Asymmetric information and investment decisions evidence from vietnam

The findings reveal that fundamentally, information asymmetry in Vietnamese non-financial firms has a negative impact on the investment decisions of firms.. The study is the first in Vie

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION

AND TRAINING

PHAM THI ANH THU

ASYMMETRIC INFORMATION AND

INVESTMENT DECISIONS: EVIDENCE

FROM VIETNAM

BACHELOR THESIS

CODE: 7340201

Ho Chi Minh City, November 2022

ASYMMETRIC INFORMATION AND

INVESTMENT DECISIONS: EVIDENCE

FROM VIETNAM

BACHELOR THESIS

Code: 7340201

ACADEMIC ADVISOR

DR VUONG THI HUONG GIANG

Ho Chi Minh City, November 2022

ABSTRACT

This paper investigates the impact of asymmetric information on the investment decisions of firms and analyzes the effect of several internal factors on investment decisions of firms Further, we come up with some new practical solutions, policy implications for the policy makers and recommendations for the managers of enterprises We use data from DataStream of 259 non-financial firms with 1,789 firm-year observations collected from two stock exchange markets in Vietnam covering a 10-year period from 2011 to 2021 We apply the least squares based on Pooled OLS (Pooled Ordinary Least Square), Fixed-Effect Model (FEM) and Random-Effect Model (REM), two-step GMM (two-step generalized method of moments) to analyze the data The findings reveal that fundamentally, information asymmetry in Vietnamese non-financial firms has a negative impact on the investment decisions of firms Further, the results also find that the financial leverage and cash is an important determinant of investment decisions and have a positive impact on firms‟ investment decisions The study is the first in Vietnam that contributes empirical evidence for the negative impact of information asymmetry on the investment decisions of non-financial firms in Vietnam – a typical emerging country

JEL classification: G11, G14, G32

Keywords: Asymmetric information, Investment, Over-investment, Leverage, Non-financial firms, GMM, Vietnam

DECLARATION OF AUTHENTICITY

This thesis with the topic “Asymmetric information and investment

decisions: Evidence from Vietnam” is the author's research work and the

research results are honest There are no previously published contents or contents made by other authors except for the cited references which are from clear sources presented in the thesis The author would like to be responsible for my commitment

Ho Chi Minh City, November 2022

Student in charge

Pham Thi Anh Thu

APPRECIATION

This thesis would surely not be possible without the dedicated help

of my teacher First and foremost, I would like to express my deep gratitude to my advising instructor – Dr Vuong Thi Huong Giang who has always followed closely, supported, encouraged, and provided sincere comments so that I can finish this thesis

Second, I would like to express my special thanks to Mr Nguyen Thanh Binh and Ms Ma Thi Thuy Trinh – mentors of my intern course at SSI security joint stock company They have encouraged me, while helping

me find documents and giving me practical advices

In addition, I would like to express my thanks to the lecturer at Banking University of Ho Chi Minh City for creating such favorable conditions in the process of study and as well as doing my thesis

Finally, I would also like to thank my family for their encouragement

in the process of doing my bachelor thesis as well as in my four-year journey in University of Banking

Ho Chi Minh city, November 2022

Author Pham Thi Anh Thu

TABLE OF CONTENTS

ABSTRACT i

DECLARATION OF AUTHENTICITY ii

APPRECIATION iii

TABLE OF CONTENTS iv

LIST OF ABBREVIATIONS vii

LIST OF TABLES viii

LIST OF APPENDICES ix

CHAPTER 1 INTRODUCTION 1

1.1 Research background and research gap 1

1.2 Research objectives 3

1.3 Research question 4

1.4 Research scope and methodology 4

1.5 Research structure 4

CHAPTER 2 LITERATURE REVIEW 6

2.1 Theoretical literature review 6

2.1.1 The Lemons‟ theory 6

2.1.2 The Signaling theory 7

2.1.4 The Pecking Order Theory 9

2.1.5 The Agency theory 10

2.1.6 The Free cash flow theory 10

2.2 Empirical literature review 11

2.2.1 The impact of information asymmetry on the investment of firm 11

2.2.2 The impact of leverage on the investment of firm 14

2.2.3 The impact of cash flow on the investment of firm 17

2.2.4 The impact of growth sale on the investment of firm 19

2.2.5 The impact of profitability on the investment of firm 20

2.2.6 The impact of size on the investment of firm 21

2.3 Research gap 24

2.4 Hypothesis development 26

CHAPTER 3 RESEARCH METHODOLOGY 28

3.1 Research design 28

3.2 Sample 28

3.3 Variable measurement 29

3.3.1 Information asymmetry measurement 29

3.3.2 Investment measurement 30

3.4 Empirical methods and analytic model 33

CHAPTER 4 RESULTS OF RESEARCH 37

4.1 Descriptive statistics and correlation 37

4.2 Regression 39

CHAPTER 5 CONCLUSION AND RECOMMENDATION 46

5.1 Conclusion 46

5.2 Contribution 47

5.3 Recommendations 48

5.3.1 Policy implications for the policy makers 48

5.3.2 Recommendations for the corporate managers 50

5.4 Limitation and recommendation for further research 54

APPENDICES 55

ENGLISH REFERENCES 63

VIETNAMESE REFERENCES 71

LIST OF ABBREVIATIONS

ASEAN Association of Southeast Asian Nations

HOSE Ho Chi Minh City Stock Exchange

and Development

SSC State Securities Commission of Vietnam

TPP Trans-Pacific Partnership

VIF Variance inflation factor

LIST OF TABLES

Table 2.1 A summary of relevant empirical research 21

Table 3.1 A summary of variables 32

Table 4.1 Descriptive statistics 37

Table 4.2 Correlation matrix 38

Table 4.3 Multicollinearity 39

Table 4.4 Pooled OLS regression 39

Table 4.5 Statistical hypothesis testing table of the Pooled-OLS model 40

Table 4.6 FEM regression 41

Table 4.7 REM regression 41

Table 4.8 Evaluating the suitability of regression models 42

Table 4.9 Statistical hypothesis testing table of the FEM model 43

Table 4.10 GMM regression 43

Table 4.11 Robust test for GMM model 44

LIST OF APPENDICES

Appendix 1 Multicollinearity test of Pooled-OLS 55

Appendix 2 Heteroskedasticity test of Pooled-OLS 56

Appendix 3 Autocorrelation test of Pooled-OLS 56

Appendix 4 Estimated results from Pooled-OLS regression 57

Appendix 5 Estimated results from FEM regression 58

Appendix 6 Estimated results from REM regression 59

Appendix 7 Hausman test 60

Appendix 8 Multicollinearity test of FEM 60

Appendix 9 Heteroskedasticity test of REM 61

Appendix 10 Autocorrelation test of REM 61

Appendix 11 Estimated results from GMM regression 61

Appendix 12 Robust test for GMM model 62

CHAPTER 1 INTRODUCTION

This chapter depicts the introduction of the research It comprises the research background, research question, research objective, research scope and methodology, and research structure

1.1 Research background and research gap

Investment decisions are considered the most important decisions in corporate financial management due to they create the value of the business And the enterprise‟s value is the basic and inevitable goal that any manager, shareholder or investor of the business is aiming for Investment decisions affect the working capital, inventory, cash balance of the business, financial leverage and many other decisions Therefore, a right investment decision will contribute to increasing the enterprise value, thereby increasing the asset value for the owner, whereas a wrong investment decision will cause loss of business value, resulting in property damage

to the business owner Although, every business strives to make better investment decisions, deviates from investment efficiency resulting in over-investment or under-investment There are many literatures that identify the reasons for investment inefficiency, and in this paper, the author focuses on studying the influence of information asymmetry on firms' investment decisions

This thesis is conducted in the context of Vietnam, an emerging country with rapid development in recent decades Driven by the opening and reforming economy since 1986, Vietnam proactively participates in many international organizations and agreements such as WTO, TPP, ASEAN, AEC, etc To meet the requirements

of these international organizations and agreements, Vietnam positively commits towards financial integration with international standards and transparency in information disclosure and Vietnam's stock market also strives to upgrade the

Finance) However, from the beginning of 2022 up to now, Vietnam's stock market has entered a period of significant depression Compared to the peak point at June 4,

2022, VN-Index at November 16, 2022 has decreased significantly by merely 38%

In many times, Vietnam's stock market ranked first in terms of price decline worldwide (according to Blomberg)

In the information announced on November 11, 2022, the State Securities Commission of Vietnam informed that fluctuations in Vietnam's stock market in the past stem from many reasons, both domestic and international events Specifically, according to the SSC, after the economic support policy after the Covid-19 pandemic, inflation has increased sharply in many parts of the world The Fed and many countries around the world stepped up tightening monetary policy to control inflation, leading to a wave of increasing interest rates Concerns about slowing global economic growth due to high inflation, supply chain disruptions, global tightening, the world geopolitical situation, and especially negative market sentiment due to the arrests of several major company presidents related to stock manipulation and corporate bond issuance The SSC informed that information disclosure violations still account for a high proportion of over 50% of the total sanctioned violations From that, it can be seen that the information asymmetry that exists on the Vietnamese stock market and becomes more and more urgent Because, the more transparent the market is, the more investors can participate, especially foreign investors Only then, our country's stock market will develop sustainably and be able to compete with the stock market in the region, aiming to upgrade the market in 2025

Understand the importance of information asymmetry to the stock market in general and to the investment decisions of enterprises in particular In addition, noting that the findings of research in developed economies cannot be generalized to apply to emerging economies like Vietnam And finally, there is no research paper

in Vietnam to analyze the relationship between information asymmetry and investment decisions of enterprises while this issue is burning recently Therefore, with the desire to apply economic knowledge in practice to contribute to solving the difficulties of financial managers in companies in Vietnam today, we chose to study

the topic: Asymmetric information and investment decisions: Evidence from

Vietnam Aiming to examine the impact of asymmetric information to the

investment of firms Further, we explore the impact of leverage on firm investment and also examine the impact of the variables such as growth, profitability, cash and size to investment (Ahmad, Hunjra, and Taskin, 2021) Finally, we come up with some new practical solutions to improve the financial management efficiency of Vietnamese's non-financial firms and increase knowledge

Our firm-level data include 259 non-financial listed companies with 2,216 firm-year observations collected from two stock exchange markets in Vietnam (HOSE and HNX) covering a 10-year period from 2011 to 2021 Least squares based on Pooled OLS (Pooled Ordinary Least Square), Fixed-Effect Model (FEM) and Random-Effect Model (REM), Two-step Generalized Method of Moments (GMM) are employed to analyze data This study would provide us with comprehensive insight into the relationship between information asymmetry and firm‟s investment in Vietnam - a less developed market

new practical solutions, policy implications for the policy makers and recommendations for the corporate managers

1.3 Research question

This thesis is aimed to solve some issues:

- Does asymmetric information affect the investment decisions of Vietnamese non-financial listed firms and how it affected?

- How do the firm‟s characteristics affect investment decisions of Vietnamese non-financial listed firms?

- What are the policy implications and recommendations to be drawn from the study?

1.4 Research scope and methodology

The thesis conducts research based on a data sample of non-financial firms listed on Ho Chi Minh City Stock Exchange and Ha Noi Stock Exchange over the period of 2010-2021 This research applies the Least squares based on Pooled OLS, FEM and REM, Two-step GMM to analyze data following Huynh, Wu, and Duong (2020)

Chapter two presents the definition of asymmetric information, leverage and reviews relevant studies, which are separated into theoretical and empirical studies Beside that, developing the hypotheses for the research‟s function

Chapter 3: Research Methodology

The next chapter presents the detailed methodology in terms of the model used and the quantile regression method, as well as the data collection

Chapter 4: Empirical Result

The results of data analysis will be discussed in chapter four which contains the results from using the Pooled- OLS, Fixed-Effect Model (FEM), Random-Effect Model (REM) and one step GMM (one-step generalized method of moments)

Chapter 5: Conclusion and Implications

Finally, chapter five will summarize the main findings of the research, drawing out some implications and the limitations for the policy makers and corporate managers Beside, our contributions, limitations and further research direction are also mentioned

CHAPTER 2 LITERATURE REVIEW

This chapter will present the theoretical framework of asymmetric information and then the relevant empirical researches are also presented Relevant empirical papers provide studies of the impact of asymmetric information on different aspects, the vital impact is studied about asymmetric information-investment decisions nexus in diverse countries Besides, the influence of other firm‟s characteristics to investment decision of corporate are also mentioned

Finally, the hypothesis is developed based on some arguments

2.1 Theoretical literature review

2.1.1 The Lemons’ theory

The concept of asymmetric information was first introduced by Akerlof George (1970) from the study of The Market for Lemons‟ theory By researching the situation of buying and selling used cars in the market, he identifies that the seller has more information than the buyer in a market of both high-quality cars and

"lemons" The use of "lemon" refers to a slang term for a vehicle that has many problems and is low-quality In a transaction, the sellers always have full information about their product, so they can sell poor used cars at the same price as good used cars to the buyers who have less information And when buyers are aware

of this problem, they will take precautions by buying used cars at low prices because they think they will limit the damage of buying the wrong product This is an adverse selection and its consequence is that very few good quality used cars are available in this market because high-quality products will not be sold at reasonable prices Since then, the amount of low-quality goods will exist more, leading to the risk of buying poor products also increases When the market becomes unstable, buyers will withdraw and make the market more gloomy

The theory by Arkelof demonstrates the problem of information asymmetry when the seller has more information than the buyer, which leads to adverse selection and depressing the market It opened up a whole new branch of economics called information economics and applied it to solve a multitude of issues For example, a pair of shoes without a label will be many times cheaper than a pair of branded shoes even though the design may be better and the quality is similar That lower price is the premium for the less information provided to the user

2.1.2 The Signaling theory

To complement Akerlof's theory, some influential theories relating to information asymmetry have been developed Michael Spence (1973) inherited the idea of Akerlof when he suggested that to limit the effect of adverse selection, good products should have a mechanism to be able to distinguish from poor quality products that is a signaling mechanism When employers cannot know the exact qualifications of an applicant, a degree is a necessary information Or in the stock market, paying dividends may be a good sign, because it will ensure that profits will

be received in the future Since then, “Signaling” is a term used to describe the fact that the seller presents his meaningful information to the buyers in order to reduce the process of information asymmetry

Continuing to develop the theory of Michael Spence, Bini et al (2010) that firms with high profitability will provide signals through the financial statement to increase their competitiveness Thus, signaling theory is based on asymmetric information For instance, in a joint stock company, asymmetric information appears

in the relationship between managers and shareholders and in the relationship between the company and its related parties Managers have a lot of information about the company because they are executives, if they intentionally cover it up, it may affect the decisions of shareholders, thereby causing disadvantages to

shareholders Moreover, the enterprises that do not signal or send incorrect signals

to the outside may influence decisions and cause losses to For example, enterprises disclose incorrect financial statement information, especially profit targets, dividends that will not accurately reflect the business reality of enterprises, creditors

or investors may make wrong decisions about disbursement or investment

Thus, according to Signaling theory, to minimize information asymmetry, the party with more information would signal to the other However, the companies often tend to signal in favor of themselves Companies hide weaknesses and increase the competitiveness of the company, in order to attract investment capital In other words, the Signaling theory explains how managers can use tools to provide investors with the most beneficial information about the business.

2.1.3 The Screening theory

To limit the problem of asymmetric information, Spence (1973) suggested that the party with more information would perform some costly operation, called

"signaling" Meanwhile, Stiglitz (1975) suggested that the party with less information will use some classification tools so that the party with more information can signal, thereby helping them to classify the quality of goods or partners called "screening"

With Screening theory, investors can limit losses by providing many conditions in commercial transaction contracts Consider the following example: insurers will offer multiple policies with different premiums and claims, if low-risk customers have a preference for cheaper policies and vice versa In addition, taking

an example when a bank lends money In order to better understand customers‟ ability to repay, they will collect information about the customer such as financial status, qualifications, work, reasons for borrowing money, family, etc in order to

decide on the level of loan This method is often used for high-risk situations such as insurance, finance, etc

2.1.4 The Pecking Order Theory

Pecking order theory which has a great influence on firm leverage and investment and derived from Myers (1984) According to Myers (1984), managers

of a company must make decisions of funding sources for investment projects which include 3 feasible capital sources preferred by the managers: Firstis retained earnings, then loans and finally equity The reason for such decentralization is due to the problem of asymmetric information

Hypotheses of the theory include: (i) Information asymmetry exists between corporate managers and outside investors; (ii) The corporate administrator will act in the best interests of the current owner

This theory does not seek the optimal capital structure, but instead determines

a priority order in the selection of capital sources in the financing decision According to this theory, firms prefer to finance with internal funds over external sources In the case of having to choose an external source of capital, the enterprise will choose in an order that achieves the goal of minimizing the increase in costs due

to asymmetric information

The focus of this theory is not on the optimal capital structure (since reinvested returns are at the top of the pecking order and equity is at the bottom of the pecking order), but on the current financial decision The capital structure decision is not based on the debt ratio but on the pecking other of the market

2.1.5 The Agency theory

The agency theory published by Jensen and Meckling (1976) Accordingly, it

is the model of moral hazard implying that managers prioritize their own interests over the interest of shareholders Therefore, asymmetric information reported investment efficiency Specifically, the agency problem is a scenario of a conflict of interest which is inherent in all relations where one party is anticipated to operate in the best interests of another party In the field of corporate finance, the agency problem generally points out the conflict of interest among the company‟s shareholders and the management of the company The managers, who act as the shareholders‟ agents, are tasked with the responsibility of making decisions that are going to maximize the wealth of the shareholders despite them acting in their best interest in order to enhance their own fortune

2.1.6 The Free cash flow theory

Free cash flow is actual cash flow after the company has done all the investment in new products, working capital activities, fixed assets necessary to maintain the operation company's performance and actual cash flows usable allocation for all investors (Brigham and Houston, 2009) In other words, free cash flow is another name for the total cash flow of a business, it is the operating cash flow taken into account, adjustments for both capital expenditures and working capital Free cash flow is a signal showing financial performance and liquidity of that company Free cash flow is important and meaningful when they allow the company to pursues investment opportunities that increase company value and at the same time maximize value for shareholders If the company has no cash, then they will fall into troubles such as lack of capital when investing in projects, developing new products, implementing the debt obligations or payments to shareholders (Jensen, 1986)

Issues related to free cash flow and the free cash flow theory have been implemented in the first study by Jensen (1986) In other words, each business will have a different relationship between profit and free cash flow because it depends on the opportunity investment of each enterprise If businesses have available projects, then managers will use the free cash flow they have invested in projects, thereby helping the company increase value In contrast, when the business does not have the projects, then there will be conflicts of interest between shareholders and management because the manager wants to keep cash flow for personal gain, and shareholders want to get this cash flow back (Talebian, Valipour and Askariz, 2012)

From these theories, it can be seen that asymmetric information exists when one party to an economic transaction has more information than the other party Then the price is not the equilibrium price of the market but may be lower or higher leading to an inefficient market (Myers, 1984; Myers and Majluf, 1984) This will

be the theoretical framework for the author to continue researching on the selected problem, which is the relationship of information asymmetry and investment decisions of enterprises Therefore, asymmetric information and its relationship to investment decisions and other financial decisions have received attention in the

financial literature that we will mention in the next part

2.2 Empirical literature review

2.2.1 The impact of information asymmetry on the investment of firm

Ahmad, Hunjra, and Taskin (2021) extract data from 280 non-financial firms listed at Pakistan Stock Exchange over the period of 2000 to 2018 They apply the Fixed Effect Model to analyze the data and System Generalized Method of Moments to check the robustness of the results Their research points out that asymmetric information negatively affects the investment decisions of firms Due to

asymmetric information investment decreases rapidly as compared to increase in investment

Leland and Pyle (1977) state that markets are characterized by different levels of information, and some users exhibit a higher level of information than others Because of information asymmetry, “prices do not accurately convey all information necessary to coordinate economic decisions” More specially, scholars discriminate between two types of information asymmetry: moral hazard and adverse selection

A paper by Ryen, Vasconcellos, and Kish (1997) is considered as the further development of the information asymmetry and its relationship related to investment decisions as well as firm valuation This research proves that insiders of a firm have more information than outside investors leading to newly issued shares undervalued Hutton et al (2009) indicated that managers tend to conceal „bad news‟ because of career concerns, job promotion, and option exercise When negative news accumulates to a limit that cannot be concealed, it will erupt in the external market, and the company‟s share price will be hit

Fosu et al (2016) explored the data of UK firms and found that asymmetric information adversely impacts the firm‟s value and this impact decreases with the leverage of firms He identifies that in a firm with a higher degree of information asymmetry, managers are more realistic and more likely to propose newly issued equity capital under-priced, and they also tend to invest in projects having potentially positive NPV (Myers, 1984) However, shareholders in the firm do not have the same level of information and cannot agree with the decision of the managers As such, they are more likely to reject these projects with potentially positive NPV to ensure benefits for existing shareholders, rather than issue new shares to invest in all projects with NPV Consequently, the firm would lose

excellent investment opportunities and resources are misallocated Therefore, information asymmetry is costly to firms because of adversely selecting cost, which prevents the firms from opting cheap financing and consequently reduces the firm value Fosu et al (2016)

Biddle, Hilaryand Verdi (2009) analyze 34 countries to find that there is a negative impact of accounting report quality on the association of investment and cash flow They also find that increase in the quality of accounting reports reduces the sensitivity in equity-dominated markets, as compared debt denominated markets

Morellec and Schurhoff (2011) develop a model of investment and financing

in an asymmetric information environment and reveal that asymmetric information motivates firms to increase investment Kong, Xiao, and Liu (2011) explore the impact of asymmetric information on the relationship between investment and stock prices They conclude that asymmetric information negatively affects firm investment sensitivity to share price and positively impacts the share price sensitivity to firm investment

Dwijayani, Surachman, Sumiati, and Djawahir (2017) using the data companies listed on the stock exchanges of Indonesia to conduct They report that asymmetric information has no effect on the firm value because the adverse effect of asymmetric information can be mitigated with good investment policies They further report that investment has a positive impact on firm value Meanwhile, Huynh, Wu, and Duong (2020) conclude to the opposite result, when working on similar research on the Vietnamese market, which is an emerging market He believes that information asymmetry in Vietnamese firms has a negative impact on firm value He also found that the financial leverage in Vietnamese firms is higher than in other developed countries but can only play a limited role in mitigating the negative impact of information asymmetry on firm value Nguyen Hoang Thai et al

(2021) also has the same idea with Huynh, Wu, and Duong (2020) as indicating that two variables measuring information asymmetry (Asy-disp, Asy-dummy) negatively impact Vietnamese firm value Besides, control variables such as return on assets, leverage, firm size, and intangible assets, are found to have significant effects on Vietnamese firm value

Clarkson, Gao, and Herbohn (2020) study the association between the information environment and the cash-holding behavior of firms They record that the decrease in asymmetric information decreases financial constraints and the cash ratio of firms Drobetz et al (2010), study the marginal value of cash in connection with firm specific and time varying information asymmetry They also test two contradictory hypotheses According to the pecking order theory, asymmetric information leads to adverse selection and provides a value increasing role for internal funds However, the free cash flow theory predicts that abundant cash bundled with asymmetric information leads to moral hazard and consequently to a lower marginal value of cash Their results indicate that information asymmetry decreases the marginal value of cash and thus strongly support the free cash flow theory They remarkably indicate the calculation methods and employing quantitative techniques for measuring variables can convey asymmetric information This study uses the dispersion of analysts‟ forecasts and error in analysts‟ estimates

as the primary measurements of information asymmetry and Fosu et al (2016), Huynh, Wu, and Duong (2020); Nguyen Hoang Thai et al (2021) also follow these measures

2.2.2 The impact of leverage on the investment of firm

Numerous studies explore the leverage - investment nexus (Firth et al., 2008) Leverage decreases the investment of firms because investing in new projects is more beneficial for bond holders than for equity holders (Myers, 1977), and this

leads to underinvestment Jensen (1986) shows that directors prioritize their benefit

so they often tend to expand the size of the company, even implementing projects that harm the interests of shareholders, leading to overinvestment

Ahmad, Hunjra, and Taskin (2021) examine Pakistan non-financial firms and point out that leverage has a negative impact on the investment decisions of firms Firth et al (2008) analyze Chinese firms and find a negative relationship between leverage and investment in the case of non-state-owned enterprises, but not for state-owned enterprises

Vo Xuan Vinh (2019) finds a negative impact of leverage on firm investment and shows that leverage has a stronger negative impact on corporate investment for firms with high growth opportunities as compared to low growth opportunities Moreover, young financially constrained firms face less growth opportunities than financially unconstrained firms (Aivazian et al., 2005; Strebulaev, Zhu, and Zryumov, 2014) argue that firms finance risky projects with equity whereas they finance safe investment projects with debt

Olmo et al (2015) demonstrate that investment behavior is different across each financially troubled firm and its dependence on opportunities investment available to the company They found that firms with greater opportunities will keep their investment behavior when taking advantage of investment opportunities Meanwhile, managers of fewer investment opportunities companies tend to underinvest because they only undertake projects that they think can keep the company far from bankruptcy This behavior causes them to miss out on profitable opportunities that could help improve a struggling company's situation

Baxamusa, Mohanty, and Rao (2015) report that firms use equity finance to fund projects that have greater asymmetry information about their risk, for example,

research and development Whereas they use debt for investments that have lower asymmetry information about their risk, for example, marketable securities

Arif Khan et al (2019) examine the impact of several specific factors on the relationship of leverage and investment in state owned and non-state-owned entities They find a negative impact of leverage on investment of non-state-owned entities and this impact decreases under uncertainty and in accordance with the firm-specific factors Phan Quynh Trang (2018) also observes a negative impact of leverage on firm investment and reports that this impact is stronger in state-owned firms as compared to privately-owned firms

Gebauer, Setzer, and Westphal (2018) explore the inverse association between investment and leverage and uncover that after the global financial crisis of 2007–2008 this association gets stronger, as firms have less internal resources for investing in new projects

Chang et al (2020) investigate the relationship between leverage and investment based on firm‟ size and age They reveal that leverage negatively impacts the investment level of green firms working in China They also reveal that large-size firms and old-age firms reduce the negative impact of leverage on firm‟s investment

Ince (2018) uses information on Dutch listed firms This paper makes a distinction between firms with high and low growth opportunities and uses a pooled regression to estimate the relationship between leverage and investment He shows that leverage is negatively related to investment, regardless of growth opportunities The difference for the relationship between leverage and investment is small for firms classified as high and low growth firms Overall, his results are consistent with the expectations based on the under-investment and over-investment theory

Nguyen and Nguyen (2020) research uses all financial statements of financial Vietnamese listed companies on the HOSE and HNX in the period of 2008–2018 They report a negative impact of over-investment on firm performance They discover that leverage and dividend policies lower the negative impact of overinvestment on the performance of firms

non-2.2.3 The impact of cash flow on the investment of firm

According to Jensen's (1986) free cash flow theory, when businesses generate large free cash flows, which exceed the amount of cash needed to maintain business activities such as production and business activities, investment, etc., then conflicts

of interest between managers and shareholders will begin to appear Specifically, self-interested directors often tend to expand the size of the company, even implementing projects that harm the interests of shareholders, leading to over-investment Vice versa, for under-investment, according to Myer's (1977) research, the author concludes that the conflict between the group of shareholders, managers and bondholders in a company that uses leverage may reduce the incentive to invest

in positive NPV business opportunities because of the fear that the benefits from the projects will go to the bondholders and this has led to the problem of under-investment Jensen (1986) argues that if the company have no cash, then they will fall into troubles such as lack of capital when investing in projects, develop new products, implement the debt obligations or payments to shareholders

Freund, Prezas and Vasudevan (2003) observe the performance of firms with sizable free cash flows and announcements of additional asset purchases, they find that the performance of the business is continuously reduced According to Brush, Philip and Hendrickx (2000), for businesses with little free cash flow or under strict supervision and management by the owners of the business, thus increasing free cash flow contributes to revenue growth, and at the same time increases business

efficiency In contrast, for businesses with large free cash flow and not strictly managed by the business owners, the increase in free cash flow still increases revenue for the business but has a negative impact on the business performance

Issues related to free cash flow and the free cash flow theory have been implemented in the first study by Jensen (1986) In other words, each business will have a different relationship between profit and free cash flow because it depends on the opportunity investment of each enterprise If businesses have available projects, then managers will use the free cash flow they have invested in projects, thereby helping the company increase value In contrast, when the business does not have the projects, then there will be conflicts of interest between shareholders and management because the manager wants to keep cash flow for personal gain, and shareholders want to get this cash flow back (Talebian, Valipour and Askariz, 2012)

The availability of cash motivates the firms to make further investment, which confirms that firm's managers use free cash flows to invest as reported by Vo Xuan Vinh (2019) And cash plays a significant role in driving investment decisions,

in agreement with investment theories and results reported in the literature (Ahmad, Hunjra, and Taskin (2021) Aivazian (2005) shows that the maturity structure of a firm‟s debt has a significant impact on its investment decisions Specifically, a higher percentage of long-term debt in total debt significantly decreases investment for high growth opportunities firms And similarly for firms with low growth opportunities

Cash flow always plays an important role in the health of the enterprise, and

at the same time, it is also an important factor that investors often consider and analyze before making their investment decisions Therefore, cash flow has positive effects on enterprises (Vinh and Chi, 2013)

The abundant amount of cash enables enterprises to immediately seize good investment opportunities when the cost of external finance is too high or be more proactive when facing financial shocks from the economic crisis However, cash flow has both positive and negative effects on the enterprise (Hau & Vi, 2017)

Pham Xuan Quynh (2019) analyzes 37 companies in the food industry in Vietnam in the period 2014-2018, studying and analyzing the influence of free cash flow and a number of other factors on the company's performance Research results show that free cash flow has a positive impact on investment decisions and thereby helps to increase investment efficiency and business value, the impact will be greater for companies with investment opportunities

2.2.4 The impact of growth sale on the investment of firm

Revenue growth is one of the basic conditions for businesses to achieve their goals throughout the course of their business operations High-growth firms often have good performance and position in the market because high-growth businesses can generate returns on their investments According to Zeitun and Tian (2007), growth rate has a positive impact on investment and thus increases the efficiency of business activities of enterprises

Current sales growth is significant and positively related to planned investment And a positive relationship between sales growth and firm value is expected because firms with high growth are turned to having better investment and higher valuation (Maury and Pajuste, 2005)

Arif Khan, Qin, and Jebran (2019) indicate that leverage has a negative relationship with growth, profitability, and Tobin Q They indicated that high growth and profitable firms reduce their dependence on debt financing and use

a negative association with growth, profitability and illustrate that the increase in growth, profitability cause firm asymmetric information to be reduced Hence growth, profitability, and age of firms decrease the negative impact of asymmetric information on investment

Based on this premise, we propose the following hypothesis:

H4 Sale growth has a positive impact on the investment of firm

2.2.5 The impact of profitability on the investment of firm

Profitability itself is the primary goal of the establishment of a company in order to maintain the sustainability of its business in the future; this is because profitability shows whether the company has good prospects in the future or not (Wijaya and Sedana, 2015) If the management of the company processes the company's operations well to obtain profits, the costs incurred for the operation will

be low So that the profits generated will be high, the profits received by the company will affect people's perceptions of seeing the company, which will attract investment capital, positively impact investment decisions

Saif, Meo, and Usman (2022) analyze the sample consists of 68 non-financial companies and data are gathered from companies audited annual reports and business recorder websites for 2013-2017 The overall findings of the study show that the performance significantly influences investment decisions of the company

Arif Khan, Qin, and Jebran (2019) indicate that leverage has a negative relationship with growth, profitability, and Tobin Q and high growth and profitable firms reduce their dependence on debt financing and use internal resources Andres

et al (2014) point out that asymmetric information shows a negative association with growth, profitability and illustrate that with the increase in growth, profitability

and age firm asymmetric information reduces Hence growth, profitability, and age

of firm decrease negative impact of asymmetric information to investment Moreover, Grzegorzek (2022) demonstrates that profit provides new cash for more investments in the future

2.2.6 The impact of size on the investment of firm

According to Dewi and Wirajaya (2013), the size of the company can influence the investment of the company due to the high level of total assets of the company This can result in management more freely in using existing assets in the company, the flexibility of the use of total assets resulted in the ease of the company management in carrying out activities and company operations and controlling company activities Prasetya and Yulianto (2019) and Prasetyorini (2013) argue that company size is a scale that can classify the size of a company Hermuningsih et al (2012) argues that companies that have a large size will be easy to obtain outside funding sources With easy access to external funding, causing companies to be able

to increase their investment and operational activities on an ongoing basis

Size is considered the first sign for investors to know about the business A large-size enterprise will have a more competitive advantage in the market As a result, most businesses aim to scale up to take advantage of large size (Zeitun and Tian, 2007) The study of Huynh Thi Tuyet Phuong (2016) showed that the size of the enterprise has a positive effect on firm investment and thus it leads to an increase

in business performance

Table 2.1 A summary of relevant empirical research

1 Ahmad, Hunjra, and Asymmetric information negatively affects the

Taskin (2021) investment decisions of firms

Duong (2020)

Information asymmetry in Vietnamese firms has a negative impact on firm value

3 Fosu et al (2016) Asymmetric information adversely impacts the firm‟s

value and decreases with the leverage of firms

4 Leland and Pyle (1977) Showing two types of information asymmetry: moral

hazard and adverse selection

5 Ryen, Vasconcellos,

and Kish (1997)

Information asymmetry and its negative relationship related to investment decisions as well as firm valuation

6 Hutton et al (2009) Managers tend to conceal „bad news‟ leading to a

decrease in the company‟s share price

7 Biddle, Hilaryand

Verdi (2009

There is a negative impact of accounting report quality

on the association of investment and cash flow

Asymmetric information has no effect on the firm value

11 Nguyen Hoang Thai et

cash

14 Myers (1977) Firms with large debt may lose investment opportunities

even with positive NPVs

15 Jensen (1986) Leverage and investment have a negative relationship

16 Gao and Zhu (2015) Countries with larger information asymmetry tend to

use more debt

17 Bessler et al (2011) The capital structure-firms‟ having large asymmetric

information tend to use more debt

18 Chang et al (2020) Leverage negatively impacts the investment level of

green firms working in China

19 Bessler, Drobetz, and

25 Zeitun and Tian (2007) Growth rate has a positive impact on investment

26 Maury and Pajuste Firms with high growth are turned to having better

27 Saif, Meo, and Usman

(2022)

The performance significantly influences investment decisions of the company

28 Andres et al (2014) Asymmetric information shows a negative association

with growth, profitability

relationships between owners and managers of the business, thereby affecting firm performance Following agency theory, models of moral hazard imply that managers prioritize their own interests over the interest of shareholders (Jensen and Meckling, 1976) Specifically, Jensen points out that if firms have free cash flow but few investment opportunities, managers will tend to abuse this cash flow and invest in projects that are likely to have low returns, possibly even negative NPV, rather than paying it back to shareholders Talebian, Valipour and Askariz (2012) also agree with Jensen's point of view that when enterprises do not have feasible projects, then

it will lead to conflicts of interest between shareholders and managers because management wants to keep cash flow for personal gain, and shareholders want to receive this cash flow back Moreover, Richardson (2006) also identifies that firms with the highest levels of free cash flows have been found to over-invest It appears that information asymmetry and agency problems can hamper investment efficiency

Information asymmetry is a kind of market failure It is because information asymmetry could cause making wrong financial decisions with loss of their investment (Huynh, Wu and Duong, 2020) Understanding the vital effect of asymmetric information on different aspects of business, many scholars decided to examine the linkages of information asymmetry and firm‟s investment decisions, leverage level, free cash flow, firm value and so on in many countries around the world For example, US (Botosan, 1997; Bharath et al., 2009), Germany (Lechner & Gatzert, 2018), the UK (Fosu et al., 2016), Australia (He et al., 2013), China (Chang

et al., 2020; Chen, Sun and Xu, 2016), some emerging markets, for instance, Pakistan (Ahmad, Hunjra, and Taskin, 2021), Thailand and India (Prommin et al., 2016; Farooq et al., 2017), and across different countries (Drobetz et al., 2010; Gao

& Zhu, 2015) In Vietnam, a number of research papers on information asymmetry can be mentioned such as Huynh, Wu and Duong (2020) examine the negative relationship between information asymmetry and firm value, the research of Nguyen

report a negative impact of over-investment on firm performance, point out

Pham The Anh (2021) confirms the existence of information asymmetry has affected the risk level in Vietnam‟s stock market However, in Vietnam, there is no research paper that answers the question about the relationship between asymmetric information and investment decisions of companies in Vietnam

2.4 Hypothesis development

Ahmad, Hunjra, and Taskin (2021) points out that asymmetric information negatively affects the investment decisions of firms Based on these premise, we propose the first hypothesis:

H1 Asymmetric information has a negative impact on firm investment

Nguyen and Nguyen (2020) discover that leverage and dividend policies lower the negative impact of overinvestment on the performance of firms Vo Xuan Vinh (2019) finds a negative impact of leverage on firm investment Ahmad, Hunjra, and Taskin (2021) point out that leverage has a negative impact on the investment decisions of firms Based on this premise, we propose the following hypothesis:

H2 Leverage has a negative impact on the investment of firm

Cash flow has positive effects on enterprises (Vinh and Chi, 2013) Moreover, cash flow plays a significant role in driving investment decisions, in agreement with investment theories and results reported in the literature (Ahmad, Hunjra, and Taskin (2021) Based on this premise, we propose the following hypothesis:

H3 Cash flow has a positive impact on the investment of firm

Current sales growth is significant and positively related to planned investment according to Maury and Pajuste (2005) And Zeitun and Tian (2007), growth rate has a positive impact on investment and thus increases the efficiency of business activities of enterprises Based on this premise, we propose the following hypothesis:

H4 Sale growth has a positive impact on the investment of firm

Grzegorzek (2022) demonstrates that profit provides new cash for more investments in the future Arif Khan, Qin, and Jebran (2019) indicate that profitable firms reduce their dependence on debt financing and use internal resources, therefore increasing investment Based on this premise, we propose the following hypothesis:

H5 Profitability has a positive impact on the investment of firm

The study of Huynh Thi Tuyet Phuong (2016) showed that the size of the enterprise has a positive effect on firm investment and thus it leads to an increase in business performance And according to Dewi and Wirajaya (2013), the size of the company can influence the investment of the company due to the high level of total assets of the company Based on this premise, we propose the following hypothesis:

H6 Size has a positive impact on the investment of firm

CHAPTER 3 RESEARCH METHODOLOGY

This chapter presents the data collection and the regression model of the research The author introduces how data is collected and provides a sample description of the data collection Besides that, regression models for investigating hypotheses In addition, the chapter also presents regression methodology, including three approaches for model estimation: Pooled-OLS, FEM, REM and GLS

3.1 Research design

The general research process of this graduation thesis is described According

to this process, the special tasks must be done as follows:

- Analyzing the actual situation to recognize the problem that needs to be solved through previous studies and research, then identifying the situation which will be applied into the research (has been solved in Chapter I)

- Summarize previous research and related background theory as the fundamental for building up models and hypotheses From these, choose the model which is suitable to the issues that needed to be done (decided in Chapter II)

- Based on the previous theories, propose research hypotheses to answer research questions in the Introduction

- Collecting, synthesizing and arranging panel data into Stata 17.0 software

- Implementing statistical analysis techniques

- Conclusion and implication policy

3.2 Sample

We investigate the impact of asymmetric information on firm investment decisions and the role of leverage in the nexus of asymmetric information and