Phát hành cổ phiếu bổ sung (seos) – bằng chứng tại thị trường chứng khoán việt nam. seasoned equity offerings (seos) evidence in vietnamese stock market

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY DINH THI THU HA SEASONED EQUITY OFFERINGS EVIDENCE IN VIETNAMESE STOCK MARKET Specialization: Finance – Banking Specialization code: 62340201 DOCTORAL THESIS SUMMARY HoChiMinh City – 2016 CHAPTER INTRODUCTION 1.1 Research motivation: Seasoned equity offerings (SEOs) draw enormous attention from researchers around the world This method is an effective and popular way to expand company financial resources to maintain and develop its activities, to reconstruct capital and stakeholder structure of company Besides, a trend of increasing international equity issuance has also been reported, especially after the financial crisis in 2010 The paucity of literature and case study in emerging market where results are inclusive also urge a solution Therefore, examining emerging economy case attracts the interest to fill the research gap and emphasize the own nature of this market In additional, examining whether the results of developed markets can be carried over to emerging market also becomes appealing The development and new trend in financing resources of Vietnamese Stock market also become a driving force Besides, Vietnamese stock market gradually becomes more attractive to foreign investors In addition, SEOs gradually become more appealing to Vietnamese companies However, there is lack of study investigating thoroughly behavior of listed companies in regarding of why Vietnamese companies conduct SEOs and market reaction around event day when information about SEOs by dividend or rights are publicized Therefore, limited number of SEOs literature in the context of Vietnam should be increased to fill this empirical gap 1.2 Research objectives We examine SEOs in Vietnam on two aspects:  Company’s SEOs motivation by examining why Vietnamese companies conduct SEOs  Market reaction to company’s SEOs by examining market reaction to company’s SEOs, which express through the fluctuations of stock prices Subsequently, we develop the estimation model to measure to what extend the theories mentioned in previous SEO studies can be applied to explain market reaction to companies SEOs in case of Vietnam stock market Furthermore, we then compare our findings with existing literatures 1.3 Research scope This research covers only companies listed on the HOSE during 2007 – 2013 Stock prices are collected from HOSE website Research sample comprises companies conducting their SEOs as right distributions; or rights accompanied with dividends; or rights accompanied with bonuses; and companies issued their SEOs as bonus or dividend payments The event days include announcement day and ex-right day which are widely publicized on the media SEOs companies are classified according to three criteria (market capitalization, issuance method and industry) 1.4 Research methods: To examine the behavior of listed companies to SEOs decisions, we apply logit/probit model to find the determinants of company motivation to issue SEOs Based on the interpreted results, we will suggest relevant recommendation for investors and SEOs companies To examine the behavior of investors, we first apply the Event study method to study the market reaction around event day, then using random effects and fixed effects model on panel data to investigate determinants of market reaction around event day then point out relevant suggestions for stakeholders 2 RESEARCH METHODS Company’s SEOs motivation Why Vietnamese companies conduct SEOs? Market reaction to company’s SEOs How does market react to company’s SEOs The extent of SEO theories application into Vietnamese stock market Quantitative method Quantitative method Logit/probit model on STATA Event study method Random effects/Fixed effects models for panel data on STATA Results interpretations Results interpretations Conclusion and relevant policy suggestions 1.5 Research contributions: Contribution to SEOs literature: We investigate SEOs using data from Vietnamese market which has not been examined yet We refer to SEOs literature in both developed and other emerging markets to form the research hypotheses then examine whether the results of those markets can be carried over to Vietnam In addition to the out-of-sample tests, this research also fills the gap and enriches the literature on cases of emerging market where the results are inclusive and very limited, from then to draw an overall picture in comparison to developed markets, which have been wildly discovered Contribution to empirical study: With this research, we fill the gap about SEOs research and contribute an empirical study since it enrich existing literature of SEOs in Vietnam Investors, SEOs companies can use this research as a reference material in their trading, investment and management activities toward information management, making trading decisions Investors could consider trading stocks of SEOs companies to earn profits, reserve money in advance to “catch the issuance”, or to have relevant actions toward these kind of SEOs Market legislators can consider using this research as a way to test the level of information transparency in the market to take relevant actions toward the current market situation We investigated different issuing method such as to increase company capital by equity rights or to pay bonuses/dividends with the latest data set Comparing of those two methods will provide more evidence in the field of SEOs in Vietnam, which can be used as reference or studying material for students 3 CHAPTER LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT 2.1 Introduction SEOs play significant role on company capital structure as well as stakeholder structure This chapter presents different studies about SEOs in both developed as well as emerging markets Theoretical investigations cover main theories regarding SEOs including Trade-off; Agency problem; Growth opportunities; and Market timing 2.2 Theoretical literature on SEOs 2.2.1 Trade-off theory According to trade-off theory, company will try to aim at a target debt level to form an optimal capital structure then gradually move towards it This theory suggests that managers need to make right decision on building financial structure to keep balance as well as optimize the equity and liability in the company The optimal debt-equity structure in a company can be determined by trading off the costs and benefits of financing through debt and equity According the tradeoff theory, company conducts SEOs to optimize capital structure to balance the benefit and expense that might be generated from debt borrowing (Modigliani and Miller, 1958, 1963; Myers, 1977) Trade-off theory has been testified by some empirical research as one of the theories affect company’s SEOs decisions (Marsh, 1982; Hovakimian et al., 2001; Bo et al., 2011) Hovakimian et al., (2001) show that when companies adjust their capital structure, they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt On the other hand, Bo et al (2011) investigate the relevance of traditional theories Chinese SEOs motivation With the case of 1081 Chinese SEOs during 1994–2008, the authors find that the trade-off theory is consistent to Chinese listed companies who strongly depend on loan borrowings from the banking sector because of weak debt market Borrowing companies are under strictly bank monitoring, which means their main concern is borrowing costs 2.2.2 Growth Opportunities Theory The availability of growth opportunities is one of the main reasons encourage companies to issue equity Company with growth opportunities favors equity financing over debt financing to deter the transferring of wealth from shareholders to debt holders (Myers, 1977) The mechanism of the wealth transfer from shareholders to debt holders exists due to the assumption that company will decide to bypass projects with positive net present value (NPV) if it has to finance those projects by risky debts When firms finance new projects with debts, shareholders have to bear almost the entire cost in case of projects failure since debt holders own priority claims in the firm assets Besides, the project success will raise the debt value (Huang, 2012) Furthermore, companies will face future cash flow insecurity, which leads to financial health warning if they invest in high uncertainty growth projects Therefore, companies with more promising opportunities have more tendencies to issue equity to buffer against any potential financial constraints that might result from debt financing (Bo et al., 2011) Jensen (1986) argues that high growth rate companies with better projects will more concern about overinvestment risk than bankruptcy risk, therefore they will choose equity financing as optimal option On contrary, Jeanneret (2003) states that mature companies who have more free cash flow and capacity of debt borrowing prefer debt financing to monitor and encourage managers’ role in company 2.2.3 Market timing theory The theory of market timing suggests that the time of stock price overvaluation on the market will encourage managers to issue SEOs instead of other financing methods This will reduce the cost of companies while bring more benefit to current stakeholders regardless of new shareholders; therefore, SEOs decision will be related to mis-valuation proxies (Elliott et al., 2008) According to market timing theory, managers will exploit window of opportunities when information asymmetry is at the lowest level Korajczyk, Lucas and McDonald (1990) show that information asymmetry among internal and external investors is not fixed, therefore company should choose the time when information asymmetry is at the lowest level or to put it another way, when the market is informed the most In their research, they find that most of companies conduct their SEOs after information about company earnings are publicized In addition, the further the time company publicizes information about its activities from the issuance, the worse market reacts to company’s SEOs 2.2.4 Agency problem theory: In the context of SEOs motivation, agency model predicts that to access to more financial resources for private advantages, managers are encouraged to issue SEOs; besides, they can use SEOs to expropriate the benefits of minority shareholders (Bo et al., 2011) This model also predicts that equity issues by companies that not have valuable investment opportunities are bad news to shareholders since they enhance managerial discretion when managers’ objectives differ from shareholders’ objectives (Jung et al., 1996) Study on behavior of firms in developed markets mainly focus on managers and shareholders conflicts and company SEOs motivation The agency problem, among the pecking order and market timing theory which justify company financing decision has more power in explaining company behavior (Jung et al., 1996) Their findings also show that some companies conduct SEOs to profit managers rather than shareholders 2.2.5 Efficient Market Hypothesis Fama (1970) define three forms of market efficiency identified by the extent of information reflection through stock price The first form of market efficiency is weak form where current stock price incorporates past information of company, no one can identify mis-priced stocks and beat the market by analyzing company past prices The second form is Semi-strong form in which current stock price does not only reflect historical information but also publicly available ones that reported in company’s financial statements, or earnings and dividend announcements, changing CEO, etc If the market is semi-strong efficient, stock price will immediately react to the release of new public information The last form is strong form in which current stock price fully reflects all existing information of company including public and private information or internal information SEOs can be considered new information to the market, the practice of issuing seasoned equity becomes a channel to reflect “intention” of managers Therefore, researching on market’s reaction when company announces its SEOs can be considered a test of the semi-strong form of market efficiency 5 In figure 2.1, we recapitulate financial theories into a conceptual framework We find that Trade-off, Agency problem, Growth opportunities and Market timing are main theories influence determinants of company’s SEOs motivation While Growth opportunities, Market timing and Efficient market hypothesis are main theories concerning market reaction and determinants of market reaction to company SEOs Trade-off Agency problem Company’s SEOs motivation Market timing Growth opportunities Efficiency market hypothesis Market reaction to company’s SEOs Figure 2.1: Conceptual framework CHAPTER DATA AND METHODOLOGY 3.1 Data This research covers only listed companies on the Ho Chi Minh City Stock Exchange (HOSE) during 2007 – 2013 Price of stocks are collected from HOSE website If t is the year of the SEOs announcement, independent variables are extracted from companies’ t-1 annual reports Our research sample comprises companies conducting their SEOs as right distributions; or rights accompanied with dividends; or rights accompanied with bonuses; and companies issued their seasoned equity as bonuses or dividends The event days include announcement day and ex-right day, which are widely publicized on the media SEOs companies are classified according to three criteria (market capitalization, issuance method and industry) 3.2 Methodology: 3.2.1 Determinants of company’s SEOs motivation: To examine determinants of company’s SEOs decision, two main techniques have been applied are: Logit regression technique and Probit regression technique The dependent variable is the probability that company issues its seasoned equity offering , taking the value of one if the firm i conducts SEOs in year t, and zero otherwise The independent variables include:      The difference between company’s leverage ratio and average of industry’s leverage ratio (Difference In Leverage Ratio - DILR) is used as proxy for tradeoff theory To examine the effect of growth opportunity on company’s SEOs decision, TOBINQ ratio will be applied Ratio of market value/Book value (M/B) is used as proxy for market condition before the issuance In terms of Agency problem, ratio of managerial holding include the board of directors, board of supervisor, president and CEO (Ratio of Managerial Holding - RMH) will be applied as proxy for this theory FIRMSIZE; D/A; PROFITABILITY are applied as controlling variables Model: = ILITY + + DILR + TOBINQ + M/B + RMH + SIZE + D/A + PROFITAB 3.2.2 Market reaction to company’s SEOs 3.2.2.1 Event study: The Event study method which was developed by Campbell, Lo and MacKinlay (1997) will be applied to investigate market reaction to SEOs Step 1: Event definition Step 2: Selection criteria Step 3: Normal and abnormal return measurement Abnormal return - AR: The abnormal return is formed by difference between actual return and expected return:  it = R – K it it (3.1) Average Abnormal Returns – AAR Average Abnormal Returns of companies that are affected by the event is defined as: N AARt  (1/ N ) ARit (3.2) i 1 Cumulative Abnormal Returns – CAR Cumulative abnormal return is expressed as CAR is calculated by summing average abnormal returns in observed period L CAR( K , L )   AARt tK (3.3) Step 4: Estimation procedure The time line for a typical event study can be shown as followed: Where: o o o - is the estimation window used for estimating benchmark parameters T - T is the event window, the period over which the event occurs; T - T is the post-event window used for analyzing the influence of the event Step 5: Testing procedure T statistics is used to examine the significance level and calculate as: t AAR t S ( AAR ) (3.4) Step 6: Empirical results Step 7: Result interpretation and conclusions 3.2.2.2 Determinants of market reaction to company’s SEOs: Regressing our panel data on Random effects and Fixed effects model The dependent variables are the cumulative abnormal returns from day to day +2, where day is the event day 8 The independent variables are as follow:  To calculate the impact of Growth opportunity on market reaction, we used the ratio of TobinQ  In order to find the effect of Market timing on market reaction, we used cumulative abnormal returns of market (MRUNUP);  Besides the proxies for the main standard theories, we include D/A, ISSUESIZE, FIRMSIZE, INDUSTRY, ISSUEMETHOD and RMH as controlling variables Models: = + TOBINQ + MRUNUP + DA + ISSUESIZE + SIZE + INDUSTRY + β7ISSUEMETHOD + RMH + = + TOBINQ + MRUNUP + INDUSTRY + β7ISSUEMETHOD + RMH + DA + ISSUESIZE + SIZE + CHAPTER DETERMINANTS OF COMPANY’S SEOs MOTIVATION 4.2 Determinants of company’s SEOs motivation: Model estimation results shown that TobinQ; ratio of Market value/Book value (MB); Firm size (Size); ratio of Total debt/Total asset (DA) and Profitability are significant at the 5% and 1% level while only ratio of managerial holding (RMH) is insignificant In comparison to companies that not issue SEOs, companies with higher TobinQ ratio, higher ratio of Market value/Book value, higher ratio of total debt/total assets and higher profitability are more likely to issue SEOs On contrary, companies with higher ratio of leverage relative to industry’s average leverage and larger in size are less likely to issue SEOs The estimated coefficient for the proxy of the trade-off theory (DILR) have negative sign and are insignificant in both column (1) and (5), implying that companies are not motivated to use SEOs as a means to adjust their capital structure This result has rejected our hypothesis that the difference between company’s leverage ratio and average of industry’s leverage ratio (DILR) has positive impact on company’s SEOs decision Therefore, we can confirm that Trade-off theory does not impact on company’s decision on issuing SEOs Both column (2) and (5) of table 4.5 show significantly positive signs of estimated coefficients for TobinQ, which imply that companies tend to issue SEOs when they have more growth opportunities, which is consistent with the growth opportunity theory Table 4.6 presents that companies with higher TobinQ are 4% more likely to conduct SEOs than companies with lower TobinQ, this result is relevant to our expectation since companies with more investment opportunities will be motivated to conduct SEOs to finance for their opportunities Our finding is also consistent to results of Chikolwa and Kim (2009), Duca (2011); therefore, the hypothesis companies with higher TobinQ ratio are more likely to issue SEOs is accepted From this result, we can conclude that growth opportunities theory influences company’s SEOs decision remains unchanged (no rejection) In column (3) and (5) of table 4.5 the estimated coefficients for the ratio of market value/book value (MB) which is proxy for market timing theory is significant with positive sign, which suggests that choosing time is one of motivations of companies to issues SEOs Our result in table 4.6 shows that companies experience higher ratio of market value/book value are 12.4% more likely to conduct SEOs than the rest This result is relevant to our expectation that companies will choose time when market overvalues their stocks to issue seasoned equity From the results above we can conclude that the hypothesis companies with higher ratio of M/B are more likely to conduct SEOs is not rejected (hypothesis no rejected) We can also confirm that the market timing theory impacts company’s SEOs decision The estimated coefficients for ratio of managerial holding /total outstanding shares (RMH) has a negative sign and is insignificant in both column (4) and (5) of table 4.5, suggesting that company’s SEOs decision is not motivated as a tool for controlling shareholders to expropriate minority shareholders, which is inconsistent with the agency problem theory This result is inconsistent with our hypothesis that the ratio of managerial holding (RMH) positively affects company’s SEOs decisions From this result, we conclude that the Agency problem theory does not play important role on company’s SEOs decision 10 Besides the results regarding to proxies for SEOs motivation explaining theories, all of our controlling variables show significance results We find that firm size estimated coefficients (Size) are significant with negative sign in all estimations, implying that smaller companies are more likely to conduct SEOs Our result in table 4.6 shows that smaller companies are 4% more likely to conduct SEOs than larger companies, we expect this result is explained by the fact that small companies with limited access to bank loan will try to increase their financial resources through SEOs instead of borrowing from the banks Secondly, the relation between the ratio of total debts/total assets and SEOs motivation is highly significant with positive sign in all estimations Our result shows that companies with higher ratio of total debts/total assets are nearly 88% more likely to conduct SEOs in comparison to those that have lower ratio of debt/total assets (Table 4.6) We believe that companies with higher ratio of debt are more motivated to issue SEOs as means to reduce their level of debt Thirdly, all the estimated coefficients for profitability are significantly positive, which is not consistent with pecking order theory prediction This theory claims that company profitability has negative correlation with SEOs decision because the more profitable the company is, the higher internal resources company has; therefore, it does not have to excess external resources such as loans borrowing or issuing SEOs However, within the case of Vietnamese companies, to guarantee the attraction and the success of the issuance, companies with more profitability will be more self-motivated to issue SEOs to attract the investors to the bright scenario future of companies The result in table 4.6 shows that companies with higher profitability are 72% more likely to conduct SEOs in comparison to those that have less profitability Table 4.5 SEOs conducting probability: Motivation of SEOs: panel data probit estimation This table presents results of Determinants of company’s SEOs motivation The sample period is from 2007 to 2013 The dependent variable is the probability that company issue its SEOs DILR is measured as Difference between company’s leverage ratio and average of industry’s leverage ratio; TobinQ is measured as (Market value of stock + Book value of debt)/Book value of total assets; MB is ratio of Market value/Book value; RMH indicates ratio of managerial holding include the board of directors, board of supervisor, president and CEO/Total outstanding shares; Size is Logarithm of total assets; DA indicates Total debt/Total asset; Profitability is EBIT/Total assets; t-statistics are in parentheses; *** Statistically significant at the 1% level; ** Statistically significant at the 5% level; * Statistically significant at 10% level (1) DILR (2) (3) -0.041 (-0.85) 0.429 (7.55)*** TobinQ 0.478 (11.52)*** MB RMH Size (4) -0.172 -0.164 -0.135 -0.0002 (-1.39) -0.168 (5) -0.045 (-0.98) 0.160 (2.09)** 0.449 (10.08)*** -0.0001 (-0.27) -0.146 11 DA Profitability Constant Adjusted R Prob>chi2 Obs (-5.23)*** 3.481772 (12.97)*** 4.255 (7.10)*** 1.084 (0.056)* 0.1627 0.0000 1014 (-4.85)*** (-3.73)*** 3.275 2.842 (12.94)*** (10.75)*** 2.354 2.880 (3.91)*** (4.61)*** 0.550 0.124 (0.94) (0.20) 0.2076 0.2920 0.0000 0.0000 1014 1014 (Source: authors’ calculations) (-5.13)*** 3.197 (13.05)*** 3.976 (6.80)*** 1.160 (2.02)** 0.1581 0.0000 1014 (-3.98)*** 3.192 (11.04)*** 2.601 (3.89)*** 0.157 (0.25) 0.3012 0.0000 1014 Table 4.6 Average marginal effects on SEOs probability: This table presents results of average marginal effects on SEOs motivation The sample period is from 2007 to 2013 DILR is measured as Difference between company’s leverage ratio and average of industry’s leverage ratio; TobinQ is measured as (Market value of stock + Book value of debt)/Book value of total assets; MB is ratio of Market value/Book value; RMH indicates ratio of managerial holding include the board of directors, board of supervisor, president and CEO/Total outstanding shares; Size is Logarithm of total assets; DA indicates Total debt/Total asset; Profitability is EBIT/Total assets; t-statistics are in parentheses; *** Statistically significant at the 1% level; ** Statistically significant at the 5% level; * Statistically significant at 10% level (1) DILR (2) (3) -0.038 (-0.88) 0.135 (8.09)*** TobinQ 0.134 (13.77)*** MB RMH Size DA Profitability (4) -0.057 (-5.44)*** 0.932 (17.48)*** 0.937 (7.63)*** -0.051 (-5.01)*** 0.903 (17.58)*** 0.739 (3.99)*** -0.038 (-3.81)*** 0.916 (13.15)*** 0.809 (4.77)*** (Source: authors’ calculations) -0.000 (-1.39) -0.056 (-5.33)*** 0.921 (17.82)*** 0.938 (7.27)*** (5) -0.012 (-1.02) 0.044 (2.11)** 0.124 (11.45)*** -0.000 (-0.27) -0.040 (-4.08)*** 0.883 (13.65)*** 0.719 (3.97)*** 12 CHAPTER MARKET’S REACTION TO COMPANY’S SEOs 5.2 Market reaction to company’s SEOs: 5.2.1 Market reaction around announcement day: Table 5.2 shows the positive reaction of the market to company’s SEOs Prices experience consecutive increase from day -11 to day +2 The most remarkable increases are observed at the period of [-7;0] and [-2;+2] The cumulative average abnormal return in the period preceding announcement day increase steadily and significantly, especially seven days before the announcement day, price increases by 2.7% and are confirmed by statistic test at the significance level of 1% In the period of two days before and two days after the announcement day, the cumulative average abnormal returns also increase by 2.8% and are testified by the significance of % In contrast to the decrease of price in the period of 14 days after ex-right day, after announcement day, price only fall dramatically in three days (day +4; day +10 and day +12), where day +4 witness the most dramatic decrease, then followed by consecutive increase from day +5 to day +9, where day +6, and +7 experience significant increase Within the period of 15 trading days after announcement day, although the cumulative average abnormal returns still increase but this increasing trend does not prolong, CAR [ ; ] = 2.0% decrease to about 0.3% in the period of [+3;+14] In five consecutive days, from day +5 to day +9, price increase continuously, CAR[+5;+9] = 1.04% and this consecutive increase is confirmed by statistic test at the significance level of 1% This period has correlation with the distance between announcement day and ex-right day, where the gap between those days is usually from to days (Figure 5.1) The AAR on announcement day recorded positive return with significance level at 1% The ratio of number of AAR increased/AAR decreased also confirm this positive trend This result is consistent with finding of Dhatt (1996) in Korean stock market where the high volume of the SEOs will reduce the level of liability in a company then reduce the cost of financial distress leading to positive reactions from investors Tsangarakis (1996) study at Athens Stock Exchange also witnessed the same results The author finds that SEOs increase the financial resources in company, increase the ownership of big investors then reduce the agency cost; Tan el al (2002) show that in Singapore capital market, company issue SEOs after a period of stock price increasing; there is a trend of information leaked before the announcement day that enable speculators to achieve high returns Table 5.2 AAR and CAR around announcement day Day (t) AAR CAR[15;t] No of AR increased/No of AR decreased Day (t) AAR CAR[15;t] No of AR increased/No of AR decreased -15 0.000 0.000 244/271 0.006*** 0.030 285/230 ** -14 0.000 -0.001 240/275 0.010*** 0.040 322/193 *** -13 0.000 -0.001 243/272 0.004** 0.043 269/246 -12 -0.001 -0.001 232/283 ** 0.000 0.043 242/273 -11 0.001 0.000 264/251 -0.004*** 0.039 204/311 *** -10 0.000 0.000 241/274 0.002 0.041 249/266 13 -9 0.001 0.001 255/260 0.002* 0.044 256/259 -8 0.002 0.003 248/267 0.004*** 0.048 260/255 -7 0.003** 0.006 274/241 0.002 0.049 266/249 -6 0.002 0.008 251/264 0.001 0.050 239/276 * -5 0.001 0.009 260/255 10 -0.002 0.048 232/283 ** -4 0.004*** 0.013 274/241 11 0.000 0.048 236/279 -3 0.002 0.015 255/260 12 -0.002 0.046 213/302 *** -2 0.005*** 0.020 276/239 * 13 0.001 0.047 252/263 -1 0.003** 0.023 265/250 14 0.000 0.047 253/262 * Significant at 10% level, ** Significant at 5% level, *** Significant at 1% level (Source: authors’ calculations) 5.2.2 Market reaction around ex-right day: Table 5.5 shows that the stock prices increase significantly on ex-right day and one day later (day +1) with an increase of 1.2% and 0.6% respectively with the significance at 1% Examining the number of stocks increased/the number of stocks decreased on these two days, we find that the number of stock increased outweigh the number of stock decreased 333/182 (on day 0) and 290/225 (on day +1) The cumulative returns in the period [0; +1] and [0, +2] also record significant increase by 1.8% and 2% respectively In the period of ten days before the ex-right day, market react positively to companies’ SEOs, the stock prices experience continuous increase from day -15 to day -4 and most of them are at significance level of 1% The cumulative abnormal return of the market in the period [-15; -4] is recorded at 3.8% which is totally different to that of the period [-3;-1] where day is ex-right day, the price start to decline (the most significant decreases are at day -3 and day -2, the total decrease is about -0.8% with the significance level at 1% In contrast to period after announcement day, after ex-right day, the price decline continuously from day +3 to day +14 The cumulative returns in the period [+3;+7] is -0.9% and [+3;+14] is more than -1%, both results are significant at 1% We imply that after a period of prices increasing, seasoned equities become less attractive to investors, especially after the ex-right day 14 Table 5.5 AAR and CAR around ex-right day Day (t) AAR CAR[15;t] No of AR increased/No of AR decreased -15 0.002*** 0.002 262/253 0.012*** 0.041 333/182 *** -14 0.001 0.004 247/268 0.006*** 0.047 290/225 *** -13 0.001 0.005 247/268 0.001 0.049 258/257 -12 0.001 0.006 251/264 -0.002** 0.047 227/288 *** -11 0.003*** 0.009 273/242 -0.002** 0.045 228/287 *** -10 0.003*** 0.012 269/246 -0.001 0.044 225/290 *** -9 0.006*** 0.018 288/227 *** -0.003*** 0.041 199/316 *** -8 0.006*** 0.024 272/243 -0.001 0.040 231/284 ** -7 0.004*** 0.027 273/242 0.001 0.041 254/261 -6 0.006*** 0.034 280/235 0.000 0.041 249/266 -5 0.004*** 0.037 268/247 * 10 -0.002** 0.039 223/292 *** -4 0.000 0.038 251/264 11 -0.001 0.038 225/290 *** -3 -0.004*** 0.034 216/299 *** 12 0.000 0.038 242/273 0.030 208/307 *** 13 0.000 0.038 257/258 0.029 228/287 *** 14 0.000 0.038 240/275 -2 -1 -0.004*** -0.001 Day (t) AAR No of AR increased/No of AR decreased CAR[-15;t] * Significant at 10% level, ** Significant at 5% level, *** Significant at 1% level (Source: authors’ calculations) 5.3 Determinants of market reaction to company’s SEOs: 5.3.1 Determinants of market reaction around announcement day: In the full model (column 3), the p-value is equal to 0.0002 which is 1% inferior, we conclude that overall the explanatory variables in our model can explain the determinants of market reaction around announcement day The estimated coefficients show that Market runup (Mrunup), firm size (Firmsize), issuance method (Issuemethod) are significant while other variables show no significant statistics results The TobinQ which is proxy for growth opportunities theory shows no significant result in both column (1) and (3), suggesting that investors are not influenced by the growth opportunities of company This result is irrelevant to our expectation that TobinQ positively affects market reaction around announcement day However, in case of Vietnamese stock market, this result can be explained that investor might not see information about growth opportunities advantageous information when consider buying SEOs, or they are not fully aware of the availability of company growth opportunities before announcement day From this result, we reject the hypothesis 6.a and conclude that growth opportunity theory does not play important role on determinants of market reaction around announcement day The estimated coefficients for the proxy of Market timing theory (Mrunup) has positive sign and is significant in both column (2) and (3), suggesting that the condition of the market before announcement day influences the market reaction Investors will base on the condition of the market from to months before announcement day to make their decisions on whether to get 15 involved in company SEOs This result is relevant to our initial expectation that the better the market condition is, the better the market react to company SEOs From the results above we can conclude that the hypothesis H7a: Mrunup has positive impact on market’s reaction on announcement day is not rejected (hypothesis no rejected) Our result is consistent with the findings of of Salamudin et al (1999) at Malaysia stock market and Balachandran et al (2008) at London Stock Exchange The estimated coefficient of equity rights has negative sign means that, on average, this method generated 1.1% less returns than SEOs by equity bonuses or dividends The difference between those two methods is also testified at the significance of 5% Table 5.8 Determinants of market reaction around SEO announcement day Determinants of market reaction around announcement day: panel data Random effects, Fixed effects estimation This table presents results of regression on cumulative average abnormal return CAR[0;+2] The sample period is from 2007 to 2013 The dependent variable is cumulative abnormal return in the period [0;+2] TobinQ is measured as (Market value of stock + Book value of debt)/Book value of total assets; Mrunup indicates Market cumulative abnormal returns (VNIndex) in the period runs from day -65 to day -16, where day is the announcement day; DA indicates Total debt/Total asset; Issuesize denotes Logarithm of the volume of stock issued; Firmsize is Logarithm of total assets; Industry effect and issue method effect are controlled by adding industry dummy (REC takes value if SEOs issued company is listed in Real estate and construction group and takes value otherwise, MAI takes value if SEOs issued company is listed in Manufacturing industry group and takes value otherwise, SER takes value if SEOs issued company is listed in Service group and takes value otherwise, FBI takes value if SEOs issued company is listed in Financial – banking – Insurance services and takes value otherwise, AFF takes value if SEOs issued company is listed in Agriculture – Fishery – Forestry group and takes value otherwise); and issue method dummies; RMH indicates ratio of managerial holding include the board of directors, board of supervisor, president and CEO/Total outstanding shares; t-statistics are in parentheses; *** Statistically significant at the 1% level; ** Statistically significant at the 5% level; * Statistically significant at 10% level CAR TobinQ (1) (2) (3) Coef Coef Coef 0.052 (4.59)*** -0.002 (-0.13) 0.001 (0.21) -0.012 (-1.79)* 0.000 (0.36) 0.052 (4.55)*** -0.002 (-0.14) 0.000 (0.15) -0.011 (-1.66)* 0.001 (0.69) Mrunup DA Issuesize Firmsize Industry -0.004 (-0.31) 0.002 (0.29) -0.011 (-1.66)* 16 MAI SER AFF Issuemethod RMH Cons Prob > chi2 0.002 (0.39) 0.005 (0.66) 0.019 (0.97) -0.011 (-2.29)** 0.000 (0.84) 0.094 (2.48)** 0.1279 0.004 (0.65) 0.005 (0.74) 0.019 (0.95) -0.010 (-2.18)** 0.000 (0.97) 0.101 (2.70)** 0.0001 0.004 (0.63) 0.005 (0.75) 0.019 (0.94) -0.011 (-2.20)** 0.000 (0.99) 0.097 (2.57)** 0.0002 * Significant at 10% level, ** Significant at 5% level, *** Significant at 1% level (Source: authors’ calculations) 5.3.2 Determinants of market reaction around ex-right day: Table 5.9 presents the determinants of market reaction around ex-right day The results from Hausman test show that random effects model is the appropriate model (p-value > 0.05); therefore we will interpret the results and test for heteroskedasticity, serial correlation and multicollinearity based on the random effects model In the full model (column 3), the p-value is equal to 0.0002 (inferior to 1%), we conclude that overall the explanatory variables in our model can explain the determinants of market reaction around ex-right day The estimated coefficients show that TobinQ, issue size (Issuesize), firm size (Firmsize), MAI (group of companies listed in Manufacturing industry which includes mining, processing, electricity production and distribution, natural gas, boiler, steamer and air conditioner) are significant while other variables show no significantly statistics results The coefficient TobinQ which is proxy for growth opportunities in both column (1) and (3) are significant with positive signs, suggesting that the information about existence of company growth opportunities influence the market reaction This result is relevant to our expectation that TobinQ have positive relation with company’s stock abnormal return since company with more investment opportunities can attract more investors to buy it SEOs We conclude that the growth opportunities theory impact on market reaction around ex-right day; therefore, the hypothesis 6b is accepted Market runup (Mrunup) which is proxy for market timing theory show no significant result, implying that market condition before ex-right day does not influence the reaction of the market, which is irrelevant to our expectation that better the market condition is, the better the market reaction to company SEOs From this result, hypothesis 7b is rejected The issue size, which is stand for the price pressure on company stock price is expected to have negative sign on event day because SEOs can increase the possibility of company stock dilution However, our result shows positive relation between issue size and market reaction This might be explained that in case of Vietnamese stock exchange, larger issuance will increase market liquidity, which leads to positive reaction The firm size is expected to have positive correlation with SEOs market reaction however our result show contradicted sign We think that, in case of Vietnamese stock market, investors might believe that the larger the company is, the more complicated it is, therefore the capital 17 generated from the issuance may not be used effectively Our finding is consistent with the results of Bo et al (2011) conducted at Chinese Stock market Among the industries, only the company listed in Manufacturing industry group which includes mining, processing, electricity production and distribution, natural gas, boiler, steamer and air conditioner companies is significant with a negative sign Thus, we can conclude that Industry has an impact on market’s reaction around XR day Table 5.9 Determinants of market reaction around SEOs ex-right day: Determinants of market reaction around ex-right day: panel data Random effects, Fixed effects estimation This table presents results of regression on cumulative average abnormal return on CAR[0;+2] The sample period is from 2007 to 2013 The dependent variable is cumulative abnormal return in the period [0;+2] TobinQ is measured as (Market value of stock + Book value of debt)/Book value of total assets; Mrunup indicates Market cumulative abnormal returns (VNIndex) in the period runs from day -65 to day -16, where day is the announcement day; DA indicates Total debt/Total asset; Issuesize denotes Logarithm of the volume of stock issued; Firmsize is Logarithm of total assets; Industry effect and issue method effect are controlled by adding industry dummy (REC takes value if SEOs issued company is listed in Real estate and construction group and takes value otherwise, MAI takes value if SEOs issued company is listed in Manufacturing industry group and takes value otherwise, SER takes value if SEOs issued company is listed in Service group and takes value otherwise, FBI takes value if SEOs issued company is listed in Financial – banking – Insurance services and takes value otherwise, AFF takes value if SEOs issued company is listed in Agriculture – Fishery – Forestry group and takes value otherwise); and issue method dummies; RMH indicates ratio of managerial holding include the board of directors, board of supervisor, president and CEO/Total outstanding shares; t-statistics are in parentheses; *** Statistically significant at the 1% level; ** Statistically significant at the 5% level; * Statistically significant at 10% level CAR TobinQ (1) Coef 0.003 (2.38)** 0.016 (1.04) 0.021 (3.64)*** -0.022 (-2.99)*** 0.008 (0.50) 0.016 (1.02) 0.023 (4.09)*** -0.025 (-3.52)*** (3) Coef 0.003 (2.34)** 0.005 (0.30) 0.016 (1.04) 0.021 (3.63)*** -0.022 (-2.99)*** -0.017 (-2.14)** -0.009 (-0.99) -0.011 (-0.45) 0.010 (1.56) -0.016 (-2.01)** -0.008 (-0.97) -0.005 (-0.21) 0.011 (1.61) -0.017 (-2.11)** -0.008 (-0.97) -0.011 (-0.45) 0.010 (1.56) Mrunup DA Issuesize Firmsize (2) Coef Industry MAI SER AFF Issuemethod 18 RMH Cons Prob > chi2 -0.000 (-0.28) 0.040 (1.03) -0.000 (-0.50) 0.056 (1.45) -0.000 (-0.26) 0.040 (1.03) 0.0001 0.0008 0.0002 * Significant at 10% level, ** Significant at 5% level, *** Significant at 1% level (Source: authors’ calculations) 19 CHAPTER 6: CONCLUSION 6.1 Conclusion: When examining company behavior to SEOs decision, we find that in comparison to non-SEOs companies, companies with higher TobinQ ratio, higher ratio of Market value/Book value, higher ratio of total debt/total assets and higher profitability are more likely to issue SEOs On contrary, companies with higher ratio of leverage relative to industry’s average leverage and larger in size are less likely to conduct SEOs When choosing issuance method, companies with lower ratio of leverage relative to industry’s average leverage, higher profitability and companies experience more favorable market condition are more likely to issue SEOs by equity bonuses or dividends than by equity rights; on contrary, companies are more likely to issue SEOs by equity rights when they have more growth opportunities Examine on market behavior, our results show that Ho Chi Minh stock market is not efficient in term of semi-strong form Before the announcement day, there is a trend of stock purchasing, which is a sign of information leakage Around announcement day, price increase significantly in both before and after that day; while after ex-right day, the increasing trend does not prolong The distance between the announcement day and the ex-right day is from to days, which affects the average abnormal returns of this period Before event day, market tends to favor companies conduct SEOs by equity bonuses or dividends than by equity rights However, investors will soon adjust their behavior by selling those stocks which already generated high profit In examining the determinants of market reaction to company’s SEOs around announcement day, our results show no evidences to support the influences of growth opportunities on market reaction around announcement day However, in case of Vietnamese stock market, this result can be explained that investor might not see information about growth opportunities advantageous information when they consider buying SEOs, or they are not fully aware of the availability of company growth opportunities Regarding to market timing theory, we find that the condition of the market before announcement day influences the market reaction Investors will base on the condition of the market from to months before announcement day to make their decisions on whether to get involved in company SEOs This result supports the influence of market timing theory on determinants of market reaction to company’s SEOs Besides, our result shows that equity rights generated less returns than equity bonuses or dividends Regarding the determinants of market reaction to company’s SEOs, TobinQ which is proxy for growth opportunities is significant with positive signs, suggesting that the information about existence of company growth opportunities influence the reaction of the market around ex-right day We conclude that growth opportunities theory impact on market reaction around ex-right day The market timing theory, on the other hand show no significant result, implying that market condition before ex-right day does not influence the reaction of the market Besides, we find positive relation between issue size and market reaction This might be explained that in case of Vietnamese stock exchange, larger issuance will increase market liquidity, which leads to positive reaction Firm size shows negative sign to market reaction around ex-right day We think that, in case of Vietnamese stock market, investors might believe that the larger the company is, the more complicated it is, therefore the capital generated from the issuance may not be used effectively 20 6.2 Suggestion for stakeholders: From the research findings, we then point out suggestions for relevant stakeholders to support them in their finance and investment activities In case of investors: An appropriate investment strategy on SEOs can bring certain benefit to investors, our results recommend that investors could consider following factors: The existences of growth opportunities, market condition, the magnitude of the issuance, size of company and the type of issuance methods are factors that influence company stock returns around event days Around the announcement day, companies experience favorable market condition, smaller companies and companies that choose equity bonuses/dividends as their SEOs method generate more cumulative abnormal returns than the remaining companies On contrary, around ex-right day, investors seem to favor companies with more growth opportunities, larger magnitude of SEOs issued and smaller companies About weeks before announcement day, investors might consider buying company’s SEOs, especially choose SEOs by equity bonuses/dividends of companies experience higher cumulative market returns, or from smaller companies In case investors has missed the announcement day, about weeks before the ex-right day, they could consider joining the issuance by purchasing SEOs from companies with more growth opportunities, offer larger issue size To prepare necessary financial resources to buy companies SEOs, investors might base on those characteristics of companies such as the TobinQ, ratio of Market value/Book value, ratio of total debt/total assets, profitability and ratio of leverage relative to industry’s average leverage to predict their SEOs announcement Our results show that in comparison to companies that not conduct SEO, companies with higher TobinQ ratio, higher ratio of Market value/Book value, higher ratio of total debt/total assets and higher profitability are more likely to issue SEOs On contrary, companies with higher ratio of leverage relative to industry’s average leverage and larger in size are less likely to conduct SEOs In case investor prefers SEOs by equity bonuses or dividends, we suggest investor should choose company with lower ratio of leverage relative to industry’s average leverage company, company experiences favorable market condition before announcement day and company with more profitability On contrary, companies are more likely to issue SEOs by equity rights when they have more growth opportunities In case of SEOs companies: Ho Chi Minh stock market is not efficient in term of semi-strong form Before the announcement day, there is a trend of stock purchasing, which is a sign of information leakage The market is not efficient means that 1) the information is not transparent; 2) there are information asymmetries among groups of investor 3) information is leaked before the official information are made available to public We suggest that SEOs companies should strengthen the information dissemination activities by following regulations in information dissemination of state securities commission of Vietnam in a serious, strict manner and closely monitored the compliance with information dissemination regulations to guarantee the transparency, fairness and effectiveness to deal with the situation of unbalanced information and protect individual investors To ensure the success of SEOs issuance, company should choose appropriate market timing as when the market is favorable, investors seem to care less about the fact that company equity is overvalued or the stock dilution they might encounter when purchasing seasoned equities 21 Investors seem to favor SEOs by equity bonuses or dividends which they not have to pay more to own company equity, conducting SEOs by this method might be more appealing to investors; however, in case company wants to raise external financial resources by conducting SEOs rights issuance, choosing market timing is an optimal option company should consider Before the announcement day, company should promote the information dissemination about company activities, especially the availability of growth opportunities to draw investors’ attention to company SEOs The size of the issuance also affects SEOs investment strategy of investors Our results show that the issuances with bigger SEOs amount are more appealing to investors than smaller ones, suggesting that investors might consider big issuance a “good deal” [...]... dividends than by equity rights However, investors will soon adjust their behavior by selling those stocks which already generated high profit In examining the determinants of market reaction to company’s SEOs around announcement day, our results show no evidences to support the influences of growth opportunities on market reaction around announcement day However, in case of Vietnamese stock market, this... Besides, we find positive relation between issue size and market reaction This might be explained that in case of Vietnamese stock exchange, larger issuance will increase market liquidity, which leads to positive reaction Firm size shows negative sign to market reaction around ex-right day We think that, in case of Vietnamese stock market, investors might believe that the larger the company is, the... stakeholders: From the research findings, we then point out suggestions for relevant stakeholders to support them in their finance and investment activities In case of investors: An appropriate investment strategy on SEOs can bring certain benefit to investors, our results recommend that investors could consider following factors: The existences of growth opportunities, market condition, the magnitude... be explained that investor might not see information about growth opportunities advantageous information when they consider buying SEOs, or they are not fully aware of the availability of company growth opportunities Regarding to market timing theory, we find that the condition of the market before announcement day influences the market reaction Investors will base on the condition of the market from... get involved in company SEOs This result supports the influence of market timing theory on determinants of market reaction to company’s SEOs Besides, our result shows that equity rights generated less returns than equity bonuses or dividends Regarding the determinants of market reaction to company’s SEOs, TobinQ which is proxy for growth opportunities is significant with positive signs, suggesting... with SEOs market reaction however our result show contradicted sign We think that, in case of Vietnamese stock market, investors might believe that the larger the company is, the more complicated it is, therefore the capital 17 generated from the issuance may not be used effectively Our finding is consistent with the results of Bo et al (2011) conducted at Chinese Stock market Among the industries,... (3), suggesting that investors are not influenced by the growth opportunities of company This result is irrelevant to our expectation that TobinQ positively affects market reaction around announcement day However, in case of Vietnamese stock market, this result can be explained that investor might not see information about growth opportunities advantageous information when consider buying SEOs, or they... market timing as when the market is favorable, investors seem to care less about the fact that company equity is overvalued or the stock dilution they might encounter when purchasing seasoned equities 21 Investors seem to favor SEOs by equity bonuses or dividends which they do not have to pay more to own company equity, conducting SEOs by this method might be more appealing to investors; however, in case... (column 3), the p-value is equal to 0.0002 (inferior to 1%), we conclude that overall the explanatory variables in our model can explain the determinants of market reaction around ex-right day The estimated coefficients show that TobinQ, issue size (Issuesize), firm size (Firmsize), MAI (group of companies listed in Manufacturing industry which includes mining, processing, electricity production and distribution,... calculations) 5.2.2 Market reaction around ex-right day: Table 5.5 shows that the stock prices increase significantly on ex-right day and one day later (day +1) with an increase of 1.2% and 0.6% respectively with the significance at 1% Examining the number of stocks increased/the number of stocks decreased on these two days, we find that the number of stock increased outweigh the number of stock decreased