Cảm tính nhà đầu tư, chất lượng lợi nhuận và chính sách cổ tức: Bằng chứng ở Việt Nam Tom tat_E

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY BUI KIM PHUONG INVESTOR SENTIMENT, EARNINGS QUALITY AND DIVIDEND POLICY: EVIDENCE FROM VIETNAM SUMMARY OF PHD THESIS Ho Chi Minh City – 2019 MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY BUI KIM PHUONG INVESTOR SENTIMENT, EARNINGS QUALITY AND DIVIDEND POLICY: EVIDENCE FROM VIETNAM Major: Finance – Banking Major code: 9340201 SUMMARY OF PHD THESIS SUPERVISOR: Assoc Prof Dr Nguyen Thi Ngoc Trang Ho Chi Minh City – 2019 CHAPTER 1: INTRODUCTION 1.1 Introduction The decision to pay dividends is one of the most important financial decisions in a firm Therefore, the investors and the policy makers always pay attention to this decision There are many theories that have been proposed to explain the dividend policy of the firm, such as the theory of tax, agency costs and signaling In addition, from the behavioral finance perspective, Baker and Wurgler (2004a) proposed the catering theory of dividends based on investor sentiment This theory was developed and tested by Baker and Wurgler (2004a) with data from US listed firms This theory is tested in other developed markets such as the United Kingdom, Australia, European countries and OECD countries In addition, a few studies that use data of emerging markets such as Brazil, Thailand or Taiwan also investigate the effect of investor sentiment on dividend policy However, these studies have not reached a consensus on results in general In recent years, there are many studies that conducted in Vietnam on determinants of the firms’ dividend policy Specifically, these studies focus on analyzing the effect of profitability, firm size, growth, risk, financial leverage, firm life cycle, and cash holdings on dividend policy Do the firms pay dividends to cater to the preference of investors when the Vietnamese market has many different features compared to developed markets? To answer this question, the thesis studies the relationship between investor sentiment and dividend policy in Vietnam with data of listed firms on HSX and HNX Besides, the thesis continues to study whether Vietnamese firms have the incentive to signal to investors about the earnings quality through dividend payment policy To clarify this issue, the thesis studies the relationship between earnings quality and dividend policy in Vietnam 1.2 Objectives The thesis is conducted to explain the motivation for dividend payment of listed firms in Vietnam To achieve this general objective, the thesis aims at two specific objectives: Test the catering theory of dividends through investigating the relationship between investor sentiment and the firms’ dividend payment policy Study the effect of earnings quality on the firms’ dividend payment policy 1.3 Research questions To achieve the above research objectives, the thesis focuses on addressing the following two research questions: Do firms make decisions to pay dividends to cater to the investors' preference? Do firms make decisions to pay dividends to signal about the earnings quality to investors? 1.4 Subject and scope of the study In order to distribute earnings to shareholders, besides cash dividend, the firms can also buy back shares However, compared to cash dividends, share repurchases are less common Therefore, the thesis only focuses on cash dividend policy of the firms Specifically, the thesis studies the dividend payment policy of 460 firms listed on HSX and HNX between 2010 and 2016 The data is collected from 2009 to 2017 The data needed for research is extracted from the Datastream database The final sample includes 2,653 firmyear observations 1.5 Methodology The thesis uses many different measures for both dependent and independent variables to ensure the robustness and reliability of the research results In addition, other factors that may affect the dividend policy of the firms are also controlled Besides, the thesis uses the system generalized method of moment to estimate the relationship between investor sentiment and dividend policy as well as the relationship between earnings quality and dividend policy This method can help solve endogenous problems as well as other defects of the research model 1.6 Structure of the thesis The thesis is structured into chapters Specifically, the introduction is presented in chapter The next chapter presents the theoretical framework and literature review Methodology is clarified in chapter Chapter presents and discusses research results Finally, the conclusions and some policy implications are presented in chapter CHAPTER 2: THEORETICAL FRAMEWORK AND LITERATURE REVIEW 2.1 DIVIDEND POLICY John Lintner is considered to be the founder of the modern perspective on dividend policy Specifically, Lintner (1956) proposed the target payout hypothesis, which suggests that dividends are a function of longterm sustainable income According to Lintner, dividend smoothing is common because managers believe that the market places a premium on firms that have a stable dividend policy Subsequent research by Miller and Modigliani (1961) suggests that in perfect and efficient capital markets, dividend policy does not affect the value of a firm By relaxing some of the assumptions made by Miller and Modigliani models, four major theories have been developed to explain the firm's dividend policy, including the theory of tax, signaling, agency cost and behavior In particular, the behaviorial theory on dividend preference of investors was developed by Shefrin and Statman (1984) based on psychological reasons such as regret aversion, mental accounting, prospect theory and self-control to explain why individual investors find dividends attractive From the ideas of Shefrin and Statman (1984), Baker and Wurgler (2004a) developed the catering theory of dividends According to this theory, firms choose payout policies to cater to investors' preference Specifically, when investor's preference for dividends declines, firms respond by not paying dividends and vice versa 2.2 INVESTOR SENTIMENT AND DIVIDEND POLICY 2.2.1 Investor sentiment Investor sentiment is how investors formulate expectations about future earnings Investors' decisions can be affected by sentiment and betting against sentimental investors is costly and risky Investor sentiment is not easy to measure accurately A number of measures have been proposed to measure investor sentiment, including dividend premium Based on dividend premium, Baker and Wurgler (2004a) developed the catering theory of dividends This theory will be presented in more detail below 2.2.2 The relationship between investor sentiment and dividend policy The catering theory of dividends was developed by Baker and Wurgler (2004a) that based on the ideas of Shefrin and Statman (1984), whereby firms choose a dividend payment policy to cater to the preference of the investors In particular, firms cater to investors by paying dividends when investors place a share price premium on firms that pay dividends In contrast, firms will not pay dividends when investors prefer firms that not pay dividends To measure the relative prices of firms that pay dividends and firms that not pay dividends, Baker and Wurgler (2004a) use dividend premium It is the relative market valuation of dividend payers versus dividend nonpayers Many empirical studies support the catering theory of dividends, such as those by Li and Lie (2006), Bulan et al (2007), Kale et al (2012), Liu and Chen (2015), Ferris et al (2006), Lee (2010) However, a number of other studies find no evidence to support this theory (Julio and Ikenberry, 2004; Hoberg and Prabhala, 2009; Li and Zhao, 2008; Renneboog and Trojanowski, 2011; Geiler and Renneboog, 2015; von Eije and Megginson, 2008) In addition, an international study by Ferris et al (2009) and Kuo et al (2013) find that firms in common law countries cater to the dividend preference of investors while firms in civil law countries not Other studies in emerging markets such as Brazil, Thailand and Taiwan show that firms cater to the dividend preference of investors (Boulton et al., 2012; Tangjitprom, 2013; Wang et al (2016) 2.3 EARNINGS QUALITY AND DIVIDEND POLICY 2.3.1 Earnings quality The earnings quality is an indicator of the quality of financial reporting Earnings are of high quality when they accurately reflect the firm's long-term performance In contrast, earnings are of low quality when they are manipulated The manipulated earnings are the result of intentional intervention of managers in the preparation of financial statements through accounting options in order to gain benefits either for themselves or for the firm 2.3.2 The relationship between earnings quality and dividend policy The outcome view of Jensen (1986) and La Porta et al (2000) contends that dividends are the result of effective governance Thus, the relationship between earnings quality and dividend policy is positive Meanwhile, the substitute view of Rozeff (1982) and La Porta et al (2000) suggest that dividend policy will substitute for strong governance Therefore, the substitute view predicts a negative relationship between earnings quality and dividend policy In addition, the information asymmetry between managers and outside investors causes reverse selection problems and limits the firm's ability to access external capital markets (Myers and Majluf, 1984) Therefore, from the information asymmetric view, the relationship between earnings quality and dividend policy is positive, similar to the outcome view of the free cash flow problem Besides, under the quiet life hypothesis, managers can abandon positive NPV investment projects when they are not closely monitored Assessing the quality of a firm's earnings can motivate managers to work harder Thus, the relationship between earnings quality and dividend policy is negative, similar to the substitute view of the free cash flow problem Some studies examine the information content of dividends by investigating whether dividend policy provides information about the quality of earnings Specifically, Tong and Miao (2011) find that dividend payment status is an indicator of the quality of a firm’s earnings and a piece of information can be provided by dividends that related to earnings quality Similarly, Skinner and Soltes (2011) find that dividends provide more information on sustainable earnings and require more stable cash flows, thus firms that pay dividends have more sustainable earnings compared to firms that not pay dividends Caskey and Hanlon (2013) also find that firms that are accused of fraud are less likely to pay dividends CHAPTER 3: METHODOLOGY 3.1 MODEL The following model is used to study the relationship between investor sentiment and dividend policy: DYi,t = β0 + β1DPEWi,t-1 + β2DYi,t-1 + β3ROAi,t + β4DAAi,t + β5MBi,t + β6LNTAi,t + β7RETAi,t + β8AGEi,t + β9CASHAi,t + β10TORi,t + β11FCFTAi,t + β12LTDAi,t + β13SYSi,t + β14IDIOi,t + µi,t (1) The following model is used to study the relationship between earnings quality and dividend policy: DYi,t = γ0 + γ1EQDDMi,t + γ2DYi,t-1 + γ3ROAi,t + γ4DAAi,t + γ5MBi,t + γ6LNTAi,t + γ7RETAi,t + γ8AGEi,t + γ9CASHAi,t + γ10TORi,t + γ11FCFTAi,t + γ12LTDAi,t + γ13SYSi,t + γ14IDIOi,t + εi,t 3.2 (2) VARIABLES THAT ARE USED IN THE MODEL In the thesis, dividend yield and dividend payout ratio are used to proxy for the firm's dividend policy Meanwhile, the dividend premium as defined by Baker and Wurgler (2004a) proxies for investor sentiment and the accrual quality and abnormal accrual are used to measure earnings quality In addition to investor sentiment and earnings quality, the thesis also controls other factors that may affect dividend policy, including profitability, firm size, investment opportunities, and firm life cycle, cash holdings, stock liquidity, free cash flow, financial leverage, risk and previous year’s dividend policy 3.3 DATA The data was collected from firms listed on HSX and HNX The sample includes 460 firms with a 7-year study period from 2010 to 2016, resulting in 2,653 firm-year observations This sample covers industries, including technology, industrials, consumer services, health care, consumer goods and basic materials 3.4 METHOD OF ESTIMATION The model is a dynamic panel data model Therefore, the thesis uses system GMM to handle endogenous problems as well as other defects of the model To ensure the reliability of estimation results, a number of necessary tests are conducted CHAPTER 4: RESULTS 4.1 THE RELATIONSHIP BETWEEN INVESTOR SENTIMENT AND DIVIDEND POLICY 4.1.1 Descriptive statistics Table 4.1 – Descriptive statistics Variable Mean Median SD Min Max DY 0.076 0.068 0.085 0.000 1.163 DIVE 0.437 0.437 0.401 0.000 2.147 DPEW 0.145 0.156 0.087 0.008 0.255 DPBV 0.162 0.182 0.113 0.010 0.370 DPMV 0.290 0.308 0.218 0.025 0.733 ROA 0.063 0.047 0.075 -0.128 0.345 DAA 0.066 0.062 0.179 -0.532 0.564 MB 0.945 0.892 0.322 0.378 2.414 LNTA 13.038 12.937 1.426 9.515 17.781 RETA 0.058 0.046 0.092 -0.287 0.349 AGE 6.159 6.000 2.838 3.000 18.000 CASHA 0.092 0.053 0.103 0.001 0.505 TOR 0.826 0.274 1.325 0.004 6.981 LTDA 0.085 0.026 0.127 0.000 0.578 FCFTA 0.055 0.045 0.127 -0.272 0.454 SYS 0.345 0.301 0.174 0.107 0.937 IDIO 0.013 0.012 0.005 0.005 0.027 No of firms No of observations 460 2,653 Table 4.1 shows that the dividend premium is always positive during the study period from 2010 to 2016 In addition, the average dividend yield and dividend payout ratio of firms in the sample are 7.6% and 43.7%, respectively The thesis continues to analyze the fundermental characteristics of the group of firms that pay dividends and the group of firms that not pay dividends Table 4.2 presents the mean and median values of all controlled factors in the model and statistical significance of the difference between these two groups of firms In addition, Table 4.2 shows statistically significant differences in most variables used in the model between dividend payers and dividend nonpayers Specifically, there is a difference in profitability (ROA), investment opportunities (DAA and MB), firm life cycle (RETA), cash holdings (CASHA), stock liquidity (TOR), financial leverage (LTDA), free cash flow (FCFTA), systematic risk (SYS) and idiosyncratic risk (IDIO) between dividend payers and dividend nonpayers However, there is no difference in firm size (LNTA) and firm age (AGE) between these two groups of firms Table 4.2 – Dividend payers and dividend nonpayers comparisions on firm characteristics Dividend payers Variable ROA DAA NObs Dividend nonpayers Mean Median NObs Mean 1,877 0.088 0.068 776 0.016 1,877 0.087 0.086 776 MB 1,877 0.972 0.913 LNTA 1,877 13.007 RETA 1,877 AGE CASHA TOR LTDA Median Tests for differences Mean Median 0.009 0.072*** 0.059*** 0.040 0.030 0.047*** 0.056*** 776 0.842 0.836 0.130*** 0.077*** 12.918 776 12.926 12.775 0.081 0.143 0.082 0.061 776 0.000 0.012 0.082*** 0.049*** 1,877 5.581 5.000 776 5.633 5.000 -0.052 0.000 1,877 0.115 0.077 776 0.057 0.029 0.058*** 0.048*** 1,877 0.806 0.301 776 1.222 0.446 -0.416*** -0.145*** 1,877 0.080 0.024 776 0.102 0.037 -0.022*** -0.013*** FCFTA 1,877 0.073 0.063 776 0.022 0.014 0.051*** 0.049*** AGE 1,877 5.581 5.000 776 5.633 5.000 -0.052 0.000 SYS 1,877 0.279 0.244 776 0.361 0.321 -0.082*** -0.077*** IDIO 1,877 0.012 0.011 776 0.014 0.014 -0.002*** -0.003*** *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Next, Table 4.3 presents the correlation coefficient among the variables in the model According to Baker and Wurgler (2004a), if managers cater to investors, the dividend premium will be positively correlated with the dividend policy However, Table 4.3 shows that the correlation coefficient between dividend premium (DPEW) and dividend policy (DY) is negative In addition, dividend policy (DY) is also negatively correlated with two measures of investment opportunities (DAA and MB), cash holdings (CASHA), firm size (LNTA), and stock liquidity (TOR), systematic risk (SYS) and idiosyncratic risk (IDIO) In contrast, the correlation between dividend policy (DY) and profitability (ROA), firm life cycle (RETA and AGE), financial leverage (LTDA) and free cash flow (FCFTA) is positive Table 4.3 also shows the correlation between all explanatory variables in the model is relatively low, in which, the highest is between profitability (ROA) and firm life cycle (RETA), 0,719 Therefore, it can be concluded that there is no multicollinearity among independent variables Table 4.3 – Correlation matrix DY DPEW ROA DAA MB LNTA RETA LTDA TOR CASHA FCFTA AGE DPEW -0.217*** ROA 0.337*** -0.091*** DAA -0.065*** -0.111*** 0.287*** MB -0.102*** 0.101*** 0.414*** 0.150*** LNTA -0.071*** 0.045** -0.053*** 0.187*** 0.126*** RETA 0.269*** -0.046** 0.719*** 0.204*** 0.289*** 0.029 LTDA 0.067*** -0.034* -0.224*** 0.110*** 0.003 0.366*** -0.174*** TOR -0.104*** -0.088*** -0.076*** 0.127*** -0.063*** 0.066*** -0.101*** 0.006 CASHA -0.168*** 0.006 0.399*** 0.061*** 0.187*** -0.108*** 0.353*** -0.233*** -0.099*** FCFTA 0.137*** 0.032* 0.367*** -0.204*** 0.185*** -0.065*** 0.233*** -0.031 -0.090*** 0.220*** AGE 0.127*** 0.447*** -0.042** -0.076*** 0.009 0.122*** -0.028 -0.057*** -0.148*** 0.038** -0.018 SYS -0.176*** 0.434*** -0.206*** -0.126*** -0.059*** -0.225*** -0.209*** -0.048** -0.060*** -0.061*** -0.062*** 0.178*** IDIO -0.119*** 0.018 -0.182*** -0.043** -0.079*** -0.348*** -0.239*** -0.014 0.161*** -0.123*** -0.049** -0.137*** *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively SYS 0.704*** 4.1.2 Regression result on the relationship between investor sentiment and dividend policy To investigate whether the manager caters to investor preference when making decision to pay dividends, the dividend yield (DY) is regressed on the dividend premium (DPEW), which is a proxy for investor sentiment In addition, the model also includes control variables to test whether dividend policy as well as the relationship between investor sentiment and dividend policy is affected by these factors Specifically, the model further analyzes the effect of previous year's dividend policy (L1.DY), profitability (ROA), investment opportunities (DAA and MB), firm size (LNTA), firm life cycle (RETA and AGE), cash holdings (CASHA), stock liquidity (TOR), free cash flow (FCFTA), financial leverage (LTDA), systematic risk (SYS) and idiosyncratic risk (IDIO) on the firm's dividend payout policy The regression results for panel data are presented in Table 4.4 In particular, the M1 model analyzes the effect of dividend premium on dividend policy of the firm, while controlling other factors that may affect dividend policy, including the previous year's dividend policy (L1.DY), profitability (ROA), investment opportunities (DAA and MB), cash holdings (CASHA), stock liquidity (TOR), firm life cycle (AGE and RETA), systematic risk (SYS) and idiosyncratic risk (IDIO) The M2, M3 and M4 models expand the M1 model, including free cash flow (FCFTA), firm size (LNTA) and financial leverage (LTDA), respectively 11 This section presents robusness tests to ensure that the results of the research on the relationship between investor sentiment and dividend policy presented in Table 4.4 are reliable First, regress dividend yield (DY) with two other measures of dividend premium (DPBV and DPMV) Table 4.5 shows that with these two measures of dividend premium, the research results are unchanged, the coefficients of dividend premium are still negative Next, the dividend payout ratio (DIVE) is used as a dependent variable instead of the dividend yield (DY) and regress with all three measures of dividend premium (DPEW, DPBV and DPMV) Table 4.6 shows that the study has not found support for the catering theory of dividends in the case of using dividend payout ratio as a dependent variable Although the proportion of firms that pay stock dividend is relatively low in the research period, however, to ensure the generalization of the study, the thesis will investigate the effect of the decision to pay stock dividend on the firm's cash dividend policy Table 4.7 presents the regression results when the stock dividend dummy variable (SDIVD) is included to the model Accordingly, the coefficients of the variable SDIVD is not statistically significant in all three models In addition, the dividend premium variable is still negative Thus, the thesis has not found the effect of decision to pay stock dividend on cash dividend policy, and the relationship between dividend premium and dividend policy is not affected by the stock dividend In addition, in Vietnam, most listed firms are formed by the equitization process of state-owned enterprises In recent years, the process of equitisation and divestment of state ownership is taking place in many firms, however, due to the slow speed, this process has not reached the target As such, it can be seen that state shareholders still significantly influence the financial decisions of many listed firms In Vietnam, in the period of 2010-2016, in the group of firms that pay dividends, state-owned firms accounted for 59% In the group of firms that not pay dividends, only 14% of the firms are state-owned In addition, in the two groups that pay high dividend and pay continuous dividend, state-owned firms accounted for 65% and 73%, respectively Thus, it can be seen that state shareholders have a certain influence on the firm's dividend payment policy To clarify this problem, the thesis includes state ownership variables in the regression model Specifically, the thesis uses a binary variable to proxy for state ownership This variable takes the value of if the firm is state-owned and if otherwise and is denoted as STATED Table 4.8 shows that the STATED variable is positive and statistically significant at 1% in all three models As such, to ensure their interests, state shareholders may exert pressure on firms to pay dividends This may be the reason why most of the listed firms in Vietnam still pay dividends to shareholders even though the catering incentive is not present All robustness tests presented in section 4.1.3 are performed by replicating the M4 baseline model in Table 4.4 The results of these tests are presented below 12 Table 4.5 – Regression results with other two measures of dividend premium BV MV 0.348*** 0.353*** (0.053) (0.052) -0.053*** -0.018** (0.017) (0.008) 0.431*** 0.435*** (0.069) (0.068) -0.005 -0.005 (0.011) (0.011) -0.061*** -0.062*** (0.007) (0.008) -0.043 -0.042 (0.026) (0.027) -0.005*** -0.005*** (0.001) (0.001) 0.009** 0.009** (0.004) (0.004) -0.002 -0.004 (0.029) (0.028) -0.008 -0.025 (0.019) (0.018) -0.322 0.182 (0.675) (0.632) -0.009 -0.009 (0.014) (0.014) -0.003* -0.004* (0.002) (0.002) 0.051** 0.050** (0.022) (0.022) 0.142*** 0.141*** (0.030) (0.029) 380 (460) 380 (460) F-test (p-value) 0.000 0.000 AR(1) test (p-value) 0.000 0.000 AR(2) test (p-value) 0.961 0.969 Hansen J test (p-value) 0.214 0.222 L1.DY DP ROA DAA MB CASHA TOR AGE RETA SYS IDIO FCFTA LNTA LTDA Constant No of instrument (No of group) *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Values in brackets are standard errors 13 Table 4.6 – Regression result when dividend payout ratio is used as dependent variable EW BV MV 0.430*** 0.431*** 0.431*** (0.051) (0.050) (0.050) 0.103 0.019 0.016 (0.141) (0.093) (0.045) 0.103 -0.299 -0.296 (0.212) (0.213) (0.213) -0.062 -0.061 -0.061 (0.054) (0.054) (0.054) 0.049 0.035 0.033 (0.030) (0.040) (0.040) -0.019 -0.027 -0.025 (0.116) (0.117) (0.118) -0.009 -0.008 -0.009 (0.007) (0.007) (0.007) 0.059*** 0.060*** 0.060*** (0.022) (0.022) (0.022) 0.703*** 0.701*** 0.701*** (0.128) (0.127) (0.127) -0.044 -0.011 -0.022 (0.102) (0.111) (0.107) -5.816 -6.844* -6.500* (3.843) (3.904) (3.763) -0.092 -0.094 -0.095 (0.080) (0.081) (0.081) -0.027*** -0.027*** -0.027*** (0.010) (0.010) (0.010) -0.062 -0.067 -0.069 (0.131) (0.131) (0.132) 0.600*** 0.602*** 0.598*** (0.145) (0.144) (0.143) No of instrument (No of group) 380 (460) 380 (460) 380 (460) F-test (p-value) 0.000 0.000 0.000 AR(1) test (p-value) 0.000 0.000 0.000 AR(2) test (p-value) 0.196 0.197 0.195 Hansen J test (p-value) 0.156 0.147 0.144 L1.DIVE DP ROA DAA MB CASHA TOR AGE RETA SYS IDIO FCFTA LNTA LTDA Constant *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Values in brackets are standard errors 14 Table 4.7 – Regression result when stock dividend is included L1.DY L1.DP ROA DAA MB CASHA TOR AGE RETA SYS IDIO SDIVD FCFTA LNTA LTDA Constant EW BV MV 0.358*** 0.372*** 0.376*** (0.054) (0.051) (0.051) -0.104*** -0.055*** -0.017** (0.031) (0.019) (0.009) 0.313*** 0.319*** 0.328*** (0.069) (0.069) (0.069) 0.020 0.006 0.005 (0.022) (0.021) (0.020) -0.042*** -0.045*** -0.047*** (0.008) (0.008) (0.008) -0.070*** -0.073*** -0.070** (0.027) (0.028) (0.028) -0.003* -0.003** -0.003** (0.002) (0.002) (0.002) 0.013*** 0.012*** 0.011** (0.003) (0.004) (0.004) 0.038 0.042 0.037 (0.031) (0.030) (0.030) -0.005 -0.007 -0.028 (0.020) (0.022) (0.021) -1.123 -0.912 -0.366 (0.787) (0.787) (0.765) -0.002 (0.004) 0.004 (0.020) -0.006*** (0.002) 0.060* (0.031) 0.166*** (0.032) -0.002 (0.004) 0.002 (0.019) -0.005*** (0.002) 0.061** (0.029) 0.158*** (0.032) -0.002 (0.004) 0.000 (0.019) -0.006*** (0.002) 0.062** (0.030) 0.161*** (0.031) No of instrument (No of group) 304 (460) 304 (460) 304 (460) F-test (p-value) 0.000 0.000 0.000 AR(1) test (p-value) 0.000 0.000 0.000 AR(2) test (p-value) 0.967 0.988 0.996 Hansen J test (p-value) 0.113 0.115 0.113 *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Values in brackets are standard errors 15 Table 4.8 – Regression result when state ownership and interaction variable between state ownership and dividend premium are included L1.DY DPEW ROA DAA MB CASHA TOR AGE RETA SYS IDIO STATED (1) (2) 0.332*** 0.336*** (0.056) (0.055) -0.096*** -0.104*** (0.026) (0.027) 0.429*** 0.444*** (0.069) (0.068) 0.000 -0.002 (0.011) (0.011) -0.061*** -0.061*** (0.007) (0.007) -0.043 (0.026) -0.004*** (0.001) 0.010** (0.004) -0.004 (0.029) -0.005 (0.018) -0.410 (0.647) 0.009** (0.004) -0.041 (0.026) -0.004*** (0.001) 0.010** (0.004) -0.010 (0.029) -0.011 (0.018) -0.289 0.669 STATED*DPEW FCFTA LNTA LTDA Hằng số No of instrument (No of group) F-test (p-value) AR(1) test (p-value) AR(2) test (p-value) Hansen J test (p-value) -0.008 (0.013) -0.003* (0.002) 0.042* (0.021) 0.135*** (0.028) 0.031** (0.015) -0.011 (0.013) -0.004** (0.002) 0.056** (0.021) 0.145*** (0.029) 381 (460) 0.000 0.000 0.968 0.267 381 (460) 0.000 0.000 0.973 0.264 *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Values in brackets are standard errors 16 Section 4.1 presents the research results on the relationship between investor sentiment and dividend policy Specifically, the two proxies for the dividend policy are dividend yield and dividend payout ratio (DY and DIVE) are regressed on three measures of dividend premium (DPW, DPBV and DPMV) In addition, the model controls other factors that may affect dividend policy as well as the relationship between investor sentiment and dividend policy including the previous year's dividend policy (L1.DY, L1.DIVE), profitability (ROA), investment opportunities (DAA and MB), firm size (LNTA), firm life cycle (AGE and RETA), cash holdings (CASHA), stock liquidity (TOR), free cash flow (FCFTA), financial leverage (LTDA), systematic risk (SYS) and idiosyncratic risk (IDIO) Besides, the thesis also investigates the decision to pay stock dividend and state ownership However, the results of the studies presented in Tables 4.4, 4.5, 4.6, 4.7 and 4.8 have not found evidence to support the catering theory of dividends proposed by Baker and Wurgler (2004a) because the dividend premium (DPW, DPBV and DPMV) is negative, contrary to the expectations of this theory In summary, the achieved results have not found a positive relationship between investor sentiment and dividend policy of the firm This means that the manager does not cater to investors' preference when making decisions on dividend policy So, why the proportion of firms that pay dividends always higher than that of firms that not pay dividends when catering incentive is not present? According to Koo et al (2017), firms with high earnings quality pay higher dividends Thus, firms can signal to investors about the quality of their earnings through dividend policy Is this the reason why most listed firms in Vietnam still pay dividends to shareholders? To answer this question, in section 4.2, the thesis will investigate the relationship between earnings quality and dividend policy of firms 4.2 THE RELATIONSHIP BETWEEN EARNINGS QUALITY AND DIVIDEND POLICY 4.2.1 Descriptive statistics Table 4.9 – Descriptive statistics Variable Mean Median SD Min Max EQDDM 0.069 0.050 0.063 0.001 0.330 EQJ 0.099 0.069 0.100 0.001 0.562 EQMJ 0.101 0.070 0.102 0.001 0.579 No of firms 460 No of obs 2,653 According to Table 4.9, all three measures of earnings quality are always positive during the 2010-2016 study period This means that all firms in the sample manage their earnings with different level When compared with Chinese firms in the research of Deng et al (2017), Vietnamese firms have higher earnings quality However, if compared with firms in the US in the research of Tong and Miao (2011), the earnings quality of firms in Vietnam is lower Research results of Nguyen Thi Phuong Hong (2017) also show that compared to some other countries in the world, firms in Vietnam have average earnings quality In addition, the earnings quality of firms operating in different industries may vary due to industry specificity To clarify this, the mean value of the three earnings quality measures (EQDDM, EQJ and EQMJ) per six industries are presented in Table 4.10 below 17 Table 4.10 – Mean of three measures of earnings quality per six industries Industry EQDDM EQJ EQMJ No of obs Percentage of obs Technology 0.063 0.098 0.098 125 5% Industrials 0.095 0.094 0.094 1.286 49% Consumer services 0.049 0.086 0.086 268 10% Health care 0.043 0.074 0.074 106 4% Consumer goods 0.073 0.114 0.114 459 17% Basic materials 0.073 0.114 0.114 409 15% 2,653 100% Total Table 4.10 shows that in all three measures, the health care industry has the highest earnings quality In addition, consumer services are also industries with relatively high earnings quality In contrast, the remaining four industries of basic materials, technology, industrials and consumer goods are of lower earnings quality In addition, Table 4.10 also shows that the number of firms in industrials accounts for the highest proportion among the six industries, about 49% of the observations while the health care and technology industries account for the lowest, only about 4% to 5% Besides, is there a difference in earnings quality between firms that pay dividends and firms that not pay dividends? To clarify this, the mean and median values of the three earnings quality measures are calculated for each group of firms Table 4.11 compares firms that pay dividends to firms that not pay dividends through univariate tests of the differences between the two groups of firms The variables tested include three measures of earnings quality (EQDDM, EQJ and EQMJ) Table 4.11 – Dividend payers and dividend nonpayers comparisions on earnings quality Dividend payers Variable NObs Mean Median Dividend nonpayers NObs Mean Median Tests for differences Mean Median EQDDM 1,877 0.069 0.049 776 0.077 0.057 -0.008*** -0.008** EQJ 1,877 0.067 0.048 776 0.073 0.053 -0.006** -0.005** EQMJ 1,877 0.100 0.067 776 0.103 0.071 -0.003** -0.004** *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Univariate analysis presented in table 4.11 shows that both firms that pay dividends and firms that not pay dividends manage their earnings, however, firms that pay dividends manage earnings less than firms that not pay dividends This univariate evidence is also found in the research of Tong and Miao (2011) and He et al (2017) Table 4.12 shows the correlation coefficient of the variables used in the model Accordingly, the measure of earnings quality (EQDDM) is negatively correlated with the dividend yield (DY) This analysis further suggests evidence that high earnings quality firms pay higher dividends than low earnings quality firms In addition, the correlation among all variables in the model is relatively low, so there is no evidence that the research results are affected by the multicollinearity problem 18 Table 4.12 – Correlation matrix DY EQDDM ROA DAA MB LNTA RETA LTDA TOR CASHA FCFTA AGE EQDDM -0.058*** ROA 0.337*** -0.009 DAA -0.065*** 0.135*** 0.287*** MB -0.102*** 0.025 0.414*** 0.150*** LNTA -0.071*** -0.031 -0.053*** 0.187*** 0.126*** RETA 0.269*** -0.065*** 0.719*** 0.204*** 0.289*** 0.029 LTDA 0.067*** -0.042** -0.224*** 0.110*** 0.003 0.366*** -0.174*** TOR -0.104*** 0.121*** -0.076*** 0.127*** -0.063*** 0.066*** -0.101*** 0.006 CASHA -0.168*** -0.043** 0.399*** 0.061*** 0.187*** -0.108*** 0.353*** -0.233*** -0.099*** FCFTA 0.137*** -0.041** 0.367*** -0.204*** 0.185*** -0.065*** 0.233*** -0.031 -0.090*** 0.220*** AGE 0.127*** -0.064*** -0.042** -0.076*** 0.009 0.122*** -0.028 -0.057*** -0.148*** 0.038** -0.018 SYS -0.176*** 0.058*** -0.206*** -0.126*** -0.059*** -0.225*** -0.209*** -0.048** -0.060*** -0.061*** -0.062*** 0.178*** IDIO -0.119*** 0.111*** -0.182*** -0.043** -0.079*** -0.348*** -0.239*** -0.014 0.161*** -0.123*** -0.049** -0.137*** *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively SYS 0.704*** 19 4.2.2 Regression result on the relationship between earnings quality and dividend policy Research results on the relationship between earnings quality and dividend policy are presented in Table 4.13 In which, the dependent variable is the dividend yield (DY) The explanatory variable is the first measure of earnings quality (EQDDM), this is the absolute value of the regression residual estimated from Dechow and Dichev (2002) as modified by McNichols (2002) In addition, the regression model also controls other variables, including previous year's dividend policy (L1.DY), profitability (ROA), investment opportunities (DAA and MB), firm size (LNTA), firm life cycle (RETA and AGE), cash holdings (CASHA), stock liquidity (TOR), free cash flow (FCFTA), financial leverage (LTDA), systematic risk (SYS) and idiosyncratic risk (IDIO) In table 4.13, the M1 model analyzes the relationship between earnings quality and the firm's dividend policy, while controlling other factors including previous year's dividend policy (L1.DY), profitability (ROA), investment opportunities (DAA and MB), firm size (LNTA), firm life cycle (RETA and AGE), cash holdings (CASHA), stock liquidity ( TOR) and free cash flow (FCFTA) The M2, M3 and M4 models extend the M1 model, including financial leverage (LTDA), systematic risk (SYS) and idiosyncratic risk (IDIO) In the financial statements, the investors pay much attention to the firms’ earnings However, this number may be distorted and may not reflect true performance of the firm Earnings quality can be assessed by analyzing many factors such as business activity, accounting regime, the amount and quality of information disclosed, the effectiveness and reputation of managers, as well as the opportunities and incentives to intervene in earnings When management intervenes in the financial reporting process, the earnings quality is low The quality of earnings is an indicator of the quality of financial reporting and an indicator of the firm's future performance as well as a useful tool for determining firm value Therefore, the earnings quality of a firm has a significant effect on the decisions of its stakeholders, such as shareholders, bondholders, banks, policymakers, suppliers, and competitors The firm has a high earnings quality if the information in the financial statements accurately describes the performance of its business 20 Table 4.13 – The relationship between earnings quality and dividend policy L1.DY EQDDM ROA DAA MB LNTA RETA AGE CASHA TOR FCFTA M1 M2 M3 M4 0.604*** 0.585*** 0.606*** 0.619*** (0.038) (0.040 (0.041) (0.038) -0.123** -0.126** -0.137*** -0.156*** (0.052) (0.052) (0.051) (0.054) 1.098*** 1.122*** 1.214*** 1.284*** (0.191) (0.201) (0.198) (0.201) 0.047 0.044 0.049 0.060 (0.043) (0.045) (0.044) (0.046) -0.039 -0.038 -0.048* -0.067*** (0.024) (0.024) (0.025) (0.024) -0.001 0.003 -0.001 -0.014 (0.010) (0.011) (0.010) (0.009) 0.400*** 0.401*** 0.357*** 0.288** (0.137) (0.142) (0.137) (0.138) 0.005** 0.005** 0.006*** 0.006** (0.002) (0.003) (0.003) (0.003) 0.056 0.058 0.057 0.049 (0.074) (0.082) (0.084) (0.089) -0.007 -0.007 -0.005 -0.001 (0.007) (0.007) (0.007) (0.007) 0.015 0.032 0.029 0.029 (0.059) (0.060) (0.059) (0.066) -0.044 0.007 0.074 (0.125) (0.112) (0.110) -0.032 0.067 (0.043) (0.070) LTDA SYS IDIO -4.918* (2.756) Constant 0.202 0.167 0.207* 0.400*** (0.126) (0.133) (0.123) (0.121) No of instrument (No of group) 285 (460) 319 (460) 353 (460) 387 (460) F-test (p-value) 0.000 0.000 0.000 0.000 AR(1) test (p-value) 0.000 0.000 0.000 0.000 AR(2) test (p-value) 0.215 0.224 0.209 0.192 Hansen J test (p-value) 0.137 0.143 0.207 0.338 *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Values in brackets are standard errors 21 Table 4.13 shows that the coefficient of earnings quality variable (EQDDM) is negative and statistically significant in all four models As such, firms with higher earnings quality will pay higher dividends, consistent with Koo et al (2017) Dividend payers often have a more stable cash flow, resulting in higher reported earnings quality than dividend nonpayers In addition, when the information environment is less transparent, insiders have the opportunities to retain more cash for their private benefits without being detected On the contrary, when the information environment is more transparent, retaining cash instead of paying dividends to shareholders will adversely affect the reputation of the firm and reduce the probability in accessing the external capital The results also support the outcome view of the free cash flow problem of Jensen (1986) and La Porta et al (2000) In summary, when controlling for factors that may affect dividend policy, this study shows that firms with high earnings quality pay higher dividends than firms with low earnings quality When the firm pays dividends, the private control benefits for insiders are limited and they have fewer opportunities to consume these benefits Conversely, when the firm does not pay dividends, managers will have more private control benefits, and they can also conceal these benefits through earnings management behavior Thus, firms can signal to investors about the quality of their earnings through dividend payment decisions 4.2.3 Robustness tests This section presents robustness tests to ensure that the research results presented in Table 4.13 on the relationship between earnings quality and dividend policy are reliable First, regress dividend yield (DY) on the remaining two measures of earnings quality (EQJ and EQMJ) Table 4.14 shows that the coefficients of EQJ and EQMJ are both negative and statistically significant, similar to the results achieved with the first measure of earnings quality (EQDDM) Thus, with the other two measures of earnings quality, the research results remain unchanged Next, the dividend payout ratio (DIVE) is used as a dependent variable instead of the dividend yield (DY) and regressed with all three measures of earnings quality (EQDDM, EQJ and EQMJ) Table 4.15 presents the results of regression with dividend payout ratio (DIVE) as a dependent variable In addition, the model also includes other control variables similar to the M4 model in Table 4.13 Table 4.15 shows that the coefficients of all three measures of earnings quality (EQDDM, EQJ and EQMJ) are negative Thus, the research results still show a positive relationship between earnings quality and dividend policy in case the dividend payout ratio is used as the dependent variable Robusness tests are performed by replicating the M4 baseline model in Table 4.13 with the same regression techniques Factors include previous year's dividend policy (L1.DY), profitability (ROA), investment opportunities (DAA and MB), firm size (LNTA), firm life cycle (RETA and AGE), cash holdings (CASHA), stock liquidity (TOR), free cash flow (FCFTA), financial leverage (LTDA), systematic risk (SYS) and idiosyncratic risk (IDIO) are also controlled 22 Table 4.14 – Regression result with other two measures of earnings quality EQJ EQMJ 0.613*** 0.630*** (0.041) (0.040) -0.154* -0.118* (0.087) (0.067) 1.296*** 1.332*** (0.190) (0.187) 0.046 0.033 (0.046) (0.045) -0.059** -0.063*** (0.023) (0.022) -0.014 -0.013* (0.009) (0.008) 0.273** 0.254* (0.137) (0.132) 0.006** 0.006** (0.003) (0.003) 0.055 0.052 (0.081) (0.084) -0.001 -0.001 (0.007) (0.007) 0.023 0.019 (0.060) (0.062) 0.079 0.124 (0.122) (0.116) 0.062 0.059 (0.073) (0.071) -4.975* -4.296 (2.650) (2.696) 0.392*** 0.376*** (0.119) (0.115) No of instrument (No of group) 387 (460) 387 (460) F-test (p-value) 0.000 0.000 AR(1) test (p-value) 0.000 0.000 AR(2) test (p-value) 0.201 0.186 Hansen J test (p-value) 0.409 0.406 L1.DY EQ ROA DAA MB LNTA RETA AGE CASHA TOR FCFTA LTDA SYS IDIO Constant *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Values in brackets are standard errors 23 Table 4.15 – Regression result with dividend payout ratio L1.DIVE EQ ROA DAA MB LNTA RETA CASHA TOR FCFTA AGE LTDA SYS IDIO Constant EQJ EQMJ EQDDM 0.433*** 0.430*** 0.449*** (0.053) (0.050) (0.050) -0.173* -0.091* -0.144* (0.097) (0.049) (0.085) -0.311 -0.255 -0.283 (0.221) (0.155) (0.209) -0.047 -0.038 -0.045 (0.055) (0.054) (0.056) -0.024** -0.025** -0.026** (0.010) (0.011) (0.010) -0.027** -0.029*** -0.030*** (0.011) (0.011) (0.011) 0.700*** 0.753*** 0.705*** (0.138) (0.131) (0.130) 0.145 0.150 0.151 (0.095) (0.097) (0.097) -0.007 -0.008 -0.006 (0.008) (0.008) (0.008) -0.097 -0.096 -0.098 (0.077) (0.079) (0.080) 0.001 0.001 0.001 (0.004) (0.004) (0.003) -0.091 -0.051 -0.010 (0.133) (0.126) (0.126) 0.018 0.011 -0.011 (0.074) (0.076) (0.073) -7.321** -6.969** -6.409** (2.903) (2.848) (2.789) 0.624*** 0.625*** 0.643*** (0.150) (0.146) (0.152) No of instrument (No of group) 376 (460) 376 (460) 376 (460) F-test (p-value) 0.000 0.000 0.000 AR(1) test (p-value) 0.000 0.000 0.000 AR(2) test (p-value) 0.214 0.207 0.194 Hansen test (p-value) 0.124 0.114 0.170 *, **, *** denote statistical significance at the 10%, 5% and 1% level, respectively Values in brackets are standard errors 24 CHAPTER 5: CONCLUSIONS AND IMPLICATIONS 5.1 Conclusion Research results show that the percentage of firms that pay dividends is always higher than that of firms that not pay dividends However, the incentive for most firms to pay dividends is not to cater to investors’ preference, as the coefficient of dividend premium is negative, which is contrary to the arguments of Baker and Wurgler (2004a) Thus, the research results have not found evidence supporting the catering theory of dividends proposed by Baker and Wurgler (2004a) Besides, from the aspect of earnings quality, the thesis finds a positive relationship between earnings quality and dividend payment policy of the firm This means that high earnings quality firms pay higher dividends The results of this study contribute to explain why the majority of firms still pay dividends to shareholders even though the catering incentive is not present 5.2 IMPLICATIONS For firm managers, through paying dividends to shareholders, managers can establish or enhance the firm's reputation Therefore, a stable cash dividend payment policy will help the firm strengthen investors’ confidence and create more favorable conditions for the firm to raise equity in the future In addition, when the firm is performing well, managers can consider to begin to pay, continue to pay or increase dividends for shareholders For investors, although the manager does not cater to their preference for dividends when making decision to pay dividends, the dividend policy is still a good source of information for investors Specifically, firms that pay dividends are expected to have a higher earnings quality than firms that not pay dividends In addition, firms with a history of steadily paying dividends or more mature in the life cycle with high profitability and decreasingly investment opportunities, the dividend policy is forecasted to be more stable and is a more reliable signal 5.3 LIMITATION AND FUTURE RESEARCH Many measures have been proposed to measure investor sentiment and earings quality of the firm In the thesis, investor sentiment is proxied by dividend premium while earings quality is measured by accruals quality and abnormal accruals Due to insufficient data, the thesis does not use other measures for investor sentiment as well as for earings quality and this is also a limitation of the research In addition to cash dividends, firms can also buy back shares to distribute earnings to shareholders Therefore, future research may investigate this form of distribution to clarify whether in Vietnam, firms make decision to buy back shares to cater to investors Besides, in the coming years, Vietnam's stock market may be upgraded to emerging market Therefore, in the future, the research can be expanded to compare the effect of investor sentiment on the firm's dividend payment incentive before and after the market is upgraded 25 LIST OF AUTHOR’S PUBLICATIONS Nguyen Thi Ngoc Trang, & Bui Kim Phuong (2017) Study on determinants of dividend policy using FamaMacBeth regression technique: Empirical evidence in Vietnam Journal of Economic Development, 28(9), 04–24 Bui Kim Phuong (2018) The effect of firm life cycle on dividend policy of Vietnamese listed firms Journal of Banking Technology, 150, 54–61 Nguyen Thi Ngoc Trang, & Bui Kim Phuong (2018) Determinants of earnings quality of Vietnamese listed firms Journal of Asian Business and Economic Studies, 29(7), 05–20 Nguyen Thi Ngoc Trang, & Bui Kim Phuong (2019) The relationship between investor sentiment and dividend policy: Empirical evidence in Vietnam Journal of Asian Business and Economic Studies, 30(1), 05–25 Bui Kim Phuong (2019) Stock liquidity and dividend policy Journal of Economics and Development, 267, 42–49 Nguyen, T & Bui, P (2019) Dividend policy and earnings quality in Vietnam Journal of Asian Business and Economic Studies, 26(2), 301-312 ... Vietnamese market has many different features compared to developed markets? To answer this question, the thesis studies the relationship between investor sentiment and dividend policy in Vietnam... earnings quality and dividend policy in Vietnam 1.2 Objectives The thesis is conducted to explain the motivation for dividend payment of listed firms in Vietnam To achieve this general objective,... al (2017), Vietnamese firms have higher earnings quality However, if compared with firms in the US in the research of Tong and Miao (2011), the earnings quality of firms in Vietnam is lower Research