The impact of dividend policy on stock price volatility in vietnamese securities market

INTERGRITY PLEDGE I assure that the data and research outcomes presented in my graduation thesis on the topic "The impact of Dividend policy on stock price volatility in Vietnamese secur

BANKING ACADEMY OF VIETNAM

Hanoi, May 2023

ACKNOWLEDGEMENT

To successfully complete my graduation thesis, I have received enthusiastic guidance and support from the professors, colleagues at the Banking Academy, my family and my best friends that provided assistance and resources for accessing valuable information to serve the research process of this topic

First and foremost, I would like to express my gratitude to my advisor PhD Tran Ngoc Mai, who directly guided and mentored me throughout the process of reasoning, researching, and completing the thesis

I am grateful to all the professors at the Banking Academy in general and the Advanced Program in particular for imparting valuable knowledge to me, helping me develop analytical and scientific research skills Thanks to them, I have acquired the necessary knowledge and skills to independently conduct research and improve my thesis

I want to give my best regard to my team “Sang nay an gi” for supporting me during four years in academy They are one of the best part in my university life

Finally, I would like to express my sincerity to my family and my best friends – Nam Phung, Minh Khoi, Van Ha, Ngoc Lan, Tuan Duong and Bich Ngoc, who have been not only a great source of spiritual support and encouragement but also the wonderful mentors giving me useful information to complete my graduation thesis

Due to my limited theoretical and practical abilities and experience, there may

be some shortcomings in the content of the thesis I sincerely hope to receive constructive feedback from the professors, colleagues, and relevant parties to further improve the thesis

Hanoi, May 9, 2023

Student Nguyen Thi Mai Chi

INTERGRITY PLEDGE

I assure that the data and research outcomes presented in my graduation thesis

on the topic "The impact of Dividend policy on stock price volatility in Vietnamese securities market" were conducted under the guidance of Ph.D Tran Ngoc Mai is transparently conducted and publicly shared All the information utilized to construct the theoretical foundation of the thesis has been appropriately referenced, clearly indicating the sources, and obtained permission for publication

The data and research findings within this thesis are truthful and entirely original, without any reproduction or utilization of results from any similar studies

If any instances of result replication from other research be identified, I will accept full responsibility

Hanoi, May 9, 2023

Student

Nguyen Thi Mai Chi

TABLE OF CONTENT

ACKNOWLEDGEMENT _ iINTERGRITY PLEDGE _ iiTABLE OF CONTENT iiiLIST OF ACRONYMS _ vLIST OF TABLES viINTRODUCTION _ 1

1 Rationale of topic 1

2 Research objectives 2

3 Subjects and scope of research 23.1 Research subjects 23.2 Research scope 2

4 Graduation thesis structure _ 2CHAPTER 1: LITERATURE REVIEW 31.1 Theoretical Framework 31.1.1 Definition of dividend policy 31.1.2 Definition of dividend payout _ 41.1.3 Dividend policy theories _ 51.2 Empirical evidences 81.2.1 International researches 81.2.2 Vietnamese researches 111.3 Research gap and research questions 131.4 Research hypothesis _ 14CHAPTER 2: DATABASE AND METHODOLOGY 152.1 Database 152.1.1 Data Information 152.1.2 Data Resources 182.2 Research Method 18

2.3 Methodology _ 192.4 Measurement of variables _ 21CHAPTER 3: EMPIRICAL RESEARCH ANALYSIS _ 243.1 Empirical research 243.1.1 Descriptive statistics 243.1.2 Covariance matrix _ 253.1.3 Pooled Ordinary Least Squares Regression (Pooled OLS) 273.1.4 Fixed Effects Model and Random Effects Model Regression Model 313.1.5 Hausman Test _ 353.1.6 Heteroscedasticity and autocorrelation test for REM 363.1.7 Generalized Least Squares model adjustment _ 383.2 Empirical Result Analysis _ 413.3 Empirical Findings Evaluation _ 43CHAPTER 4: RECOMMENDATION 484.1 Recommendation for Vietnamese listed Corporates _ 484.2 Recommendation for investors on Vietnamese securities market 494.3 Recommendation for Vietnamese Government 50CHAPTER 5: CONCLUSION _ 51REFERENCES _ 52

LIST OF ACRONYMS

HNX Ha Noi Stock Exchange

HOSE Ho Chi Minh Stock Exchange

OLS Ordinary Least Squares

FEM Fixed Effects Model

REM Random Effects Model

GLS Generalized Least Squares

LIST OF TABLES

Table 10: Breusch và Pagan Lagrangian Multiplier Test for REM 35 Table 11: Wooldridge test for Random Effects Model 36

INTRODUCTION

1 Rationale of topic

In the current social context, the economy has just experienced 3 years of severe recession due to the impact of the COVID-19 pandemic, with the aftermath being high inflation worldwide, with many countries experiencing the highest inflation in 40 years Since the fourth quarter of 2022, the US Federal Reserve (FED) has continuously increased interest rates to stabilize inflation, along with the complicated political situation that has pushed the global economy into crisis Such macroeconomic conditions will bring even more difficulties for both businesses and investors soon

The stock market is the most truthful reflection of changes in the state of the economy The Vietnamese stock market is currently in a phase of many unfavorable fluctuations, requiring caution in investors' investments as well as efficiency in the operating policies of businesses to minimize possible risks when the economy is in recession Therefore, studying the causes of stock price volatility from which to draw laws about market changes is necessary for the current situation

The dividend policy is an important factor for both businesses and investors The dividend policy refers to the decisions and actions of a company regarding the distribution of profits to shareholders in the form of dividends The announcement of dividend payments or changes in the dividend policy can make immediate reactions

in the stock market, exerting upward or downward pressure on stock prices From an investor's perspective, the dividend policy can influence their expectations and perceptions of a company's future prospects A consistent and predictable dividend policy can be a signal for stability and financial strength, which attracts investors and contributes to a reduction in stock price volatility For businesses, the decision on the dividend payout policy is a crucial element in profit management and maintaining investor attention on the company's stock Therefore, a company's dividend policy is relevant to the investment decisions of market participants and can impact stock price volatility, as evidenced by the trend of stock price increases leading up to the ex-dividend date

To verify this, I believe that the topic "Impact of dividend policy on stock price volatility on Vietnamese stock exchange" needs to be researched and conclusions are drawn, so I have chosen this topic for my graduation thesis

- Stock prices volatility in the Vietnamese stock market

- Dividend policies of listed companies on HNX and HOSE

- Other factors beyond dividend policies that affect the stock prices of businesses

3.2 Research scope

Graduation thesis learns about the impact of dividend policy on stock prices

of 28 companies listed on HOSE and HNX, belonging to 3 sectors: Retail, Construction Materials, and Food and Drink The research data will be collected from the stock exchange, financial reports, and annual reports of these companies during the 10-year period from 2013 to 2022

4 Graduation thesis structure

Apart from the "Introduction" section, the structure of the graduation thesis consists of 4 main parts:

Chapter 1: Literature Review

Chapter 2: Database and Methodology

Chapter 3: Empirical analysis

Chapter 4: Recommendation

Chapter 5: Conclusion

CHAPTER 1: LITERATURE REVIEW

1.1 Theoretical Framework

1.1.1 Definition of dividend policy

Dividend policy refers to the set of guidelines and decisions made by a company's management regarding the distribution of profits to its shareholders in the form of dividends It outlines how the company will determine the amount and timing

of dividend payments, as well as the overall dividend payout ratio

A dividend is a portion of a company's earnings that is distributed to its shareholders as a reward for their investment Dividend policy plays a crucial role in managing the company's capital structure and determining the allocation of profits between reinvestment in the business and returning cash to shareholders

Dividend policies can vary from company to company and may be influenced

by various factors such as the company's financial performance, growth prospects, cash flow requirements, legal restrictions, and shareholder expectations There are three types of dividend policies include:

- Stable dividend policy: A stable dividend policy is the easiest and most

commonly used The goal of the policy is a steady and predictable dividend payout each year, which is what most investors seek Whether earnings are up

or down, investors receive a dividend The goal is to align the dividend policy with the long-term growth of the company rather than with quarterly earnings volatility This approach gives the shareholder more certainty concerning the amount and timing of the dividend

- Constant policy: The primary drawback of the stable dividend policy is that

investors may not see a dividend increase in boom years Under the constant dividend policy, a company pays a percentage of its earnings as dividends every year In this way, investors experience the full volatility of company earnings If earnings are up, investors get a larger dividend; if earnings are down, investors may not receive a dividend The primary drawback to the

method is the volatility of earnings and dividends It is difficult to plan financially when dividend income is highly volatile

- Residual dividend policy: Residual dividend policy is also highly volatile,

but some investors see it as the only acceptable dividend policy With a residual dividend policy, the company pays out what dividends remain after the company has paid for capital expenditures and working capital This approach is volatile, but it makes the most sense in terms of business operations Investors do not want to invest in a company that justifies its increased debt with the need to pay dividends

It's important to note that the dividend policy is subject to approval by the company's board of directors and can be modified or adjusted based on changing circumstances and shareholder interests

1.1.2 Definition of dividend payout

Dividend payout refers to the portion of a company's earnings that is distributed to its shareholders in the form of dividends It represents the actual amount

of cash or stock dividends paid out by the company to its shareholders

Dividend payout is usually expressed as a percentage and is calculated by dividing the total amount of dividends paid by the company by its net income or earnings The dividend payout ratio indicates the proportion of earnings that is distributed to shareholders as dividends

The dividend payout ratio provides insights into how much profit the company

is sharing with its shareholders versus how much it is retaining for reinvestment or other purposes A higher payout ratio indicates that a larger proportion of earnings is being distributed as dividends, while a lower ratio suggests that the company is retaining a larger portion of its profits

It's worth noting that dividend payout ratios can vary across different industries and companies based on factors such as growth prospects, capital requirements, and dividend policy Some companies may have high payout ratios to attract income-

focused investors, while others may have lower ratios to prioritize reinvestment for future growth

1.1.3 Dividend policy theories

In the basic corporate finance theory, dividend policy refers to the decision of corporations to pay cash dividends to shareholders or retain earnings for reinvestment, as well as the frequency and amount of dividends to be paid if cash dividends are decided Nowadays, dividend policy in corporations has extended to include issues, such as: whether to distribute cash through stock repurchases instead

of regular dividends, how to balance investor satisfaction between those with high tax rates and those not subject to taxation, or how to use dividends to enhance stock value on the market

However, the key questions that modern business executives and managers in the 1950s had to face to are not different Litner (1959) identified these questions as follows:

(1) Should the current dividend payout ratio be maintained or changed?

(2) Will investors prefer a stable dividend payout or one that fluctuates with earnings?

(3) Should dividend policy prioritize older or younger investors?

The volatility of common stocks is a measure used to determine risk and reflects the speed of a security's price change over a certain period The greater the volatility, the higher the likelihood of gains or losses in the short-term Thus, if a stock's price changes significantly over time, the stock is considered unstable and it cannot be certain how its future price will change, which means that investment risk will be higher

For investors, the lower the risk, the better the investment; meaning that the less volatile the stock, the more attractive it is Some dividend theories have explained the impact of a company's dividend policy on stock price, including:

(1) The clientele effect

(2) The information or signaling effect

(3) The bird-in-hand theory

(4) The rate of return effect

Clientele effect of Dividends theories

This is the theory that shareholders' preference for receiving dividends will affect a company's decision to pay dividends and may cause a change in the distribution of the company's profits This is because investors must face to different tax rates on dividends and capital gains as well as incur transaction costs when trading securities Modigliani and Miller (1961) argued that to minimize these costs, investors tend to focus on groups of companies that provide them with desired benefits

Similarly, companies will attract different groups of customers based on their dividend policy Nizar Al‐Malkawi (2007) asserts that growth-stage companies tend

to pay lower dividends, which will attract customers who seek capital gains, while mature companies that pay higher dividends will attract customers who demand immediate income in the form of dividends This study classified the impact of customers into two groups: the impact of taxes and the impact of transaction costs, with the argument that investors with high tax rates will prefer companies that pay fewer or no dividends to receive profits in the form of stock price appreciation, and vice versa On the other hand, small investors who rely on dividends will prioritize companies that pay high cash dividends because they cannot afford the transaction fees incurred when buying and selling securities

Thus, according to this theory, shareholders will have different preferences for stocks and dividends, and companies will try to satisfied these shareholders need to retain them Specifically, company managers may use different dividend payment strategies to attract or retain different groups of shareholders

Information or signaling effect

The effect that corporates can create in the financial market when making dividend payments or new stock issuances According to this theory, companies'

dividend payments or new stock issuances may contain important information about the company's performance and prospects in the future Modigliani and Miller (1961) assume that investors and managers have complete information about the company, but in reality, asymmetric information risk cannot be avoided To mitigate this risk, managers use dividends as a tool to communicate the company's information to shareholders, according to Nizar Al‐Malkawi (2007)

Pettit (1972) found that the amount of dividends paid conveys information about a company's prospects Dividend payments can be seen as a signal that the company is profitable and likely to generate future returns, which can create a positive effect on the corporates’ stock price in the financial market However, Lintner (1956) observed that corporate managers are reluctant to reduce dividends even when they need to do so

Therefore, through dividend payments, companies can send a message to the securities market about the efficiency of their business activities and thereby create

an information or signal effect in the market

Bird-in-hand theory

This is explained by the fact that dividends paid to shareholders are like a "bird

in hand," while the potential future profits from reinvesting in the company are like a

"bird in the bush" - uncertain to receive back

Nizar Al‐Malkawi (2007) asserts that in an uncertain and asymmetric information world, dividends are priced differently from retained earnings "A bird

in the hand (dividend), is worth more than two in the bush (capital gain) Due to the uncertainty of future cash flows, investors tend to prefer dividends to retained earnings Although there are conflicting opinions and this argument lacks strong empirical evidence, it has been reinforced by the studies of Gordon and Shapiro (1956), Lintner (1962), and Walter (1963) The principal argument is that investors have incomplete information about a company's earnings and that cash dividends are taxed at a higher rate than capital gains Dividends serve as a signal of expected cash flows, so in spite of the tax disadvantages, corporate managers continue to pay dividends to send positive signals about the company's future prospects to investors

Overall, the Bird-in-hand theory suggests that paying dividends is an important factor in helping companies attract and retain investors Paying dividends creates value for current shareholders by providing them with a reliable source of income, and be the way for the company to communicate with current shareholders to promote investment in the company

The rate of return effect

This theory suppose that dividend payment will affect the value of the companies’ stock by affecting the rate of return that investors expect from investing

in those stock According to this theory, if a company pays higher dividends, the rate

of return that investors expect from investing in the company's stock will decrease According to Pettit (1972), a firm's dividend payments may have a positive meaning

to increase the stock price in the market However, a higher stock price will decrease the rate of return that investors expect from investing in the company Conversely, if

a company pays little or no dividends, its stock price will decline to reflect the lack

of dividend payments, which will increase the rate of return that investors expect from investing in the company's stock

1.2 Empirical evidences

1.2.1 International researches

Baskin (1989) was one of the first researchers to study the relationship between dividend policy and stock price volatility The study proposed several theories to explain the impact of dividend policy, including the dividend payout ratio and stock yield on stock price volatility Dividend policy, which includes the dividend payout ratio and stock yield, affects stock price volatility through two mechanisms: the differential pricing effect and the information signaling effect

Allen and Rachim (1996) studied the relationship between dividend policy and stock price changes in the Australian stock market from 1972 to 1985 The results showed that the dividend payout ratio had a significant inverse effect on stock prices, but rejected the hypothesis that the dividend yield had a negative impact on stock

price volatility Additionally, the study showed that the main determinants of stock price volatility were income volatility and financial leverage

A study of the Bangladeshi market by Rashid and Rahman (2008) analyzed regression data from 104 non-financial firms from 1999 to 2006 and found that the reaction to profit information differed from that of developed countries The relationship between return on investment and stock price volatility was positively correlated, but the degree of impact was not significant Therefore, companies cannot use stocks as a tool to influence stock prices as the capital market in Bangladesh is ineffective This study made a significant contribution at a time when there was a lack

of research on the dividend yield and stock price volatility in emerging economies

Nazir et al (2010) used the fixed and random effects models (FEM and REM)

to analyze data from 73 companies listed on the Karachi Stock Exchange (KSE) from

2003 to 2008 The results showed that both dividend yield and payout ratio had a significant impact on stock price volatility The impact of dividend yield on stock price volatility increased during the period, while the significant impact of the payout ratio only existed at a lower level of significance Control variables, including firm size and financial leverage, had an inverse effect but were not significant determinants of stock price volatility

Hussainey et al (2011) showed that stock price volatility in the UK during the period 1998-2007 was positively related to the dividend yield and negatively related

to the dividend payout ratio Additionally, the growth rate, long-term debt, size, and income volatility of the company also explained changes in stock prices

Hashemijoo et al (2012) applied correlation analysis and multiple regression using the least squares method to test this relationship on a sample of 84 consumer goods manufacturing companies listed on the main board of the Kuala Lumpur Stock Exchange (KLSE) from 2005 to 2010 The results of this study showed a significant inverse relationship between stock price volatility and the two main factors of dividend policy, dividend yield and payout ratio Among the predictor variables, dividend yield and dividend scale had the greatest impact on stock price volatility

Also using the OLS regression method, Profilet (2013) analyzed financial data from over 500 publicly traded companies on the S&P 500, including large-cap, small-cap, and mid-cap stocks The study's results indicated that the higher a company's dividend yield, the lower its stock price volatility This result reinforces the findings presented in the Signaling Effect of Nizar Al‐Malkawi (2007) regarding the importance of dividend cash flow as a signaling tool for shareholders about a company's business situation Furthermore, the study's results also indicated that as a company's market capitalization increases, the corresponding volatility of its stock price decreases, similar to the study by Hussainey et al (2011) These results indicate that stocks with high dividend payouts are actually less risky than those without dividends

Ilaboya and Aggreh (2013) analyzed regression data from 26 randomly selected companies listed on the Nigerian Stock Exchange (NSE) from 2004-2011 using pooled OLS and Panel EGLS models The research results showed that the dividend yield had a significant positive effect on the volatility of the stock prices of companies, while the dividend payout ratio had a negative and insignificant effect on the degree of fluctuation in stock prices

The study by Al-Shawawreh (2014) confirms that stock price volatility in the Jordanian stock market is negatively influenced by dividend payout ratio, with the greatest impact, but is positively related to dividend yield, with a small impact The study used a multivariate regression model similar to Baskin (1989), but the dependent variable was expanded to include variables such as company size, stock repurchase, and stock dividend The regression analysis was performed on a dataset collected from 53 companies listed on the main market of the Bursa Amman over a 13-year period from 2001 to 2013 Among the control variables, company size had a positive but very low impact on stock price volatility, while stock repurchase had no significant relationship with stock price changes

Ali (2022) investigated the impact of the pandemic on corporates dividend behavior The study was conducted on a sample of 51,976 observations per year, from

2015 to 2020 The result shows a relatively high rates of dividend reductions and

omissions, expressed in: 7059 dividend decreases (14%); 2959 omission observations (6%); 12,003 no-change observations (23%); and 29,955 dividend increases (56%) Theoretically, these findings stand in line with the view that firms’ managers are especially reluctant to decrease or omit dividends to either avoid signaling bad news about future earnings, as in the Signaling effect

Examine the relationship between dividend policy and share price changes in the Malaysian securities market during the pandemic of Covid-19, GHAZALI et al (2022) use multiple least square regression analysis for the data sample of 16 companies listed on Bursa Malaysia over the three years from 2018 to 2020 The results indicate that dividend yield and share price volatility are negatively correlated, whereas dividend payout ratio and share price volatility are positively correlated The analysis supports the arguments in the previous literature and the dividend relevance theory that the dividend yield is one of the key factors affecting share price volatility

Karlsson and von Renteln (2021) applied FEM estimated by panel data to examine if there is a negative relationship between dividend policy and stock price volatility in the German stock market The results demonstrated that the key components of dividend policy—dividend yield and payout ratio—were significantly negatively impacted on stock price volatility The findings showed a substantial positive association between stock price volatility and the control variable earnings volatility The other control variables, such as leverage, market value, indicated a substantial negative relationship with stock price volatility while asset growth produced a negligible relationship

1.2.2 Vietnamese researches

Vinh V.X (2014) use the same multiple regression model with Baskin (1989)

to analysis the relationship between dividend policy and share price volatility in Vietnamese stock market The research use Pooled OLS, FEM and REM on the data sample collected from 103 companies listed on Ho Chi Minh Stock Exchange (HOSE) from 2008 to 2012 The findings indicate that dividend payout ratio has a positive effect on stock price volatility, and dividend yield has a negative impact on stock price volatility

Hien M.T.T (2014) conducted regression analysis for data from 14 Vietnamese seafood companies listed on HNX and HOSE from 2010 to 2017 with REM The regression model in this study was different from the model in the research of Baskin (1989), with the dependent variable is Market Price of Stock and the independent variables are Dividend per share, Retained Earnings per share, and Market Price of Stock in the previous year The result showed all independent variables impact positively on stock market price, however, retained earnings per share have no statistical significance to the model

The study of Anh D.T.Q (2015) applied FEM for panel data regression Analyzing regression model for data collected from 165 listed firms in securities market of Vietnam between 2009 and 2013, the research demonstrated that volatility

of stock price had positive relationship with both dividend yield and dividend payout ratio

Nguyen et al (2019) assert share price volatility had a negative relationship with dividend payout ratio and dividend yield in the context of Vietnam from 2011-

2016 The regression model in the study similar to the research of Baskin (1989) and Allen and Rachim (1996) A sample of 141 listed non-finance companies in Ho Chi Minh Stock Exchange (HOSE) was selected for research database

To examine the impact of cash dividend announcement on stock prices of listed Vietnamese companies in Ho Chi Minh City Stock Exchange, Diep N.T.N (2022) used the event study method similar to the research of Bowman (1983) Research data was the dividend announcement of companies listed on HOSE, of which: 963 cash dividend payment announcements, including 424 announcements of increased dividend payment, 295 announcements of decreased dividend payment, and

244 announcements of unchanged dividend payment The findings demonstrated the abnormal return rates at some points before and after the event date are all statistically significant The research results show that the market reacts to the information of dividend payments, and consider it is good news

Phuong L.C.M (2021) used REM for a sample of panel data collected from 22 listed food and beverage corporates in the period between 2011 and 2020 to examine effect

of COVID-19 and related factors to return rate of stock The study's findings demonstrate how stock returns in the food business are positively impacted by earnings per share (EPS) and COVID-19 The GDP, dividend payout ratio, and consumer price index, on the other hand, have a negative effect on this industry's stock return

1.3 Research gap and research questions

After studying previous research on the impact of dividend policy on stock price volatility, we can see that there are still research gaps, as follows:

In studies on the relationship between dividend policy and the volatility of a company's stock price, the most typical reference is J Baskin's study (1989) Based

on Baskin's research, many studies have been conducted in different countries to examine the impact of dividend policy on changes in stock prices In Vietnam, there have also been several studies on this relationship with different scales and methods, but these studies were conducted quite some time ago The Vietnam stock market is still young, with only 22 years of formation and development, so the market scale is still relatively small for statistically significant data In addition, a common point of most recent studies in Vietnam is the lack of consideration for the impact of the COVID-19 pandemic on the stock market

Therefore, this study is based on the theoretical foundation and model development of Baskin (1989) but with the following new features:

(i) The research sample considers the COVID factor in stock price volatility;

(ii) Data is collected within the last 10 years - when the Vietnam stock market is large enough for better statistical values

The thesis will analyze the impact of dividend policy and some related factors

on the stock price volatility of 28 listed companies on the HNX and HOSE exchanges

in the last 10 years The model used in the thesis is a multivariate regression model for panel data The results of the study from the model are analyzed to answer the following research questions:

- How do the two main factors that reflect dividend policy, dividend yield (DY), and dividend payout ratio (DP) affect the stock price volatility of the company?

- How do other factors related to the company's financial situation affect the stock price?

- How does the COVID-19 pandemic affect the stock price of companies? The contribution of the study is to help investors in the market assess the level

of influence of dividend policy on the volatility of stock prices, thereby making investment decisions and determining the purchase price for stocks

1.4 Research hypothesis

From the theoretical basis and empirical research on the relationship between dividend policy and stock price volatility of businesses, the main research hypotheses

of the thesis are constructed as follows:

H1: There is an inverse relationship between dividend yield and stock price volatility H2: There is an inverse relationship between dividend payout ratio and stock price volatility

In addition, the thesis also evaluates the impact of several other factors on stock price volatility that have been mentioned in previous research papers, including: Firm Size, Earnings Volatility, Long-term Debt, and Asset Growth Along with that, the impact of the COVID-19 pandemic on stock price volatility in the Vietnamese stock market is also considered in this thesis

CHAPTER 2: DATABASE AND METHODOLOGY

2.1 Database

2.1.1 Data Information

The study use data which collected from 3 sectors in Vietnamese securities market, include: Retail, Construction Material, Food and Drink The characteristics of these sector in Vietnam are as follows:

Retail Sector

The retail industry refers to a sector of business involved in the direct sale of goods and services to end consumers It encompasses enterprises that purchase products from manufacturers or distributors and subsequently sell them directly to customers through various channels such as stores, supermarkets, e-commerce websites, or other retail outlets Retail products typically include daily consumer goods such as food, clothing, electronics, household items, jewelry, and various others This creates diversity in products and shopping options for consumers The retail sector plays a crucial role in the economy and serves as a primary source of income for many businesses The retail industry in Vietnam exhibits several distinctive characteristics:

- Rapid growth: The retail sector in Vietnam has experienced significant expansion in recent years With a growing middle class, increasing disposable income, and urbanization, there is a rising demand for retail products and services

- Traditional retail formats: Traditional retail formats, such as wet markets and street vendors, continue to play a significant role in Vietnam These traditional outlets offer fresh produce, local products, and a unique shopping experience that attracts a substantial portion of consumers

- Shift towards modern retail: Despite the dominance of traditional retail, there

is a noticeable shift towards modern retail formats, including supermarkets, hypermarkets, shopping malls, and convenience stores This shift is driven by changing consumer preferences, increased urbanization, and the influence of international retailers entering the market

- Cultural and regional variations: Vietnam is a culturally diverse country, and retail preferences can vary across regions and ethnic groups Factors such as cultural traditions, local tastes, and purchasing power influence consumer behavior and retail patterns

Although the retail sector in Vietnam has experienced significant growth, with the evidence is many big retail corporations exist, it still can develop further With population growth, the adoption of new technologies, and changes in consumption habits, the retail industry still has a large potential for expansion and growth This is the reason to choose retail sector for research purpose

Construction Material Sector

The construction materials industry refers to a business sector involved in the production, trade, and supply of materials used in construction, decoration, and protection of building structures Common types of construction materials include cement, bricks, stones, sand, iron and steel, timber, glass, insulation materials, and fire-resistant materials The construction materials industry plays a vital role in providing the necessary raw materials and products for various construction projects, ranging from residential houses and buildings to infrastructure and public facilities This sector’s characteristics are as follow:

- Rapid growth: The construction sector in Vietnam has been experiencing significant growth in recent years, leading to an increased demand for construction materials The rapid urbanization and infrastructure development

in Vietnam, cause the expansion of the construction materials industry

- Supported by the abundance of natural resources: Vietnam possesses abundant natural resources such as limestone, clay, sand, and timber, which are essential ingredients in the production of construction materials The availability of these resources provides a competitive advantage for the domestic production

of construction materials

- Market competitiveness: Market competitiveness: The market for construction materials in Vietnam is highly competitive, both domestically and

internationally This competition leads to price competitiveness and encourages innovation in product quality and technology

- Sustainable development focus: With an increasing emphasis on sustainable development, the construction materials industry in Vietnam is shifting towards environmentally friendly and energy-efficient products This includes the promotion of eco-friendly materials, recycling initiatives, and the adoption

of sustainable practices throughout the production and supply chain

In addition, this is one of the early listed on Vietnamese stock exchanges Thus, the long-standing industry, stable growth and Government support are reason to choose construction materials industry to be research data

Food and Drink Sector

The food and drink industry is a business sector that involves the production and manufacturing of various food and beverage products This industry encompasses activities such as production, processing, packaging, distribution, and retailing of food and drink products to consumers It includes a wide range of product types, including fresh produce, frozen foods, canned goods, non-alcoholic and alcoholic drinks, and more The food and drink manufacturing industry plays a crucial role in the economy, meeting essential human needs and generating significant employment opportunities

- Strong Agricultural Base: Vietnam has a rich agricultural sector, providing a reliable source of raw materials for food and drink production The industry benefits from the availability of fresh ingredients such as rice, seafood, fruits, vegetables, and coffee

- Growing Domestic Market: With a large population and increasing disposable income, the domestic market for food and drink in Vietnam is expanding This creates opportunities for manufacturers to cater to the evolving tastes and preferences of local consumers

- Export Potential: Vietnamese food and drink products have gained recognition globally for their quality and uniqueness The industry has seen an increasing

trend of export-oriented production, with products like seafood, coffee, and processed foods finding markets worldwide

The food and drink manufacturing industry in Vietnam has opportunities for growth and development, driven by a diverse product range, expanding domestic and international markets For this reason, this industry is chosen for research purpose

- Stock price history: Including closing price, highest price, and lowest price

on a daily basis, from 1/1/2013 to 31/12/2022 of selected stocks The data is collected from Investing.com, CafeF.vn, and Vietstock.vn

- Financial information of companies: Taken from the annual consolidated

financial statements of companies, including figures such as Total assets, Long-term debt, Interest expense, Pre-tax and post-tax profit, Dividend payout amount

- Number of outstanding shares of companies in each year is found in the

Annual Report from 2013 to 2022

The data is presented in a table format, including cross-sectional observations and time-series observations

2.2 Research Method

The thesis uses the quantitative research method and the Stata/MP 17 software with the following process:

- Step 1: Collect data, and process data to create the observation sample for the model

- Step 2: Filter data and encode data to ensure that the software can read the data during the research process

- Step 3: Test the linear correlation between the independent variable and the dependent variables of the observation sample

- Step 4: Test for heteroscedasticity and multicollinearity of the models

2.3 Methodology

The multiple regression model was used in the thesis for the regression analysis of stock price volatility based on two main independent variables, which are dividend yield and dividend payout ratio This relationship is expressed by the following equation:

𝑷𝑽𝒕 = 𝜶 + 𝜷₁ 𝑫𝒀𝒕 + 𝜷₂ 𝑫𝑷𝒕 + ɛ

Where:

PVt: Share price volatility of firm at year t

DYt = Dividend yield of firm at year t

DPt = Dividend payout ratio of firm at year t

ɛ = Error or residual term

Furthermore, according to the suggestions in Baskin's (1989) research and other studies on the influence on stock price volatility, there are some factors, such

as Asset Growth, Earnings Volatility, Firm Size, and Long-term Debt, affect both stock price volatility and dividend policy

According to Hashemijoo et al (2012), a company's market risk can impact both dividend policy and stock price volatility; hence, Earnings Volatility must be included in the model as a control variable with the symbol EV

The influence of firm size on stock price volatility can be explained by the fact that small companies have less information available to stock market traders Another reason is that small businesses often have fewer outstanding shares than larger ones,

so changes in supply and demand can readily create substantial variations in stock values Companies can utilize dividends as a communication tool, according to the Signaling Effect hypothesis (Al-Malkawi, 2007), thus firm size can also affect dividend policy As a result, Firm Size is another control variable that must be included in the model; the symbol is SIZE

The association between dividend policy and firm growth rate is assumed to

be that companies in the growth phase prefer to keep profits for reinvestment rather than distribute them to shareholders This is contradictory to investor expectations, therefore the company's growth rate and stock price volatility may have an inverse relationship As a result, Asset Growth is included in the model as a control variable with the symbol GROWTH

As is typical, a firm's debt ratio has always been a significant component to estimate the level of risk involved in investing in that company High debt ratios may indicate a risky corporate financial structure, reducing the attractiveness of stock

to investors and leading to price volatility Furthermore, because the debt ratio has a direct impact on the company's profitability, there may exist an interdependent relationship between the borrowing policy and the dividend policy Therefore, the company's debt ratio becomes a control variable in the model with the symbol DEBT

Ultimately, the Vietnamese stock market has experienced unprecedented volatility over the last three years, from the emergence of the COVID-19 pandemic

to its eventual end Thus, COVID-19 is incorporated as a dummy variable into the regression model

As an outcome, the following equation represents the entire regression model:

𝑷𝑽𝒕 = 𝜶 + 𝜷 𝟏 𝑫𝒀𝒕 + 𝜷 𝟐 𝑫𝑷𝒕 + 𝜷 𝟑 𝑺𝑰𝒁𝑬𝒕 + 𝜷 𝟒 𝑬𝑽𝒕 + 𝜷 𝟓 𝑮𝑹𝑶𝑾𝑻𝑯𝒕 + 𝜷 𝟔 𝑫𝑬𝑩𝑻 + 𝜷 𝟕𝑪𝑶𝑽𝑰𝑫𝒕 + ɛ

Where:

SIZEt = Firm size at year t

EVt = Earnings volatility of firm at year t

GROWTHt = Assets growth of firm at year t

DEBTt = Long-term debt ratio of firm at year t

COVID = Effect of COVID at year t

α: the intercept term of the regression model

𝛽1: the regression coefficient of DY

𝛽2: the regression coefficient of DP

𝛽3: the regression coefficient of SIZE

𝛽4: the regression coefficient of EV

𝛽5: the regression coefficient of GROWTH

𝛽6: the regression coefficient of DEBT

𝛽7: the regression coefficient of COVID

ɛ = Error or residual term

2.4 Measurement of variables

Price volatility (PV): The variable being measured is stock price volatility,

which is calculated based on the annual range of adjusted stock prices For each year, the range is divided by the average of the high and low prices, and the result is squared This process is repeated for all available years, and the average is taken To ensure comparability to standard deviation, a square root transformation is applied The decision to use a proxy for share price volatility instead of standard deviation was intentional, as standard deviation can be affected by extreme values The formula

𝟐

]

𝟏𝟎 𝒊=𝟏

𝒊

Where:

𝑯ᵢ : The highest price of stock at the year i

𝑳ᵢ : The lowest price of stock at the year i

Dividend Yield (DY): This is the independent variable of the model,

measured by Dividend per Share (DPS) divided by the average market value of the stock in the year DPS is calculated by dividing the total amount of dividends paid by the number of outstanding shares

𝑫𝒀 = 𝑫𝒊𝒗𝒊𝒅𝒆𝒏𝒅 𝒑𝒆𝒓 𝑺𝒉𝒂𝒓𝒆

𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒔𝒉𝒂𝒓𝒆 𝒑𝒓𝒊𝒄𝒆

Dividend payout ratio (DP): This is the remain independent variable of the

model, calculated as the amount of dividends paid divided by net after-tax profit

𝑫𝑷 = 𝑨𝒎𝒐𝒖𝒏𝒕 𝒐𝒇 𝒅𝒊𝒗𝒊𝒅𝒆𝒏𝒅𝒔 𝒑𝒂𝒊𝒅

𝑵𝒆𝒕 𝑰𝒏𝒄𝒐𝒎𝒆

Firm Size (SIZE): This is a control variable, calculated by taking the natural

logarithm of a company's market capitalization Market capitalization is calculated

by multiplying the average price of a stock in a year by the number of outstanding shares in that year (Baskin, 1989); (Allen & Rachim, 1996) The formula is as follows:

𝑺𝑰𝒁𝑬 = 𝒍𝒏(𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝒔𝒉𝒂𝒓𝒆 𝒑𝒓𝒊𝒄𝒆 × 𝑵𝒐 𝒐𝒇 𝒐𝒖𝒕𝒔𝒕𝒂𝒏𝒅𝒊𝒏𝒈 𝒔𝒉𝒂𝒓𝒆𝒔)

Earnings volatility (EV): This is a control variable 𝑥 is defined as earnings

before interest and taxes (EBIT) divided by total assets 𝑥 is calculated as the average value of 𝑥 over the years N represents the total number of observations in the model The formula is as follows:

𝑬𝑽 = √∑(𝒙 − 𝒙̅)𝟐

𝒏 − 𝟏

Long-term debt (DEBT): This is a control variable that reflects the level of

financial leverage used by a company, calculated as the ratio of long-term debt to total assets

𝑫𝑬𝑩𝑻 = 𝑳𝒐𝒏𝒈 − 𝒕𝒆𝒓𝒎 𝑫𝒆𝒃𝒕

𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒔

Growth in Assets (GROWTH): This is a control variable that reflects the rate

of asset growth of a company The annual growth rate is calculated by taking the

difference between year-end assets and beginning-of-year assets, divided by beginning-of-year total assets The formula is as follows:

𝑮𝑹𝑶𝑾𝑻𝑯 = 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒕− 𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒕−𝟏

𝑻𝒐𝒕𝒂𝒍 𝑨𝒔𝒔𝒆𝒕𝒕−𝟏

Covid-19 pandemic (COVID): This is the dummy variable of the regression

model It represented the effect of the COVID-19 pandemic on the economy each year The hypothesis is as follows:

0: Years unaffected by COVID-19

1: Years affected by COVID-19

CHAPTER 3: EMPIRICAL RESEARCH ANALYSIS

3.1 Empirical research

3.1.1 Descriptive statistics

Table 1: Descriptive statistics variables

Table 1 provides a general overview of the summary statistics for the variables considered in the study It describes the statistical means included: standard deviation, median, and minimum and maximum value of each variable

From the table, some notable information can be observed:

The number of observations varies across variables It can be explained by the data was collected over a period of 10 years, which is a relatively long time, and some

of the selected companies were newly listed during this time In addition, during the years before official listing, the financial reports of companies were not fully disclosed, resulting in gaps in the dataset and differences in the sample size of variables

The mean value of stock price volatility of 28 corporates from 2013 to 2022 is 0.6374215, which is lower than the mean at 0.831 of 103 Vietnamese listed companies in the previous period (2007 – 2012) in the study of Vinh V.X (2014) but

a lot higher than that figure at 0.1825 from seafood companies between 2009 to 2013

in the research of Anh D.T.Q (2015) Compared to international studies, this mean value reflects a pretty high volatility while the mean price volatility in the UK from

1998 to 2007 is 0.294 (Hussainey, 2011), and in the Austraila in the period between