Value relevance ò accounting information and the efects ò changes in accounting regulations evidence from vietnam stock market,graduation théis

BANKING ACADEMY OF VIETNAM ADVANCED PROGRAM FACULTY OF ACCOUNTING AND AUDITING GRADUATION THESIS TOPIC: VALUE RELEVANCE OF ACCOUNTING INFORMATION AND THE EFFECTS OF CHANGES IN ACCOUNTIN

BANKING ACADEMY OF VIETNAM

ADVANCED PROGRAM FACULTY OF ACCOUNTING AND AUDITING

GRADUATION THESIS TOPIC: VALUE RELEVANCE OF ACCOUNTING INFORMATION AND THE EFFECTS OF CHANGES IN ACCOUNTING REGULATIONS – EVIDENCE FROM

VIETNAM STOCK MARKET

Student’s ID : 19A4020637

Hanoi – 2020

COMMITMENT

I am Hoang Ha Phuong, a student of K19CLC-KTA I guarantee that my

Graduation Thesis is my own research The tables and figures supporting the analysis

and evaluation are completely honest In addition, my Graduation Thesis also uses

references that have been clearly identified If there exist any frauds, I am totally

responsible to Banking Academy of Vietnam

Hanoi, 8th June, 2020 The author

Hoang Ha Phuong

ACKNOWLEDGEMENT

First and foremost, I would like to express my sincere thanks to all teachers in Faculty of Accounting and Auditing and Advanced Program for their dedication Valuable knowledge that I have learnt in nearly 4 years is for not only my internship period but also my future to become an auditor

Especially, I would like to express my endless thanks and gratefulness to my supervisor – Ph.D Dao Nam Giang for guiding and supporting me to complete my Graduation Thesis Her constructive comments and continuous encouragement have significantly ameliorated my work

Thanks and best regards,

MENU

COMMITMENT i

ACKNOWLEDGEMENT ii

MENU iii

LIST OF ABBREVIATIONS vi

LIST OF TABLES AND FIGURES vii

CHAPTER 1: INTRODUCTION 1

1.1 Rationale of the research 1

1.2 Research objectives 2

1.3 Research questions 2

1.4 Research subjects and scope 2

1.5 Research method 2

1.6 Research structure 3

CONCLUSION OF CHAPTER 1 4

CHAPTER 2: THEORIES AND LITERATURE REVIEW 5

2.1 Accounting information and value relevance 5

2.1.1 Accounting information and its role 5

2.1.2 Value relevance 6

2.2 Literature review 7

2.2.1 Value relevance of accounting information 7

2.2.2 The effects of changes in accounting regulations on value relevance 9

CONCLUSION OF CHAPTER 2 14

CHAPTER 3: RESEARCH METHODOLOGY 15

3.1 Background analysis and Research hypothesis 15

3.1.1 IFRS harmonization in Vietnam and the issues of Circular No.200/2014/TT-BTC 15

3.1.1.1 IFRS harmonization in Vietnam 15

3.1.1.2 The issues of Circular No.200/2014/TT-BTC 16

3.1.2 Research hypothesis 18

3.1.2.1 Value relevance of EPS and BVPS 18

3.1.2.2 The effects of changes in accounting regulations on value

relevance 19

3.1.2.3 Value relevance of other factors 19

3.2 Proposed research model 20

3.3 Data and samples 22

3.3.1 Data collection 22

3.3.2 Research samples 23

3.3.3 Data analysis 25

CONCLUSION OF CHAPTER 3 27

CHAPTER 4: RESEARCH FINDINGS, DISCUSSIONS AND RECOMMENDATIONS 28

4.1 Descriptive statistics and correlation matrix 28

4.1.1 Descriptive statistics 28

4.1.2 Correlation matrix 30

4.2 Regression result 32

4.2.1 Panel data regression 32

4.2.2 Tests for optimal model 35

4.2.3 Tests for reliability of the model 36

4.2.3.1 Test for multicollinearity 37

4.2.3.2 Test for autocorrelation 37

4.2.3.3 Tests for heteroscedasticity 38

4.2.4 Robust standard errors and analysis 38

4.3 Discussions and Recommendations 40

4.3.1 Value relevance of EPS and BVPS and recommendations 40

4.3.2 The effects of changes in accounting regulations on value relevance and recommendations 41

4.3.3 Value relevance of other factors and recommendations 42

4.3.4 Further recommendations 44

4.3.4.1 Research limitations 44

4.3.4.2 Directions for further research 44

CONCLUSION OF CHAPTER 4 45

CONCLUSION 46

REFERENCES 47

APPENDIX 1 50

APPENDIX 2 53

LIST OF ABBREVIATIONS

No Abbreviation Explanation

6 IFRS International Financial Reporting Standards

9 P/E Price to earnings ratio

18 CFO Cash flow from operating activities

LIST OF TABLES AND FIGURES LIST OF TABLES

Table 2.1 IFRS adoption in the world as of April 2018 10

Table 3.1 Circular No.200/2014/TT-BTC and its effect to listed companies in Vietnam 17

Table 3.2 Model of the research 21

Table 3.3 Research samples 23

Table 4.1 Descriptive statistics 28

Table 4.2 Correlation matrix 31

Table 4.3 POLS 32

Table 4.4 REM 33

Table 4.5 FEM 34

Table 4.6 Breusch-Pagan Lagrangian multiplier test 35

Table 4.7 Hausman test 36

Table 4.8 Collinearity Diagnostics 37

Table 4.9 Wooldridge test for autocorrelation 38

Table 4.10 Modified Wald test for heteroscedasticity 38

Table 4.11 Robust standard errors for correction 39

Table 4.12 Previous findings: EPS leads to higher value relevance than BVPS 40

LIST OF FIGURES Figure 3.1 Distribution of ROA for the period 2010-2019 24

Figure 3.2 Leverage ratio for the period 2010-2019 25

CHAPTER 1: INTRODUCTION 1.1 Rationale of the research

Vietnam Stock Market was officially launched in 2000 and went through many stages during 20 years The beginning of Vietnam Stock Market is from the period (2000-2005), which market capitalization was only about 1% of GDP In the period from 2006, Securities Law was imposed and came into effect in early 2007, which gradually improved the inadequacies and conflicts among legal documents, therefore, Vietnam Stock Market is more likely to integrate with both foreign and domestic capital markets In 2016, Vietnam Stock Market was evaluated as one of five markets with the highest growth rate in Southeast Asia Throughout 20 years, Vietnam Stock Market is constantly growing with outstanding achievements and the year 2019 marked the first time which Vietnam market capitalization exceeded 100% of GDP Vietnam Stock Market is regarded to be potential market for investors

In order to make effective investment decision, potential investors pay attention to factors affecting stock price including external factors (market’s supply and demand, investors’ psychology…) and internal factors (company policy, accounting information…) Among all of these, accounting information is the one that attracted numerous researchers in the world in general and in Vietnam in particular Accounting information can be considered as a product of accounting systems which is based on rules and standards (Core, Guay & Buskirk, 2003) In Vietnam, accounting information is compliance with VAS Thanks to the development of Vietnam economy, new accounting standards have been gradually implemented over the period In 2014, Ministry of Finance in Vietnam issued set of accounting standards according to Circular No.200/2014/TT-BTC, which is asymptotic to IFRS, to replace Decision 15/2006/QD-BTC The new content of Circular No.200/2014/TT-BTC was for accounting vouchers, accounting books and financial statements (Hoang Vu Hai, 2016) These changes on accounting standards actually have huge impacts on financial statements, thus financial ratios, however, how it affects stock price is still the topic that has never mentioned yet Therefore, the topic “Value relevance of accounting information and the effects of changes in accounting regulations - evidence from Vietnam Stock Market” is of pivotal necessity

to verify the impact of accounting information on stock price on Vietnam Stock Market and also changes in accounting regulations on value relevance

1.2 Research objectives

The overall research objective is to clarify the value relevance of accounting information on Vietnam Stock Market and how changes in accounting regulations affect value relevance Specifically, this study, using modification of Ohlson (1995) model, verifies the correlation between accounting information and stock price and simultaneously evaluates the impact of changes in accounting regulations on value relevance

1.3 Research questions

The research focuses on two main research questions:

Question 1: What accounting information affects stock price? How does it affect?

Question 2: How changes in accounting regulations affect value relevance?

1.4 Research subjects and scope

Research subjects: Value relevance, accounting information, stock price,

changes in accounting regulations

Research scope:

- Content:

(1) Generalize accounting information and value relevance

(2) Summarize and analyze previous researches about value relevance of accounting information and accounting reform

(3) Make research hypothesis and design model

(4) Test research hypothesis

(5) Draw conclusions and make recommendations

- Samples: 100 listed companies on Vietnam Stock Market

- Time: 5 years pre – or post – changes in accounting regulations following the Circular No.200/2014/TT-BTC

1.5 Research method

This research was conducted using both qualitative research and quantitative research method

Qualitative research

Qualitative research was used to identify accounting information which affects stock price in listed companies on Vietnam Stock Market during 10-year period (2010-2019) Based on the literature review, influential factors were identified

1.6 Research structure

The research includes 4 chapters:

- Chapter 1: Introduction

- Chapter 2: Background and Literature review

- Chapter 3: Research Methodology

- Chapter 4: Research Findings, Discussions and Recommendations

CONCLUSION OF CHAPTER 1

In chapter 1, the author indicates the rationale and research objectives From this, research questions are raised in order to be answered in the following chapters Besides, the author also mentions research subjects, scope and method Therefore, the author goes into details and divides the research into 4 chapters:

- Chapter 1: Introduction

- Chapter 2: Background and Literature review

- Chapter 3: Research Methodology

- Chapter 4: Research Findings, Discussions and Recommendations

CHAPTER 2: THEORIES AND LITERATURE REVIEW

2.1 Accounting information and value relevance

2.1.1 Accounting information and its role

According to Berisha & Xhelili (2017), accounting is an information system that produces reports about economic activities of economic entity for all interested stakeholders In other words, accounting arising from business transactions is to measure and summarize the activities of the company and communicate the results

to management, investors and creditors Accounting information is disclosed by financial statements According to VAS, there are 4 elements of Financial Statements including Statement of Financial Position, Income Statement, Statement of Cash Flow, Notes to Financial Statement

- Statement of Financial Position: The balance sheet is a statement of assets owned, liabilities owed and equity of a business at a particular date (balance sheet date)

- Income Statement: An income statement summarizes the income and expenditure of the company over a period of time If income exceeds expenditure, the business gets a profit, if vice versa, a loss occurs

- Statement of Cash Flow: A cash flow statement summarizes the cash inflow (receipts) and cash outflow (payments) for a given period The cash flow statement provides historical information about cash and cash equivalents

There are 2 methods to prepare “Statement of Cash Flow”: direct method and indirect method

- Notes to Financial Statement: It is used to describe or analyze in details the data presented in Statement of Financial Position, Statement of Income Statement, Statement of Cash Flow as well as necessary information required by specific

accounting standards

Notes to Financial Statement includes the basic contents as followed:

+ Characteristics of business operation + Accounting period, monetary unit + Accounting standards and accounting regulations applied + Accounting policies applied

+ Addition information for items presented on Statement of Financial Position

+ Addition information for items presented on Income Statement

Addition information for items presented on Statement of Cash Flow

Economic development always requires a high level of accounting information that would enable the right orientation in both national and international markets of different companies Thus, there is no doubt to affirm that reliable accounting information, which reflects reliable financial reporting and ensures the strength of the financial structure of enterprises, is a key issue for the development of capital market

2.1.2 Value relevance

“Value relevance” was a jargon - first time used by Amir, Harris, and Venuti (1993) in their study It is defined as the ability of information disclosed by financial statements to capture and summarize firm value, which can be measured through the statistical relations between information presented by financial statements and stock market values or returns (Sibel, 2013)

Stock is a certificate issued by a joint stock company and all of shares into which ownership of the corporation is divided According to Vietnam Securities Law

2006, stocks are securities which verifies the legal rights and interests of owners over share capital of issuing organization When buying stocks, investors will become shareholders of company and the level of ownership depends on the percentage of shares that shareholders own Unlike bondholders, shareholders share all risks and rewards of company In the worst case that the company must go into liquidation or

go bankrupt, shareholders receive only the remaining after the company pays other obligations such as taxes, bank debts or bonds… Stock is an indefinite instrument, high liquidity but high risk Stock dividend is often based on operating activities of the business, thus not fixed When the business is in good health, shareholders earn high profit, which may be much higher than other securities with fixed interest rate, and vice versa when the business is at loss, dividend is quite low or equal to 0 When the company goes bankrupt, shareholders are the last to get the residual value of liquidated assets The difference of stock value and stock market is that “Value is

better measure for investors while price matters more to traders”

- Stock market: In terms of stocks, investors in the market determine stock value based on such factors:

+ Earnings + Market share + Sales volume over time + Current and potential competitors + A variety of metrics such as P/E ratio

- Stock price: Whether there are more buyers or sellers on any day depends on many factors such as:

+ Overall market trends + News, good or bad + Economy/Geopolitical risk + Confidence or lack of it in the economy + Company news, such as earnings, financial issues or scandals which may move the price in short term

=> Market value is the company’s value calculated from its current stock price and rarely reflects the actual current value of the company The reason is that the market value reflects supply and demand in the investing market and how eager investors are to join in the company’s future

Another essential idea is that value relevance is a measure of investor perception of the reliability of corporate financial disclosure Loss of investor confidence in corporate financial disclosures can be detected by a drop in value relevance, while an increase in investor confidence will be similarly detectable by an increase in value relevance Therefore, value relevance approach is an instrument to estimate quality of accounting information which is a prime importance to the information, which is a prime importance to the well-functioning of the economy (Beuselinck, 2005)

2.2 Literature review

2.2.1 Value relevance of accounting information

Many empirical studies, based on the Ohlson (1995) model, have been

conducted to verify the value relevance of accounting information on stock markets

in different countries Ohlson (1995) model used in almost researches showed accounting information (EPS, BVPS) significantly correlated with stock price In Europe, Aiman & Mohammad (2006) surveyed listed companies in Egyptian Equity Market during the period (1998-2002) and concluded that accounting information has high value relevance in Egypt Ivica & Marijana (2012) compared the value relevance

of accounting information for 5 countries in the South Eastern European countries including Croatia, Slovenia, Serbia and Bosnia and Herzegovina from 2005 to 2010 Research results showed that book value and earnings are relevant in all markets observed and value relevance of book value is higher than that of earnings According

to Michalis et al (2012), during the 1996-2008 period in 38 firms listed in the Athens Stock Exchange, “the explanatory power of earnings and book value in the formulation of prices increases over time It is also found that, in the last years, earnings appear to play an increasingly diminishing role in the interpretation of stock price, compared with the book value.”

In Asia, Hwei & Hsain-Jane (2008) did a research in Taiwan firms in 2004, modified Ohlson (1995) model by adding disclosure level as a variable and demonstrated that firms with a high level of information disclosure have a higher association between EPS and stock market price than the firms with the low one Thus, firms that increase information disclosure transparency can increase accounting earnings; thereby, increasing stock market price The result also shows that there is a positive significant association between BVPS, EPS and the stock price Muhammad (2011) found out that stock price are positively correlated with not only EPS but also dividend and GDP growth rate and negatively correlated with interest rate in Karachi Stock Exchange (Pakistan) during the year (2000-2008) Junjie et al (2013) discussed about other variables affecting stock price besides EPS in 60 firms listed in Shanghai Stock Exchange in 2011 The result is that profitability, earnings per share and rate

of return on common stockholders’ equity are most significant, the significance of income from main operation ratio and quick ratio are better and accounts receivable turnover ratio, inventory turnover ratio and liquidity ratio have significance, but not very obvious Menike & Prabath (2014) added DPS as an additional variables and

explained that DPS, EPS and BVPS were positive and had a significant impact on the stock price in the Colombo Stock Exchange (Sri Lanka) from 2008 to 2012 He also recommended that investors should use DPS as the first variables and EPS, BVPS after that in evaluating company’s financial performance, predicting future trends in share price in the capital market and making productive investment decisions

On Vietnam Stock Market, Nguyen Viet Dung (2010) used Ohlson (1995) model together with stock price adjustment method by Aboody (2002) in the year

2007 and proved that earnings and book value are reflected in stock price with a time lag (stock price 3 months after fiscal year is much stronger than other periods such as the year end, 6 months, 9 months and 12 months after fiscal year) and the value relevance of earnings becomes much higher It was 10 years after new born of Vietnam Stock Market that the value relevance of accounting information in Vietnam

is still weak compared to not only developed countries but also other emerging markets in the region This can be explained by the fact that existing problems in the legal framework of information disclosure, accounting regulations, auditing activities, actual situation of disclosure by public firms and use of financial statement information by investors In other research investigating only in Ho Chi Minh Stock Exchange over the period (2008-2013), Truong Dong Loc & Nguyen Minh Nhat (2015) reaffirmed Nguyen Viet Dung (2010) study about time affecting stock price, however, the difference is that the level of interpretation of the best accounting information for stock price is adjusted for price fluctuations 1 month after the end of the year Pham Tien Manh (2017) indicated that besides EPS; P/E, dividend, GDP and CPI also positively influence stock price of listed firms on Hanoi Stock Exchange during the period from 2012 to 2016

2.2.2 The effects of changes in accounting regulations on value relevance

Accounting reform is applied in almost all countries in order to promptly reflect the economic development around the world In some countries, accounting reform is moving to apply IFRS because of its worldwide recognition The inevitability of globalization occasioned the unavoidable increased integration and adoption of IFRS (Al et al (2017), Özcan (2016), Uyar et al (2016)) and its drive to economic growth (Gu, 2016) The fact is that international organizations with

important impacts in the world economy include World Bank (WB), International Monetary Fund (IMF)… all encourage and support countries to apply IFRS globally Currently, there are about 144 jurisdictions in the world that allow or enforce IFRS adoption when preparing financial statements Data of 166 jurisdictions across 5 regions up to April 2018 on the application of IFRS are surveyed as follows:

Table 2.1 IFRS adoption in the world as of April 2018

Region Jurisdictions in the region

Jurisdictions that require IFRS Standards for all or most domestic publicly accountable entities

Jurisdictions that require IFRS Standards as

% of total jurisdictions

in the region

Jurisdictions that permit

or require IFRS Standards for at least some (but not all or most) domestic publicly accountable entities

Jurisdictions that neither require nor permit IFRS Standards for any domestic publicly accountable entities

under I-GAAP (2002-2004) and under IFRS (2005-2007) in Italian listed companies This study showed that IFRS adopted helps to improve accounting quality and accounting numbers (EPS, BVPS) to provide useful information to investors’ decision making Sibel (2013) surveyed on Turkish firms from 1998 to 2011 and found that value relevance of BVPS increased and that of earnings decreased in post-IFRS

Another study conducted in Australia from 1990 to 2007 in respect of IFRS adoption by Keryn et al (2009) indicated that earnings are more persistent thus more value relevant, therefore, it witnessed an increase in the information content of net income upon adoption of IFRS, in contrast, a decrease in the information content of stockholders’ equity Findings by Peter at al (2009) in Europe and Australia indicated that explanatory variables (EPS*BVPS) is more significant when using IFRS accounting numbers in comparison with Local GAAP accounting Interestingly, after IFRS adoption, there is no difference in measurement error between Code and Common Law countries whereas before IFRS there was a difference If difference, is

is because implies the same financial reporting quality after IFRS for two groups of countries that had different financial reporting quality before IFRS, hence IFRS enhances comparability

In Africa, both researches indicate that reform in accounting standards leads

to higher value relevance In Tunisian Stock Exchange from 1992 to 2001, Samy & Walid (2006) showed that earnings, cash flows and book values are positively and significantly related to security prices, more importantly, value relevance of these variables have significantly improved after the 1997 accounting reform Nigeria, as part of the globe, decided to adopt IFRS in 2012 because the level and quality of disclosure before the adoption of IFRS was poor (Ofoegbu & Odoemelam, 2018) The other study in quoted Nigerian companies at the time on or before 2006 and 2006

to 2017 (IFRS adoption) by Ndubuisi et al (2019) demonstrated that the latter period experienced higher earnings value relevance and stock price is significantly and positively related to EPS, BVPS, audit firm size and company age

In Asia, it is proved that IAS/IFRS adoption leads to higher value relevance Fatima & Paul (2009) obtained evidence in the Abu Dhabi Stock Exchange between

2000 and 2006 and indicated the value relevance of accounting information reported under IFRS is value relevant, however, the magnitude of the coefficient of BVPS is significantly smaller than that of EPS Additionally, size of firm & types of auditors (Big4 and non-Big4) affect value relevance, specifically, for the price–earnings models, adjusted R-squared is higher for large firm subsample than for small one, at 33.97% and 24.25% respectively and adjusted R-square for the Big4 subsample is also higher than that of the non-Big4 subsample On study of Dani (2009) about

“Financial reporting gaps and value relevance: Chinese accounting standards and international accounting standards post-2001” revealed that equity & reported earnings are not significantly different, therefore CAS had substantially with IAS and reports under IAS regime are generally more influential than those on CAS regime

J Barzegari (2011) conducted a research in Saudi Arabia during the period 2008) and concluded that accrual based information were more value relevant than cash based information and also the coefficient of EPS was more than BVPS Moreover, reform in accounting standards improves value relevance On the contrary, another study by Jamal et al (2011) showed a decline in value relevance of accounting information after the reform in accounting standards In addition, accounting information in Iran is value relevant and value relevance of EPS is higher than BVPS The research of an emerging market by Tamer (2014) indicated that the convergence of IFRS and CAS is more value relevant in A- and B-shares and it is partially more value relevant with the H-share market Mirza et al (2019) surveyed

(1993-at the time after adopting full set of IFRS and found out th(1993-at financial st(1993-atements affect investors, specifically, CFO is the most significant accounting information compared to earnings and BE for investment decision-making Further researches were conducted deeply in order to compare the value relevance of accounting information before and after adopting IFRS They all reached a conclusion that there was almost higher accounting relevance in post-IFRS period

To sum up, both international and national empirical studies show that there are a variety of factors affecting stock price such as EPS, BVPS, DPS, leverage, firm size, audit firm size, company age, disclosure, time flag, CFO, GDP, CPI… Almost all findings verify the correlation between accounting information and stock price In

Vietnam, as mentioned above, empirical studies also confirm this relationship, however, still have limitations on time (1), scope (2) and objectives (3)

As for time (1), data of each finding was collected at maximum 5 years and has not been updated up until now

As for scope (2), most researches were conducted in either Ho Chi Minh Stock Exchange or Hanoi Stock Exchange while few on Vietnam Stock Market Therefore, the generalization of these researches is not high enough to reflect the market value

of listed firms during a long period of time on Vietnam Stock Market

As for objectives (3), there exists some researches in the world about the impact of reform in accounting standards on stock price, but does not exist in Vietnam

at all In other words, these previous studies in Vietnam are useful for investors to make decision based on accounting information, however, not helpful enough for them to know whether or not changes in accounting regulations is beneficial for them

It is also a basis to evaluate the effect of Circular No.200/2014/TT-BTC on Vietnam economy in general and Vietnam Stock Market in particular

Therefore, the topic “Value relevance of accounting information and the effects of changes in accounting regulations - evidence from Vietnam Stock Market” will give profound insights into determinants of stock price and impacts of changing accounting standards on stock price on Vietnam Stock Market Also, this finding is relevant to standard setters and regulators for future directions in developing accounting standards

CONCLUSION OF CHAPTER 2

In chapter 2, the author presents the theories of the research Specifically, the author indicates accounting information and value relevance definition and the impact of changes in accounting regulations Simultaneously, the author also summarizes value relevance of accounting information and accounting reform from previous findings and it is certain a foundation to evaluate “Value relevance of accounting information and the effects of changes in accounting regulations - evidence from Vietnam Stock Market”

In the following chapters, the author will propose research hypothesis, methodology and model to present value relevance of accounting information on Vietnam Stock Market and the effects of changes in accounting regulations From this, the author will perform test to find out which factors affect stock price, the level

of impact and the impact of Circular No.200/2014/TT-BTC on value relevance

CHAPTER 3: RESEARCH METHODOLOGY

On the foundation and literature review mentioned in chapter 2, chapter 3 mainly concentrates on the factors affecting stock price on Vietnam Stock Market and the effects of changes in accounting regulations Thus research hypothesis and research model are presented, data and samples are collected and analyzed

3.1 Background analysis and Research hypothesis

3.1.1 IFRS harmonization in Vietnam and the issues of Circular No.200/2014/TT-BTC

3.1.1.1 IFRS harmonization in Vietnam

Currently, Vietnam – a developing country with rapid economic growth and development is more and more attractive international financial companies and foreign investors Vietnam’s FDI has recently increased, 2018 experienced a surge of 9.1 percent to US$19.1 billion In fact, some enterprises operating in Vietnam have adopted IFRS such as VinGroup, VPBank, PVI, etc VinGroup was the first Vietnamese enterprise to successfully issue 100 million shares USD convertible bonds listed on the Singapore Exchange ("SGX") in the third quarter of 2009 In June

2011, 99.99% of the bonds issued were converted into stocks In order to be successful in the global market such as SGX which requires high and complex listing standards, VinGroup has made careful preparations to transfer to IFRS financial reporting since the beginning of 2008 IFRS harmonization also creates common accounting language all over the world, which helps enterprises reduce time and expense of preparing multiple reports It also makes contribution to the transparency

of economic activities

With the hope that Vietnam economy will reach further in the future, the Ministry of Finance is promoting IFRS adoption in Vietnam On March 16th 2020, the Ministry of Finance officially issued Decision No.345/QD-BTC approving the scheme on IFRS adoption in Vietnam The roadmap is divided into 3 stages:

- Stage 1 – IFRS readiness preparation (from 2020 to 2021):

+ Before March 2020: Develop and issue the scheme to apply financial reporting standards in Vietnam

+ Before December 2020: Set up translation and review committee, complete IFRS translation into Vietnamese

+ Before March 2021: The Ministry of Finance will draft, promulgate or liaise with competent body which has authority to promulgate appropriate legislature in order to publish Vietnamese IFRS translated coly with regard to methodology of adopting IFRS

+ Before November 15th, 2021: The Ministry of Finance will draft, promulgate

or liaise with competent body which has authority about IFRS adoption

+ Training human resources and support enterprises

- Stage 2 – IFRS pilot implementation (from 2022 to 2025):

+ As for consolidated financial statements: Enterprises with demand and resources need to notify the Ministry of Finance before voluntarily adopting IFRS including: Parent company of state-owned corporation with large scale, parent company is listed company, large-scale public company is unlisted parent company and other parent companies

+ As for separate financial statements: FDI companies which are subsidiaries

of parent companies in other country with demand and resources need to notify the Ministry of Finance before voluntarily adopting IFRS

Companies with IFRS adoption have to guarantee to provide transparent information to tax authorities, regulatory agencies and supervisors

- Stage 3 – IFRS compulsory implementation (from 2025 onwards): Based on stage 2, the Ministry of Finance will officially decide time for IFRS adoption

+ As for consolidated financial statements: Parent company of state-owned corporation with large scale, parent company is listed company, large-scale public company is unlisted parent company and other parent companies with demand and resources need to notify the Ministry of Finance before voluntarily adopting IFRS

Companies with IFRS adoption have to guarantee to provide transparent information to tax authorities, regulatory agencies and supervisors

3.1.1.2 The issues of Circular No.200/2014/TT-BTC

Circular No.200/2014/TT-BTC was born in order to change the approach of accounting system Compared to “Decision 15/2006/QD-BTC”, Circular

No.200/2014/TT-BTC reformed accounting vouchers, accounting books, accounting accounts and financial statements The details are given in Appendix

=> Reform of accounting standards in accordance with Circular No.200/2014/TT-BTC is gradually asymptotic with IFRS, which makes enterprises become more and more active in organizing their own accounting systems

In addition, VPBank Securities (2015) issued a special report about Circular No.200/2014/TT-BTC and its effect to listed companies in Vietnam showed some material changes directly affecting listed companies, which includes monetary unit, accounting for revenues, accounting for trade discounts and sale discounts, financial investments recognition, dividends, retained earnings and EPS

Table 3.1 Circular No.200/2014/TT-BTC and its effect to listed companies

Accounting for

revenues

- Real estate revenue recognition: Real estate investors are not allowed to record revenue from prepayment of the customers based on progress but only record when completing and transferring risks and rewards of ownership of the property to the buyer

- In case the buyer is entitled to return goods purchased under specific conditions such as within 3 days after the purchase, enterprises may only record revenues when those conditions met no longer exists and the buyer is not entitled to return goods purchased

Accounting for trade

discounts and sale

discounts

For promotional items with condition that customers must buy goods (buy 2 get 1 free), the value of promotional items are recorded as cost of goods sold (nature of transaction is sale discounts)

On the contrary, if there is no payment or no other conditions such as goods purchased, the value of promotional items will be recorded as selling expense

Financial investments

recognition Financial investments are no longer divided into long-term and short-term but into investment purposes

Dividends Dividends only track quantities on Notes to Financial

Statements

Retained earnings

Parent company is allowed to distribute profit to owners not over undistributed profit after tax in consolidated financial statements after excluding profit from bargain purchase (goodwill is equal or less than 0)

EPS

Earnings for calculating EPS excludes bonus and welfare fund For listed companies, the rate of bonus and welfare fund deduction will be decided by general meeting of shareholders

Formula: EPS = (Earnings for shareholders owning ordinary shares – Deduction for bonus and welfare funds)/Weighted average number of outstanding ordinary shares

(Source: VPBank Securities)

To summarize, Circular No.200/2014/TT-BTC is asymptotic to IFRS, therefore, it is also believed to affect value relevance on Vietnam Stock Market

3.1.2 Research hypothesis

3.1.2.1 Value relevance of EPS and BVPS

EPS is one of fundamental variables to measure accounting information and simultaneously verify the value relevance of accounting information The higher EPS

of the company shows the increase in profitability of the firm In previous researches,

it is most commonly proved According to Bowen (1987), the information content of profits as the extent of variation affects investors’ assessments of the probability distribution of future returns or prices Ozili and Outa (2019) shows that “earnings affect investors’ decisions on resource allocation, and investors prefer earnings stability than abnormal (or surprise) earnings As mentioned in the literature review, EPS is primary factor to evaluate the value relevance of accounting information, according to Ohlson (1995) model, Aiman & Mohammad (2006), Ivica & Marijana (2012) and Michalis et al (2012)… In fact, every investor expects that the higher EPS leads to higher value relevance and the higher EPS easily attracts current and potential investors for investment decision making Therefore, the author gives the

first research hypothesis as below:

H1: The higher EPS, the higher stock price

Similar to EPS, BVPS is proved to value relevance BVPS is an indicator of the company’s net asset value on a per-share basis Investors tend to use BVPS as a factor to evaluate stock price of the company and for their investment decision Clarkson et al (2011) showed book value and earnings as summary descriptors of value, and higher value relevance of these accounting variables lead to a lower cost

of capital for firms seeking for external financing Thus, the author expects that BVPS significantly explains variations in share prices The second research hypothesis is:

H2: The higher BVPS, the higher stock price

3.1.2.2 The effects of changes in accounting regulations on value relevance

Circular No.200/2014/TT-BTC was issued with the hope that it will be asymptotic to IFRS Special report by VPBank Securities (2015) indicates that Circular No.200/2014/TT-BTC has material changes compared to Decision 15/2006/QD-BTC Therefore, investors expect that Circular No.200/2014/TT-BTC reflects substance over form and becomes more and more transparent, which enhances value relevance on Vietnam Stock Market The research hypothesis is:

H3: If the financial statements are prepared in accordance with Circular No.200/2014/TT-BTC, the relationship between EPS and stock price is more positive

H4: If the financial statements are prepared in accordance with Circular No.200/2014/TT-BTC, the relationship between BVPS and stock price is more positive

3.1.2.3 Value relevance of other factors

Firm size, in this research, is defined as total assets In fact, large enterprises have huge assets, thus their assets to liabilities will be high As a result, large enterprises tend to report profit higher than smaller ones In the study of Ndubuisi et

al (2019), firm size is insignificant to share price in Nigierian Stock Exchange However, in Vietnam, investors tend to more concentrate on firms with huge assets such as Vingroup (over 400000 billion VND), Vinamilk (nearly 25000 billion VND)… Thus, the third research hypothesis is the positive relationship between firm size and stock price:

H5: The higher FS, the higher stock price

P/E is the ratio to value the company that measures its current share price relative to its EPS High P/E means that stock of the company is over-valued, or else that investors are expecting high growth rates in the future Therefore, P/E is expected

to have positive correlation with stock price:

H6: The higher P/E, the higher stock price

Leverage is defined as total liabilities divided by total assets Kothari (2000) and Habib & Azim (2008) showed that the risk level of companies would influence the value relevance of accounting information According to Ndubuisi et al (2019), leverage is insignificant to stock price In this research, the author expects that leverage leads to decrease in stock price:

H7: The lower LEV, the higher stock price

As mentioned in the literature review, Mirza et al (2019) confirms the significance of CFO also for market valuation and investors consider CFO as a value relevant variable for investment decision making in the Malaysian Capital Market In Vietnam, CFO is also anticipated to positively affect stock price:

H8: The higher CFO, the higher stock price

According to UHY (2019), audit helps to prevent and detect frauds, simultaneously enhance credibility The reputation and quality of audit firm makes great contribution to investors trust in the earnings of the company Therefore, the companies audited by Big4 auditor tend to attract more and more investors because

of its professional and high competence Ndubuisi et al (2019) indicated that audit firm size is insignificant to share price in Nigierian Stock Exchange However, in Vietnam Stock Market, almost all large companies have been audited by Big4 and investors all have confidence in financial statements audited by Big4 Thus the author expects that audit firm size has positive correlation with stock price:

H9: If the financial statements are audited by Big4, the higher stock price

3.2 Proposed research model

Based on previous findings conducted about value relevance of accounting information, the author has summarized some accounting information affecting stock price namely EPS & BVPS (Aiman & Mohammad, 2006; Ivica & Marijana, 2012;

Michalis et al., 2012…), P/E (Junjie et al., 2013), firm size and audit firm size (Ndubuisi & Grace, 2019), leverage (Ndubuisi & Grace, 2019; Mirza et al., 2019), CFO (Mirza et al., 2019)

Based on Ohlson (1995) model that shows value relevance of accounting information:

and modification of Ohlson (1995) model which compares the value relevance of accounting information in 2 different period (pre – and post – IFRS adoption) in Nigeria:

(Ndubuisi & Grace, 2019)

Therefore, the author uses modification of Ohlson (1995) model to analyze

“Value relevance of accounting information and the effects of changes in accounting regulations - evidence from Vietnam Stock Market”

Table 3.2 Model of the research

Model

Value relevance of accounting information and the effects of changes in accounting regulations

- evidence from Vietnam Stock Market

SP = α + β1EPS + β2BVPS + γ1CIR200 + γ2CIR200 EPS + γ3CIR200 BVPS +

g1FS + g2P/E + g3LEV + g4CFO + g4AFS + w1AFS EPS + uit

Definition of variables in the model

SP

Stock price per share of firm 3 months after the year end (dong VND) The reason is that according to Nguyen Viet Dung (2010), stock price 3 months after fiscal year is much stronger than other periods

EPS Earning per share (dong VND)

SPjt = α + β1EPSjt + β2BVPSjt + γ1DUMIFRSjt + γ2DUMIFRSjt∗EPSjt+ γ3DUMIFRSjt∗BVPSjt + g1FSjt + g2AFSjt + g3LEVjt + g4AGEjt

+ w1AFSjt∗EPSjt + w2AGEjt∗EPSjt + fj + rt + εjt

SPjt = β0 + β1EPSjt + β2BVPSjt + εjt

BVPS Book value per share (dong VND)

CIR200 EPS The interaction between CIRCULAR200 dummy variable and Earning per share

CIR200 BVPS The interaction between CIRCULAR200 dummy variable and Book value per share

FS Firm size is defined as total asset (million dong VND)

P/E Price to earnings ratio (times)

LEV Leverage is defined as total liabilities divided by total equity (times)

CFO Cash flow from operating activities (million dong VND)

AFS Audit firm size dummy (1 if the company is audited by EY, Deloitte, PwC or KPMG and 0 otherwise)

AFS EPS The interaction between AFS and EPS

of 100 enterprises in 9 sectors during 10-year period from 2010 to 2019

Audit firm size is taken from audited Statement of Financial Position of the companies at website: https://cafef.vn/

Circular No.200/2014/TT-BTC came into effect in 2005 therefore data is gathered before and after 5 years from the issues of Circular No.200/2014/TT-BTC

Stock price per share of firm was gathered from FiinGroup 3 months after the year end To specify, stock price per share of Thanh Thanh Cong – Bien Hoa Joint Stock Company (SBT) was collected at September 30th because the year end is at

June 30th Stock price per share of the 99 remaining enterprices were all collected at March 31st

3.3.2 Research samples

The samples in this research includes 100 Vietnamese listed companies in 9 sectors which are divided by Global Industry Classification Standard (GICS) Companies in Financial sector are excluded because the regulation for these companies are quite different from the others

Table 3.3 Research samples

Sector Weight of capitalization market Number of companies

Gathered in 10 years, data of 100 selected companies includes 996 observations 4 observations all in Industrial sector are missed due to the lack of information of Airports Corporation of Vietnam (ACV) in 2010 and Vietjet Aviation Joint Stock Company (VJC) from 2010 to 2012

Among 100 selected enterprises, there are 62 enterprises listed on Ho Chi Minh Stock Exchange (HOSE), 32 on Hanoi Stock Exchange (HNX) and the 4 remaining on Unlisted Pubic Company Market (UpCOM) According to data from State Securities Commision on April 30th 2019, HOSE is the largest stock exchange

in Vietnam, accounting for 74% of the market capitalization with 375 listed enterprises HOSE has the highest requirements for listing conditions, followed by HNX and UpCOM respectively

In order to better understand the research samples, the author presents an overview of financial health of the samples via profitability ratio (ROA) and financial risk ratio (Leverage ratio) The firgures are shown below:

Figure 3.1 Distribution of ROA for the period 2010-2019

(Source: The author calculates from data of listed companies)

In general, there are few observations reporting negative ROA In other words, ROA of almost all observations tends to be more than 0 The distribution of ROA is mostly in the range [0,0.1] Especially, there are approximately 120 observations