Foriegn ownership in viet nam stock market an empirical analysys

Foreign investors hold more shares of high beta stocks than of low beta stocks for small firms.. First, foreign investors have a clearer preference for stocks with large market capitaliz

MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY

oOo -

TRẦN THANH THẢO

FOREIGN OWNERSHIP IN VIETNAM STOCK MARKET : AN

EMPIRICAL ANALYSIS

MAJOR: BANKING MAJOR CODE: 60.31.12

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ACKNOWLEDGEMENTS

Many individuals have helped improve the quality and completeness of this thesis First and foremost, I wish to express my deepest gratitude to the instructor of my thesis, Dr Vo Xuan Vinh, for his idea, guidance, comments and reviewing my thesis

I would also like to express my sincere gratitude to all instructors at the Faculty of Banking and Postgraduate Faculty, University of Economics Ho Chi Minh City for their valuable knowledge and support during my master course

I also owe special thanks to my close friends for their valuable supports, encouragement during my thesis and especially, writing the soft-wares which have really help me in collecting, combining and calculating the data

I also wish to thank my course-mates, my team-mates and my friends who have helped me in statistical software and given me support as always

Last but not least, I am very grateful for the love and support of my family, especially my parents and my elder brother, who give me continuous support

at all times

Tran Thanh Thao

December 2010

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Abstract

This thesis investigates the foreign ownership in Vietnam stock market from

2007 to 2010 by employing a rich and detailed dataset In view of informational asymmetry, the research examines the relationship between the foreign ownership level and attributes of Vietnamese listed firms in Ho Chi Minh City Stock Exchange Our main findings are that foreign investors have preference for firms with large size, firms with low dividend yield, firms with low leverage and firms with low volatility of return The foreign investors also avoid firms with dominant shareholders and prefer to invest in firms where they can have influence In other words, the results show that foreign investors favor to invest

in firms with low informational asymmetry

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TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

Abstract ii

TABLE OF CONTENTS iii

LIST OF FIGURES iv

LIST OF TABLES v

LIST OF TABLES v

ABBREVIATIONS vi

PART 1: INTRODUCTION 7

PART 2: LITERATURE REVIEW 11

PART 3: EMPIRICAL RESEARCH HYPOTHESES 15

PART 4: DATA DESCRIPTION 20

PART 5: RESEARCH METHODS 29

PART 6: EMPIRICAL RESULTS 30

PART 7: CONCLUSION 47

REFERENCES 48

APPENDIX A 50

APPENDIX B 56

APPENDIX C 68

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LIST OF FIGURES

Figure 1-1: Market Capitalization 21

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LIST OF TABLES

Table 1: Market Capitalization 21

Table 2: The Statistics of Foreign ownership on the Vietnamese stock market 22

Table 3: Data Descriptive Statistics for 2007 25

Table 4: Data Descriptive Statistics for 2008 26

Table 5: Data Descriptive Statistics for 2009 27

Table 6: Data Descriptive Statistics for the Whole 28

Table 7: Correlation Matrix for 2007 31

Table 8: Correlation Matrix for 2008 32

Table 9: Correlation Matrix for 2009 33

Table 10: Correlation Matrix for the Whole sample 34

Table 11: Regression results 37

Table 12: Panel regression results 38

Table 13: Regression results with dummy 41

Table 14: Panel regression results with dummy 42

Table 15: Panel regression results (quarterly) 45

Table 16: Panel regression results with dummy (quarterly) 46

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ABBREVIATIONS

HOSE Ho Chi Minh City Stock Exchange

SIZE market capitalization

VOLR volatility of return

IMF International Monetary Fund

IIF Institute of International Finance

CAPM Capital Asset Pricing Model

ADR American Depositary Receipt

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PART 1: INTRODUCTION

The flow of funds to emerging markets has increased sharply in recent years The IMF reports that the aggregate net capital flows to emerging markets increased exponentially from the annual average of US$124 billion during the 1990-1996 to US$285 billion during 2003-2007, reaching a peak of US$617 billion in 2007 and will reach to around US 825 billion in 2010, estimated by the IIF Investors’ interest in these markets surged in response to their prospects for rapid economic growth, financial deregulation and the benefits of international diversification

Even though Vietnam initiates the stock market later than many other developed countries, there has been a substantial growth The first stock exchange in Ho Chi Minh City was established in 2000 with four listed companies Increased foreign interest and the privatization of state-owned enterprises lead to a rapid increase in listings At the end of 2010, there are about 290 firms listed on Hose One of the most prominent features in Vietnam stock markets is the rapid increase in the stock ownership level and trading volume by foreign investors over time Increases in foreign ownership are expected to result in an increase in trading volume, the number of trades, visibility and analyst coverage As the importance of foreign investors in Vietnam stock markets increases, both the characteristics of their investment behavior and their impact on stock prices are becoming the interesting topic for discussion

However, there is not much published research employing a detailed dataset of foreign investors’ stock ownership and firm characteristics This paper is one of the first to attempt to fill the gap in this field In this paper, we characterize the ownership of foreign investors in Vietnam Stock markets by using a dataset of ownership and

In Vietnam, under regulation that foreign investors are allowed to own up to 30% in commercial banks and 49% in other listed companies Therefore, foreign ownership is more likely to reflect the investment choices of foreign investors with some firm attributes

It is theoretically argued that investors diversify their portfolio to take advantage of the gain from diversification The advantages of international diversification are well illustrated in the literature French and Poterba (1991) and Tesar and Werner (1995), for example, argued that diversified international investment dramatically improves the performance of portfolios Theories assuming under-diversification of investor portfolios, such as Levy (1978) and Merton (1987) predicts a positive relationship between idiosyncratic risk and expected return However, investors in reality often do not hold perfectly diversified portfolios (Fu 2009) In global markets, investors normally have strong preference for domestic equities and this is well documented as the ‘home bias’ phenomenon by Lewis (1999) In addition, global investors do not hold

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global portfolio as predicted by International CAPM as presented by Solnik (1974) but actually consider specific advantages when selecting their foreign assets (Rhee & Wang 2009)

The extent of the home bias puzzle needed to be addressed to provide an insight into factors drive the deviation from the optimal international equity portfolio If investors more generally already hold the optimal portfolio, then the diversification gains are achieved However, the literature suggests that portfolios are not optimal and that the cost in terms of lower return and higher risk is large Lewis (1999) argues that costs of home bias due to forgone gains from international diversification in the range of 20%

to almost double of lifetime (permanent) consumption

The disproportional holding of stocks is not only evident in international investment, but also applied to domestic portfolio selection (Coval & Moskowitz 1999; Dahlquist

& Robertsson 2001) The academic literature attributes the preferences in foreign investors’ firm selection to investment barriers and asymmetric information among investors To avoid the informational asymmetry, foreign investors tend to select firms with certain characteristics Results from many researches show that foreign investors favor firms with certain characteristics, such as large size and low debt ratio (Dahlquist

& Robertsson 2001; Kang & Stulz 1997; Lin & Shiu 2003)

This paper deepens the understanding of holdings of foreign investors in general and holdings of foreign investors in emerging market like Vietnam in particular By analyzing a rich and detailed firm level dataset of equity ownership, and studying the determinants of foreign ownership in Vietnamese firms, we identify various firm attributes that are common to foreign ownership In particularly, the paper investigates whether foreign investors investing in firms based on some common firm attributes

This paper is one of the very first research carefully investigating the characteristics of foreign ownership in Vietnam stock markets Our main contribution to the financial literature is to provide an extensive empirical analysis on the foreign investors’ ownership and firm attributes relation over an extended time period The remainder of this thesis is structured as follows Section two reviews the literature on the relationship between foreign ownership and firm attributes Section three introduces the empirical research hypotheses Section four presents the data description Section five introduces research methods Section six reports the empirical results Finally, section seven concludes the research

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PART 2: LITERATURE REVIEW

This section reviews the literature on foreign ownership and firms characteristics There is a large and growing literature examining whether foreign investors have information disadvantages over domestic ones in developing markets However, the empirical evidence is mixed in the literature In the one side, foreign investors are considered to have significant global investment experience utilizing well-developed technology and high-skilled financial experts, which suggests they are in a stronger position to evaluate a firm’s prospects Especially in developing countries, foreign investors can take advantage over local investors in selection of firms On the other side, foreign investors may possess inferior information due to geological, cultural, and political differences

Many authors states that foreign investors have better information than local investors (Froot & Ramadorai 2001) Seasholes (2000)’s results indicate that foreign investors have superior information over Taiwanese investors when foreign investors tend to buy prior to positive and sell prior to negative earnings surprises

On the other side, foreign investors are argued to stand at an informational disadvantage relative to domestics Brennan & Cao (1997) develop a model of international equity portfolio flows that relies on informational differences between foreign and domestic investors They find out that U.S investors are of informational disadvantage relative to the locals in foreign markets, and trade on new information with a lag The findings from more recent research by Hau (2001) using German data, Dvorak (2005) using Indonesian data, and Choe et al (2005) using Korean data also support this argument The problem of information asymmetry and investment barriers

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tends to be material in emerging markets Therefore, foreign investors tend to have preference to invest in firms with specific attributes instead of holding diversified portfolios There are many authors favor this school of thought and empirically investigate the link between foreign ownership in domestic market and firm attributes Kang & Stulz (1997) examine stock ownership in Japanese firms by non-Japanese investors from 1975 to 1991 Their findings are inconsistent with the other existing models predicting that foreign investors hold national market portfolios towards stocks with high expected returns This research documents that foreign investors in Japan hold disproportionately more shares of firms in manufacturing industries, large firms, and firms with good accounting performance, low unsystematic risk, and low leverage Controlling for size, there is evidence that foreign investors favor small firms with high export sales, firms with greater share turnover and firms with ADRs

Grinblatt and Keloharju (2000) measure the performance of foreign investors versus the local ones by comparing a group's tendency to buy future winning stocks and sell future losing stocks Future winning (losing) stocks are those with 6-month returns that fall in the top (bottom) quartile The tendency to buy winners and sell losers is computed as the difference between the foreign share in buy volume of winning stocks minus the foreign share in buy volume of losing stocks The measure of performance is intuitive but requires judgment as to the horizon at which returns are measured and the thresholds for classifying winners and losers Dahlquist and Robertsson (2001) compare the preference of foreign investors to that of domestic institutions using Swedish firms listed from 1991 to 1997 This study reveals that foreign investors show

a preference for firms paying lower dividends, large firms, and firms with large cash positions on the balance sheets Their research also showed that foreign investors are not fond of firms with dominant shareholders

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Lin & Shiu (2003) investigates foreign ownership in the Taiwan stock market from

1996 to 2000 From the view of informational asymmetry, foreign investors appear to favor large firms and firms with low book-to-market ratios The results show that foreign investors strongly prefer firms with high export ratios with which they are more familiar on account of the higher foreign sales Foreign investors hold more shares of high beta stocks than of low beta stocks for small firms However, this result does not hold for large firms, implying that large firms have lower investment barriers than small firms Foreign investors, due to their different tax status, may also hold slightly more stocks with low dividend yield However, evidence for this assertion is inconclusive, with only a weak effect displayed by the sample

Using transaction data from Indonesia, DvoŘÁK (2005) shows that domestic investors have higher profits than foreign ones In addition, clients of global brokerages have higher long-term and smaller medium (intramonth) and short (intraday) term profits than clients of local brokerages This suggests that clients of local brokerages have a short-lived information advantage, but that clients of global brokerages are better at picking long-term winners Finally, domestic clients of global brokerages have higher profits than foreign clients of global brokerages, suggesting that the combination of local information and global expertise leads to higher profits

Ko et al (2007) examine the foreign and institutional investors’ preference for firm attributes in Japan and Korea with some important findings First, foreign investors have a clearer preference for stocks with large market capitalization and low book-to- market ratios than do institutional investors in both Japanese and Korean stock markets Second, foreign investors prefer stocks with a high return on equity, especially in Korea Third, average returns have more apparent differentiation among institutional (foreign) ownership portfolios than among foreign (institutional) ownership portfolios in Japan (Korea) Fourth, the stocks that are preferred

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simultaneously by both institutional and foreign investors show statistically significant positive abnormal returns in both Korea and Japan, whereas those preferred by either institutional or foreign investors show statistically significant positive abnormal returns only in Korea The institutional investors’ incentive for stock holding, the extent of stock market efficiency, and stock price polarization could be the possible explanations for the different empirical results observed for Japan and Korea

Jeon et al (forthcoming) examine the relationship between foreign ownership and the decisions on payout policy in the Korean stock market The evidence indicates that foreign investors show a preference for firms that pay high dividends When they have substantial shareholdings, foreign investors lead firms to pay more dividends.

However, there are not many researches empirically investigating the foreign ownership in Vietnam and Vietnamese firm attributes In lieu of the current literature, this research enriches the literature by examining whether foreign investors are attracted to some common firm characteristics as in previous related studies

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PART 3: EMPIRICAL RESEARCH HYPOTHESES

Following the current literature, the thesis attempts to develop the empirical hypothesis

to be consistent with previous research

An aversion towards international investments may also be due to informational asymmetries between foreign and domestic investors Vietnam is an emerging economy where there is environment of high informational asymmetry; foreign investors in Vietnam are expected to hold more stocks with specific characteristics This section proposes several empirical hypotheses which are consistent with the literature (Aggarwal et al 2005; Dahlquist & Robertsson 2001; Kang & Stulz 1997; Lin & Shiu 2003; Rhee & Wang 2009) These hypotheses also allow us to make comparisons between the characteristics of foreign investors in Vietnam and other markets

Merton (1987) and Huberman (2001) argue that investors prefer securities they are familiar with Foreign investors are likely to invest in Vietnamese firms about which they have some knowledge or familiarity It is commonly assumed that more information is available on large firms than on small ones (Merton 1987) It is argued that foreign investors should favor large firms to reduce the negative impact of informational asymmetry since the degree of informational asymmetry is higher for foreign investors than for local investors Therefore, the first hypothesis is as follows: H1: Foreign investors hold more shares of large firms, with all other factors held constant

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The difference between the status of foreign investors in their parent and host countries reduces after-tax returns on cross-border investment Following such disadvantage, similar to Lin & Shiu (2003), we propose that a dividend clientele effect exists, that is, foreign investors tend to hold more shares of firms with lower dividend yields, to mitigate the negative impact of disharmonious taxation

H2: Foreign investors should hold more shares of firms with lower dividend yield, with all other factors remaining constant

We expect that the foreign investors will favor the stocks generating high return In addition, it is generally accepted that foreign investors have more skilled and knowledge in selecting stocks Therefore, we test for the hypothesis that foreign investors prefer the firms with high previous return

H3: Foreign investors hold more shares of firms with high previous return, all other factors being equal

Besides informational asymmetry, there are other factors also affecting international investments such as foreign exchange control, withholding taxes, political risk, … Stulz (1981) developed an international investment barrier model, showing that such barriers raise the cost of cross-border investments Hence foreign investors tend to invest into assets with higher expected returns to cover these costs Under such circumstance, foreign investors are expected to hold more shares of high beta stocks, yielding higher expected returns

H4: Foreign investors should hold more shares of high beta firms than low beta firms, with all other factors remaining constant

Fama and French (1996) proposed the book-to-market equity (B/M) as a proxy for profitability and growth Low B/M firms have persistently high earnings while high

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B/M firms have consistently poor earnings The future financial performance for low B/M firms is more transparent than for high B/M firms Accordingly, we hypothesize that foreign investors should favor shares of low B/M firms

H5: Foreign investors hold more shares of low B/M firms, with all other factors held constant

In the literature, there are many research investigate the relationship between liquidity and stock returns In this paper, we seek to determine whether foreign investors are more likely to invest in firms with better liquidity We use current ratio as a proxy for firm liquidity Therefore, we test the following hypothesis:

H6: Foreign investors hold more shares in firms with higher current ratio, all other factors being equal

Many papers suggest that due to information asymmetry, foreign investors normally avoid firms with high leverage due to higher level of risk Hence, we also test for the hypothesis that foreign investors prefer firms with low debt:

H7: Foreign investors should hold more shares of firms with lower leverage ratio, all other factors held constant

Foreign investors are assumed to be rational investors and they conduct stock selection base on fundamental analysis By doing so, they will invest in stocks of firms with good performance We use return on equity as a proxy for firm performance and examine the following hypothesis

H8: Foreign investors should hold more shares of firms with higher return on equity, all other factors being equal

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It is commonly believed that foreign investors are likely to have more knowledge and information about firms with high export ratios than low export ratio firms This is based on the conjecture that firms with high export ratio are more widely known internationally To take into account of this behavior, we assume that foreign investors favor firms with high foreign sales to mitigate asymmetric information as argued by Kang and Stulz (1997), Merton (1987) and Coval and Moskowitz (1999)

H9: Foreign investors hold more shares in firms with high export ratios, all other factors being equal

An unresolved area in the field of finance is the relation between share ownership structure and liquidity (Rubin 2007) Tesar and Werner (1995) document that the turnover rate on international equity investments is high both when compared with the turnover rate in the investor's home country, and when compared to the market of the foreign security Their findings suggest that market liquidity is particularly important for foreign investors For this reason, we want to examine whether the foreign investors prefer to hold liquid stocks Hence, another hypothesis is set up as:

H10: Foreign investors should hold more shares of firms with higher turnover rate, with all other factors remaining constant

The ownership concentration is used to test whether foreign investors want to have direct influence on the firm management If foreign investors have an interest in the management, we would expect them to avoid firms with highly concentrated ownership as in Dahlquist & Robertsson (2001)

H11: Foreign investors should hold more shares of firms with lower concentration rate, all other factors remaining constant

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It is normally considered that foreign investors in Vietnam employ the buy-and-hold strategy and therefore, for long term holding, foreign investors tend to invest in low volatility stocks

H12: Foreign investors should hold more shares of firms with lower volatility of return, all other factors being equal

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PART 4: DATA DESCRIPTION

This section present the description of data and definition of variables employed in our analysis

The data employed in this thesis are collected from financial reports of listed companies in Hose and from the website of Hochiminh Stock Exchange www.hsx.vn

for data that is not available in the financial statements For the purpose of a balanced data set and for the availability of data ranging from 2007 to 2010, not all listed firms satisfy our criteria for data selection At the outset, our data consists of 121 companies listed in HOSE before 31 December 2007 Then 7 financial companies, such as banks, insurance firms, security firms, funds, trusts and other financial firms are excluded as their characteristics are different Consequently, the final data sample includes 114 non-financial companies listed in HOSE for the period 2007 – 2010

We also group the companies in our data set into different industries according to the classification of Hose There are 8 industries/sectors in our data set including agriculture, forestry and fishing; mining and quarrying; manufacturing; electricity, gas, stream and air conditioning supply; construction; transportation and storage; real estate activities; and others (including professional, scientific and technical activities; wholesale and retail trade, repair of motor vehicles and motorcycles; accommodation and food service activities; information and communication)

Foreign ownership level variable is well suited to provide us insights about the characteristics and trading behavior of foreign investors The table 1 below shows foreign ownership in Vietnam on a year-by-year basis over the period from 2007 to

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2010 Overall, the average of ownership of foreign investors increase from 10.16% in

2007 to 17.46% in 2008, however, it reduces significantly to 14.80% in 2009 As at 31 December 2010, Vietnam Securities Depository Central (VSD) has assigned 14,835 securities trading codes for the foreign investors, including 1,442 organizational investors and 13,393 individual ones

Table 1: Market Capitalization

Year Hose (billion dong) Foreign investors (billion dong)

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Table 2: The Statistics of Foreign ownership on Hose

Firm characteristics:

In this subsection, we briefly introduce a number of firm-specific attributes used in the empirical analysis For easy comparison, the same below firm characteristics as Kang and Stulz (1997), Dahlquist & Robertss (2001) and Lin & Shiu (2003) are used as independent variables to analyze foreign ownership

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(i) Size (SIZE): Market capitalization is used to determine the company’s size It is obtained by multiplying the number of shares outstanding by the current market price per share In the regressions, we consider the log of the market capitalization

(ii) Dividend yield (DIVY): This is a financial ratio showing how much the firm pays out in dividends each year relative to its share price It is calculated by taking the annual dividends paid per share and dividing by the share’s price (iii) Return (RETU): The return on the shares of the firm is calculated by the log of the current period closing price divided by the previous period’s close

(iv) Systematic risk (BETA): Beta is a measure of the volatility of the share relative to the market as a whole, herein the VN index, estimated by using the daily returns

(v) Book-to-market (BMAR): This ratio is measured as the book value divided by the market value Book value is defined as the difference between total asset and total liabilities Market value is determined through its market capitalization

(vi) Current ratio (CURR): This ratio is equal to current assets divided by current liabilities

(vii) Leverage ratio (LEVR): This is measured as the ratio of total liabilities to total owner equity

(viii) Return on equity (ROE): This ratio is defined as the net income divided by the total owner equity (excluding the other funds), expressed as a percentage

As mentioned above, we use firm size as a first proxy for how well-known a firm is abroad When we further analyze the preference for large firms, we consider alternative variables that proxy for firm recognition and investor influence These variables are: (ix) Export rate (EXPR): This is calculated as export sales divided by total sales

(xii) Volatility of Return (VOLR): The stock return volatility presents the variability

of stock price during a year by using the daily returns This measure is defined as the standard deviation of the daily returns of adjusted closed price

Table 3 to table 6 presents the data descriptive statistics for all variables in our sample The mean of foreign ownership for the sample ranges from 10.10% to 14.80%, the minimum is 0% and the maximum, as restricted by the Government, is 49% The median is smaller than the mean every year and for the whole period, indicating that the distribution of foreign ownership is skewed to the right

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Table 3: Data Descriptive Statistics for 2007

Mean 0.10102 12.05907 0.01899 0.02770 0.72375 0.31118 2.51624 1.06989 0.18174 0.14709 0.00497 0.33195 0.03026 Median 0.02010 11.92997 0.01818 0.01628 0.72075 0.28603 1.73315 0.83226 0.14809 0.00000 0.00400 0.29265 0.02832 Maximum 0.49000 13.46383 0.06000 0.79686 2.10943 0.91772 17.58856 4.52534 0.57238 0.99899 0.01868 0.78000 0.09287 Minimum 0.00000 11.21175 0.00000 -0.44053 -2.94911 0.03930 0.18280 0.05040 0.02468 0.00000 0.00016 0.04000 0.01208 Std Dev 0.14338 0.55994 0.01322 0.17471 0.58801 0.15566 2.40721 0.91916 0.10703 0.30540 0.00358 0.19445 0.01006 Skewness 1.52871 0.63882 0.56338 0.71921 -3.21574 0.94366 3.57645 1.54955 1.03548 1.90372 1.38109 0.32864 4.02802 Kurtosis 4.26777 2.68927 3.32148 6.22829 19.8776 3.99116 19.13586 5.45355 3.91697 4.97288 5.09246 1.89003 23.74210

Jarque-Bera 52.0364 8.21245 6.52137 59.3317 1549.54 21.5858 1479.76 74.2157 24.3659 87.3466 57.0381 7.90425 2351.88 Probability 0.00000 0.01647 0.03836 0.00000 0.00000 0.00002 0.00000 0.00000 0.00001 0.00000 0.00000 0.01921 0.00000

Sum 11.5164 1374.73 2.16475 3.15734 82.5077 35.4744 286.851 121.967 20.7181 16.7682 0.56611 37.8421 3.44916 Sum Sq Dev 2.32307 35.4288 0.01974 3.44931 39.0698 2.73793 654.797 95.4683 1.29435 10.5391 0.00145 4.27252 0.01144

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Table 4: Data Descriptive Statistics for 2008

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Table 5: Data Descriptive Statistics for 2009

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Table 6: Data Descriptive Statistics for the Whole

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PART 5: RESEARCH METHODS

In this paper, multivariate linear regression analysis is employed to explore the relationship between foreign ownership and firm characteristics The estimated equation is a standard linear regression model as follows:

t t

In the second approach, we use panel data regressions The panel data analysis allows

us to take advantage of both the cross-sectional and time series characteristics of our data set

To ensure the validity of the results, we also conduct several robustness checks Firstly,

we run the above regressions with different year In addition, we also consider whether foreign investors favor a specific industry in Vietnam stock market by allowing dummy variables to proxy for industry

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PART 6: EMPIRICAL RESULTS

Table 7 to table 10 reports the correlation coefficient matrix between foreign ownership and firm characteristics for the data set At first glance it can be seen that foreign ownership positively correlates with firm size, book-to-market ratio and current ratio Foreign ownership mainly correlates in positive relationship with previous return, return on equity and export rate However, foreign ownership negatively correlates with dividend yield, leverage ratio, liquidity, concentration and volatility of return The correlations of foreign ownership and beta are mixed The relations are positive in

2007 and the whole period, while in 2008 and 2009, they are negative

In this section, we discuss our regressions results on the relationship between foreign ownership and other firm attributes

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Table 7: Correlation Matrix for 2007

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Table 8: Correlation Matrix for 2008

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Table 9: Correlation Matrix for 2009

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Table 10: Correlation Matrix for the Whole sample

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Table 11 represents the results of multiple regressions when we run the model for each year from 2007 to 2009 The dependent variable is foreign ownership (FOWN) The independent variable is one of the firm’s characteristics, including firm size (SIZE), dividend yield (DIVY), previous return (RETU), beta (BETA), book-to-market ratio (BMAR), current ratio (CURR), leverage ratio (LEVR), return on equity (ROE), export rate (EXPR), liquidity (TOVR), concentration (CONC) and volatility of return (VOLR) The findings are as follows The coefficients of firm size measure are positive and significant in the studied period This finding supports the hypothesis of Merton (1987) that investors hold shares in firms with which they are familiar and that investors are more likely to be familiar with large firms This finding is also consistent with previous studies (Kang & Stulz 1997; Lin & Shiu 2003) Foreign investors are also likely to favor firms with lower dividend yield as the coefficients of dividend yield are all negative, but only the year of 2009 is significant These finding are consistent with those of Dahlquist

& Robertsson (2001) Foreign investors prefer to hold shares of firms with low leverage which is almost significant in the studied period, except for the year 2007 In addition, the coefficients for concentration are all negative and significant indicating that foreign investors tend to avoid firms with dominant shareholders In other words, foreigners seem

to attach significant importance to their influence in the firm Foreign investors are also not fond of the firms with high volatility of return which is all negative and statistically significant in almost periods

Foreign investors seem to have no preference for firms with high liquid stocks and firms with high exports with negative returns in almost regressions This is different from the finding of previous research in other markets (Dahlquist & Robertsson (2001) and Lin & Shiu (2003))

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The coefficients of beta measure are positive in all regression but not significant The book-to-market and current ratio measures are also insignificant in the each of three years Foreign investors seem put no favor in the firms with low book-to-market, high current ratio and high return on equity

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Table 12: Panel regression results

Period fixed (dummy variables)

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Table 12 reports the panel data regressions Firm size is positive and statistically significant, except for the cross-sectioned fixed This confirms that foreign investors in Vietnam have preference for large firms Dividend yield measure is negative in most regressions and not statistically significant The same to previous returns and beta measures which are positive even though not significant

Book-to-market measure is positive and statistically significant at the 1% level It is also

of particular note that foreign investors invest less in high current ratio firms This finding contrasts with the result of Dahlquist & Robertsson (2001) Return on equity measure is positive in all regressions but not significant

Foreign investors invest more in firms with low debt as leverage measure enters the regressions with negative coefficients and significant Our result is similar to the finding

of Dahlquist & Robertsson (2001)

The coefficients of liquidity measure are negative and statistically significant except for the cross-sectioned fixed regression Foreign investors do not show a preference for high liquid stocks This finding may indicate that when foreign investors invest in Vietnamese firms, they tend to hold stocks in a long term High ownership may make foreign investors corporate insiders In addition, foreign investors employ buy-and-hold strategy and this reduces the need for frequent trading for price discovery

Moreover, concentration measure is negative and significant in all regressions This is consistent with the theory stating that foreign investors in Vietnam prefer to invest in firms where they can have influence This might be driven by the fact that most of the foreign investors in the Vietnamese market are institutional investors with the buy-and- hold strategy

Besides, it appears that the foreign investors do not prefer the stock with high volatility of return This measure is negative in all regression and significant at 1%