, showcasing the company's ability to optimize resources for profit generation Conversely, a low ROA may signal higher operational costs or inefficient capital use, highlighting potential areas for improvement in financial management Maintaining a consistently high ROA over time is a positive indicator of a company's operational effectiveness and financial health.
The Net Profit Margin Indicator is derived by dividing total income from interest-generating activities by interest-producing assets This profit originates from margin loans, trading fees, self-trading, underwriting activities, and depository services As a crucial performance metric for financial institutions, it reflects their reliance on interest-generating activities.
The operating margin indicates the profit a company retains from each sales dollar after covering variable production costs like wages and raw materials, but before accounting for interest and taxes This metric is derived by dividing the operating income by net sales, providing insight into the company's operational efficiency.
Factors affect profitability
Profitability is defined by a company's capacity to generate revenue that exceeds its expenses through the effective use of available resources Businesses strive to optimize asset utilization to sustain long-term profitability Understanding the factors that influence productivity is crucial for firms, which has led to ongoing interest from scholars in this area.
Several studies have analyzed the determinants of profitability in brokerage firms Turkey & Kaymaz (2010) examined data from 2005 to 2007 using multiple regression analysis and identified that the ratios of receivables to total assets, financial assets to total assets, and short-term liabilities to total assets significantly influenced the profitability of brokerage houses Similarly, Rowshonara Akter Akhi & Mabia Khatun (2021) conducted a study on 28 listed brokerage companies in the Dhaka Stock Exchange from 2010 to 2019, finding that factors such as net revenue to total assets, owners’ equity to total assets, total assets logarithm, total debts to total assets, sales growth, GDP growth, inflation rate, and real interest rate were significant contributors to brokerage profitability.
Numerous studies have focused on the banking sector and other industries Bashir (2003) evaluated the performance indicators of Islamic banks in eight Middle Eastern countries from 1993 to 1998 In 2008, Athanasoglou et al analyzed panel data from Greek banks covering the period from 1985 to 2001, revealing a positive relationship between the business cycle and banks, although bank size did not correlate with profitability Additionally, a study by Ali Saleh Alarussi and Sami Mohammed Alhaderi examined the factors influencing profitability in 120 listed companies in Malaysia from 2012 to 2014.
A business's survival hinges on its profitability, with highly profitable enterprises providing substantial returns on investment for their owners Understanding the factors influencing profitability, both internal and external, is crucial Numerous studies have explored the correlation between financial indicators and profitability, highlighting aspects such as business size, net operating profitability, liquidity ratios, receivables turnover, working capital, debt ratios, and returns on total assets Research conducted across various countries, including China, Nigeria, Romania, Sri Lanka, the US, Pakistan, Serbia, the UK, Australia, Spain, Japan, and India, has further examined these relationships, emphasizing the global relevance of these financial metrics in determining business success.
(2009) in Greece; and Goddrad et al (2010) in 11 European countries Some of these studies are descriptive and others are empirical, which show the relationship between profitability and its determinants
Previous studies indicate that various factors significantly influence profitability, including firm size, age, risk, liquidity, leverage, capital intensity, R&D intensity, revenue growth, long-term financing, turnover ratio, and working assets Most research has focused on developed countries or the banking sector, with limited analysis on developing countries, except for the study conducted by Ali Saleh Alarussi and Sami Mohammed Alhader.
A 2018 study examined Malaysian companies using panel data to evaluate performance through Return on Equity (ROE) and Earnings Per Share (EPS) The research identified key independent variables influencing performance, including firm size, efficiency, liquidity, working capital, and leverage.
Various studies have evaluated company profitability using metrics such as Earnings Before Interest and Tax (EBIT) (Akintoye, 2008), Return on Equity (ROE) (Alarussi & Alhaderi, 2018), Return on Assets (ROA) (Akhi & Khatun, 2021), and Earnings Per Share (EPS) (Alarussi & Alhaderi, 2018).
In the 2012 article "Firm Size As Company’s Characteristic and Level of Risk Disclosure: Review on Theories and Literatures," various methods for measuring firm size are discussed, including sales, employee count, assets, and value-added features Typically, those applying technological theory based on economies of scale focus on sales figures or assets for measurement Ultimately, firm size is quantified by the logarithm of total assets.
Previous research has indicated that the size of securities companies significantly influences their profitability Typically, larger securities firms benefit from a diverse range of business activities and services, along with enhanced facilities and technology As a result, these larger companies tend to experience greater profit growth compared to their smaller counterparts.
29 studies, to account for the effect of size, the researchers used the natural logarithm of total assets
Numerous studies highlight a positive correlation between profitability and total assets Research by Malik (2011) demonstrates that firm size is positively related to profitability, as evidenced by a study of 35 insurance companies in Pakistan for the year 2005.
In 2009, Idris (2011) highlighted that the size of banks is a crucial factor influencing profitability in the Malaysian Islamic banking sector Similarly, Bui Ngoc Toan and Doan Thi Thu Trang (2020) conducted research on Vietnamese commercial banks from 2013 onwards, emphasizing the importance of bank size in determining financial performance.
2018 showed that bank size has a positive impact on ROA Ha-Brookshire (2009) found a positive relationship between profitability and firm size by analyzing US non- manufacturing companies
However, followed by Athanasoglou (2008), this author explores that business cycle had positive relation with banks where bank size was not allied with profitability
Efficiency is essential for maximizing profits, influencing both sector operations and overall company performance A higher asset turnover ratio significantly enhances profit generation from total assets Research by Warrad and Al Omari (2015) examined the impact of absolute and fixed resources turnover ratios on the return on assets (ROA) of firms in Jordan While the service sector showed no correlation between asset turnover ratio and ROA, the industrial sector demonstrated a substantial effect, as evidenced by a simple linear regression analysis conducted between 2008 and 2011, highlighting the importance of absolute resources turnover ratio on ROA in the Jordanian modern area.
Leverage plays a crucial role in a company's capital structure, with trade-off theory suggesting that the optimal level of debt balances its benefits against associated costs However, research by Ghasemi et al (2017) highlights a negative correlation between profitability and leverage Similarly, Charumathi (2012) found that leverage adversely affects profitability in Indian life insurance companies.
(2002) analyzed the relationship between debt to equity ratio and profitability The result pointed out that retained earnings (retained profit) are more profitable than the borrowed capital
An essential economic indicator that illustrates the relationship between equity and risk-adjusted assets is highlighted in the study by Dahiyat (2018), which focused on brokerage companies listed on the Amman Stock Exchange The research found a significant positive correlation between asset quality and capital adequacy with profitability, although broker size did not show a similar effect Additionally, a study by Rowshonara Akter Akhi and Mabia Khatun (2021) noted that the impact of these factors on profitability was insignificant.
Inflation refers to the rise in the overall price level of goods and services within an economy, leading to a decrease in the purchasing power of money This phenomenon is typically assessed using the Consumer Price Index (CPI), which tracks changes in price levels over time.
Database and methodology
Definition of variables
Dependent variable: ROE measures a securities company's ability to generate profit from 1 dong of equity ROE represents the amount that shareholders receive for each coin of capital invested
Total assets: In this research, the author would use logarithm of total assets to represent for total assets in the equation
Company efficiency: In this research, the author would use asset turnover ratio of brokerage sector to represent for company efficiency of companies
𝐴𝑇 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 Leverage level: The leverage level in equation would be represented by leverage ratio
𝑇𝑜𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡𝑠 Capital adequacy: This variable would be measured by taking charter owners’ equity dividing to total assets
Inflation rate: Nominal inflation rate Its measurement would be presented through
Descriptive statistics
Variable Observations Mean Standard deviation
Table 2 Statistical table of variables
According to the data presented in Table 2, the Return on Equity (ROE) indicator and its influencing factors are derived from 300 observations collected between 2019 and 2021 across 25 securities companies listed on the Hanoi Stock Exchange (HNX) and the Ho Chi Minh Stock Exchange (HOSE) The table reveals that the standard deviations for ROE-broker and ROE-margin are 0.0151581 and 0.013301, respectively.
Based on the measurements collected in Table 2, all factors exhibit standard deviations that are relatively small, allowing for their use in regression models Overall, the data presented in Table 2 effectively encapsulates the essential characteristics of each variable examined.
This study analyzes financial data from 25 securities companies listed on HSX and HNX in Vietnam, covering the period from 2019 to 2021 The research comprises a total of 300 observations for each model, focusing on profitability indicators derived from the companies' financial statements and annual reports.
33 reports of the companies The macroeconomic information is inflation collected through General Statistics Office of Vietnam
After collecting the data, it will be aggregated using Microsoft Excel 2016, where calculations for independent variables are performed Once the necessary data is obtained, it will be further aggregated in Stata 13 for analysis.
The collected data will be coded for analysis, utilizing descriptive statistics to evaluate research variables This process includes testing for autocorrelation in models, applying the Pooled OLS regression model, and assessing multicollinearity in the Random Effects Model (REM) and Fixed Effects Model (FEM) Model selection will be determined through the Breusch-Pagan and Hausman tests Following the selection, we will identify any model deficiencies and employ the Feasible Generalized Least Squares (FGLS) model to address these issues, ultimately providing the final results.
Research methodology
Panel data is used in two models The models used are Pooled OLS, FEM model, REM model and FGLS model
Ordinary least squares (OLS) is a statistical technique used for estimating unknown parameters in linear regression models This method selects the parameters of a linear function based on the principle of least squares, which aims to minimize the sum of the squared differences between observed values of the dependent variable and those predicted by the linear function of independent variables.
Pooled OLS is merely OLS but it is the combination in cross section and time series
The author employs panel data to develop this model, focusing on the measurement without concern for the specific targeted objects or the time frame involved.
When evaluating the Pooled OLS, Fixed Effects Model (FEM), Random Effects Model (REM), and Feasible Generalized Least Squares (FGLS) model, specific tests are conducted The Breusch-Pagan test is employed to compare Pooled OLS and REM, while the Hausman test is utilized to differentiate between REM and FEM for model selection.
In this analysis, profitability, represented by Return on Equity (ROE), is examined across two sectors: brokerage and margin loans The variables include TA (logarithm of total assets), AT (assets turnover ratio in the brokerage sector), LVR (leverage ratio), and INF (inflation rate), with coefficients β1, β2, β3, β4, and β5 indicating their respective impacts.
The profitability, represented by Return on Equity (ROE), is analyzed in two sectors: brokerage and margin loans The model includes intercepts for total assets (TA), assets turnover ratio (AT), owners' equity to total assets (CA), leverage ratio (LVR), and inflation rate (INF), denoted by coefficients 𝛽 1 through 𝛽 6 Specifically, TA is the logarithm of total assets, while AT reflects the efficiency of asset utilization in the brokerage sector CA measures the proportion of owners' equity relative to total assets, LVR indicates the level of debt used to finance assets, and INF captures the impact of inflation on profitability.
Hypothesis
Model 1: The impact of factors on brokerage sector
Return on Equity (ROE) is a key indicator of a securities company's profitability, reflecting its ability to generate profit from each unit of equity invested This metric illustrates the returns shareholders receive for their capital contributions Numerous studies have identified ROE as a dependent variable, influenced by various internal and external factors.
Firm size, measured by total assets, serves as a key indicator of various positive attributes, including profitability Larger companies typically enjoy greater market power and reputation, which translates into a competitive advantage in converting resources into profits compared to smaller firms Research by Ha-Brookshire (2009) demonstrated a significant positive relationship between firm size and productivity in US non-manufacturing organizations, a finding echoed by Stierwald (2010) in his study of large companies in Australia The resource-based theory suggests that greater access to financial resources results in lower capital costs, a principle particularly applicable to larger firms.
H1: There is a positive association between company firm size and profitability
Company efficiency: Assets turnover ratio of brokerage sector Warrad and Al Omari
A study conducted in 2015 analyzed the effects of total assets turnover ratio and fixed assets turnover ratio on the return on assets (ROA) of firms within the Jordanian industrial sector, revealing a significant correlation between total assets turnover and ROA This indicates that fluctuations in ROA can be attributed to changes in total assets turnover In contrast, Selling and Stickney (1989) explored the relationship between total assets turnover and operating profit margin ratios across various industries, finding negative correlations in 15 out of 22 sectors Given these conflicting results, the current study aims to further investigate the assets turnover ratio as a profitability measure, hypothesizing a positive relationship between company efficiency, as indicated by the assets turnover ratio, and overall profitability.
H2: There is a positive association between company efficiency and profitability
Leverage ratio is a critical component of a company's capital structure, reflecting the relationship between profitability and liquidity The Gentry’s curve illustrates how the strength and direction of this relationship are influenced by the level of liquidity within the company.
The relationship between profitability and liquidity for enterprises listed on the Warsaw Stock Exchange was explored by Jaworski and Czerwonka, who utilized the leverage ratio as a measurement tool Companies that opt for increased borrowing to meet their financial needs do not alter corporate ownership, as noted by Yazdnafar (2013), but they do expose themselves to greater risks The trade-off theory of capital structure suggests that an optimal level of debt balances the advantages and disadvantages of borrowing Eriotis et al (2011) examined the connection between the debt-to-equity ratio and profitability, concluding that financing investments through retained earnings is more advantageous than relying on borrowed funds.
H3: There is a negative association between company leverage and profitability
Inflation rate: Nominal inflation rate Its measurement would be presented through
Research indicates that inflation significantly influences the profitability of companies, particularly in the brokerage sector, as highlighted by the findings of Rowshonara Akter Akhi and Mabia Khatun (2019) This leads to the formulation of the fourth hypothesis regarding the relationship between inflation rates and company profitability.
H4: There is a significant impact between inflation rate and profitability
Model 2: The impact of factors on margin loan sector
Profitability is commonly assessed through various financial metrics, including Return on Equity (ROE), Earnings Before Interest and Tax (EBIT), Return on Assets (ROA), and Earnings Per Share (EPS) Notable studies, such as Akintoye's 2008 research on capital structure sensitivity, and Alarussi and Alhaderi's 2018 analysis of profitability factors in Malaysia, highlight the significance of ROE and EPS Additionally, the 2021 study by Akhi and Khatun explores the determinants of profitability in brokerage firms, emphasizing the importance of ROA.
Firm size, often measured by total assets, plays a crucial role in determining a company's characteristics and its level of risk disclosure According to the 2012 review "Firm Size As Company’s Characteristic and Level of Risk Disclosure," various methods exist for measuring firm size, including sales, employee count, and asset value Typically, those employing technological theories rooted in economies of scale focus on sales or assets for measurement Specifically, firm size is quantified using the logarithm of total assets Furthermore, research by Rowshonara Akter Akhi and Mabia Khatun (2021) highlights a significant relationship between firm size and profitability, corroborated by comparative findings from Stierwald.
In 2010, an analysis of large organizations in Australia revealed that the asset-based hypothesis suggests a direct correlation between access to financial resources and the cost of capital For larger firms, increased size facilitates greater access to financial assets, resulting in lower capital costs and enhanced profitability.
H1: There is a positive association between company firm size and profitability
Company efficiency: Assets turnover ratio of brokerage sector Warrad and Al Omari
A study conducted in 2015 analyzed the influence of total assets turnover ratio and fixed assets turnover ratio on the return on assets (ROA) of firms within the Jordanian industrial sector, revealing a significant relationship between total assets turnover ratio and ROA This suggests that fluctuations in ROA can largely be attributed to the total assets turnover ratio In contrast, a previous study by Selling and Stickney (1989), which examined data from Compustat companies between 1977 and 1986, identified negative correlations between total assets turnover and operating profit margin ratios across 15 out of 22 industries, indicating a contradictory relationship This current study aims to further explore the assets turnover ratio as a profitability measure, positing a positive correlation between company efficiency, as indicated by the assets turnover ratio, and overall profitability Consequently, the third hypothesis is formulated based on these insights.
H2: There is a positive association between company efficiency and profitability
Leverage ratio is a critical component of a company's capital structure, reflecting the relationship between profitability and liquidity The Gentry's curve illustrates how this relationship varies in strength and direction based on the level of liquidity, highlighting the importance of managing both profitability and liquidity for optimal financial health.
The study "Relationship Between Profitability And Liquidity Of Enterprises Listed On Warsaw Stock Exchange" by Jaworski and Czerwonka examines the impact of leverage on corporate performance, highlighting that increased borrowings do not alter corporate ownership but elevate risk (Yazdnafar, 2013) According to the trade-off theory of capital structure, an optimal level of debt balances the benefits and costs associated with borrowing Eriotis et al (2011) found that utilizing retained earnings for investments yields higher profitability compared to relying on borrowed funds, leading to the formulation of the third hypothesis.
H3: There is a negative association between company leverage and profitability
Inflation rate: Nominal inflation rate Its measurement would be presented through
CPI Some studies used inflation as a macroeconomic factors affecting profitability
38 of companies Rowshonara Akter Akhi and Mabia Khatun, 2021 show a significant impact of inflation rate on profitability of brokerage companies Therefore, the fourth hypothesis is as follows:
H4: There is a significant impact between inflation rate and profitability
Capital Adequacy: Owners’ equity is one of the components constructed capital of company As a result, utilizing available resources could bring higher profit In study
A panel data analysis conducted in 2021 on the profitability determinants of brokerage firms indicates a positive relationship between capital adequacy and profitability, aligning with findings from Dahiat (2018) and Yüksel et al (2015) Consequently, this leads to the formulation of the fifth hypothesis.
H5: There is a positive impact between capital adequacy and profitability
Abbreviations Predict the direction of impact
Firm size TA Positive Stierwald
(2010) and Rowshonara Akter Akhi and Mabia Khatun (2021)
AT Positive Warrad and Al
LEV Negative Eriotis et al
CA Positive Dahiat (2018) and Yüksel et al (2015)
Inflation rate INF Significant Rowshonara
Akter Akhi and Mabia Khatun (2021)
Testing the selection of variables in the regression model
3.5.1 Correlation between the independent variables in the model
Table 3 Correlation matrix between independent variables in model 1
The data table reveals that all pairs of independent variables exhibit correlation values below 0.8, with the exception of firm size and company leverage, which have a correlation of 0.8120 This indicates a potential for multicollinearity among the factors identified (GS.TS Nguyễn Quang Dong and PGS.TS Nguyễn Thị Minh, 2013).
TA AT LEV CA INF
Table 4 Correlation matrix between independent variables in model 2
The analysis of the independent variables reveals that all correlation coefficients are below 0.8, with notable exceptions: firm size and capital adequacy at -0.8210, firm size and company leverage at 0.8120, and company leverage and capital adequacy at -0.9943 These high correlations indicate the potential for multicollinearity among the factors (GS.TS Nguyễn Quang Dong and PGS.TS Nguyễn Thị Minh, 2013).
3.5.2 Checking for multicollinearity for pooled OLS model
Table 5 presents the variance magnification factor (VIF) for all independent variables, which is used to identify multicollinearity within the model The average VIF coefficient is 1.98, and notably, no variable exceeds a VIF coefficient of 10 According to the textbook "Giáo trình Kinh tế lượng" by GS.TS Nguyễn Quang Dong and PGS.TS Nguyễn Thị Minh (2013), a VIF coefficient below 10 indicates the absence of multicollinearity in the model.
Table 6 Multicollinearity test before eliminating variable
Table 6 presents the variance magnification factor (VIF) for all independent variables, which is essential for identifying multicollinearity within the model The average VIF coefficient across the variables is 37.92, with two variables, CA and LEV, exhibiting VIF coefficients exceeding 10 According to "Giáo trình Kinh tế lượng" by GS.TS Nguyễn Quang Dong and PGS.TS Nguyễn Thị Minh (2013), a VIF coefficient below 10 indicates the absence of multicollinearity.
42 model The author decides to eliminate CA from variables above with highest VIF equaling to 94.23 After eliminating CA, the table of multicollinearity test would be:
Table 7 Multicollinearity test after eliminating variable
Table 7 presents the variance magnification factor (VIF) for all independent variables, which is used to detect multicollinearity within the model The average VIF coefficient is 1.98, with no individual variable exceeding a VIF of 10 According to "Giáo trình Kinh tế lượng" by GS.TS Nguyễn Quang Dong and PGS.TS Nguyễn Thị Minh (2013), a VIF coefficient below 10 indicates the absence of multicollinearity in the model.
Checking for suitable model selection for dependent variables
*To choose which model is more suitable for the research data, the study uses the Langrange multiplier method of Breusch and Pagan (1980) and includes the following assumptions:
H0: Pooled OLS model is more suitable
H1: REM model is more suitable
The results of the model testing of the dependent variables are presented in the following tables:
Table 8 The results of the model selection test between the Pooled OLS model and the REM model in model 1
Table 9 The results of the model selection test between the Pooled OLS model and the REM model in model 2
In two model, p value =0.0000 and p value