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MINISTRY OF EDUCATION AND TRAINING FOREIGN TRADE UNIVERSITY -o0o SUMMARY OF PHD THESIS RESEARCH ON STOCK REPURCHASE ACTIVITY IN INDUSTRIAL COMPANIES LISTED ON VIETNAM STOCK MARKET Field: Business Major: Business Administration Code: 62.34.01.02 (New Code: 9340101) NGUYEN THI HOA HONG Ha Noi, 2018 THE THESIS IS COMPLETED IN FOREIGN TRADE UNIVERSITY Supervisors: Dr Cao Đinh Kien Dr Ho Hong Hai Reviewer 1: Reviewer 2: Reviewer 3: The thesis will be defended in front of the University level Council of Thesis Assessment at at hour date month year The thesis can be found at the National Library and Library of Foreign Trade University LIST OF AUTHOR’S PUBLICATIONS RELATED TO THE THESIS Nguyen Thi Hoa Hong (2018), ‘Intra-industry effects of stock repurchases in Vietnamese industrial companies’, Journal of Economics & Development, No 256, 10/2018, pp 42-51 Nguyen Thi Hoa Hong (2018), ‘Impact of stock repurchase on stock price of industries companies listed on Vietnam stock exchange, External Economics Review, No 109/2018, pp 64-77 Nguyen Thi Hoa Hong (2018), ‘Impact of stock repurchase on the performance of Vietnamese industrial companies, Banking Science & Tranining Review, Vol 196 –9/2018, pp 70-77 Nguyen Thi Hoa Hong (2018), ‘Share repurchase: Research at companies in the industry listed in Vietnam, Journal of Finance and Accounting Research, No 09 (182), pp 16-20 INTRODUCTION Rationale of the study Stock repurchase is a program by which a company buys back its own shares Each company will have different motivations when repurchasing shares such as increasing the stock price, reducing agency cost of free cash flow, anti takeover or adjusting EPS However, stock repurchase programs not only affect the businesses themselves but also affect different participants in the financial market including investors and companies in the same industry There have been many studies in the world analyzing motives and different effects of stock repurchase activity In Vietnam, researches on share buyback only mention the general theory or impact on the enterprises themselves According to StoxPlus, in the period of 20102017, the industry has the second highest number of stock repurchase transactions in Vietnam, just behind the Finance sector Industry is an important industry in Vietnam economy With its importance, transactions in the industry often account for a larger proportion than other industries and stock repurchase transactions are not an exception Born et al (2004) suggested that each industry has different characteristics, the more strictly public sector manages, the more transactions taken place in the industry will affect the development potential of the sector Therefore, with great figures of share repurchase transaction, industry feature is not too distinctive and unique as the financial sector, the assessment on stock repurchase in the industry with the number of transactions to buy back shares ranked the second highest is very necessary not only for the development of the industry but also for the economy On the other hand, the Vietnamese financial market has many differences compared to other markets in the world, thus buying back stock may have different reactions Meanwhile, in Vietnam, there has not been any empirical study evaluating stock reacquisition in a particular industry like the industry Therefore, the author chooses the topic “Research on stock repurchase activity in industrial companies listed on Vietnam stock market” for her PhD thesis The thesis will be the basis for industrial companies listed on Vietnam stock market and the state authorities which make comment and know how to implement share repurchases efficiently as well as enhance the role of management in operating and controlling this activity 2 Research objectives The thesis focuses on studying the motivation to buy back shares and the effects of stock repurchase at listed industrial companies in Vietnam, thereby offering solutions to help these companies implement share repurchase effectively In addition, the thesis also analyzes the impact of stock repurchase in listed industrial companies on investors and companies in the same industry Objects and scope of the research The object of the thesis is stock repurchase activity in industrial companies listed on Vietnam stock market in the period of 2010-2017 The scope of the thesis is the motive to buy back shares and the effects of this activity on the implementing company through business operating performance, investors through the stock prices in the short term and the stock prices of companies in the same industry during 2010-2017 Research methodology The thesis will apply the following research methods: Descriptive statistics and comparison method Quantitative methods: comprise Tobit regression, Fixed effect model regression, event study, t-test and OLS regression Qualitative method: in-depth interview New contributions of the thesis 5.1 Theoretical contributions First, the thesis systematizes and clarifies the theoretical framework to explain the effects of stock repurchase on business operating performance, short-term stock prices of implementing enterprises and companies in the same industry Second, the thesis verifies the research model in the context of Vietnam, which analyzes the stock price reaction surrounding the date of reacquisition shares (the expiration date) and the announcement date of transaction results (the result announcement date) Results from the model show that the share price increases in three business days before the expiration date, the remaining virtually has no reaction to share repurchase event Stock repurchase also affects postitively the share prices of companies in the same industry in a day before and after the business completes to repurchase shares Third, the thesis uses in-depth interviews with corporate executives in share buy-back companies and financial experts to supplement the quantitative research results, while the previous researches have not applied the qualitative research method for share repurchase problem 5.2 Practical contributions First, the results of the thesis bring the assessment on the status of share repurchase activity in industrial companies listed in Vietnam, through which give solutions to use share buyback effectively Second, the research results of the thesis also contribute value to investors, peers, and enhance the state management role in stock repurchase activity The limitations of the thesis First, the scope of the research is only limited to companies in the industry listed on the Vietnam stock market, so the research resuls may not fully reflect the status of stock repurchase activity in Vietnamese industrial companies Second, the data collected in the thesis is not enough to analyze the impact of stock repurchase on liquidity, anti-takeover mechanism or relationship with ownership structure and long-term effects of stock repurchase Thesis structure In addition to introduction, conclusion and references, the thesis is divided into five chapters: Chapter 1: Literature Review Chapter 2: Theoretical framework on stock repurchase in companies listed on the stock market Chapter 3: Research Methodology Chapter 4: Analysis of the status of stock repurchase activity in industrial companies listed on Vietnam stock market in the period of 2010-2017 Chapter 5: Solutions and recommendations to improve stock repurchase activity in industrial companies listed on Vietnam stock market CHAPTER 1: LITERATURE REVIEW 1.1 Foreign research situation 1.1.1 Studies related to the motive of the company to buy back shares The studies of Stewart (1976), Dittmar (2000), Grullon and Ikenberry, Baker et al (2003), Chan et al (2004), Voss (2012) indicate motives for enterprises to buy back shares including signaling that enterprises are undervalued, agency costs of free cash flow, distribution of capital from poorly performing enterprises for businesses with more investment prospects, substituting dividends, adjusting capital structure, increasing EPS ratio or taking advantage of tax benefits and anti-takeover … 1.1.2 Studies related to the relationship between stock repurchase and companies which implement share repurchase programs  Effect of stock repurchase on business operating performance The research of Nohel and Tarhan (1998) points out the significant differences in performance before and after the businesses reacquire shares, mainly from enterprises with poorly operating performance before stock repurchase Researches of Gup and Nam (2001), Lie (2005) and Chandren et al (2017) show that companies which conduct share repurchases have better business performance than companies that not buy back shares through return of invested capital (ROIC), Economic Value Added (EVA) and positively impact the company’s ROA, ROE or Tobin’s Q  Stock repurchase and ownership structure of enterprises The research of Ginglinger and L’Her (2006) shows that: share repurchase brings a good signal when businesses have foreign ownership and the characteristics of shareholders will affect the reaction of the market to stock repurchase announcements, particularly family-controlled businesses will bring negative effects with share buyback announcements because controlling shareholder is the family, which will lead to higher risks for investors Houcine and Boubaker (2013) comes to the conclusion that businesses with institutional investors will have a negative impact on stock repurchase programs because they prefer dividends and it has a positive relationship between the fact that managers own the stocks of the business and stock repurchase program because they want to buy back shares to increase the percentage of shares they can hold in the company  Stock repurchase and cash dividends The researches of Barclay and Smith (1988), Bartov et al (1998), Jagannathan et al (2000), Grullon and Michaely (2002) point out that businesses can choose between paying cash dividends and buying back shares to distribute profits to shareholders However, the choice of enterprises depends on the purpose and characteristics of enterprises such as new businesses or businesses with high cash flows from operating business tend to pay dividends while large, old enerprises or enterprises with highly abnormal cash flows will usually repurchase stocks  Stock repurchase and anti-takeover The studies of Bagnoli et al (1989), Bagwell (1991a) and Bagwell (1991b), Sinha (1991), Persons (1994) as well as Billet and Xue (2007) show that corporate managers buy back shares to raise stock prices or issue debt to buy back and repurchase shares of low value shareholders, thereby increasing the cost of acquiring and preventing the risk of acquiring businesses However, this is only done when the cost of this work is not high 1.1.3 Studies related to the impact of stock repurchase activity on investors  Effect of stock repurchase on stock prices There are many studies assessing the impact of stock repurchase activitiy on the stock price of enterprises, which are derived from the hypothesis that the company announces to buy back to signal the market about the business being undervalued The studies of Ikenberry et al (1995), Liu and Ziebart (1997), Hatakeda and Isagawa (2004), Liao et al (2005), McNally et al (2006) conclude that stock repurchase announcements increase stock prices by testing whether the occurrence of cumulative abnormal return around this event  Effect of stock repurchase on liquidity in the enterprise The researches in the world which analyze the impact of share repurchase on liquidity as Barclay and Smith (1988), Wiggins (1994), Singh et al (1994), Nayar et al (2008), Hillert et al (2016) confirm that liquidity will increase or will not be affected following the stock repurchase announcements However, whether liquidity will increase or not, this trend will only exist in the short term 1.1.4 Studies related to the effects of stock repurchase on companies in the same industry Studies of the effects of stock repurchase on companies in the same industry give different results when the research of Hertzel (1991) finds no intra-industry effects considerably surrounding stock repurchase programs but Akhigbe and Madura (1999) find evidence that both enterprises repurchasing shares and companies in the same industry benefit from the positive effects of the stock buyback while Miller and Shankar (2005) come to the conclusion that the announcement of reacquiring shares of an insurance firms will impact negatively to companies in the same industry 1.2 Research situation in Vietnam 1.2.1 Studies related to stock repurchase activity in Vietnam If there are a lot of studies on stock repurchase activity in the world, in Vietnam the number of studies on this activity is still limited If the research of Nguyen Thu Thuy (2011) introduces the theory of stock repurchase from definition to motives of stock repurchase and three common stock repurchase methods, then empirical researches by Vo Xuan Vinh and Trinh Tan Luc (2015), Tu Thi Kim Thoa et al (2015) or Cao Dinh Kien et al (2018) analyze the slow price reaction of the market through the increase in stock prices in a period after the information is published, the factors that influence the decision to buy back stocks including the amount of cash held, the undervalued signal and the different responses to stock prices among the group of enterprises not complete the stock repurchase announcements and the group of enterprises not implement share buyback announcements 1.2.2 Studies about industrial companies in Vietnam Every year, the Ministry of Industry and Trade publishes reports on the orientation and solutions for implementing industrial production for the previous year, the implementation plan for the industry in the following year The Vietnam Chamber of Commerce and Industry also issues an annual report on industrial enterprises In addition to the reports of domestic organizations, the PhD thesis of author Hoang Thi Viet Ha in 2013 also conducts surveys and analyzes the business integration accounting with observations of industrial enterprises in Vietnam 1.3 Gap and research orientation Over the course of research on stock repurchase activity in the world and Vietnam, the author finds some of the research gaps as follow: First, foreign studies mostly analyze different issues surrounding stock repurchase activity but mainly test in developed financial markets in the world Second, the studies on the effects of stock repurchase on stock prices and liquidy focus mainly on the market’s reaction around the date of stock repurchase announcements but very few studies analyze the ending date of buying back shares or the date of announcing stock redemption transaction result Third, only the study of the impact of the share reacquisition to companies in the same industry analyzes on data in specific sectors while studies on other issues use data on stock repurchase activity across the entire financial market Fourth, in Vietnam although there have been some researches on stock repurchase activity, in addition to theoretical researches, the empirical studies only stop at the movitation to buy back shares and affect the price of stocks or shareholders when enterprises not complete share buyback announcements Therefore, there are many other aspects of stock redemption that Vietnamese studies have not yet analyzed and assessed Fifth, there is no research on share repurchase activity which is performed on data in a particular industry in Vietnam Besides, studies of companies in the industry just stop at accounting issues or annual reports On the other hand, the thesis also focuses on analyzing the impact of stock repurchase around both days that very few researches in the world mentioned comprising the date when the company completed the implementation of stock redemption (the expiration date) and the date of reporting the results of stock buyback (the result announcement date) This is partly because of the data characteristics in Vietnam on the date of announcing the plan to buy back shares which is difficult to collect, partly because the author finds that these two periods are also the gap that the researches in the world has not yet addressed To sum up, this thesis will be the research that synthesizes stock repurchase activity in a particular industry which includes companies in the industry listed on Vietnam stock market in the period of 2010-2017 10  Market-timing hypothesis The maket timing hypothesis suggests that corporate executives have their own information about the value of stocks, thereby helping them predict stock returns in the future (Cesari et al, 2012) According to this hypothesis, the stock repurchase program will bring positive cumulative abnormal return of the implementing company and the average market price will be higher than the average repurchase price  Contrarian-trading hypothesis With this theory, the difference between the market price and the repurchase price is correlated inversely with abnormal return if companies buy back shares after price falls and correlated in the same way if firms stop buying after price increases  The impact level of stock repurchase on stock prices in the short term depends on the characteristics of the company buying back shares: such as profit ratio, size of the company and the ratio of book value to market value or liquididy and legal provisions on stock repurchase 2.4.3 Effect of stock repurchase activity on companies in the same industry  Stock repurchase reflects the market conditions that the industry is facing The company decides to buy back shares in order to signal to the market about the prospects of its value in the future, which represents the business situation thanks to optimism about its business industry Therefore, the demand for stocks in that industry increases and the share price of the company in the industry also increases  Stock repurchase reflecs changes of the competitiveness of peers Many researches show the reaction of peers before the stock repurchase will be contrary to the announcing firms The decision to repurchase shares can be understood the competitiveness of enterprises which announce to reacquire share is increasing Participants in the market will give negative assessment of the competitiveness of companies in the same industry Thus, shares of companies in the same industry will become less attractive, resulting in the value of shares will be negatively affected  The impact of stock repurchase activity on companies in the same industry depends on the characteristics of the industry: such as asset structure, capital structure, size of business/industry, business situation or reaction of announcing firms and time of announcing stock repurchase 11 CHAPTER 3: RESEARCH METHODOLOGY 3.1 Research design In order to achieve research objectives, the study is executed in three steps: (1) Develope a theoretical framework, (2) Determine objectives and building modelresearch methods and (3) Analyze research results and propose solutions, suggestions 3.2 Research sample in quantitative research methods 3.2.1 Sample of research on motives to repurchase stocks and impact on business operating performance The initial research sample includes 174 open market share repurchase announcements made by industrial companies listed on the HOSE and HNX stock exchange in Vietnam during 2010 and 2017 However, the study proceeds to remove some unqualified samples The final sample consists of 100 share repurchase annoucements of 68 companies 3.2.2 Sample of research on the effect of stock repurchase on corporate stock prices in the short term From 100 above open market share repurchase announcements, the study uses some excluding conditions to match research methods, remaining 43 companies with 92 stock repurchase announcements, which are divided into groups:  Group – Companies that not complete the stock repurchase announcements: include companies with shares bought back equal to zero or less than the announced volume (67 announcements – 47 companies)  Group – Companies completing stock repurchase announcements: include companies with shares to be redeemed exactly in the announced quantity (25 announcements – 17 companies) 3.2.3 Sample of research on the effect of stock repurchase on peers From 43 companies with 92 above share repurchase announcements, the study continues to gather companies in the same industry (peers) with the company giving repurchase announcement under subsector level provided by StoxPlus applying dividing levels following Indutry Classification Benchmak – ICB, which satisfies the conditions of data and research methods, the final sample comprises 97 industrial companies in the same industry 12 3.3 Quantitative methods 3.3.1 Model and research method to study the motives of buying back stocks The author builds a model to analyze motives related to free cash flow, market value – book value, dividend payment, company size and financial leverage The author chooses Tobit regression for the dependent variable REP as the ratio between the value of the reacquired stocks and the market value of the company in the previous year 3.3.2 Model and research method to study the impact of stock repurchase on business operating performance The study uses fixed effect model regression (FEM) with dependent variables including ROA, ROE and Tobin’s Q The model is built with independent variables containing total assets, financial leverage, EBIT/revenue, capitalization cost/revenue and control variable as the value of shares bought back 3.3.3 Research method to study the impact of stock repurchase on stock prices in the short term The study analyzes the impact around days: (1) the last day of the buyback period (expiration date) and (2) the date of trading result announcement (result announcement date) Research methods include: event study with estimation window (-200, -30) to calculate cumulative abnormal return (CAR) in event windows (-10, 10), (-5, 5), (-3, 3), (-1, 1), (-3, -1) (1, 3); t-test to test whether CAR different and have statistic significance or not and OLS regression to test factors affecting CAR (-1, 1) 3.3.4 Research method to study the impact of stock repurchase on companies in the same industry The research continues to use the same methods as the impact of stock repurchase on stock prices in the short term to calculate average cumulative abnormal return (ACAR) of companies in the same industry 3.4 Qualitative method – in-depth interview The author carries out in-depth interview method with managers of listed industrial companies which implement share buyback and Vietnamese financial experts to supplement the findings from quantitative methods on research issues in the thesis 13 CHAPTER 4: ANALYSIS OF THE STATUS OF STOCK REPURCHASE ACTIVITY IN INDUSTRIAL COMPANIES LISTED ON VIETNAM STOCK MARKET IN THE PERIOD OF 2010-2017 4.1 General introduction about companies in the industry listed on Vietnam stock market The industry is identified as the sector level 1, being one of 11 sectors classified according to the criteria of ICB and applied in Vietnam by StoxPlus, including subsectors as subsector level 2, and It can be seen that, among 224 listed industrial companies, more than 60% are companies working in construction and materials 4.2 Overview of stock repurchase activity in industrial companies listed on Vietnam stock market in the period of 2010-2017 4.2.1 Regulations on stock repurchase activity in Vietnam Stock repurchase activity in Vietnam is regulated in legal documents including Decree 58/2012/ND-CP, Decree 60/2015/ND-CP, Circular 162/2015/TT-BTC, Circular 203/2015/TT-BTC 4.2.2 The process of stock repurchases in Vietnam In Vietnam, the stock repurchase process consists of steps: (1) enterprises need to meet the conditions for redemption according to regulations; (2) prepare stock repurchase records; (3) submit stock repurchase records for the SSC; (4) The SSC announces approval/refusal of enterprises to buy back shares; (5) enterprises announce to buy back shares; (6) enterprises carry out stock repurchase transactions and (7) enterprises announce the results of stock repurchase transactions 4.2.3 Overview of stock repurchase activity in industrial companies listed on Vietnam stock market during 2010 and 2017 Industry is the industry with the second highest number of stock repurchase announcements in the period of 2010-2017, of which 2011 is also the year when the number of enterprises making the most announcements with 58 share buyback announcements In the remaining years, the number of announcements to buy back shares is only a half or less than a half compared to 2011, the lowest is 2014 with only share repurchase announcements 14 Considering on HOSE and HNX, the number of share repurchase announcements that industrial enterprises perform on HNX is more than HOSE with 97 announcements on HNX and 77 announcements on HOSE In terms of share repurchase rate, although 2011 has the highest number of share repurchase announcements, the average implementation rate is the lowest in the period of 2010-2017 with 53.34% However, in general, the industry is still a sector with a high rate of share repurchased after the announcement, all over 50% in all years from 2011 to 2017 4.3 Analysis of motives and effects of stock repurchase in industrial companies listed on Vietnam stock market in the period of 2010-2017 4.3.1 The motive for industrial companies listed on Vietnam stock market to buy back shares Results from Tobit model regression show that in the period of 2010-2017, industrial companies listed on Vietnam stock market seem to have no clear motives to implement share repurchases because the study finds no evidence to prove the relationship between most of research independent variables and the dependent variable REP However, only the PAYOUT variable (dividend payout ratio in the previous year) has inverse correlation (-0.015) with the stock repurchase rate at the 5% statistical significance level This indicates that industrial companies listed on Vietnam stock market in the period of 2010-2017 which buy back shares will pay less cash dividends This result is also consistent with the excess capital hypothesis of Dittmar (2000) The author also explains that busisnesses that buy back shares pay less cash dividends depending on certain tax benefits 4.3.2 The impact of stock repurchases on business operating performance of companies in the industry The results of fixed effect model regression show that: For the model with the dependent variable ROA, except the value of stock repurchase variable, the study finds evidence indicating Vietnamese listed industrial companies during 2010 and 2017, which have a large scale of total assets and high profit before tax will positively affect the company’s ROA with high statistical significance Conversely, companies with large leverage and high capital costs will reduce business operating performance 15 Model result with the dependend variable ROE shows companies with high EBIT and large capital cost will impact both ROA and ROE In model with the dependent variable TOBINQ, the study finds the effect of stock repurchase on Tobin’s Q index of listed industrial companies in Vietnam in the period of 2010 - 2017 when the value of stock repurchased variable has positive correlation with TOBINQ variable at 5% significance level This means that the company buys back more and more shares, the business performance will be improved even in the year when the company repurchases shares through TOBINQ index Additionally, the larger the asset size of the company, the higher the TOBINQ index while high financial leverage not only reduces ROA but also reduces TOBINQ 4.3.3 The impact of stock repurchases on short-term stock prices of companies in the indutry 4.3.3.1 Model results using event study method Result from model shows that industrial companies listed in Vietnam not exist cumulative abnormal return (CAR) around almost days: expriation date and result announcement date except for the increase in stock prices before the last day of stock redemption with the positive CAR of 0.8% in event window (-3, -1) surrounding the expiration date for whole sample and group – companies not complete repurchase announcements The cause of this phenomenon may be due to two reasons: (1) Investors not pay much attention or lose confidence in stock repurchase in the industry in Vietnam and (2) Although the announcement to buy back shares is not publicized but from the time the company plans to repurchase until the repurchase, there may be information leakage, so there is a slight reaction to the stock price right before industrial companies complete to buy back shares It can be seen that Vietnam legal documents still have many loopholes that lead businesses to send false signals to the market through various activities, especially stock repurchase programs to manipulate stock prices and information leakage occurs Therefore, investors seem to have no confidence in the financial statements of listed companies and the signals in theses programs not have much convincing meaning to investors In addition, research results from group and group – companies complete stock repurchase announcements find more evidence for the above reasons, thereby 16 existing CAR (1, 3) negative after the result announcement date, CAR (-1, 1) negative around the expiration date and CAR (-10, 10) negative surrounding the result announcement date This points out that the stock price drops whether companies complete repurchase plan as announced or not because investors think that the repurchase announcement is only a means to help enterprises send false signals to the market to increase stock prices 4.3.3.2 Model results of Ordinary Least Square method (OLS)  OLS model results around the expiration date OLS regression test shows that all sample and group as well as group indicate the relatively similar influencing factors It can be seen that, at the time when the Government issues a new legal document to regulate share repurchase, the share price of enterprises will reduce, especially when Vietnamese listed industrial companies in the period of 2010-2017 not intend to complete the reacquisition of shares but only use share repurchase as a tool to manipulate stock prices Meanwhile, businesses have better liquidity, larger size of assets, the more positive impact to the stock repurchase program For group 1, firms with little difference between book value and market value, the stock price reacts positively This can be explained that the less the enterprise has the difference between market value and book value, the more likely it is to create confidence for the market, so stock prices will reflect positively to meet expectations of the market and investors For group 2, the results show that companies in this group have free cash flow as much as the positive impact the share price of the business  OLS model results around the result announcement date OLS regression test around the result announcement date shows similar results as these of the expiration date comprising the time of promulgatation of laws against whole sample and group as well as total asset size with group The difference is only in the factor of the difference between the market value and the book value with group when the difference between the book value and the market value is larger, enterprises tend to complete the plan to buy back shares with the goal of increasing stock prices to real value 17 4.3.4 The impact of stock repurchases on companies in the same indutry 4.3.4.1 Model results using event study method Research results show that most of event windows not appear to have average cumulative abnormal return (ACAR) of companies in the same industry around days when an industrial company completes the implementation of share repurchase or announces the result of share repurchase transaction The explanations for this result are similar to those affecting implementing enterprises that it seems the stock market in general and industrial companies in Vietnam in particular not pay much attention to stock redemption programs and information captured slowly, thus there is almost no effects of stock repurchase programs on companies in the same industry However, only event window (-1, 1) around the expiration date exists average cumulative abnormal return of 0.5% for the industry, higher than 0.8% compared to cumulative abnormal return of the announcing company with CAR (-1, 1) is negative (-0.3%) at a statistical significance level of 10% This reaction shows the assessment of “contagious effect” of market information from stock repurchase announcements to companies in the same industry when these announcements bring a positive response to stock prices of companies in the same industry However, this reaction is very small, less than 1%, which indicates that even though the study finds evidence of the occurrence of average cumulative abnormal return within day before and after the expiration date, share buyback programs in the industry actually have little impact on companies in the same sector, the rest almost no influence whatsoever 4.3.4.2 Model results of Ordinary Least Square method (OLS) The OLS regression test on the effects of factors on ACAR (-1, 1) around the expiration date and the result announcement date shows the factors are relatively similar Companies in the same sector – the industry that have large solvency, stable financial situation, less affected by share repurchase event of an indutrial announcing firm Besides, new legal provisions also have a positive impact to stock prices of companies in the same industry because the strict rules about the law will create trust for businesses in the same industry Severally, the impact on ACAR (-1, 1) of companies in the same industry surrounding the expiration date gives the outcome which reinforces the explanation 18 that “contagious effect” of good news of the market leads to the existence of ACAR of companies in the same industry in event window (-1, 1) around the expiration date 4.3.5 Research results from in-depth inverview method Referring to motivation to repurchase shares: all managers answer that their companies reacquire stocks to reduce the rate of dividend payments to shareholders and adjust EPS, a half of managers also reckon stock price adjustment as the motive which their companies consider when implementing share repurchase Meanwhile, financial experts believe that the main motive for industrial companies listed in Vietnam to buy back stocks is to increase stock prices For the situation of incompleting the stock repurchase transactions as announced, the executives refuse to reply, while the financial experts all confirm more than 70% open market share repurchase announcements are not completed according to the plan Besides, both managers and financial experts agree that the frequency of stock repurchase depends on the specific objectives of each business About the impact of stock repurchase: The interviewees all share the same answer that stock repurchases affect business operating performance and stock prices of the enterprises that implement the repurchase transactions However, this effect is not much, in a postitive or negative direction, depending on each specific enterprise While, only out of 10 people believe that buying back stocks will bring about an intra-industry effect The more share buyback transactions made in the sector, the more certain impacts on companies in the same industry Regarding the evaluation of stock repurchase activity: General assumptions are that buying back shares in industrial companies is quite a lot with a relatively large number of transactions but not received adequate attention from the market and investors This is also related to the legal system of stock repurchase in Vietnam which has not been completed, there are many gaps Therefore, the inteviewees all make the most necessary recommendations today to complete the legal framework to regulate stock repurchase activity However, financial experts have further suggested that it should be more transparent for the current stock repurchase process 19 4.3.6 Discussion and overall assessment of research results (1) Motives for industrial companies listed on Vietnam stock market to repurchase shares include adjust EPS, increase share price and pay less dividends The Tobit model concludes that industrial companies listed in Vietnam which buy back shares will pay less dividends This result is similar to the study of Dittmar (2000) but is different from the researches on all listed companies in Vietnam by Tu Thi Kim Thoa et al (2015) and Nguyen Thi Hoa Hong et al (2017), in which these studies found no evidence to support the relationship between stock repurchase and dividend payment In addition, the responses from those involved in-depth interviews also complement the share repurchase motives in Vietnamese listed industrial companies comprising adjust EPS and increase stock prices, similar to the study by Baker et al (2003) (2) Stock repurchase activities bring positive effects on business operating performance of enterprises through Tobin’s Q index The Fixed effect model regression analyzes the positive effects of stock repurchase on business operating performance of Vietnamese listed industrial companies in the period of 2010-2017 through Tobin’s Q index This result is similar to the study of Chandren et al (2017) (3) Stock repurchase activities have almost no effect on the price of Vietnamese listed industrial companies, except slightly increasing the share prices of announcing firms in the three days before the expiration date The results from event study method and t-test show that almost all the event windows surrounding the share repurchase activity in Vietnamese listed industrial companies in the period of 2010-2017 have not existed cumulative abnormal return, except the stock price of the implementing company will increase slightly in event window (-3, -1) before the expiration date This result is completely different from the studies of Liao et al (2005), McNally et al (2006) when pointing out that the stock repurchase announcements increase share prices and there is also no similar to the research of Vo Xuan Vinh and Trinh Tan Luc (2015) 20 (4) The share repurchase of a listed industrial company brings positive effects to companies in the same industry The results from event study method and t-test show that the share prices of companies in the same industry also increase slightly in event window (-1, 1) around the day when a listed industrial company completes the reacquisition of shares Besides, there is no existence of average cumulative abnormal return in other event windows This results are similar to the study by Jukka (2007), which reflects positive effects as the research of Akhigbe and Madura (1999) (5) Share price fluctuations of announcing firms and companies in the same industry depend on the market situation and business performance of the enterprises before implementing share repurchase The model OLS regression testing factors such as liquidity, free cash flow, size of total assets, the book value compared to the market value of enterprise and time of issuance of legal documents governing the stock repurchase activity will affect CAR of the implementing company around stock repurchase events while the factors affecting ACAR of companies in the same industry during 2010 and 2017 around the stock repurchase event including CAR of enterprises announcing share repurchase, liquidity and time of stock redemption announcement From the above research results, it is possible to give some limitations to explain these results Firstly, stock repurchase has not yet received proper attention from investors, shareholders and companies in the same industry Secondly, the information on the date of the announcement of the plan to buy back share is in fact not publicized so it makes so difficult to verity This may also lead to information leakage before the company reacquire shares Thirdly, the stock repurchase announcements are made in the form of open market share repurchase, so it is not binding on the responsibility to complete as planned Besides, the legal documents are still loose so businesses not seem to intend to complete the 100% share reacquisition as previously announced 21 CHAPTER 5: SOLUTIONS AND RECOMMENDATIONS TO IMPROVE STOCK REPURCHASE ACTIVITY IN INDUSTRIAL COMPANIES LISTED ON VIETNAM STOCK MARKET 5.1 Development orientation of Vietnamese industry in the forthcoming time Development orientations of national industry in the forthcoming time include:  Space allocation and industry restructuring  Development of priority industries  Create a favorable investment and business environment for industrial development  Development of industrial enterprises  Developing industrial human resources  Developing science and technology for industry  Exploiting natural resources and minerals and protecting the environment  Improving the leadership capacity of the State, the people’s mastery 5.2 Some solutions to improve stock repurchase activity in industrial companies listed on Vietnam stock market Diagram 5.1: Diagram of solutions for industrial companies listed in Vietnam to implement for improving stock repurchase activity Step 1: Enterprises need to raise awareness about stock repurchase activity Step 2: Enterprises must carefully assess the market situation and business activities of enterprises before making decisions to buy back shares Step 3: Enterprises choose an appropriate stock repurchase form Step 4: Enterprises should enhance the information disclosure system to create confidence for the market and related parties (Source: Author’s self aggregation and suggestions) 22 5.3 Recommendations for investors and companies in the same industry in Vietnam  Recommendations for investors Firstly, investors need to learn carefully about stock repurchase activity, avoid misunderstanding leading to inefficient decisions Secondly, when investors see share buy-back transactions, they should understand the motives of transactions, the actual business situation as well as the market situation and related industries Thirdly, not only businesses but also investors themselves need to learn legal documents regulating stock repurchase acitivy to protect themselves and still take advantage of opportunites from share repurchase programs Finally, investors can contribute to support state authorities in the process of managing and monitoring stock repurchase activity in the stock market  Recommendations for companies in the same industry in Vietnam Firstly, companies in the same industry should also enhance knowledge of stock repurchase activity Secondly, when appearing share repurchase announcement of a listed industrial company, companies in the same industry need continuous and flexible assessment of the impact they may have to build a suitable financial plan Thirdly, companies in the same industry also need to assess the industry’s characteristics and the factors that will likely affect their stock prices around stock repurchase events 5.4 Recommendations for the state authorities 5.4.1 Recommendations for the Government The Government needs to strengthen the system of legal documents regulating share repurchase activity and instead of being scattered in many different legal documents like today, it is necessary to develop and issue a separate set of laws for stock repurchase activity This Code will provide full and detailed provisions on aspects of stock repurchase activity such as stock repurchase conditions, payment source, implementation procedures, responsibilities and obligations of the related parties, the issues of post-share reacquisition or punishments if violating the law… 23 Besides, it is necessary to issue sub-law documents soon such as decrees, circulars detailing the work implementing the law On the other hand, in the law needing to build sanctions, it is possible to identify the right people for the right crimes and the punishments are strong enough to be deterrent to the subjects violating the principles of entering the financial market The Government should enact regulations relating to the blockade to money paid when firms announce plans to buy back shares Besides, in every industry, the Government should also enact legislation to concretize the provision of the general laws of stock repurchase activity in accordance with the characteristics of each field 5.4.2 Recommendations for the Ministry of Finance Firstly, the issues of insider trading in stock redemption needs to be strictly controlled and prevented Secondly, in addition to insider trading, irregular transactions also need to be strictly controlled and monitored by competent authorities Thirdly, management agencies need to strengthen inspection and supervision of stock repurchase activity and strictly handle acts of misleading information, incomplete information, distort market information, or give information unfavorable to the market which is not clear about the origin Finally, the Ministry of Finance needs to deepen the dissemination of information transparency consciousness for enterprises which participate in the securities market 5.4.3 Recommendations for the State Securities Commision  Additional responsibilities for Central Depository Securities, the stock exchange and securities companies  Strictly control the disclosure of information on enterprises’ plans to repurchase  Establish a mechanism to update the current status of stock repurchase plans  Additional specific reporting requirements in case of redemption of less than 10% of the outstanding shares  Publicizing measures to protect investors in case the company does not complete share repurchase announcements 24 CONCLUSION Stock repurchase activity is considered as an important financial decision of enterprises because of not only the motives that businesses want to achieve when buying back shares but also the effects of this activity on the different parties participating in the financial market The thesis focuses on open market share repurchase announcements conducted by listed industrial companies in Vietnam in the period of 2010-2017 to analyze the motive for repurchase and the effects on business operating performance, stock prices as well as companies in the same industry Based on literature review, the thesis systemizes the theoretical framework of stock repurchase activity and analyzes the status of stock repurchase activity of listed industrial companies in Vietnam during 2010 and 2017 by modeling and identifying appropriate research methods Quantitative research results show that listed industrial companies in Vietnam buy back shares in the period of 2010-2017 will pay less cash dividends than businesses that not buy back Share repurchases have a positive impact on business performance of the implementing company through Tobin’s Q index Stock repurchase programs have little impact on the share price of the implementing company, especially the stock price of the implementing company has shown signs of increasing before the company finishes buying back shares However, stock repurchase activity brings positive effects to companies in the same industry Besides, the information collected from the in-depth interview aslo adds the motive for enterprises to buy back shares including adjusting EPS index and adjusting stock prices as well as confirming the reacquisition of shares affect business performance and stock prices On the basis of the national industrial development policy until 2030, with a vision to 2045, the thesis offers different solutions for industrial companies which buy back shares, companies in the same industry and investors to achieve the industry’s development goals in the future In addition, a number of recommendations to state authorities are also proposed to enhance the management and transparency of the stock market as well as to control stock repurchase activity more closely and effectively ... Vietnam 1.2.1 Studies related to stock repurchase activity in Vietnam If there are a lot of studies on stock repurchase activity in the world, in Vietnam the number of studies on this activity... repurchase activity in industrial companies listed on Vietnam stock market in the period of 2010-2017 4.2.1 Regulations on stock repurchase activity in Vietnam Stock repurchase activity in Vietnam is regulated... 58/2012/ND-CP, Decree 60/2015/ND-CP, Circular 162/2015 /TT- BTC, Circular 203/2015 /TT- BTC 4.2.2 The process of stock repurchases in Vietnam In Vietnam, the stock repurchase process consists of steps: