impact of listed companies’ attributes on information disclosure level and its consequences

NgO thu giang IMPACT OF LISTED COMPANIES ’ ATTRIBUTES ON INFORMATION DISCLOSURE AND ITS CONSEQUENCES SPECIALTY: FINANCE - BANKING CODE: 62340201 HANOI, 2014... Facing with above cons

NgO thu giang

IMPACT OF LISTED COMPANIES ’ ATTRIBUTES ON INFORMATION DISCLOSURE AND ITS CONSEQUENCES

SPECIALTY: FINANCE - BANKING

CODE: 62340201

HANOI, 2014

NATIONAL ECONOMICS UNIVERSITY

The dissertation is defended in Examination Committee

in National Economics University, Hanoi

at on 2014

Be referred in:

National Library of Vietnam

Library of National Economics University

INTRODUCTION

Research idea

For efficient operation of a stock market, the investors need adequate information for their investment decision making Unsystematic information (market’s parties are not provided information inadequately) has negative impact on operation of the financial market

Vietnam stock exchange (VSE) has been operated since the year 2000 in

a developing economy With more than ten years of development, Vietnam stock exchange is under stable operation with participation of organizations and basic financial instruments as stocks and bonds However, in recent years, there are several constraints which prevent efficient operation of VSE such as:

“following behavior”, “internal trading”, “rumor – based trading”, etc

Facing with above constraints, the dissertation is focusing on studding

“impact of the listed company’s attributes to its information disclosure (ID) in

Vietnam Stock Exchange and consequences to Vietnam Stock Exchange and the listed company”

Research objective

Managerial questions of VSE’s governmental organization and managers

of listed companies is how to improve efficiency of market operation through transference of disclosed information and its benefit to listed companies and trading transactions in the VSE To answer the question, VSE’s governor and listed companies’ managers need to understand comprehensively ID, measurements of ID level, factors impacting on ID and trading results of listed companies in VSE

Research subject and scope

Research Subject of the dissertation is ID of listed companies in Vietnam Stock Exchange The research period is from the year 2011 up to present

Research Sample is a group of listed companies which have been selected

by random method in order to ensure representativeness of the sample in VSE

Research Questions

Particular research questions are presented as follows:

• Which factors/ measurements can be used to evaluate ID level of listed companies in VSE?

• How do attributes of listed companies in VSE impact on ID level in general or ID level of each type of disclosed information in VSE?

• What are variables and measurements to be used for measuring consequences of ID level on listed companies and trading transactions of their listed stocks in VSE?

Research Contributions

* Theoretical contributions:

The dissertation has generalized a complete theory about ID of listed companies in stock exchange The dissertation also developed measurement criteria of ID; generalized, modified and supplemented listed companies’ attributes; and studied impact of the attributes to ID; and its consequences on the stock exchange and listed companies The dissertation has developed a research model with research hypotheses with application of quantitative research methodology to test relations among variables of the model

Particularly, ID has been measured in three (3) aspects: informativeness; precision and understandability; and update of listed information while the previous researches have focused mainly on informativeness of disclosed information

Regarding to listed companies’ attributes impacting on ID, the dissertation has evaluated five categories of attributes: (1) Industry; (2) Ownership: except “foreign ownership”; the dissertation supplemented “state ownership”; and “relationship between state ownership and institutional ownership”; (3) Corporate governance: the dissertation modified concept of

“independence” by defining another measurement for the factor as

“Management board’s member cum Director board’s member”; (4) business performance: the dissertation consider money flow as supplemental measurement; (5) listing status: the dissertation modified measurement of the company scale to capitalized value and supplemented “listing organization” variable

Regarding to consequences of ID, the dissertation has not only considered impact of ID to cost of owner equity but also evaluated consequences of general

ID and ID of each information group to oscillation of stock price At present, there is no research considering macro and micro impact of ID on the stock price as proposed in the dissertation

* Empirical contributions

The previous researches implemented mainly in developed countries or/and in stock exchanges which are developed and have large scale Implementing research in VSE is an empirical contribution of the dissertation The achieved results have reflected new findings of ID of listed companies in VSE, as details:

(1) Actual performance of ID by listed companies

(2) Constructive impacts and destructive impacts of listed companies’ attributes on ID of listed companies

(3) Constructive consequences of ID on the cost of owner equity and oscillation of stock price in VSE

Coping with above actual conditions, the dissertation has developed recommendations to (1) State managerial organizations to improve contents, procedures regulated in managerial regulation on ID of listed companies; (2) Listed companies to improve perception and define key information to investors; and (3) research direction to be implemented in the future about ID of listed companies in VSE

CHAPTER 1 LITERATURE REVIEW AND THEORETICAL FRAMEWORK

• Disclosure of Information: regulated ID and voluntary ID

• Explanation of factors impacting on ID of listed companies

• Impact of ID: direct impact of ID on information users and, indirect impact

on ID on SE

1.1.1.1 Disclosed information

Information index in initial researches has been constructed for

information disclosed as regulated Coping with development of SE,

researchers also have found out disclosure tendency of listed companies who

disclosed not only mandatory information but also disclosed voluntarily other

information due to the listed companies have been willing to get attention of

stakeholders

Following the demand of information users, researches have stated to

build up a new information index which includes mandatory information

and voluntary information needed by users and financial analyzers

1.1.1.2 Factors impacting on ID

Evaluating factors impacting on ID, many researches have implemented

to evaluate impact of listed companies’ attributes on ID such as ownership structure, international listing, chartered capital, business field, company scale, capital structure, and business performance, independence between management board and director’s board; characteristics of members in director’s board The researches have applied multi variables regression and liner regression to illustrate relationship between the factors and ID level

Researches focus directly on ID is research of Kelly Anh Vu,2011; and

Ta Quang Binh in 2012 who has studied about impact of independent Director Board, ownership structure on voluntary ID, gap between information demand

of financial analysts and viewpoints of financial manager of listed companies about voluntary ID in the annual reports, factors creating the gap and its consequences on stock price in the market and cost of capital of listed companies in the year 2009 and 2010

1.2 Information Disclosure and its roles in listed companies

1.2.1 Information Disclosure

In the stock exchange market (SE), information disclosure (ID) is considered as information transmission between listed companies and their stakeholders in the SE

ID is considered as an efficient method to minimize and solve unsystematic information issue and agent problem

1.3 Government policy in ID management

(1) Mandatory ID policy

Purpose of the policy is focusing on solving information unsystematics Following the policy, the listed companies should disclose information which is regulated in the regulation

(2) Voluntary ID policy

The policy has been applied popularly in the early development stage of financial market of which scale and development level are very small and low The purpose of the policy is focusing on solving agency problem, coping with exposure demand and prestige development of listed companies in stock market; and creating competitiveness in the stock market

(3) Mixing ID policy

To overcome disadvantage of mandatory ID policy and voluntary ID policy, and cope with high development of perception and scale of the stock market, mixing ID policy is formed with participation and mutually supporting from above policies

When the joint stock companies disclose fully information, the companies will be listed in the stock market The purpose of the policy is constructing transparency environment of ID

1.4 ID Strategy

ID strategies applied in the listed companies are categorized as active strategy and passive strategy Active strategy satisfies information demand of user unlimitedly and timely while passive strategy just discloses mandatory information limitedly

Information quality is evaluated with six aspects as informativeness, relevance, precision, rarity, frequency, and unexpectedness; or briefly evaluated with three aspects as: relevance, reliability, and understandability A disadvantage of the method is feasibility of measuring reliability aspect

Information disclosure is evaluated as efficient if the information is disclosed adequately, accurately and updated The viewpoint considered

“update” aspect as a supplement aspect for evaluating ID which is not reflected

in the previous viewpoints

1.6.4 Conclusion

It is necessary to evaluate ID level basing on typical characteristics of information, including adequateness, precisiveness and update Hence, the

dissertation evaluates ID level with three aspects (1) informativeness, (2)

precision and understandability; and (3) update

Structure of ownership is considered as ownership of managers, management board, foreign investors, local investor, family members and government

Considering corporate governance, the researches considered agency problem between management board and director board which are measured by circumstance of management board’s member cum CEO and percentage of Management board’s members participating in Director Board

There is a relationship between business scale and ID The business scale

is measured by capitalized value of listed companies in the stock market

Profitable ratios (ROA, ROE and ROS) are used popularly However, ROS is only suitably using for evaluating companies which are in same industry

Listing status includes listing market; listing time and listing value

Role of independent auditor is checking reliability of ID However, impact of independent auditor’s quality on ID is not remarkable

1.7.8 Conclusion

After evaluating feasibility of applying above attributes of listed company

in the research, the dissertation has selected following attribute categories:

(1) Industry: Industry registered in business license of listed companies

(2) Ownership: structure of liability and owner equity, state ownership; foreign ownership, and institutional ownership

percentage of Management board’s members in director board

(4) Business performance: general business efficiency: ROA and net cash flow to revenue ratio; and owner equity efficiency: ROE, net cash flow to net income; and growth rate of net income

(5) Listing status: listing year; listing market; and capitalized value per share

1.8 Consequences of ID

Market operation is evaluated as perfect when (1) price and trading volume changes in coping with information disclosed in the market; (2) high liquidity; (3) minimizing transaction cost

In the viewpoint of listed companies, market operation is evaluated as

good when it can minimize cost of owner equity; improve market value of the firm However, strength of impact of ID is relating to the market development level

of listed stocks is up to 983 stocks

2.2 Government management in ID of listed companies in VSE

2.2.1.Government policy in managing ID of listed companies in VSE

Market managerial organization decided to select full disclosure policy in replacement of mandatory ID policy Purpose of government management is not only improving transparency of market, but also building up concrete base

for VSE to apply full disclosure – listing mechanism in replacing the present listing registration mechanism

2.2.2 Legal documents on ID of listed companies in VSE

2.3 Particular regulations on ID of listed companies in VSE

2.3.1 Information disclosed

According to circular 09/2010/TT-BTC relating to ID in VSE, listed companies are regulated to disclose following information:

Periodical disclosure:

Financial statements, annual report (26 information items)

Unusual and/or requested disclosure: 7 information items

After one year of applying circular 09/2010, circular 52/2012/TT-BTC is issued to regulate an adequate information index with 21 information items following full disclosure policy

of management board, etc; disclosure time is within 24 hours

2.3.3 Disclosure channel

Information is disclosed through 4 channels: (1) annual report, website and other reports of listed companies; (2) ID instruments of State Security Commission (SSC), and (3) ID instruments of Stock exchanges and (4) other mass Medias

2.4 ID violation of listed companies in VSE

Violation in ID is the most popular violation in security field The following violation items are in order of popular status:

ID: violation is occurred due to submission delay or misleading in disclosing of financial reports; annual reports, managerial reports, resolutions of shareholders’ meeting and management board; change of personnel; trading of

stock treasury; capital using report; CV of key persons and unusual activities inside the listed companies

Disclosure channel: website of listed companies has not adequate

information and not updated

2.5 Comparison of ID of listed companies in Vietnam and foreign countries

Depending on scale and development of stock market, market managerial organization has to define a suitable ID management of the market

2.5.1.ID of foreign listed companies in S&P researches

According to researches done by Standards & Poor’s; transparency of ID

is evaluated basing on detail level of three information categories: (1) Owner

equity’s structure and investors’ right; (2) financial statements and business information; (3) ownership structure and benefits of managers The achieved

results show that transparency of ID in financial market of developed countries such as Latin-American countries; and Asia developed countries are very low;

disclosed information is mainly are “financial statements and business

information”

2.5.2.ID of listed companies in Vietnam following S&P research methodology

Transparency of ID by listed companies in VSE is as good as ID of listed companies in developed countries such as Europe, Japan, etc However, quality and adequacy of information items in each information category are very low

CHAPTER 3 RESEARCH METHODOLOGY 3.1 Model and research hypotheses

Basing on literature review and “undiscovered field” in the ID researches;

the dissertation has built up a research model as reflected in following figure

Figure 3-1 Research model

Hypotheses on relationship between listed companies’ attributes and ID; and impact of ID on trading result of stock and listed companies as developed as follows:

(1) Testing suitability of proposed model

H1 Listed companies’ attributes have significant impact on ID level of listed companies in stock exchange

(2) Testing impact of each attribute category on ID level

H2 Listed companies in different industries have different impact on ID level

H3 The higher percentage of foreign ownership and institutional ownership, the higher ID level

H4 Management board’s member cum CEO; the higher percentage of management board’s members in director board; the higher ID level

H5 The better business performance, the higher ID level

H6 Listed companies in different stock exchanges have different impact

on ID level The longer listing time, larger capitalized value, the higher ID level

(3) Testing consequences of ID level on stock exchange and listed companies

H7 The higher ID level, the lower cost of equity

H8 The higher ID level, the lower stock price oscillates

ATTRIBUTES OF

LISTED COMPANY

INFORMATION DISCLOSURE

STOCK EXCHANGE

CÔNG T LISTED COMPANY

Oscillation of stock price Cost of Owner equity