The relation between stock liquidity, foreign investor trading and firm value

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY OF HO CHI MINH CITY NGUYỄN HUỲNH TUYẾT TRINH THE RELATION BETWEEN STOCK LIQUIDITY, FOREIGN INVESTOR TRADING AND FIRM VALUE BACHELOR THESIS MAJOR: FINANCIAL – BANKING NUMBER: 7340201 SUPERVISOR: PH.D LƯU THU QUANG Ho Chi Minh City, September 2021 MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIET NAM BANKING UNIVERSITY OF HO CHI MINH CITY NGUYỄN HUỲNH TUYẾT TRINH THE RELATION BETWEEN STOCK LIQUIDITY, FOREIGN INVESTOR TRADING AND FIRM VALUE BACHELOR THESIS MAJOR: FINANCIAL – BANKING NUMBER: 52340201 SUPERVISOR: PH.D LƯU THU QUANG Ho Chi Minh City, September 2021 i ABSTRACT The paper uses one of the most important asset pricing models for stock investors Applying the Fama-French three factors model, and adding considerable factors to be mentioned when investing: firm value factor, stock liquidity factor and foreign trading volume factor The author considers the influence of these factors when added to the Fama-French model on the return of stocks in portfolios, considering the relationship of the newly added factors to the factors available in the model and the factors themselves In addition, the author examines the influence of the above factors on portfolios built when combined by other methods This thesis uses measurement data of non-financial companies listed on Ho Chi Minh Stock Exchange (HOSE), from January 2015 to December 2019 ii DECLARATION OF AUTHENTICITY This thesis is the author’s own research work The research results are valid and right, there is no previously published or third-party content except for the complete source I have mentioned in the reference of the in this paper Ho Chi Minh City, September 2021 iii ACKNOWLEDGEMENT I would like to express my gratitude and respect towards PhD Luu Thu Quang for his patience, understanding and considerate support to provide me with useful recommendations and guidance in the progress of this thesis Ho Chi Minh City, September 2021 TABLE OF CONTENTS ABSTRACT i DECLARATION OF AUTHENTICITY ii ACKNOWLEDGEMENT iii CHAPTER 1: INTRODUCTION 1.1 Reason to research 1.2 Research objective 1.3 Research questions 1.4 Research subject and range .3 1.5 Methodology .3 1.6 Research outline CHAPTER 2: LITERATURE REVIEW 2.1 Definition .5 2.1.1 Liquidity 2.1.2 Firm value .5 2.1.3 Foreign portfolio investment 2.1.4 Investment portfolio 2.1.5 Rate of return 2.2 Theoretical basis 2.2.1 Liquidity in stock market 2.2.2 The relationship between stock liquidity and firm value .10 2.2.3 The relationship between foreign investments and stock liquidity 12 2.2.4 CAPM model 13 2.2.5 Fama - French Three Factors model .14 2.3 Overview of previous empirical researches 16 2.3.1 Previous foreign empirical researches 16 2.3.2 Previous empirical researches in Vietnam 20 CHAPTER 3: METHODOLOGY OF RESEARCH 24 3.1 Research process 24 3.2 Research model 24 3.3 Data of research 25 3.4 Measurement of variables 28 3.5 Description of research data 31 3.6 Testing method 32 CHAPTER 4: EMPIRICAL RESULTS 35 4.1 Descriptive statistics 35 4.2 Correlation matrix 36 4.3 Regression analysis result 36 4.3.1 Result of tests 36 4.3.2 Regression details 39 CHAPTER 5: CONCLUSION AND RECOMMENDATIONS 46 5.1 Summary of main research results and conclusions 46 5.2 Recommendations .48 5.3 Research limitations and future research directions 50 REFERENCE 52 APPENDIX 57 LIST OF ABBREVIATION Abbreviation IPO M&A OLS FPI EPS FDI CAPM P/E ME/BE MC Meaning Initial Public Offering Mergers and Acquisitions Ordinary Least Squares Foreign Portfolio Investment Earning per shares Foreign Direct Investment Capital asset Pricing Model Price to earnings Market value to book value ratio Market Capitalization TABLE OF FIGURES Table 3.1: BE/ME ratio and Market Capitalization combination portfolios 27 Table 3.2 Firm value and Normalized foreign trading volume combination portfolios 28 Table 3.3: Source of experimental research data 31 Table 4.1: Descriptive statistics of independent variables 35 Table 4.2: Correlation matrix of independent variables 36 Table 4.3: VIF coefficients of the variables in the research model .37 Table 4.4 Stationary test results for 12 porfolios and independent variables 37 Table 4.5 The results of the test of Heteroskedasticity for 12 porfolios .38 Table 4.6 The results of the test of Autocorrelation for 12 porfolios 39 Table 4.7 Regression results of the model for portfolios of BE/ME ratio and firm size 40 Table 4.8 Regression results of the model for portfolios of foreign trading volume and firm value 42 Table 5.1 Sign statistical results of the QV, FV, Liq regression coefficients of 12 portfolios 46 Table 5.2: The Adjusted R-squared and P-value regression results of 12 portfolios .48 CHAPTER 1: INTRODUCTION In Chapter 1, the author generalizes the topic to give an overview of the research topic As regards the reason for the choice of the subject, the author presents the role of the stock liquidity and the firm value, foreign investors trading volume play an increasingly important role in investment decisions, business governance and business evaluation For research purposes, the author gives the objectives that are obtained after completing the thesis As for research questions, the author raises questions to the problems that needs to be resolved in the thesis Research method, the author provides the quantitative search method used in the topic, the research data form and the estimate methods that will be used for the subject For the subject and range, the author presents the period and the subject of data using in the research Finally, on the outline of the research, the author provides the main parts presented by the thesis 1.1 Reason to research In corporate financial management, maximizing firm value is one of the targets that most of the financial managers tend to Therefore, firm valuation is really important to the firm owner, who knows well the actual value and thence determine the development strategies for their business Besides, firm valuation can bring many benefits depends on each purpose and subject: Government, investor or corporate governance It also is the basis in acquisition, merger, consolidation, equitization, making decisions on corporate management, effective financial decisions, decisions on investment or investment cooperation Over 20 years of establishment and development, stock market of Vietnam has made positive contributions to the development of the entire economy The stock market helps businesses access cheap and available capital and thence the process of managing and maximizing firm value is developed A business share price can fluctuate regularly depends on its actual market valuation and many factors as price volatility, risk, unexpected events in the future The convesion from cash by highly liquid assets will help investors feel more secure because this feature helps investors 58 VPH Petro Capital and Infrastructure Investment JSC Petroleum Equipment Assembly and Metal Structure JSC Refrigeration Electrical Engineering Corp Song Da Urban & Industrial Zone Investment and Development JSC Sam Holdings Corp Binh Duong Trade and Development JSC Thu Duc Housing Development Corp Vietnam Electricity Construction Joint Stock Corp Van Phat Hung Corp VRC Vrc Real Estate and Investment JSC PNJ Phu Nhuan Jewelry JSC PTB Phu Tai JSC VNG Thanh Thanh Cong Tourist JSC DQC Dien Quang Lamp JSC EVE GTN Everpia JSC BinhThanh Import Export Production and Trade JSC GTNFOODS JSC KDC Kido Group Corp KMR Mirae JSC LIX LIX Detergent JSC SHI VNM SonHa International Corp Thanh Cong Textile Garment Investment Trading JSC Vietnam Dairy Products JSC BMC Binh Dinh Minerals JSC CSV South Basic Chemicals JSC DHC DongHai of Bentre JSC PTL PXS REE SJS SAM TDC TDH VNE GIL TCM Service Consumer goods Materials 59 HPG Hoa Phat Group JSC HSG TLH Hoa Sen Group Laocai Mineral Exploitation and Processing JSC Tien Len Steel Corporation JSC TNT TNT Group JSC ANV Nam Viet Corp APC An Phu Irradiation JSC DCM PetroVietnam Ca Mau Fertilizer JSC PetroVietnam Fertilizer and Chemicals Corp Sao Ta Foods JSC LCM DPM FMC HAI TSC HAI Agrochem JSC I.D.I International Development and Investment Corp Techno-Agricultural Supplying JSC VHC Vinh Hoan Corp IDI Agriculture 60 APPENDIX Descriptive statistics Correlation matrix Multicollinearity test 61 Heteroskedasticity test LS portfolio LM portfolio LB portfolio HS portfolio 62 HM portfolio HB portfolio BH portfolio BL portfolio 63 BM portfolio SH portfolio SL portfolio SM portfolio 64 Autocorrelation test LS portfolio LM portfolio LB portfolio HS portfolio 65 HM portfolio HB portfolio BH portfolio BL portfolio 66 BM portfolio SH portfolio SL portfolio SM portfolio 67 Regression Result LS portfolio LM portfolio 68 LB portfolio HS portfolio 69 HM portfolio HB portfolio 70 BH portfolio BL portfolio 71 BM portfolio SH portfolio 72 SL portfolio SM portfolio ... of the stocks with the smallest firm value are placed in the small value group (S), the next 1/3 of stocks are in the medium firm value group (M) and 1/3 of the stocks with the biggest firm value. .. liquidity, foreign investor trading and firm value? ?? 1.2 Research objective The objective of the topic is to analyze the impact of firm value, stock trading volume of foreign investors ạd stock liquidity... Stocks with low foreign trading volume and small firm value; LM Portfolio: Stocks with low foreign trading volume and medium firm value; LB Portfolio: Stocks with low foreign trading volume and