Hoạt động Công bố thông tin phục vụ công tác quan hệ Nhà đầu tư và Đề xuất thực hiện tại Ngân hàng TMCP Đầu tư & Phát triển Việt Nam (BIDV)

In realizing its aim, the study will specifically focus on: Firstly, the Bank needs to evaluate the activity of IR function, especially the disclosure of information to make sure it foll

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

TRAN TRUC QUYNH

DISCLOSURE OF INFORMATION

&

THE CASE STUDY OF JOINT STOCK COMMERCIAL BANK FOR

INVESTMENT AND DEVELOPMENT

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: PhD Tran Doan Kim

Hanoi - 2012

TABLE OF CONTENT

ACKNOWLEDGEMENTS i

ABSTRACT ii

TÓM TẮT iv

TABLE OF CONTENT vi

LIST OF TABLE ix

LIST OF FIGURES x

INTRODUCTION 1

1 Research methodology 1

2 Significant 5

3 Delimitation 5

4 Disseminations 5

5 Follow-up 5

6 Thesis structure 7

CHAPTER 1: LITERATURE REVIEW 8

1.1 Definition Investor Relations 8

1.1.1 Definition 8

1.1.2 Function of Investor Relations 9

1.1.3 The correlation between IR (Investor relations) and PR (Public relations) 12

1.2 Definition of disclosure 13

1.2.1 Definition 13

1.2.2 Roles of disclosure on stock market 15

1.3 Principle of disclosure 19

1.3.1 Accuracy, fidelity and sufficiency 20

1.3.2 Disclosing information promptly and regularly 21

1.3.3 Regulation Fair Disclosure (Reg FD) 22

1.4 An overview of disclosure on Vietnam’s stock market 23

1.4.1 Disclosure reality 23

1.4.2 The causes of violations 26

1.5 The case of disclosure activity at China Construction Bank 28

1.5.1 Overview of China Construction Bank 28

1.5.2 Empirical case of disclosure activities at China Construction Bank 29

CHAPTER 2: AN OVERVIEWOF DISCLOSURE ON BIDV 33

2.1 About BIDV 33

2.1.1 Overview of BIDV 33

2.1.2 The process of formation and development 34

2.1.3 Organization Structure 36

2.2 Position of BIDV in the financial market 39

2.2.1 The leading bank in project and enterprise financing 39

2.2.2 Retail banking - Multichannel and modern distribution network 41

2.2.3 Expansion of international investment and being a reliable counterpartner of international financial institutions 42

2.2.4 The leading bank in transparency and quality management 42

2.2.5 The first bank in implementing the policies of the Party and the Government, and the social security tasks 43

2.3 Disclosure of information at BIDV 44

2.4 Assessment on disclosure activities at BIDV 46

2.4.1 Description of the Research process 46

2.4.2 Research findings 49

2.4.3 Depth interview result 60

CHAPTER3: RECOMMENDATIONS AND ACTION PLANS TO IMPROVE DISCLOSURE ACTIVITY AT BIDV 63

3.1 Recommendations to improve disclosure activity at BIDV 63

3.1.1 Developing Investor Relations Department 63

3.1.2 Setting up Information Policy of BIDV 65

3.1.3 Standardizing the internal disclosure process 65

3.1.4 Building database and processing false information 67

3.1.5 Utilizing the role of spokesperson 69

3.1.6 Building website for investors (IR portal) 69

CONCLUSION 76

REFERENCES 77

APPENDICES 79

LIST OF TABLE

Table 1.1: Comparison between IR and PR 12

Table 2.1: BIDV process of formation and development 34

Table 2.2: Percentage of respondent survey 49

Table 2.3: Assessment on content of information disclosed 51

Table 2.4: The level of interests in financial reports 52

Table 2.5: The level of interests in non- financial information 55

Table 2.6: Assessment on BIDV website (Investor Relation portal) 59

Table 2.7: Comparing the website for investors 71

Table 2.8: The action plan timetable 74

LIST OF FIGURES

Figure2.1: The organization chart of BIDV 36

Figure 2.2: BIDV Key Strengths 39

Figure 2.3: Financial capacity of BIDV and other banks 40

Figure 2.4 : The information flow and reporting channels outside 45

Figure 2.5: The research process 47

Figure 2.6: Assessement on time of disclosure at BIDV 50

Figure 2.7 : Assessment on content of information disclosed 51

Figure 2.8: The level of interests in financial reports 53

Figure 2.9: Quality of BIDV’s financial reports 54

Figure 2.10 : The level of interests in non- financial information 56

Figure 2.11: The level of interests in non-financial information 57

Figure 2.12: Means to get BIDV’s information 58

Figure 2.13: Assessment on BIDV website (Investor Relation portal) 59

INTRODUCTION

The disclosure of information is vitally important for evaluation of a company’s progress by its shareholders and potential investors Such disclosure helps companies to attract investment and to remain trustworthy Insufficient or inaccurate information about a company can hinder the successful development of its business

Shareholders and investors require regular access to reliable information, in particular to control the management bodies of the company and make informed decisions regarding the evaluation of its activities On the other hand, it is very important to make sure that the information disclosure requirements do not act against the company's interests and that no confidential information is disclosed, since it may harm the company However, all restrictions related to disclosure must

be subject to strict regulations

As a bank which has just completed IPO and become a public firm, BIDV needs to follow the law of corporate disclosure However, for the last few months, disclosure

at BIDV has still been random and inconsistent when releasing information to investors and the press Therefore; BIDV needs to have a special department to fully understand the law of disclosure as well as to build a professional and effective disclosure process in order to maximize the benefits for BIDV’s shareholders

Motivated by the practical needs mentioned above, the research “Disclosure of Information & The case study of Joint stock commercial bank for investment and development” bears a practical meaning to the joint stock corporates in

Vietnam in general and to BIDV in particular

1 Research methodology

Both qualitative and quantitative approaches are used to answer the research questions

For the quantitative methods, the survey collected and measured data using a logical and critical approach

Qualitative approach is more subjective in nature than quantitative approach and involves examining and reflecting on the less tangible aspect of a research subject, e.g values, attitudes, perceptions Qualitative research involves analysis of data such as words (e.g., from interviews), pictures (e.g., video), or objects (e.g., an artefact) Followings are some features of a quantitative research:

- The aim is a complete, detailed description

- Researcher may only know roughly in advance what he/she is looking for

- Recommended during earlier phases of research projects

- The design emerges as the study unfolds

- Researcher is the data gathering instrument

- Data is in the form of words, pictures or objects

- Subjective - individual’s interpretation of events is important, e.g., uses participant observation, in-depth interviews etc

- Qualitative data is more 'rich', time consuming, and less able to be generalized

- Researcher tends to become subjectively immersed in the subject matter

Qualitative research method, the common method business study, was based

on adequate assumptions, methods and data to draw suggestions and conclusion Quantitative approach is on collecting and analyzing numerical data, it concentrates on measuring the scale, range, frequency etc of phenomena

Quantitative approach is one in which the researcher uses positivistic methodology to develop knowledge (e.g cause and effect, test a hypothesis

or a theory) Quantitative research involves analysis of numerical data For this research, a quantitative survey will be conducted Followings are some features of a quantitative research:

- The aim is to classify features, count them, and construct statistical models in an attempt to explain what is observed

- Researcher knows clearly in advance what he/she is looking for

- Recommended during latter phases of research projects

- All aspects of the study are carefully designed before data is collected

- Researcher uses tools, such as questionnaires or equipment to collect numerical data

- Data is in the form of numbers and statistics

- Objective seeks precise measurement & analysis of target concepts, e.g., uses surveys, questionnaires etc

- Quantitative data is more efficient, able to test hypotheses, but may miss contextual detail

- Researcher tends to remain objectively separated from the subject matter

In this study, the research questions will be used as the guidelines for the research

To clarify the research question, the research will analyse the following two research questions:

sub-1 How do investors assess the disclosure of information at BIDV?

2 Which information would investors like to know?

In realizing its aim, the study will specifically focus on: Firstly, the Bank needs to evaluate the activity of IR function, especially the disclosure of information to make sure it follows lawsuit and meets the needs of investors during the very first months

of transforming into a public firm Secondly, the Bank needs to research to understand more about the law requirements and the needs of the investors regarding disclosure in order to prepare for the listing process of BIDV on the securities market

1.2 Research approach

Inductive and deductive research approaches are considered two general approaches

in business research in general However, the research process is a continuous and on-going process which combines the empirical observation, theoretical interpretation and exploration Therefore, this study employs the abductive research method that takes the advantages of both deductive and inductive approach and combines them

The author started with empirical observations and searches of academic literature However, the author realized that most research and articles studied were focus on Investor Relations activities There are few academic articles or research studies disclosure of information To the best of my knowledge, there is no literature which covers professional disclosure activities, especial in banking industry

Therefore, beside many empirical observations, the author interviewed some experts

in other banks and some colleagues in the IR department; and asked them to help to provide information about workflow of IR and disclosure practices in other countries

2 Significant

By viewing the theory and the practice of Investor Relations and Disclosure activity, this research benefits BIDV in recommendation to building a professional and effective disclosure of information process and improve the qualitative of Investor Relations of BIDV From that increase invisible value of the bank and attract more potential investors

is one of the reasons that email survey was chosen

Thirdly, BIDV has become a large-scale public company and been going to listed company Therefore, the research is limited for the public company

Finally, to the best of my knowledge, this is the first study of disclosure of information Consequently, the research limited by the lack of available academic research on the subjects related to the research questions

4 Disseminations

The result of research will useful for not only disclosure activity of BIDV in particular but also for other companies which are going to be public and listed on stock market

The finding in theory will help public and listed company to understand the

practices and legal requirement of disclosure of information Therefore, he research finds may serve as a source of references for concerned agencies to improve their understanding about information disclosure as well as the quality of disclosure

activities at their own banks or listed companies

5 Follow-up

Further study will be taken on improvement of implementation Investor Relations activity in general and disclosure of information in particular when BIDV become a listed company

6 Thesis structure

Chapter 1: LITERATURE REVIEW

1.1 Definition of Investor Relations 1.2 Definition of Disclosure 1.3 Legal requirement of Disclosure 1.4 An overview of disclosure on Vietnam stock market

1.5 The case of disclosure activity at China Construction Bank

Chapter 2: AN OVERVIEW OF DISCLOSURE AT BIDV

2.1 About BIDV 2.2 Position of BIDV in the financial market 2.3 Disclosure of information activity at BIDV

Chapter 2: RECOMMENDATIONS AND ACTION PLAN TO IMPROVE

DISCLOSURE ACTIVITY AT BIDV

3.1 Recommendations 3.2 Action plan

CONCLUSION

CHAPTER 1: LITERATURE REVIEW

1.1 Definition Investor Relations

1.1.1 Definition

In shareholding companies, the practice of IR is widely applied as an effective strategy for companies to build tight relationships with their stakeholders in general and investor communities in particular

According Louis M.T Jr., President and CEO of National Investor Relations Institute (NIRI)1 “Investor Relations (IR) is a strategic management responsibility that integrates finance, communication, marketing and securities law compliance to enable the most effective two way communication between a company, the financial community, and other constituencies, which ultimately contributes to a company’s securities achieving fair valuation”

In addition, Marston and Straker2 defined IR as the communication of company information to investors, financial communities, analysts Rao and Sivakumar3referred to IR as a strategy of corporate marketing activity that combines financial disciplines and communication The definition of NIRI emphasized the “two-way” communication between shareholding companies and public, rather than merely providing company information in one direction

IR professionals with extensive relationships and a wide range of capital markets know how can extend the reach to find the right investor well beyond the company’s home shores

3Rao, H and Sivakumat,K.(2009), Institutional sources of boundary spanning structures: the establishment

of investor relations department in the Fortune 500 industrials, Organization Science, p.27-32

1.1.2 Function of Investor Relations

Considering the IR performance, some people may think that IR is a form of

marketing activity However, the word “marketing” is confusing word in this case According to Anne Guimard4, the main role of IR is to persuade investors that a dollar invested in your company will appreciate faster than a dollar invested in any

other company This contrasts with normal marketing activities, in which customers are simply buyers, the customers in IR activities include sellers, buyers, brokers, analysts or any intermediary agents involved in the stock transaction process IR has many following function:

Disclosure

There are many different types of investor with many different objectives Some want growth and look for stocks with high returns and earnings momentum Other seek value and purchase stock they feel are undervalued and underfollowed by Stock market Another type of investor wants income, like stocks with a dividend Regardless of the differences, most investors take the information they are given and run it through quantitative models Then they compare the results to other companies in the same industry and make an investment decision based on these relative quantitative indicators This is basic information easily culled from a company’s financials, which must be disclosed on its income statements, cash flow statements, and balance sheets Anyone can get these and do their modelling

No public company operates in a vacuum In fact, many people, including regulators and competitors, generate opinions that can affect a company’s position

in the capital markets Every decision a company makes, whether financial, strategic, or operational, ripples into the capital markets and affects the stock price, the competitive position, or the public’s perception Anticipating and assessing the impact of corporate actions on the capital market, whether from an acquisition, a

4 Anne Guimard (2008), Investor Relations: Principles and International Best Practices of Financial Communication, p.66-71

change in dividend policy, or a new product introduction, is the function of investor

relations In most cases, the packaging and distribution of this information is

the main responsibility of investor relations, as IR is the filter through which all

financial communications come out of the company

To conclude, IR plays the role as the driving function which is responsible for the

firm’s disclosure in accordance to the Laws, the Securities regulations and the

Disclosure regulations issued by the SSC Moreover, besides disclosing information

complying with laws, the IR department is also responsible for to provide

information as requested by shareholders and investors In order to fulfil this

responsibility, the IR department needs to ensure effective coordination with other

related functions to consolidate information as required, most of which concerns the

firm’s financial situation This kind of information is always available since it is

essential to operate the firm’s business However, as the focal information point, the

function needs to consider the following points:

 Ensure information consistency between different functions in the firm

 Customize information to meet the needs of different stakeholders For example,

to individual investors, information needs to be communicated in a clear easy to

understand way while to institutional investors, the information needs to be more

specialized and detailed

 Coordinate with other functions that share similar responsibility such as PR

department to ensure the consistency in the information released to the public

The responsibilities for disclosing information can be listed as below:

 Disclosing information in accordance with regulations

 Managing web page for Investors

 Composing reports, presentations, notifications and media messages concerning

investor relations

 Participating in building and designing annual reports and news reports for

investors

Maximize equity value

There are the intangibles, which is where IR needs to be at the top of its game The intangibles are the nuances of value, the managing of expectations and perception, and the ability to define, deliver, and create a dialogue about a company’s financial performance and position in its industry In fact, intangibles are an important component of maximizing value Anywhere from 20 to 40 percent of a company’s valuation is linked directly to these items That’s a big piece of valuation pie, and the job of IR is to help management maximize it and investors understand it

Providing the necessary disclosures and information is one thing Knowing what stock market expects from a company and its management team is something else entirely The best IR professional are inside the brains of their investors, and think like analysts and portfolio managers By understanding valuation they can approach analysts and money managers as peers and work hard to build trust.IR can direct improve the 20 to 40 percent of a company’s valuation linked to factors outside of financial performance and bolster market capitalizations while increasing exposure and obtaining valuable third party validation There is a science to valuation, but there is also an art

Share or stocks are special products representing the company’s value When the investor buys shares they expect the future value of the share to increase Financial reports and other disclosed information are important sources to evaluate share price However, any disclosures are based on mainly on historical information What an investor expects is not historical value but future value of share Therefore,

IR activities are need to guide investors Every decision ripples through the capital markets The sell-side, the buy-side, strategic partners, the media, regulators, and the global community are important constituencies to be addressed by investor relations IR with capital markets know-how is invaluable to companies addressing these constituencies and helps to maximize equity value

1.1.3 The correlation between IR (Investor relations) and PR (Public relations)

The difference between IR and PR is that IR’s focus is domestic and international investors while PR focuses on the majority of customers and the public who are interested in the firm especially its products and services However, the firm’s actions affect both investors and the general customers Therefore, they are called stakeholders Therefore, the operational synergy between the two functions is of great importance in order to deliver legal and consistent messages to the public, which includes investors, prospective customers and other stakeholders For example, when there is a piece of information that needs to be released, the PR function will often want to release it quickly and widely while the IR function will wait until the market is closed in order to avoid the volatility of the stock price during the trading session, in which the investors have to be processing the information Similarly, since the recipients of the information are different group of people, both the functions need to customize the approach depending on their recipients For example, in case there is the information that the firm’s product is flawed or harmful to consumers, while consumers would like to know whether the information is valid while investors’ concern would be what action steps the firm would take to take control over the situation and make sure it would not negatively affect the business

Table 1.1: Comparison between IR and PR Public relations department Investor relations

Working with the General director to

build, promote and develop firm’s brand

and managing public relations

Assisting the General director in disclosing information before, during and after domestic and international listed process

Providing directions, keeping track PR

activities on a regular basis of member

Driving synergy between related functions at the head office and at

units member units to build database that is

specially used for disclosing information

to state agencies, investors, the media and the financial community Main charge of building and maintaining relations with state agencies, investors, the media and the finance community Directly running functional activities to

build, promote and develop the brand of

BIDV

Directly in charge of managing disclosure and organizing disclosure events to release information to the public, including state agencies, investors, the media and the finance community

To conclude, if there is no clear and effective synergy and cooperation between IR and PR departments, different versions of the information content can be release, misleading the recipients, affecting the firm itself and even leading the legal conflicts later on

IR executives are expected to contact with reporters, especially those coming from economics or finance magazines to build relations with them Meanwhile, PR executives are supposed to already establish good relations with the media as a nature of their jobs Therefore, utilizing this existing relation as well as the experience from PR is an disadvantage the IR departments should capitalize

1.2 Definition of disclosure

1.2.1 Definition

As proven through many practical experiences, in order for the securities market to operate effectively and stably, transparent disclosure is one of the fundamental elements that need to be ensured Information is also what investors based on to

evaluate and decide whether to buy or sell the stocks If the information released on the market is misleading or false, it will cause great fluctuations in the market and provoke confusion and anxiety in investors, leading to sudden changes in the market

As a result, these changes will cause crises to the financial market and negatively affect the economy

On the securities market, disclosure is an indispensable element that is compulsory for firms to maintain credibility and fairness among investors Listed organizations need to implement disclosure activities promptly, accurately and in accordance with law Disclosure is a public regulation, which is considered the most fundamental principle of the operation of the securities market

Disclosure is a process in which entities participating in the securities market promptly disclose accurate and reliable information on the activities of the market, those that can impact the stock prices or investors’ benefits via means of communication such as the media, organization issues or the SSC’s channels in order to ensure the fairness of the stock prices and protect investors

The entities that involve in the securities market include:

 The bond issuers

 Listed organizations

 Stock companies

 Fund management companies

 Stock investment companies

 State Stock exchange

 Stock exchange centres

There are two main methods of disclosure: direct disclosure and indirect disclosure Direct disclosure means that responsible organizations have the rights to disclose information via public media channels and are obliged to report to administering

agencies or market operation agencies such as state securities commission, state stock exchange or stock exchange centers

Indirect disclosure means that organizations before disclosing information have to transfer the information to administering agencies and market operation agencies so that those entities can process the information before releasing to public via communication channels of those agencies themselves or other public communication channels

1.2.2 Benefits of effective disclosure

To investors

Investors are one the most fundamental parts of the financial system They are the ones to both provide capital, the most crucial factor in the market and establish the diverse relations in the market; for example relations between investors (law makers) or between investor (listed companies and public companies) This had contributed to making the market more complicated and diverse They account for the big part in the market together with other parts such as market maker, financial institution and also the ones who take risks in allocating capita, implementing investment activities in order to leverage the market to operate and develop To countries of which stock market is still primitive and is developing, the issue of stockholders’ benefits and their confidence in the market is of great importance because the majority of investors are small ones but the benefits come to the minority, which are great investors This leads to conflicts concerning benefits and represent cost That confidence has been challenged by the events of fraud information, insider trading, non-transparent financial reporting which have existed and might bring about certain consequences to the economy Therefore, disclosure can both benefits to investors and protect them, ensuring the fair treatment, reducing agency cost and avoid conflicts of interest

As corporate owners, investors have the rights to get access to information concerning operations, stakes a well as long term development trend of the

company Since information disclose comes only from spokesman, the conflicts of interests are unavoidable Besides the conflicts between listed companies and investors, there are also those between small investors and large investors, corporate director and the board of directors…Information transparency enables investors to get more accurate information in order to evaluate the effectiveness of their investment, avoid underlying risks in company operations (unreal income, falsified financial statements through accounting tricks ) Besides, it also helps avoiding the situation in which large shareholders might be informed more potential investment opportunities thanks to advanced access to information

Concerning brokerage activity, not only can investors decide whether they are getting the optimal price but they can also avoid adverse brokerage fee Information transparency can also enable investors to get sufficient and valid information so that they can supervise the quality of the transactions that have been made By comparing individual brokers and professional brokerage firms in term of final outcome and cost, investors can make better investment decisions in the future

To Public companies/ Listed Companies

Information transparency and disclosure plays a part in promoting long term benefits for corporates Mentioned here are the two most fundamental benefits: Reducing cost of capital and enhancing company value Those factors are correlative

Lowering cost of capital

Theoretically, poor liquidity and the gap between “buy” and “sell” brings transaction fee burden to investors In addition, discriminative treatment among investors can make them turn their backs, resulting in the increase of cost of capital

By actively promoting corporate business to the investors community, disclosure can also help to reducing the cost of capital Corporate can spend less money raising capital if they their stocks become more well-known among investors In another sense, in case the market value of the stocks is lower than the intrinsic value,

disclosing information transparently will partly provide better understanding of business to investors, by which will bridge the gap between market value and intrinsic value and reduce the cost of capital

Enhancing corporate value

David Well5 points out managers will possibly forgo many profitable investment opportunities if they issue more stocks to raise capital without paying attention to the issue of information asymmetry between the firm’s well-informed managers and its less-informed investors

The research of Yin R.R6 indicates that information disclosure can impact the firm’s value by influencing decisions of managers and change the cash flow allocation in the future Many researches based on theoretical approach suggested that companies with higher level of transparency and better management can enhance their value and reduce the amount of loss cause by the managers’ taking advantage of information to gain benefits for themselves

When implementing appropriate information disclosure, a listed company with high business performance can promote its credibility, improving the stocks’ liquidity and by that, enhancing the value of the companies, attracting more capital, utilizing investment opportunities and increasing profit As for companies that are in the temporary struggling state, disclosing information on feasible projects and long term development direction can help sustaining credibility from investors and by that, overcoming the difficulties

To the stock market

Transparent information encourages investors to join the market, improves liquidity and helps to develop a more efficient stock market, ensuring the stability of the stock market and capital market Transparency enhances the information efficiency

of the market, ensuring the fairness among investors, building confidence to the market, encourage invests to be more active on the market and help them to make better decisions and invest on a longer term For example, there have been an increasing number of institutional investors on the market because they are having less concern about the risks of fraudulent transactions and misleading information This will improve the probability of successful investment

Information disclosure can also partly mitigate the discriminative treatment problem and enhance market liquidity by creating a fair and ethical market for all investors This information efficiency formulates two important effects:

 Firstly, when there is more information available on the market, it is more difficult and costly to an investor who wants to have more information advantage then the others Therefore, there are very few investors who can afford this, which means there is less chance of transaction with investors who have strong understanding of the market

 Secondly, more quality disclosure would reduce the changes within the firms, which will reduce the information advantage that many investors might have Both the effects, together, will weaken the trend of increasing self-protection of investors who have little information and by that, improving the market liquidity Once the market liquidity is enhanced and the market itself becomes more appealing to investors, both the sides who publish and use information will enjoy certain advantages The investors, who utilize information, can proactively allocate their capital sources while the list companies, who disclose information, have higher chance to attract more sustainable source of investment capital with lower cost of capital but higher effectiveness

Apparently, when firm’s operation is transparently released, the valuation of the firm is of higher accuracy This means the capital is allocated to the right place and thereby, improving efficiency of the market However, we also need to accept that

information disclosure is effective only when investors have sufficient and proper understanding and analyzing ability to utilize the information

1.3 Principle of disclosure

While many listed organizations are aware of the importance of information disclosure, they cannot disclose information randomly in term of format, content or timing Disclosing information appropriate has become an important custom and ethic in business; as a result, there are certain criteria and principles that need to be followed

Listed and public company need to comply with the provisions in Circular 52/2012/TT-BC issued on 5th April 20127 with the following basic principles:

 A disclosure of information must be complete, accurate and prompt

 A disclosure of information must be made by the legal representative of a company or by an authorized person The legal representative of the company shall

be responsible for the accuracy, promptness and completeness of information disclosed by the authorized person

 A disclosure of information must be made at the same time as a report on the contents of disclosed information to the SSC (State Securities Commission of Vietnam) and the SE (Stock Exchange) or the VSD (Vietnam Securities Depository)

 The date of disclosing information shall be the date on which the information appears on the information disclosure media; the date of making a report on information disclosure shall be the date on which the report is sent by fax or in the form of electronic data (via email or the information technology system for receiving reports), or shall be the date on which the SSC and the SE receives the information disclosed in writing

 The language used for disclosure of information on the securities market of Vietnam must be Vietnamese If the law stipulates the disclosure of additional

7 Circular 52/2012/TT-BC issued on 5th April 2012 by Ministry of Finance

information in another language, the language used for disclosure of information shall comprise Vietnamese and such other language as stipulated

 In the case of any changed to the contents of disclosed information, the entities are required to prepare simultaneously a report and a written explanatory statement

to the SSC or the SE

 The entities which must disclose information shall preserve and archive reported and disclosed information in accordance with law

Can be generalized three certain principles as follows:

1.3.1 Accuracy, fidelity and sufficiency

Accuracy, fidelity and sufficiency are basic criteria in disclosure This requires the firms to respect the inherent accuracy and fidelity in information by not distorting information or causing misunderstanding on purpose Since the information, especially those which is released by listed companies largely decides the trading behaviors of investors on the market, it is essential in ensuring fairness in forming stock price

On the other hand, misleading and distorted information is the least reliable one Therefore; investors making decision based on rumors often suffer from high risks and potential loss

According to the principle, there is a standardized set of information that is consider important and needs to be released In other words, listed companies are supposed to provide all the information that may influence investors’ perceptions to the prospective of the firms The information and events are strictly stated in lawsuits and regulations concerning listed and disclosure

Important information that is disclosed periodically under the format of documents need to be carefully checked to ensure accuracy such as information listed in the items in the financial reports, especially those are not parts of balance sheets or the changes in evaluating contracts or investment projects Moreover, in order to

ensure accuracy and fidelity, information needs to be displayed clearly to not cause misunderstanding or mislead readers In principle, listed organizations have to provide sufficient important information to investors so that they can make sound investment decisions and hold full accountability for their decisions However, there is always a conflict in benefit between listed firms and investors regarding disclosure The firms do not often want to reveal the board of management’s secret information while investors want to get as much of this information as possible Therefore; the information released needs to always be valid and accurate even though it might cause disadvantage to the listed organizations

Theoretically, the securities market management agencies have the rights to supervise and testify the information before it is released publicly because investors can avoid risks when they buy stocks In fact, the administration agencies cannot evaluate the quality of all the stocks on the market As a result, disclosure means investors have to be fully responsible for their decisions In this case, the experts in stock analysis such as investment organizations, credibility rating or financial analysis firms play even more important role

1.3.2 Disclosing information promptly and regularly

In recent years, this principle has attracted increasing attention This means information needs to be released on a regular basis, including both instant and periodic news relating to the listed firms

In other words, disclosure must ensure the promptness of the information released, which means:

 Releasing information as soon as the disclosure materials are available

 Disclosure on a regular basis is often stated in securities laws or regulations regarding listed activities such as annual or quarter financial reports The information often includes meeting minutes, discussions, board of management performance analysis, which also need to be released promptly

However, this regulation also means that some type of information is not to be released or can be released but later if it concerns secret information regarding national security

Prompt disclosure will help avoid misunderstanding among investors, decreasing violations related to insider trading In that sense, promptly disclosing information plays important role, showing the objectivity of releasing information Therefore, SSC and other securities centers often required listed companies to disclosure as soon as possible

1.3.3 Regulation Fair Disclosure (Reg FD)

Regulation Fair Disclosure is one of the most important regulations affecting the information publication of shareholding companies, especially the listed companies Disclosure is the core context or the framework of IR contents It means transparency, equality and clarity All forms of “selective disclosure”, which means giving the information and material only to some special analysts or investors, are forbidden All information must be provided to all investors equally at the same time and with the same content This regulation applies to any (inside or outside) listed companies’ information, which, in turn, could affect price, market value of stocks or investors’ decision

Not only precluding the discrimination between the investors, the Fair Disclosure regulations also protects the investors from the insiders, for example shareholder, company’s managers or officers, as well as their family members Listed companies must also provide all insider transactions that affect the ownership of companies

Therefore, IR has a crucial role in minimizing investors’ risk by providing clear and understandable information with the aim of full and fair disclosure 8

Inform an IR point of view, the more information is disclosed, the more information investors can get However, those legal requirements also establish the foundation

8 Hamid,F.Z.A.(2005), Transparency and Disclosure: Overview of Methodology and Study Results – United State, p.98-100

for good IR Reg FD is based on the norm of maintaining public equality of content and time access to information However, the detailed requirements of Reg FD are not exactly the same among different bodies

1.4 An overview of disclosure on Vietnam‟s stock market

1.4.1 Disclosure reality

For the last ten years of development, Vietnam stock market together with other related markets form a relative diverse financial market in the country Currently, the stock market is considered an important part of the financial market After eleven years of development, the stock market has been through a noticeable boom

on 2006 and then fell into decline since 2009 The stock prices have been constantly falling; many stock companies have suffered from loss

The unclear disclosure regulations

The reality of Vietnam’s stock market indicates the bottleneck in the information flow from corporates to investors as the main factor leading to investor’s losing trust in the companies Transparency is extremely important to the stock market because the information asymmetry will badly affect the market environment There have been basic regulations about disclosure on the stock market In the most recent action, the Ministry of Finance has issued circular 52/2012/TT-BTC (on April 5 2012) in order to provide guidance on disclosing information The regulations have been tightened up and; as a result, there have been document formats such as the annual report format, the management report formant…released

to provide more guidance to the firms

For example, releasing information on investment plan in the future has been the concern for many investors However, very few listed firms proactively release information on business plan Most of the time, they choose to only disclose information on income results and potential profits

Stated right in circular 52 which has been recently been issued is only a few lines requiring the firms to disclose “The plan and direction of the Board of management” In the United States, on the other hand, SEC has always required the firm to release detailed information on future business plans

Regular violations against disclosure regulations

According to statistics provided by HOSE, in 2010, 209 over 279 listed firms (which account for 74.91 percent of all listed firms) violated the rules in disclosure and were warned through documents

569 cases of violation, in which the information that was released late was mainly concerned with the management reports, financial report and annual financial statements included:

 176 cases of violating disclosing the firms’ management situation; accounting for 30.9%

 237 cases of violating disclosing the organization reports, accounting for 41.65%

 41 cases of violating disclosing the General shareholders’ meeting resolutions and Board of management’s resolutions, accounting for 7.21%

 The other types of violations accounted for 13.01% of all cases (which related to disclosing change in HR, treasury shares transaction reports, capital use progress reports, key members’ personal profiles…)

 As seen, the cases of violating disclosing organizational reports and management situation reports accounted for 72.58% of total cases in 2010

The disclosure situation went on to degrade in 2011 According to statistics provided by HOSE, in 2011, 212 over 284 listed firms (which account for 74.6 percent of all listed firms) violated the rules in disclosure and were warned through documents These cases included:

 366 cases of violating disclosing organization reports, accounting for 48.67%

 91 cases of violating annual reports, accounting for 12.1%

 183 cases of violating management situation reports, accounting for 24.34%

 112 cases of violating unusual reports (change in HR, board of management’s resolutions…), accounting for 14.89%

Besides late submission of financial reports, the listed firms also failed to disclosure transparently, causing serious consequences

Many listed firms have not yet disclose unusual reports sufficiently and responsibly Many individuals and listed firms were warned against their violating the rules concerning general shareholders’ meeting decision, the purchase of treasury stocks

of the firm, the decision to lend or issuing insider transaction

There is an increase in the number of large shareholders or insider shareholders disrupting disclosure regulations, negatively affecting other investors and small investors Even though, the SSC has strictly disciplined those individuals, the penalties are not yet strong enough to deter them The transparency of the reports is also not ensured This partly comes from the difficult economic situation; leading to the decline of the stock market in price of most stocks has been falling This has resulted in the firm’s tricks to falsify the information on the organizational reports

in order to save the stock price from falling

While financial reports are supposed to provide information, auditing reports are the means for investors and management agencies to verify the firms’ financial reports The audited financial reports are consider crucial sources of information on the firms’ operations that investors can access However, the quality of auditing reports now is not really trustworthy

The tricks that large shareholders in the Leadership board of the firms are using to force the stock price up are providing false information or using insider information

to conduct transaction This has brought serious consequences to the securities market and the public investors

Recently, many violations relating to insider information that negatively affect the benefits of the majority of investors have been detected but not yet appropriately processed, leading to investor’s losing trust

Because of the weakness in information infrastructure of many listed companies, the information process speed is still slow so the information is delivered to investors very late As a result, information leakage may occur

The information system on the website of SSC in general and those of the firms in particular is relatively large but is not largely applicable The website is cursorily designed, providing very little or even no useful information Many listed companies do not even have a website

Many listed firms on HOSE disclose very outdated information onto the webs, some only update after several months Many others do not even upload information on financial reports, company’s charters …

More importantly, information and technology has not been utilized to detect and process violations, especially serious ones like taking illegal control of the market, spreading misleading rumors, which need to be addressed properly

The law system is still lacking in flexible and strict sanctions; therefore, many new types of violations have started to emerge on the market, which are even more difficult to detect and process

The SSC is not discipline the wrongdoers strongly enough and the level of penalties

is far less than enough to warn and stop the violations regarding disclosure

1.4.2 The causes of violations

The incompletion of the legality frame

In the securities law that has been imposed, there has not been any term that protects the investors or grants them any authority to protect themselves in case there is violation regarding disclosure This greatly damages their benefits in stock exchange

There are also limitations and unreasonable points in the accounting standards of Vietnam compared to the changes in the economy There are still differences in VAS and IAS which are the source of troubles for corporates to make financial

reports, and at the same time the loophole that many firms can make use of to violate rules regarding financial reporting

The laws regarding independent auditing has not been complete The highest legislation documents are at governmental decree The state auditing management aptitude is still restrained because of the lack in legality, lack of experience and ineffectiveness in information and technology management

Corporate Social responsibility of listed firms

The underlying cause of the limitations in disclosure is the listed companies themselves Many Vietnamese enterprises are still having the short-term business mindset and caring about only short-term profits As a result, they have not fully committed to social responsibility

In securities, listed companies are supposed to practice CSR because it contributes

to the forming of a open, transparent and fair business model

CSR of listed firms in the stock exchange activities can be demonstrated through:

 Disclosure: the securities market is an information market If a firm delivers their disclosure responsibility seriously, which means they are socially responsibly, the stock price will be secured by the long-term trust of investors Disclosing promptly and in accordance to laws through annual reports, unusual reports or requested reports to management agencies and the market is a behaviour of CSR

 On the other hand, the supervision of SSC is not intense enough to timely detect and stop violations effectively As a result, the small individual investors become the most vulnerable group regarding their benefits

 Listed companies have not yet been highly responsible for transparently reporting and explaining the details of the firms’ operation and business activities (internal stock exchange, acquisition,…

Most of the listed firms have not yet followed the rules seriously, violating benefits

of small individual investors

In a nutshell, the low CSR in the listed companies on the securities market is the

most fundamental reason for the negative behaviors and violation in disclosure 1.5 The case of disclosure activity at China Construction Bank

China construction bank is a leading commercial bank in China providing a comprehensive range of commercial banking products and services Its business consists of three principal business segments: corporate banking, personal banking, and treasury operations They are among the market leaders in China in a number of products and services，including infrastructure loans，residential mortgage and bank cards

In 1954, when the People's Construction Bank of China was founded as a wholly state-owned bank under the direction of the Ministry of Finance of the PRC to administer and disburse government funds for construction and infrastructure related projects under the state economic plan In 1979, the People's Construction Bank of China became a financial institution under the direction of the State Council and gradually assumed more commercial banking functions

The People's Construction Bank of China gradually became a full service commercial bank following the establishment of China Development Bank in 1994

to assume its policy lending functions In 1996, the People's Construction Bank of China changed its name to China Construction Bank

China Construction Bank Corporation was formed as a joint-stock commercial bank

in September 2004 On 27 October 2005, the Bank's H-shares were listed on Hong Kong Stock Exchange (Stock Code: 939), and on 25 September 2007, the Bank's A-shares were listed on Shanghai Stock Exchange (Stock Code: 601939)

9 China Construction Bank (CCN, Investor Relations, www.ccb.com

1.5.2 Empirical case of disclosure activities at China Construction Bank

After proving that investor relations played an important role in the success of CCB after equitization and becoming an official joint-stock commercial bank, went to build a IR service package to offer other firms

The CCB believes that the sharing of information on its operations nurtures openness and transparency that are crucial to the sustainable and development of the bank It has long recognized that transparency is fundamental for development effectiveness and partnership goals

CCB needs to build and maintain itself as a large, modern, open, transparent and effective firm when implementing disclosure Those criteria also ensure democracy in the working environment and enhance external supervision into the operations of the bank At the same time, it also made it easier for the discussion of evaluation over the bank operations, which contributed greatly to the quality and effectiveness of CCB

Building a professional disclosure of information process:

The process’ objective:

 Maximise disclosure of information within the Bank Group’s possession and limit the list of exceptions to reflect the Bank Group’s willingness to disclose information

 Facilitate access to and share information on the Bank’s operations with abroad range of stakeholders

 Promote good governance, transparency, and accountability

 Improve on implementation effectiveness and better co-ordinate the information disclosure processes

 Give more visibility to the Bank’s mission, strategies and activities to its stakeholders

 Support the Bank’s consultative process in its activities and stakeholder participation in the implementation of the Bank’s financed projects; and

 Ensure harmonization with other Finance Institutions (DFIs) on disclosure of information

The disclosure of information policy was approved first in 2004 It established the procedures and the types of information for disclosure in the absence of compelling reason for confidentiality and was based on the principle that the Bank shout be open and transparent in its operations After operating the policy for 6 years, the

Board approved a revised version of the policy in 2010

Information Disclosure Handbook

To effectively deliver on the policy, a clear implementation framework will be developed in the form of an Information Disclosure Handbook The Information Disclosure Handbook is key to optimum implementation of the revised Policy to guide staff and stakeholders on all issues related to information disclosure It will outline the workflow arrangements for making operational information available

to the public in accordance with the Disclosure of Information policy The Information Disclosure Handbook will therefore be made available to both staff and the stakeholders It will clarify processes and procedures for classification and declassification of documents, and the appeals mechanism It will elaborate on best practice for disclosure of information in a systematic and timely manner All departments and units of the Bank will have a role to play in the implementation process and disclosure of information will be mainstreamed into

work programmes

Establish The information Disclose Committee

The Information Disclosure Committee will have the following main responsibilities:

Dealing with legitimate appeals for access to information and determining the criteria for legitimate concerns

Issuing procedural provisions for implementing information requests and appeals Advising management and staff on the application of the policy including

providing guidance on classification, de-classification and archiving of information Exercising the Bank’s prerogative for early disclosure of some documents on the negative list

The Information Disclosure Committee will also have the authority to reject unreasonable, multiple, blanket requests for information; and any request that would require the Bank Group to develop and compile information or data that does not already exist

Strengthening the Information Technology System

The existing Information Technology (IT) system will need to be strengthened in two major ways: Internally, to accommodate the new processes surrounding classification, de- classification and archiving of documents Externally, to ensure that the web-site is user- friendly and new information is posted in a timely and organized fashion

CCB’s website provides all the information on purpose, mission and activities of the bank in both Chinese and English Especially, the information on the investors’ portal is regularly updated It also has a friendly interface and qualified to meet the needs of different group of stakeholders Therefore, the main page is very lively and attractive CCB aimed to make 80% of the web visitors view the website as a professional but simple, clear, easy to browse and attractively designed (which means modern but also reliable) There is no targeted visitor group since CCB’s website is for everyone

Disclosure on public media channel

The image of CCB and investors’ confidence in the Bank depend largely on what is released, announced and commented by the Press Therefore, the way CCB communicates and respond to the media agencies is of great importance in navigate public opinion towards the policy and viewpoint of CCB

The objective of this communication channel is to enhance confidence in CCB of magazines or journals specialized on finance and the top rated editors in the media

world in order to provide them with a deep and accurate understanding about the monetary policy report, financial stability reports so that they can write appropriate articles about this issue At the same time, it aims to make the media aware and recognize that CCB is a capable, modern, transparent, open and approachable

CCB established a close relation with the press to regularly provide information on their analysis, viewpoints and explanations about their resolutions so the press have sufficient and correct information on the business results and models of CCB

Information provided to the press always needs to be accurate, articulate and correct

CHAPTER 2: AN OVERVIEWOF DISCLOSURE ON BIDV

2.1 About BIDV

2.1.1 Overview of BIDV

Full name: Join stock commercial Bank for Investment and

Development of Vietnam

Abbreviated name: BIDV

Headquarters: BIDV Tower, 35 Hang Voi, Hoan Kiem district, Ha Noi

2.1.2 The process of formation and development

Bank for Investment and Development of Vietnam, formerly known as Bank for Construction of Vietnam, established by Decision No 177/TTg dated 26/04/1957 of the Prime Minister BIDV’s original mandate was to manage and allocate basic construction capital from budget to fund all economic and social sectors Over the last 54 years, BIDV grew to one of the four largest commercial banks in Vietnam and is recognized as a state enterprise of special rank, and operated in the form of a state corporation

Following the Decision No.654/QD-TTg dated 08/11/1994 of the Prime Minister regarding the transfer of tasks on budget and credit allocation under the state plan from BIDV to the General Department of Investment (under Ministry of Finance) and Decision No 293/QD-NH9 dated 18/11/1994 of the Governor of the State Bank

of Vietnam allowing BIDV to conduct a multi-functional business as a commercial bank, BIDV has taken steps to tranform its basic structure and business orientation toward a full-service, commercial bank whose operations are for profit The collective efforts of BIDV staff and senior management have played an active role

in the national economy, innovation, industrialization and modernization of the country; confirming the role and position of BIDV in banking operations Particularly, BIDV is highly regarded and was granted with the title of "a Hero of Labour In The Renovation Period" by the Party and the State

Table 2.1: BIDV process of formation and development

1957

Established under the name of Bank for Construction of Vietnam, under the Ministry of Finance, and wholly owned by the State

1981 Changed name to Bank for Investment and Construction of

Vietnam (under the State Bank)

1990 Changed name to Bank for Investment and Development of