Phát hành cổ phiếu bổ sung (seos) – bằng chứng tại thị trường chứng khoán việt nam. seasoned equity offerings (seos) evidence in vietnamese stock market

1.2 Research objectives We examine SEOs in Vietnam on two aspects:  Company’s SEOs motivation by examining why do Vietnamese companies conduct SEOs.. 1.4 Research methods: To examine

DINH THI THU HA

SEASONED EQUITY OFFERINGS EVIDENCE IN VIETNAMESE STOCK MARKET

Specialization: Finance – Banking Specialization code: 62340201

DOCTORAL THESIS SUMMARY

HoChiMinh City – 2016

CHAPTER 1 INTRODUCTION 1.1 Research motivation:

Seasoned equity offerings (SEOs) draw enormous attention from researchers around the world This method is

an effective and popular way to expand company financial resources to maintain and develop its activities, to reconstruct capital and stakeholder structure of company

Besides, a trend of increasing international equity issuance has also been reported, especially after the financial crisis in 2010 The paucity of literature and case study in emerging market where results are inclusive also urge a solution Therefore, examining emerging economy case attracts the interest to fill the research gap and emphasize the own nature of this market In additional, examining whether the results of developed markets can

be carried over to emerging market also becomes appealing

The development and new trend in financing resources of Vietnamese Stock market also become a driving force Besides, Vietnamese stock market gradually becomes more attractive to foreign investors

In addition, SEOs gradually become more appealing to Vietnamese companies However, there is lack of study investigating thoroughly behavior of listed companies in regarding of why Vietnamese companies conduct SEOs and market reaction around event day when information about SEOs by dividend or rights are publicized Therefore, limited number of SEOs literature in the context of Vietnam should be increased to fill this empirical gap

1.2 Research objectives

We examine SEOs in Vietnam on two aspects:

 Company’s SEOs motivation by examining why do Vietnamese companies conduct SEOs

 Market reaction to company’s SEOs by examining market reaction to company’s SEOs, which

express through the fluctuations of stock prices Subsequently, we develop the estimation model

to measure to what extend the theories mentioned in previous SEO studies can be applied to explain market reaction to companies SEOs in case of Vietnam stock market

Furthermore, we then compare our findings with existing literatures

The event days include announcement day and ex-right day which are widely publicized on the media

SEOs companies are classified according to three criteria (market capitalization, issuance method and industry)

1.4 Research methods:

To examine the behavior of listed companies to SEOs decisions, we apply logit/probit model to find the determinants of company motivation to issue SEOs Based on the interpreted results, we will suggest relevant recommendation for investors and SEOs companies

To examine the behavior of investors, we first apply the Event study method to study the market reaction around event day, then using random effects and fixed effects model on panel data to investigate determinants

of market reaction around event day then point out relevant suggestions for stakeholders

1.5 Research contributions:

Contribution to SEOs literature:

We investigate SEOs using data from Vietnamese market which has not been examined yet We refer to SEOs literature in both developed and other emerging markets to form the research hypotheses then examine whether the results of those markets can be carried over to Vietnam

In addition to the out-of-sample tests, this research also fills the gap and enriches the literature on cases of emerging market where the results are inclusive and very limited, from then to draw an overall picture in comparison to developed markets, which have been wildly discovered

Contribution to empirical study:

With this research, we fill the gap about SEOs research and contribute an empirical study since it enrich existing literature of SEOs in Vietnam Investors, SEOs companies can use this research as a reference material

in their trading, investment and management activities toward information management, making trading decisions Investors could consider trading stocks of SEOs companies to earn profits, reserve money in advance

to “catch the issuance”, or to have relevant actions toward these kind of SEOs

Market legislators can consider using this research as a way to test the level of information transparency in the market to take relevant actions toward the current market situation

We investigated different issuing method such as to increase company capital by equity rights or to pay bonuses/dividends with the latest data set Comparing of those two methods will provide more evidence in the field of SEOs in Vietnam, which can be used as reference or studying material for students

Conclusion and relevant policy suggestions

Company’s SEOs motivation

Why do Vietnamese companies conduct

SEOs?

Market reaction to company’s SEOs

How does market react to company’s SEOs

The extent of SEO theories application into Vietnamese stock market

Quantitative method

Event study method

Random effects/Fixed effects models for panel data on STATA

CHAPTER 2 LITERATURE REVIEW AND HYPOTHESES DEVELOPMENT

2.1 Introduction

SEOs play significant role on company capital structure as well as stakeholder structure This chapter presents different studies about SEOs in both developed as well as emerging markets

Theoretical investigations cover main theories regarding SEOs including Trade-off; Agency

problem; Growth opportunities; and Market timing

2.2 Theoretical literature on SEOs

2.2.1 Trade-off theory

According to trade-off theory, company will try to aim at a target debt level to form an optimal capital structure then gradually move towards it This theory suggests that managers need to make right decision on building financial structure to keep balance as well as optimize the equity and liability in the company The optimal debt-equity structure in a company can be determined

by trading off the costs and benefits of financing through debt and equity According the off theory, company conducts SEOs to optimize capital structure to balance the benefit and expense that might be generated from debt borrowing (Modigliani and Miller, 1958, 1963; Myers, 1977)

trade-Trade-off theory has been testified by some empirical research as one of the theories affect company’s SEOs decisions (Marsh, 1982; Hovakimian et al., 2001; Bo et al., 2011) Hovakimian et al., (2001) show that when companies adjust their capital structure, they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt On the other hand, Bo et al (2011) investigate the relevance of traditional theories Chinese SEOs motivation With the case of 1081 Chinese SEOs during 1994–2008, the authors find that the trade-off theory is consistent to Chinese listed companies who strongly depend on loan borrowings from the banking sector because of weak debt market Borrowing companies are under strictly bank monitoring, which means their main concern is borrowing costs

2.2.2 Growth Opportunities Theory

The availability of growth opportunities is one of the main reasons encourage companies to issue equity Company with growth opportunities favors equity financing over debt financing to deter the transferring of wealth from shareholders to debt holders (Myers, 1977) The mechanism of the wealth transfer from shareholders to debt holders exists due to the assumption that company will decide to bypass projects with positive net present value (NPV) if it has to finance those projects by risky debts When firms finance new projects with debts, shareholders have to bear almost the entire cost in case of projects failure since debt holders own priority claims in the firm assets Besides, the project success will raise the debt value (Huang, 2012) Furthermore, companies will face future cash flow insecurity, which leads to financial health warning if they invest in high uncertainty growth projects Therefore, companies with more promising opportunities have more tendencies to issue equity to buffer against any potential financial constraints that might result from debt financing (Bo et al., 2011)

Jensen (1986) argues that high growth rate companies with better projects will more concern about overinvestment risk than bankruptcy risk, therefore they will choose equity financing as optimal option On contrary, Jeanneret (2003) states that mature companies who have more free

cash flow and capacity of debt borrowing prefer debt financing to monitor and encourage managers’ role in company

2.2.3 Market timing theory

The theory of market timing suggests that the time of stock price overvaluation on the market will encourage managers to issue SEOs instead of other financing methods This will reduce the cost of companies while bring more benefit to current stakeholders regardless of new shareholders; therefore, SEOs decision will be related to mis-valuation proxies (Elliott et al., 2008)

According to market timing theory, managers will exploit window of opportunities when information asymmetry is at the lowest level Korajczyk, Lucas and McDonald (1990) show that information asymmetry among internal and external investors is not fixed, therefore company should choose the time when information asymmetry is at the lowest level or to put it another way, when the market is informed the most In their research, they find that most of companies conduct their SEOs after information about company earnings are publicized In addition, the further the time company publicizes information about its activities from the issuance, the worse market reacts to company’s SEOs

2.2.4 Agency problem theory:

In the context of SEOs motivation, agency model predicts that to access to more financial resources for private advantages, managers are encouraged to issue SEOs; besides, they can use SEOs to expropriate the benefits of minority shareholders (Bo et al., 2011) This model also predicts that equity issues by companies that do not have valuable investment opportunities are bad news to shareholders since they enhance managerial discretion when managers’ objectives differ from shareholders’ objectives (Jung et al., 1996)

Study on behavior of firms in developed markets mainly focus on managers and shareholders conflicts and company SEOs motivation The agency problem, among the pecking order and market timing theory which justify company financing decision has more power in explaining company behavior (Jung et al., 1996) Their findings also show that some companies conduct SEOs to profit managers rather than shareholders

2.2.5 Efficient Market Hypothesis

Fama (1970) define three forms of market efficiency identified by the extent of information reflection through stock price The first form of market efficiency is weak form where current stock price incorporates past information of company, no one can identify mis-priced stocks and beat the market by analyzing company past prices The second form is Semi-strong form in which current stock price does not only reflect historical information but also publicly available ones that reported in company’s financial statements, or earnings and dividend announcements, changing CEO, etc If the market is semi-strong efficient, stock price will immediately react to the release of new public information The last form is strong form in which current stock price fully reflects all existing information of company including public and private information or internal information

SEOs can be considered new information to the market, the practice of issuing seasoned equity becomes a channel to reflect “intention” of managers Therefore, researching on market’s reaction when company announces its SEOs can be considered a test of the semi-strong form of market efficiency

In figure 2.1, we recapitulate financial theories into a conceptual framework We find that Trade-off, Agency problem, Growth opportunities and Market timing are main theories influence determinants of company’s SEOs motivation While Growth opportunities, Market timing and Efficient market hypothesis are main theories concerning market reaction and determinants of market reaction to company SEOs

Figure 2.1: Conceptual framework

Company’s SEOs motivation

Trade-off Agency

problem

Market reaction to company’s SEOs

Growth opportunities

Market timing

Efficiency market hypothesis

CHAPTER 3 DATA AND METHODOLOGY

3.1 Data

This research covers only listed companies on the Ho Chi Minh City Stock Exchange (HOSE) during 2007 – 2013 Price of stocks are collected from HOSE website If t is the year of the SEOs announcement, independent variables are extracted from companies’ t-1 annual reports Our research sample comprises companies conducting their SEOs as right distributions; or rights accompanied with dividends; or rights accompanied with bonuses; and companies issued their seasoned equity as bonuses or dividends

The event days include announcement day and ex-right day, which are widely publicized on the media

SEOs companies are classified according to three criteria (market capitalization, issuance method and industry)

3.2 Methodology:

3.2.1 Determinants of company’s SEOs motivation:

To examine determinants of company’s SEOs decision, two main techniques have been applied are: Logit regression technique and Probit regression technique

The dependent variable is the probability that company issues its seasoned equity offering , taking the value of one if the firm i conducts SEOs in year t, and zero otherwise

The independent variables include:

 The difference between company’s leverage ratio and average of industry’s

leverage ratio (Difference In Leverage Ratio - DILR) is used as proxy for

trade-off theory

 To examine the effect of growth opportunity on company’s SEOs decision,

TOBINQ ratio will be applied

 Ratio of market value/Book value (M/B) is used as proxy for market condition

before the issuance

 In terms of Agency problem, ratio of managerial holding include the board of directors, board of supervisor, president and CEO (Ratio of Managerial Holding

- RMH) will be applied as proxy for this theory

 FIRMSIZE; D/A; PROFITABILITY are applied as controlling variables

Step 2: Selection criteria

Step 3: Normal and abnormal return measurement

Abnormal return - AR:

The abnormal return is formed by difference between actual return and expected return:

Average Abnormal Returns – AAR

Average Abnormal Returns of companies that are affected by the event is defined as:

(3.2)

Cumulative Abnormal Returns – CAR

Cumulative abnormal return is expressed as CAR is calculated by summing average abnormal

returns in observed period

(3.3)

Step 4: Estimation procedure

The time line for a typical event study can be shown as followed:

Where:

o - is the estimation window used for estimating benchmark parameters

o T - T is the event window, the period over which the event occurs;

o T - T is the post-event window used for analyzing the influence of the event

Step 5: Testing procedure

T statistics is used to examine the significance level and calculate as:

(3.4)

Step 6: Empirical results

Step 7: Result interpretation and conclusions

3.2.2.2 Determinants of market reaction to company’s SEOs:

Regressing our panel data on Random effects and Fixed effects model

The dependent variables are the cumulative abnormal returns from day 0 to day +2, where day 0

is the event day

K t L

)

( AAR

S AAR

t  t

The independent variables are as follow:

 To calculate the impact of Growth opportunity on market reaction, we used the

ratio of TobinQ

 In order to find the effect of Market timing on market reaction, we used

cumulative abnormal returns of market (MRUNUP);

 Besides the proxies for the main standard theories, we include D/A, ISSUESIZE,

FIRMSIZE, INDUSTRY, ISSUEMETHOD and RMH as controlling variables

CHAPTER 4 DETERMINANTS OF COMPANY’S SEOs MOTIVATION

4.2 Determinants of company’s SEOs motivation:

Model estimation results shown that TobinQ; ratio of Market value/Book value (MB); Firm size (Size); ratio of Total debt/Total asset (DA) and Profitability are significant at the 5% and 1% level while only ratio of managerial holding (RMH) is insignificant In comparison to companies

that do not issue SEOs, companies with higher TobinQ ratio, higher ratio of Market value/Book value, higher ratio of total debt/total assets and higher profitability are more likely to issue SEOs On contrary, companies with higher ratio of leverage relative to industry’s average leverage and larger in size are less likely to issue SEOs

The estimated coefficient for the proxy of the trade-off theory (DILR) have negative sign and are

insignificant in both column (1) and (5), implying that companies are not motivated to use SEOs

as a means to adjust their capital structure This result has rejected our hypothesis 1 that the

difference between company’s leverage ratio and average of industry’s leverage ratio (DILR) has

positive impact on company’s SEOs decision Therefore, we can confirm that Trade-off theory does not impact on company’s decision on issuing SEOs

Both column (2) and (5) of table 4.5 show significantly positive signs of estimated coefficients

for TobinQ, which imply that companies tend to issue SEOs when they have more growth

opportunities, which is consistent with the growth opportunity theory Table 4.6 presents that

companies with higher TobinQ are 4% more likely to conduct SEOs than companies with lower

TobinQ, this result is relevant to our expectation since companies with more investment

opportunities will be motivated to conduct SEOs to finance for their opportunities Our finding is also consistent to results of Chikolwa and Kim (2009), Duca (2011); therefore, the hypothesis 2

companies with higher TobinQ ratio are more likely to issue SEOs is accepted From this result,

we can conclude that growth opportunities theory influences company’s SEOs decision remains unchanged (no rejection)

In column (3) and (5) of table 4.5 the estimated coefficients for the ratio of market value/book

value (MB) which is proxy for market timing theory is significant with positive sign, which

suggests that choosing time is one of motivations of companies to issues SEOs Our result in table 4.6 shows that companies experience higher ratio of market value/book value are 12.4% more likely to conduct SEOs than the rest This result is relevant to our expectation that companies will choose time when market overvalues their stocks to issue seasoned equity From

the results above we can conclude that the hypothesis 3 companies with higher ratio of M/B are

more likely to conduct SEOs is not rejected (hypothesis no rejected) We can also confirm that the market timing theory impacts company’s SEOs decision

The estimated coefficients for ratio of managerial holding /total outstanding shares (RMH) has a

negative sign and is insignificant in both column (4) and (5) of table 4.5, suggesting that company’s SEOs decision is not motivated as a tool for controlling shareholders to expropriate minority shareholders, which is inconsistent with the agency problem theory This result is

inconsistent with our hypothesis 4 that the ratio of managerial holding (RMH) positively affects

company’s SEOs decisions From this result, we conclude that the Agency problem theory does not play important role on company’s SEOs decision

Besides the results regarding to proxies for SEOs motivation explaining theories, all of our controlling variables show significance results We find that firm size estimated coefficients

(Size) are significant with negative sign in all estimations, implying that smaller companies are

more likely to conduct SEOs Our result in table 4.6 shows that smaller companies are 4% more likely to conduct SEOs than larger companies, we expect this result is explained by the fact that small companies with limited access to bank loan will try to increase their financial resources through SEOs instead of borrowing from the banks

Secondly, the relation between the ratio of total debts/total assets and SEOs motivation is highly significant with positive sign in all estimations Our result shows that companies with higher ratio of total debts/total assets are nearly 88% more likely to conduct SEOs in comparison to those that have lower ratio of debt/total assets (Table 4.6) We believe that companies with higher ratio of debt are more motivated to issue SEOs as means to reduce their level of debt Thirdly, all the estimated coefficients for profitability are significantly positive, which is not consistent with pecking order theory prediction This theory claims that company profitability has negative correlation with SEOs decision because the more profitable the company is, the higher internal resources company has; therefore, it does not have to excess external resources such as loans borrowing or issuing SEOs However, within the case of Vietnamese companies,

to guarantee the attraction and the success of the issuance, companies with more profitability will be more self-motivated to issue SEOs to attract the investors to the bright scenario future of companies The result in table 4.6 shows that companies with higher profitability are 72% more

likely to conduct SEOs in comparison to those that have less profitability

Table 4.5 SEOs conducting probability:

Motivation of SEOs: panel data probit estimation This table presents results of Determinants of company’s SEOs motivation The sample period is from 2007 to 2013 The dependent variable is

the probability that company issue its SEOs DILR is measured as Difference between company’s leverage ratio and average of industry’s leverage ratio; TobinQ is measured as (Market value of stock + Book value of debt)/Book value of total assets; MB is ratio of Market value/Book value; RMH indicates ratio of managerial holding include the board of directors, board of supervisor, president and CEO/Total outstanding shares; Size is Logarithm of total assets; DA indicates Total debt/Total asset; Profitability is EBIT/Total assets; t-statistics are in

parentheses; *** Statistically significant at the 1% level; ** Statistically significant at the 5% level; * Statistically significant at 10% level

DILR -0.041

(-0.85)

-0.045 (-0.98)

(7.55)***

0.160 (2.09)**

(11.52)***

0.449 (10.08)***

(-1.39)

-0.0001 (-0.27)

Size -0.172 -0.164 -0.135 -0.168 -0.146