Summary of Doctoral thesis: The relationship between dividend changes and profitability of listed companies on Vietnam stock market

The research objective of the thesis is to test the one-way relationship between dividend changes and profitability in the next 2 years of listed companies on Vietnam''s stock market; Experiments on dividend signals on Vietnam''s stock market.

INTRODUCTION

1 Necessity of research topic

Regarding the analysis of common stocks, dividend is a topic of major

concern in corporate finance According to Graham and Dodd (2017), the

dividend payout ratio and dividend payment history are factors involving in the

process of valuation of common stocks Many domestic and foreign studies

analyzed the impact of dividends on corporate value, as well as on stock prices in

the market These studies mainly analyzed annual dividend payout ratios

Besides, some other researchers focused on analyzing the change in dividends of

enterprises The signaling theory of dividends assumes that dividend changes

contain information about the profits and future profitability of enterprises,

managers use changes in dividend to convey information about future prospects

to investors Many scholars around the world spent time studying and clarifying

this issue However, so far the question of whether changes in dividend mean a

good signal about the future profitability of companies is still controversial

Lintner (1956) stated that managers are willing to pay higher dividends

when their current profits are large enough to pay cash dividends Bhattacharya

(1979), Miller and Rock (1985), John and Williams (1985) provided theoretical

models of dividend signaling These models showed that when managers

forecast better results, they will send this signal to the market by paying

dividends

In the world, there have been a number of studies analyzing the

correlation between changes in dividend and profitability of enterprises which

has becoming a topic attracting attention of many subjects Empirical results

provide different conclusions, divided into 2 basic groups: The first group

supports the viewpoint that dividend changes reveal the future profitability of

enterprises; the second group does not support this view and believes that the

increases or decreases of dividend are not linked with changes in future

earnings Studies in the first group include: Healy and Palepu (1988), Nissim

and Ziv (2001) implemented in the US Stock Exchange showing that dividend

changes are positively correlated with changes in profitability in two

subsequent years, Kato et al (2002) investigating the Japanese stock market, Choi et al (2011) researching on the Korean stock market also found a positive relationship between dividend changes and changes in profits one year after the dividend change, Chinpiao Liu and An-Sing Chen (2015) studying the Chinese stock market showed that dividend changes is a sign of prospects for return on equity

On the other hand, many studies have found little or no correlation between dividend changes and profitability of enterprises Typical examples include: DeAngelo (1996), Benartzi et al (1997), Grullon et al (2005), Lie (2005) did not find a significant relationship between dividend changes and changes in earnings, Jensen et al (2010) proved that the profits of enterprises will bounce back after reducing dividends

In summary, there have been many different conclusions when predicting the enterprises’ profitability based on information about dividend changes Moreover, these studies focused on changing of dividends in cash without considering the possibility of an enterprise buying back shares during the year

of paying dividends in cash, because repurchasing shares is a form of profit distribution among shareholders In addition, many researchers have demonstrated that ownership structure affects the dividend payment of listed companies Therefore, the correlation between dividend changes and profitability may vary according to ownership structure However, so far there have been no studies clarifying dividend signaling in the form of ownership and

in the case of enterprises repurchasing shares in the market

In Vietnam, many studies on dividends, but so far there has been no research on the effect of dividend changes on the forecast of profitability of the following years of listed companies on the stock market, which can provide useful information for investors and business managers

Based on the above reasoning and practice, the author has chosen the

topic: “The relationship between dividend changes and profitability of listed companies on Vietnam stock market”

2. Research objectives

This study aims to investigate one-way relationship between dividend

changes and profitability of the next 2 years of listed companies on Vietnam

stock market, thereby finding empirical evidence on dividend signaling on

Vietnam Stock Market Specific objectives include:

- Evaluating current status of dividends, dividend changes and profitability

of listed companies on Vietnam stock market in the period 2008-2017

- Examining one-way relationship between dividend changes and

profitability in 2 subsequent years of listed companies on Vietnam stock

market

- Examining one-way relationship between dividend changes and

profitability in 2 subsequent years of state-owned companies and privately

owned companies

- Examining one-way relationship between dividend changes and

profitability in 2 subsequent years of companies repurchasing stocks in the

market during the dividend change year

Based on the above objectives, the research develops the following research

questions:

(1) What is the actual situation of dividends, dividend changes and

profitability of listed companies on Vietnam stock market in the period

2008-2017?

(2) Are dividend changes a signal of profitability for the following years of

listed companies on Vietnam stock market?

(3) How does the one-way relationship between dividend changes and future

profitability vary between the state-owned companies and privately owned

companies

(4) How does the one-way relationship between dividend changes and future

profitability vary between companies repurchasing stocks and companies not

repurchasing stocks?

(5) What are the recommendations for investors, business managers and state

agencies based on the research results?

3 Research subjects and scope

3.1 Research subjects

The research subjects are dividend changes and one-way relationship

between dividend changes and profitability in 2 years subsequent to the dividend change year (year 1 and year 2) of listed companies on Vietnam stock market However, this research only focuses on companies paying dividends in cash

3.2 Research scope

- Space: Non-financial companies listed on Ho Chi Minh Stock

Exchange and Hanoi Stock Exchange

- Time: The period 2008-2017

4 Contributions of the research

Theoretical contributions

Based on the signaling theory in general and dividend signaling theory in particular, the thesis systematized the theoretical basis of one-way relationship between dividend changes and future profitability; analyzed and clarified the difference between the developed stock market and the frontier stock market Whereby, the thesis has established and tested the hypothesis of dividend signaling on the frontier stock market in Vietnam The empirical evidence obtained from the study is a significant source of information in terms of dividend signaling theory that other developing countries can refer to

(i) Is there a relationship between dividend changes and future profitability

of firms?

(ii) Are there any differences in the relationship between dividend changes and profitability of state-owned companies and privately owned companies? (iii) Does repurchasing shares in the market in the dividend change year reduce the content of information from dividend signaling?

Moreover, the thesis has added 3 control variables into the model to test the above relationship which are all statistically significant The 3 variables are: Enterprise size, investment opportunities and growth rate Finally, the thesis also contributed to providing evidence to support the signaling theory of dividend in emerging markets like Vietnam

Practical contributions

The research sample includes: 657 observations of dividend increases, 893 observations of dividend decreases and 643 observations of no-change

dividends of non-financial companies listed on Ho Chi Minh Stock Exchange

and Hanoi Stock Exchange in the period 2008-2017 The thesis has provided

convincing evidence of the causal relationship between dividend changes and

profitability in 2 subsequent years in Vietnam stock market – which has not

been proved by any prior research In general, on Vietnam stock market,

dividend increases imply that the profits in one following year of the company

will increase, dividend decreases indicate that the profits in one following year

of the company will decrease, but the decreases in profits will be higher than

the increases in profits However, the signaling theory is not completely

confirmed with enterprises of different sectors, enterprises categorized by

state-owned and privately state-owned factors, or enterprises that buy back/not buy back

shares in the dividend change year Specifically: State-owned enterprises do not

support signaling theory of dividends; with companies changing dividends at

the same time repurchasing stocks in the market, research does not find any

evidence of the relationship between dividend changes and future profitability

These findings are of practical significance to investors when predicting

the profitability of enterprises in 2 subsequent years based on signs of dividend

changes In addition, research is basis for enterprises to provide more

reasonable dividend policies, on the basis of balancing the purpose of business

development and the psychology of shareholders; as well as proposing some

recommendations for the State management agencies in issuing regulations on

information disclosures of dividends

5 Research structure

Apart from the table of contents, the list of abbreviations, the list of tables,

preface, the list of references and appendices, the thesis has 5 chapters

CHAPTER 1:

THEORETICAL FOUNDATION AND LITERATURE REVIEW ON

THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND

PROFITABILITY OF ENTERPRISES 1.1 Theoretical foundation on the relationship between dividend changes

and profitability of enterprises

1.1.1 Dividend

1.1.1.1 Definition of dividend, dividend policy

Dividend is the share in the profits after tax of a joint-stock company divided to the current shareholders

Dividend policy is the policy related to decisions on distribution of profits after taxes for existing shareholders, form and dividend payout ratio

1.1.1.2 Forms of dividend payment of joint-stock companies

Dividends can be paid in cash, by shares of the company or by other assets as stipulated in the company's Charter

1.1.1.3 Dividend payment procedures 1.1.1.4 Models of paying dividends of joint-stock companies 1.1.1.5 Dividend ratios

Dividend per Share (DPS) DPS = Total dividends paid/Number of shares Dividend payout ratio

Dividend payout ratio = Dividends per share/ Earnings per share Dividend Yield

Dividend yield = Dividends per share / Market value per share

1.1.2 Definition of profitability and profitability ratios

1.1.2.1 Definition of profitability

Profitability reflects the amount of profits that an enterprise receives per unit of cost, per unit of input or per unit of revenue

1.1.2.2 Profitability ratios

- Return on Sales (ROS)

- Return on Assets (ROA)

- Return on Equity (ROE)

1.1.3 Theories on the relationship between dividend changes and profitability

of enterprises

1.1.3.1 Information asymmetry and signaling theory

According to Kyle (1985), information asymmetry on the stock market occurs when one or more investors have their own information Kim and Verrecchia (1994) provided that information asymmetry occurs when a group

of investors has more public information about a company Signaling theory is

designed to reduce information asymmetry between senders and recipients of

information

1.1.3.2 Signaling theory of dividends

The signaling theory of dividends supposes that profit distributions such

as dividends contain good signals about an enterprise Based on dividend

signaling, investors can get information about the prospects of enterprises

through dividend decisions Specifically, dividend increases is a good signal of

the prospects of the company, the share price will increase and vice versa

The signaling theory and especially the signaling theory of dividends are

the foundation for the author to study the one-way relationship between

dividend changes and profitability in 2 subsequent years of enterprises on

Vietnam stock market

1.1.3.3 Other theories related to dividends

- Theory of Miller and Modiglani (M&M)

- The free cash flow theory

- The agency costs theory

- The risk averse theory

- The life circle theory of dividends

1.2 Literature review

1.2.1 Literature review of studies in the world

Table 1.1: The summary of empirical research results between dividend

changes and profitability in some countries in the world

Watt (1973) Weak correlation is found

Aharony and

Swary (1980)

- Positive correlation is found with increases in dividends

- Negative correlation is found with decreases in dividends

Healy and

Palepu (1988)

Earnings increase (decrease) at least one year after the first dividend payment (not paying dividend)

DeAngelo et - If profits and dividend decrease, profits in 2 subsequent

al (1992) years will decrease

- If profits decrease but dividend does not decrease, profits in 2 subsequent years will increase

Benartzi et al

(1997)

- An increase in dividend does not predict profits of the following year

- If dividends decrease, profits of the following year will increase

Fukada (2000) - If dividend increases, profits of the following years will

decrease

- If dividend decreases, profits of the following years will increase

Nissim and Ziv (2001)

Positive correlation is found between dividend changes and changes in profits 2 years after

Grullon et al

(2005)

- Positive correlation is found between dividend increases and changes in profits 2 years after

- No correlation is found between dividend decreases and changes in profits 2 years after

- Non-linear model does not support signaling theory Harada and

Nguyen (2005)

Positive correlation is found between dividend changes and changes in profits in the following years

Lie (2005) - If dividend is not paid, profits decrease next quarter, but

increase again in the following quarters

- If dividend decreases, profits do not decrease Jensen et al

(2010)

If dividend decreases, ROA increases after one year

Choi et al

(2011)

- Positive correlation is found between dividend decreases and changes in profits one year after

- No correlation is found with dividend increases

- Non-linear model does not support signaling theory Reza et al - Positive correlation is found between dividend

Researchers Results

(2014) increases and profitability in 2 subsequent years

- Positive correlation is found between dividend decreases and profitability in one subsequent year and negative correlation is found between dividend decreases and profitability in 2 subsequent years

Fairchild et al

(2014)

- Negative correlation is found between dividend decreases and changes in profits in one following year

- Negative correlation is found between dividend decreases and changes in ROA in 2 subsequent years Liu and Chen

(2015)

- No correlation is found between dividend changes and changes in ROE

- Negative correlation is found between dividend changes and changes in ROA in one subsequent year Kadioglu and

Ocal (2016)

No support is found for signaling theory of dividends

Deng et al

(2017)

Positive correlation is found between dividend rates and profits in one subsequent year

Source: compilation of the author

1.2.2 Literature review of studies in Vietnam

In Vietnam, there have been many studies on dividends However, these

studies focused on dividend rates and dividend policy So far, there has been no

research on the dividend changes of enterprises, especially the topic of the

relationship between dividend changes and profitability of enterprises or

verification of signaling theory of dividends on Vietnam stock market The

research in Vietnam on the topic of dividends mainly focused on the following

aspects:

Dividend policy

Impact of dividends on stock prices

Impact of dividends on operational efficiency of enterprises

Impact of ownership structure on dividend policy

CHAPTER 2:

CURRENT SITUATION OF DIVIDENDS, DIVIDEND CHANGES AND

PROFITABILITY OF LISTED ENTERPRISES ON

VIETNAM STOCK MARKET 2.1 Listed enterprises on Vietnam stock market

2.1.1 Number of listed joint-stock companies

By the end of 2017, there were 713 companies listed on HOSE and HNX

2.1.2 Sector classification of listed joint-stock companies

In this study, the sector classification in accordance with ICB level 1 of Stoxplus is applied with 10 sectors

2.2 Current situation of dividends of listed enterprises on Vietnam stock market

2.2.1 Dividend payment

Forms of dividend payment The statistics of companies paying dividends on Vietnam stock market in the period from 2008 to 2016 showed that paying dividends in cash is the most comment form of payment compared to stock dividends

The number of companies paying dividends in cash by ownership structures

In 2008, the proportion of state-owned enterprises paying cash dividends accounted for 81.58%, while privately owned enterprises paying cash dividends only accounted for 18.42% The proportion of cash dividends of state-owned enterprises tends to decrease, whereas the proportion of cash dividends paid by privately owned enterprises tends to increase rapidly

The number of companies paying dividends in cash by sectors The industrials has the largest number of companies paying cash dividends, followed by consumer goods and raw materials, especially, oil and gas and banking sectors have very small number of companies paying cash dividends

2.2.2 Dividend rates

The annual dividend rates of enterprises listed on Vietnam stock market

in the period of 2008-2016 are mainly from 1,000-2,000 VND/share From

2013 to 2016 the proportion of companies paying dividends below 1,000

VND/share increased compared to previous years The average dividend rates

of companies listed on Vietnam stock market from 2008 to 2016 were larger

than 1,500 VND The average dividend rate of privately owned enterprises is

usually higher than that of state-owned enterprises

2.2.3 Summary of the current status of dividend payment of listed companies

on Vietnam stock market during the period from 2008 to 2016

Firstly, cash dividends always accounts for a larger proportion of stock

dividends

large-scale companies with long operating time and stable growth

Thirdly, consumer goods is the sector that maintains high and relatively

stable dividends, banking is the sector with the largest dividend fluctuation

Fourthly, Enterprises in the real estate sector often choose to pay stock

dividends

2.3 Current situation of profits and profitability of listed companies on

Vietnam stock market during the period from 2008 to 2017

2.3.1 Profits of listed companies on Vietnam stock market

In 2008, the average profit was the lowest in the period 2008-2017, reaching

64.9 billion VND In 2009 and 2010, the business situation of enterprises has

improved In 2011 and 2012, Vietnamese enterprises fell into difficulties From

2013 to 2017, the business situation of enterprises had many changes, profits

increased again In 2017, the average profits was the highest in the period

2008-2017, reaching VND 230 billion, increased 23% compared to 2016

2.3.2 ROA and ROE of listed companies on Vietnam stock market during the

period from 2008 to 2017

In 2009, ROA and ROE were the highest during the period from

2008-2017 reaching 9.73% and 21.73% Since 2010, the performance of listed

companies on Vietnam stock market began to decline gradually and fall to a

lowest level in 2013 ROA and ROE of enterprises changed according to

ownership structures

2.3.3 Summary of the actual situation of the profits and profitability of listed

companies on Vietnam stock market in the period 2008 - 2017

Firstly, profits and profitability of Vietnamese enterprises in the period 2008-2017 fluctuated considerably

Secondly, the average profit of state-owned enterprises was lower than that of privately owned enterprises

Thirdly, the profitability of Vietnamese enterprises in the period

2008-2017 reached the highest value in 2009 and began to decline since 2010, and reached the lowest values in 2012 and 2013

2.4 Actual situation of dividend changes and changes in profitability of listed joint-stock companies on Vietnam stock market

2.4.1 Actual situation of dividend changes of listed joint-stock companies on Vietnam stock market

In the period 2008 - 2016, out of 2700 observations: 844 cases experiencing dividend increases (accounted for 31.26%), 1133 cases experiencing dividend decreases (accounted for 41.96%) and 723 cases experiencing no-change dividends (accounted for 26.78%) The results show that the proportion of enterprises listed on the stock market in Vietnam experiencing annual dividend changes (increases or decreases) is relatively high, accounting for 73.22%

2.4.2 Actual situation of changes in profits and profitability of listed joint-stock companies on Vietnam joint-stock market

Enterprises with dividend increases or no-change dividends often have increases in profits in the dividend change year and 2 subsequent years, but with enterprises reducing dividends, profits decrease in the year of decreasing dividends and one year after However, ROA and ROE of companies that increase dividends usually only increase in year 0, but tend to decrease in 2 subsequent years In contrast, with firms reducing dividends, ROA and ROE tends to reduce in years 0 and 1, but increase again in 2 subsequent years

CHAPTER 3:

METHODOLOGY 3.1 Research gaps

Firstly, there has been no research on this topic conducted in frontier

markets In Vietnam, there have been many research projects on dividends, but

so far there has been no study evaluating the relationship between dividend

changes and future profitability of listed companies on the stock market

dividend changes and future profitability of 2 groups of enterprises:

state-owned enterprises and privately state-owned enterprises

Thirdly, there has been no research examining the relationship between

dividend changes and future profitability in case companies repurchasing shares

at the year of changing dividend, thereby more accurately evaluating the

content of the signaling theory of dividends

3.2 Experimental research models on the relationship between dividend

changes and profitability of enterprises

3.2.1 The model of Benartzi et al (1997)

3.2.2 The model of Nissim & Ziv (2001)

3.2.3 The model of Grullon et al (2005)

3.3 Research hypotheses and research model on the relationship between

dividend changes and profitability of enterprises listed on Vietnam stock

market

3.3.1 Research hypotheses

Hypothesis H1: In Vietnam, dividend changes are positively correlated (+)

with the profitability in one subsequent year (T = 1) of listed companies on the

stock market

Hypothesis H2: In Vietnam, a decrease in dividend is negatively correlated (-)

with the profitability in two subsequent years (T=2) of listed companies on the stock

market

Hypothesis H3: In Vietnam, dividend changes along with not repurchasing

shares in the year of changing dividend is positively correlated (+) with the future

profitability of listed companies on the stock market

Hypothesis H4: In Vietnam, dividend changes along with repurchasing

shares in the year of changing dividend will decrease information on profitability

of listed companies on the stock market

3.3.2 Research model

In order to test the research hypotheses above, two models of Nissim and Ziv (2001) are applied:

MH1: (Et - Et-1)/B-1 = α0 + α1 DIV0 + α2ROEt-1 + εt

MH2: (Et - Et-1)/B-1 = α0 + α1DPC DIV0 + α2DNC DIV0 + α3ROEt-1 + α4(E0 – E-1)/B-1 + εt

Then, the model proposed by Choi et al (2011) is applied:

MH3: (Et - Et-1)/B-1 = α0 + α1 DIV0 + α2ROEt-1+ α3 DIV-1 + α4ROEt-2 + α5(E0 – E-1)/B-1 + εt

Next, nonlinear model of Grullon et al (2005) is applied:

MH4: (Et - Et-1)/B-1 = α0 + α1DPC DIV0 + α2DNC DIV0 + + (β1DFE0+β2NDFED0.DFE0+β3NDFED0.DFE0+β4PDFED0.DFE0)

+ (λ1CE0+ λ2NCED0.CE0+ λ3NCED0.CE0 +λ4PCED0.CE0) + εt

Finally, the regression model of Nissim and Ziv (2001) is extended by adding control variables in the model including: Enterprise size (SIZE), investment opportunities (MTB) and growth rate (GROW)

MH5: (Et - Et-1)/B-1 = α0 + α1DPC DIV0 + α2DNC DIV0 + α3ROEt-1 + α4(E0 – E-1)/B-1 + α5SIZE0+α6MTB0 +α7GROW0 +εt

In which:

t = 0 is the dividend change year, the research tests with t =1 and t =2 DIV0: the dividend change in year 0

Et: Earnings in year t after dividend change of enterprise i

Et-1: Earnings one year before year t of enterprise i

B-1: Book value of equity one year before the dividend change year ROEt-1: Return on equity one year before year t

DPC: A dummy variable which equals 1 if dividend increases ( DIV0>0) and equals 0 in other cases

DNC: A dummy variable which equals 1 if dividend decreases ( DIV0>0) and equals 0 in other cases

E0: Earnings of enterprise i in the dividend change year (year 0)

E-1: Earnings of enterprise i one year before the dividend change year DFE = ROE – E[ROE ], with E[ROE ] is the expected value of

NDFED0 (PDFED0) is a dummy variable which equals 1 if DFE0 is

negative (positive) and equals 0 in other cases

CE0 = (E0 – E-1)/B-1

NCED0 (PCED0) is a dummy variable which equals 1 if CE0 is negative

(positive) and equals 0 in other cases

SIZE0: enterprise size in the dividend change year

MTB0: Market value of share/book value of share in the dividend change

year

GROW0: growth rate of enterprise in the dividend change year

After conducting the above 5 research models, the Robustness check was

conducted with the dependent variable of change of return on assets (ROAt –

ROAt-1) Control variables include ROEt-1 and the lagged dependent variable

(E0 – E-1)/B-1 in the above models is replaced by ROAt-1 and (ROA0 – ROA-1)

3.4 Research data

The sample includes non-financial companies listed on Ho Chi Minh

City Stock Exchange and Hanoi Stock Exchange in the period 2008-2017

Data on dividends and financial ratios of non-financial companies listed on the

Vietnam stock market are taken from StoxPlus data

After collecting data on dividends and financial indicators of enterprises

in the research sample, the author calculated the value of dependent variables

(Et - Et-1)/B-1 and (ROAt – ROAt-1) with t=1 and t=2, independent variable is the

annual dividend change DIV0: DIV0 = (DIVi,0– DIVi,-1)/DIVi,-1

Finally, research data includes 657 observations of dividend increases,

893 observations of dividend decreases and 643 no-change observations

3.5 Methodology

In order to study the relationship between dividend changes and future

profitability of enterprises on Vietnam stock market, both qualitative research

and quantitative research methods are used Qualitative research is conducted

by evaluating the correlation between dividend changes and profitability

changes in the dividend change year (year 0) and the two subsequent years

(year 1 and year 2) of companies listed on Vietnam stock market Quantitative

research is performed with 5 regression models on the relationship between dividend changes and future profitability, Fixed Effects Model (FEM) and Random Effects Model (REM) based on panel data, with statistical software STATA14 However, Hausman test results show that FEM is more suitable than REM After that, the author detects autocorrelation, heteroscedastic errors and multicollinearity in the models The results show that both autocorrelation, heteroscedastic errors present in the models The cluster command in stata is used to overcome the autocorrelation and heteroscedasticity in the FEM

CHAPTER 4 TEST RESULTS OF THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND PROFITABILITY OF THE LISTED COMPANIES ON VIETNAM STOCK MARKET 4.1 Descriptive Statistics

In the case of dividend increases, the average growth rate of dividends is 65%, changes in profitability one year after dividend change have positive values, but the profits in 2 subsequent years are negative values In the case of dividend decreases, the average reduction rate of dividend is 52%, profit changes in one year after the dividend change have negative values, profit changes in 2 years subsequent to the dividend change In the cases of no-change dividends, profitability in 2 subsequent years has positive values Thus, the sample descriptive statistics have found evidence to support the signaling theory of dividends In addition, with enterprises increasing dividends, the ratios: ROA, ROE, MTB, GROW are all higher than those of enterprises decreasing dividends

4.2 Regression results

4.2.1 The regression results of the relationship between dividend changes and profitability in 2 subsequent years of companies listed on Vietnam stock market

4.2.1.1 Regression results of linear models

Regression results with data on Vietnam stock market according to linear models given by Nissim and Ziv (2001) and Choi et al (2011) (MH1, MH2, MH3)

show that beta coefficient of dividend changes has positive value and significance

levels at 1% and 5%, which means dividend changes have a positive effect on

changes in profitability 1 year after the dividend change When T = 2, there is a

negative and significant relationship between dividend decreases and the

profitability in 2 subsequent years of the enterprise (result of MH2), implying that

with firms decreasing dividends, the profitability in 2 subsequent years will increase

again

Thus, the results of empirical research support hypothesis H1: In

Vietnam, dividend changes have a positive correlation (+) with the

profitability in the first year subsequent to the dividend change of listed

companies on the stock market; in addition, it supports the hypothesis H2: In

Vietnam, dividend decreases have a negative correlation (-) with profitability

of 2 years subsequent to dividend decreases of listed companies on the stock

market These result are different from the research results of Nissim and Ziv

(2001) which supported the signaling theory with t = 1 and t = 2 on the US

stock market, Harada and Nguyen (2005) also supported the signaling

hypothesis and provided that dividend changes are positively correlated with

changes in profits in the following years on the Japanese stock market;

Grullon et al (2005) investigating the US stock market and Reza et al

(2014) studying the Chinese stock market supported the signaling theory of

dividends in case of dividend increases but found no evidence when dividend

decreases In contrast, Choi et al (2011) examined the Korean stock market

only found evidence of signaling theory in case of dividend reduction with t

= 1, but found no relationship between dividend increases and changes in

profits in the following years

Besides, the correlation coefficients of ROEt-1 in 3 models show that ROE of

the previous year has an adverse effect on changes in profitability of the following

year with T = 1 and T = 2

4.2.1.2 Regression results of nonlinear model (Model 4)

Regression results of nonlinear model of Grullon et al (2005) (MH4) are

similar to results of the last linear model of Nissim and Ziv (2001) (MH2)

4.2.1.3 Regression results of extended linear model (MH5)

The results of the extended linear model also support the hypothesis H1 and hypothesis H2 in Vietnam stock market The Beta coefficient of enterprise size (SIZE) is negative and significance level at 1% with T = 1 and T = 2, which indicates that enterprise size negatively affects the changes of earnings of enterprises in 2 years subsequent to the dividend change Beta coefficients of investment opportunities (MTB) and growth rate (GROW) are positive, but only significant when T = 1 Therefore, investment opportunities and the growth rate of enterprises in the dividend change year have a positive impact on forecasting the profitability of enterprises in one subsequent year

Based on the results of the above 5 models, the most complete and comprehensive research model on the one-way relationship between dividend changes and future profitability in Vietnam stock market is the extended linear model (MH5)

4.2.1.4 Results of the relationship between dividend changes and profitability

in 2 subsequent years by sectors

The regression results with 2 groups of data: (1) industrials and (2) the remaining sectors show that: The relationship between dividend changes and

future profitability or signaling dividends vary by sector

4.2.2 Results of the relationship between dividend changes and future profitability of state-owned enterprises and privately owned enterprises

The regression results of the relationship between dividend changes and profitability in 2 subsequent years when dividing data into 2 groups: state-owned enterprises (the percentage of shares owned by the State> 50%) and privately owned enterprises (the percentage of shares owned by the State = <50%) show a significant difference among two groups of enterprises Specifically, the state-owned enterprises do not support hypothesis H1 and hypothesis H2 Conversely, the privately owned enterprises strongly support the hypothesis H1 about signaling dividends in both cases of dividend increases and dividend decreases, in other words, dividend changes have a positive relationship with changes in profitability

in one subsequent year, and support hypothesis H2 that the profitability of

enterprises will increase again after 2 years subsequent to dividend

decreases

4.2.3 Results of the relationship between dividend changes and future

profitability: in case companies repurchasing shares and in case companies not

repurchasing shares during the year of the dividend change

When comparing the regression results of MH5 with 2 separate data sets: (1)

The enterprises change dividends and repurchase shares in the market during the

year of the dividend change; (2) The enterprises change their dividends and did

not repurchase shares during the dividend change year, hypothesis H3 is

supported: In Vietnam, dividend changes and not repurchasing shares are

positively correlated (+) with future profitability of listed companies on the stock

market At the same time, the hypothesis H4 is supported: In Vietnam, dividend

changes and repurchasing stocks will reduce the content of information about

future profitability of listed companies on the stock market These results

contribute to finding specific cases in favor of signaling dividends

4.3 Robustness analysis with dependent variable of changes of return on

assets

The model with dependent variable ROAt – ROAt-1 is rewritten as follows:

ROAt - ROAt-1 = α0 + α1DPC DIV0 + α2DNC DIV0 + α3ROAt-1

+ α4(ROA0 – ROA-1) + α5SIZE0+α6MTB0 +α7GROW0 + εt

The results of Robustness analysis with entire data

The study also found evidence to support the signaling theory of dividend

when changing dependent variable by changes in ROA These results are

different from the research results of Grullon et al (2005) on the US stock

market that there is a negative relationship between dividend changes and

changes in ROA in 2 years subsequent to the dividend change year Choi et al

(2011) concluded that dividend changes can only predict the changes in ROA in

one following year in case of dividend decreases, but there is no evidence

supporting the case of dividend increases

The results of Robustness analysis of state-owned enterprises and

privately owned enterprises

The case of dividend changes of state-owned enterprises, there is a

relationship between changes in ROA and dividend decreases In the case of privately owned enterprises, there exists a positive and significant relationship between changes in ROA with both dividend increases and dividend decreases when T = 1 and dividend increases are positively associated with changes in

ROA when T = 2

The results of Robustness analysis after controlling repurchase of shares in the market

Dividend changes and repurchasing shares in the year of dividend change

do not support hypothesis H1 Meanwhile, enterprises change their dividends and do not buy back shares in the market in the year of dividend change only

support the hypothesis H1 when they reduce dividends

When T = 2, dividend increases have positive relationship with changes

in ROA in 2 subsequent years, with a significance level of 10% Dividend decreases are negatively correlated with changes in ROA in 2 subsequent years but not statistically significant

CHAPTER 5:

CONCLUSION AND RECOMMENDATIONS 5.1 Conclusion

5.1.1 Summary of research results on the relationship between dividend changes and future profitability

5.1.1.1 With dependent variable (Et – Et-1)/B-1

The study found empirical evidence to support the signaling theory with

T = 1 on Vietnam stock market: dividend increases imply that the profits of the enterprises in one following year will increase, dividend decreases indicate that the profits of enterprises in one following year will decrease However, the decreases in profits are higher than the increases in profits

In addition, in companies with dividend decreases, the profitability will rebound after 2 years This result is contrary to the signaling theory

5.1.1.2 With dependent variable of changes in ROA (ROAt – ROAt-1)

The research results also found empirical evidence supporting the signaling theory of dividends when changing dependent variable to changes in