Summary of doctoral dissertation finance banking transparency and information disclosure of listed companies on the vietnam stock market

The studying on effects of information transparency and disclosure on cost of capital, profit, and firm value of listed companies on Vietnam’s Stock Exchange market VSEM is a new topic i

MINISTRY OF EDUCATION AND TRAINING

THE RESEARCH WAS COMPLETED AT

CANTHO UNIVERSITY

Supervisor : Assoc Prof Trương Đông Lộc

The dissertation will be defended before the council of the school level at:

……hour to … hour , date month year 202

Opponent 1:

Opponent 2:

Learn about the dissertation in the library:

- Learning Resource Center – CanTho University

- Vietnam National Library

LIST OF PAPERS REALTED TO THE DISSERTATION

1 Le Xuan Thai and Truong Dong Loc, 2019 The Effects of

Corporate Governance and Financial Factors on the Company’s Level of Transparency and Information Disclosure: Empirical

Evidence from Vietnam’s Stock Market Journal of Trade Science, 130: 48-56

2 Le Xuan Thai and Truong Dong Loc, 2019 The Effect of Transparency and Disclosure on Cost of Equity of Listed Companies: Empirical Evidence from Ho Chi Minh Stock

Exchange Journal of economics and development, 265: 66-74

3 Le Xuan Thai and Truong Dong Loc, 2019 The Effect of Transparency and Disclosure on Performance of Listed

Companies on Ho Chi Minh Stock Exchange CanTho University Journal of Science, 55 (Economics): 23-30

4 Le Xuan Thai and Truong Dong Loc, 2019 Effects of Corporate Disclosure and Transparency on Firm Performance of

Companies Listed in the Vietnamese Stock Market Journal of Trade Science, 132: 30-40

CHAPTER 1: INTRODUCTION

1.1 REASON FOR CHOOSING THE TOPIC

Asymmetric information on the stock exchange market of listed companies leads to two common consequences: adverse choices and moral hazard; distorting the economic entities’ decision in the market may cause collapses on stock exchange market For investing capital in listed companies on the stock exchange market, transparency of information for investors has become more critical and decisive The index of information transparency and disclosure of listed companies is a measure of the trustworthiness of listed companies, which reduces information asymmetry between investors and listed companies The studying on effects of information transparency and disclosure on cost of capital, profit, and firm value of listed companies

on Vietnam’s Stock Exchange market (VSEM) is a new topic in Vietnam

Information transparency and disclosure of listed companies are an important criterion to help investors assess risk levels to make appropriate investment decisions Karim et al., (2006) supposed that the higher

of disclosure was, the less the asymmetric information between investors and listed companies was So far, several studies have developed disclosure indecies based

on the corporate governance score (CGS); and which identified some factors that affected on disclosure level

of listed companies on VSEM (Ngo Thu Giang and Dang Anh Tuan, 2013; Pham Ngoc Toan and Hoang Thi Thu Hoai, 2015) The dissertation has built an index of information transparency and disclosure based on the criteria set of Standard and Poors (S&P), legal regulations promulgated in Vietnam (Circular 155/2015-

TT BTC)

According to asymmetric information theory and empirical evidences, the higher disclosure level is, the less information asymmetry between investors and company is, the disclosure reduces the risks of investors The studies of Iatridis (2008), Ehsan and Darabi (2015) showed that the level of disclosure was negatively correlated with the cost of equity of the listed firms According to agency theory, when the situation of information asymmetry is reduced, the agency costs would be decreased The higher information transparency and disclosure level is, the higher the business efficiency

of the listed companies is Patel and Dallas (2004), Bushman and Smith (2003), Stiglbauer (2010) found a positive correlation between transparency and disclosure degree and firm performance of listed firms Up to now, there is not any research on the impact of information transparency and disclosure level on the cost of equity and firm performance of the listed companies according

to transparency and disclosure index based on S&P items

on VSEM For the needs to assess the influences of information transparency and disclosure of the listed companies on VSEM, the dissertation has conducted the research on "Information transparency and disclosure of the listed companies on Vietnam Stock Exchange market"

1.2 RESEARCH OBJECTIVES

1.2.1 General Objectives

The general objectives of the dissertation are to identify the factors affecting information transparency and disclosure of listed companies, to analyze the effects

of information transparency and disclosure on the cost of equity and performance of the listed companies on

Vietnam’s Stock Exchange market

1.2.2 Specific objectives

For achieving the general objectives, the specific objectives of the dissertation includes: (i) Develop a set

of information transparency and disclosure criteria to evaluate the listed companies on VSEM; (ii) Identify factors affecting information transparency and disclosure

of the listed companies on VSEM; (iii) Analyze the impact of information transparency and disclosure on the cost of equity of the listed companies on VSEM; (iv) Analyze the effects of information transparency and disclosure on the firm performance of the listed companies on VSEM

1.3 SCOPE OF THE RESEARCH

1.3.1 Research contents

(i) Based on the theories and empirical evidences, the dissertation establishs a model to identify the factors affecting information transparency and disclosure of listed firms, and the effect of information transparency and disclosure on the cost of equity and performance of the listed firms on VSEM (ii) The dissertation features information of the listed firms on VSEM (iii) The dissertation analyzes the factors affecting information transparency and disclosure of listed firms, and the effect

of information transparency and disclosure on the cost of equity and performance of the listed firms

1.3.2 Research objects

The objects of the dissertation are the factors affecting

on information transparency and disclosure, and the effect of information transparency and disclosure on cost

of equity and performance of the listed companies on VSEM

1.3.3 The scope of space and time

The dissertation studies the issues related to joint stock companies listed on Vietnam Stock Exchange Market, including Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HSE) Data has been used in the dissertation colleted in website of State Securities Committee from year 2014 to year 2016

CHAPTER 2: THEORETICAL AND

LITERATURE REVIEW

2.1 SOME CONCEPTS USED IN DISSERTATION 2.1.1 Disclosure

In the stock exchange market, disclosures are the acts

of transfering information to groups of all participants on the stock exchange market; information disclosure can be carried out in many forms: reports, printed newspapers, video news, newsletters, magazines, websites, etc The listed companies notify the public with the information related to their companies, market situation, and operations of the companies

2.1.2 Information transparency and disclosure

Information disclosure of the listed companies must ensure the important characteristics: regular and duly, fullfill, reliable, accurate, easy to understand, relevant, detailed, and verified Information transparency and disclosure are always go together, ensuring integrity, completeness, clarity, honesty and timeliness Therefore, the measurement of information disclosure of the listed companies on the stock exchange market must include information transparency and disclosure of the listed companies for protecting investors against the information asymmetry situation on the stock exchange market

2.1.3 Cost of equity (CE)

The cost of equity is the required profit of shareholders when they invest capital in a company's stock, and it is tied to the risk of the listed companies’ stock The cost of equity is determined by the capital asset pricing method (CAPM), used to measure the impact of information transparency and disclosure on the cost of equity in this dissertation Several studies showed that the capital asset

pricing model (CAPM) was considered to be the most suitable in determining the cost of equity associated with stock risk implemented information disclosure on the stock market (Graham and Harvey, 2002) The cost of equity of the company i (Rei) is calculated as follows:

Rei = Rf + βi (Rm - Rf)

In which:

* Rf: risk-free rate

* βi: market risk of stock i

* Rm: market rate of return

2.1.4 Firm performance

The performance of the listed companies is measured by the return on assets ratio (ROA) and return on equity ratio (ROE), which are commonly used to determine the firm performance in investments

* Return on equity ratio

The return on equity ratio (ROE) is used to determine the efficiency of using the equity of a listed company, calculated by the following formula:

ROE ratio = Net profit / Equity

* Return on assets ratio

The return on assets ratio (ROA) is used to determine the profitability of a listed company’s assets, calculated by the following formula:

ROA ratio = Net profit / Total assets

2.2 THEORETICAL REVIEW

2.2.1 Asymmetric information theory

The theory of asymmetric information (Akerlof, 1970) explains the situation of asymmetric information in transactions when one party has more or more fully information, participating in a transaction, and the other party has little information At that time, the price of products is not the equilibrium price of the market, and it

may be too low or too high Information asymmetry on the stock exchange market is a phenomenon that information is not provided fully and duly, and is not easily accessible when a party participating in a transaction has more information and got earlier than the other party When information asymmetry frequently happens on the stock exchange market, shareholders will

be put at a adverse selection in trading The asymmetric information theory is used to explain the influence of corporate governance on the level of information transparency and disclosure of listed companies; and used to explain the effect of information transparency and disclosure on cost of equity and firm performance of listed companies in the following hypotheses

2.2.2 Signal theory

Signal theory was developed by Spence (1973) from the theoryof information asymmetric of Akerlof (1970), and used by Ross (1977) to explain the publication of information in the listed firms’ report Information disclosure is one of the means of signalling A listed company publishes more information to signal to shareholders that it is better managed than other listed companies in the market Signalling theory is used to explain the impact of information transparency and disclosure on cost of equity and firm performance of the listed companies in the following hypotheses

to explain the influence of the factors such as Chairman

of the Administration Board cum Director General, Board size, independent members of the Administration Board, ownership structure, firm size, leverage, profitability, auditing to the level of information transparency and disclosure in the following hypotheses

2.2.4 Stewardship theory

The stewardship theory (Donaldson and Davis, 1991) showes a strong relationship between managers and the success of the company, and supposes that the interests

of shareholders will be maximized if the Chairman of Administration Board concurrently holds the position of Chief Executive Officer This theory explains that the concurrent assumption helps to increase disclosure supervision and reduce operating errors

2.2.5 Transaction cost theory

The transaction cost theory (Williamson, 1979) considers transaction cost to be a focus of economic researchs The theory of transaction cost explains that most things can

be rationalized by paying an appropriately specified transaction cost as well as considering the effective processing of information when trading is an important concept

2.2.6 The relation among disclosure, cost of equity, and firm performance

The propositions of agency theory provide a fundamental argument about the relations between the owner and agent, as well as disclosure and cost of equity, firm performance Proposition (1) concludes that the disclosure of listed firm from the agent aims at informing the owner that their activities are mainly for the benefit

of shareholders Proposition (2) indicates that when the information is publicly disclosed and transparent, the

owner of listed firm can verify that the agent’s acts are really for the benefit of shareholders Proposition (3) indicates that the information disclosure system is an effective solution to reduce information asymmetry between the owner and the agent, and positively influence the control of the agent’s behavior

Cheynel (2013) provided a theory of the relations among disclosure, cost of equity, and firm performance:

- When information is disclosured more and more from the listed companies, the cost of equity of the listed companies is decreased more and more

- When information asymmetry is reduced among the parties, the listed companies can reduce the cost of equity and increase the firm performance

2.3 PREVIOUS EMPIRICAL STUDIES

2.3.1 Studies of disclosure index in the world

The listed companies’ disclosures in the world were showed through on the following indicators: Corporate Governance Score (OECD, 2004); Transparency and Disclosure Index (TDI) of Standard and Poors (Patel, 2002); Information Disclosure and Transparency Rankings System (SFI, 2006); Governance and Transparency Index of Singapore (2012) The above indicators aim at the information transparency and reducing information asymmetry between investors and company managers

2.3.2 Studies disclosure index in Vietnam

Le Truong Vinh and Hoang Trong (2008) were the first pioneers to study the information transparency and disclosure of the listed companies at HOSE Next, Gray Tower, Kelly Anh Vu, and Glennda Scully (2011) at Curtin University, Australia had used the corporate governance score set to establish the "VnDI" disclosure

index with 84 questions and to research on 45 listed companies at HOSE and HNX in year 2008

Ta Quang Binh (2012) studied the level of disclosure of

199 listed companies on VSEM in year 2009 The set of questionaire criteria was established based on the Enterprise Law year 2005 and Securities Law year 2006 Hieu and Lan (2017) applied the criteria set of Tower et al., (2011) to establishVietnam’s voluntary disclosure index with 42 questions based on the Circular no 52/BTC/2012 on The disclosure of the listed companies for researching 205 listed companies on VSEM

Truong Dong Loc and Nguyen Thi Kim Anh (2016) developed a set of transparency and disclosure indecies based on TDI of S&P (2002) with 53 criteria and assessed 278 listed companies on HOSE in year 2014

Le Thi My Hanh (2015) studied the transparency of financial information of 178 listed companies on HOSE

in years 2011-2012 The Linker scale method has been used to score 13 criteria on the transparency of financial information of the listed companies

There is afew study on the effects of disclosure index on cost of equity, firm performance and profitability of listed companies in VSEM

2.3.3 Factors affecting the transparency and disclosure of the listed companies

* Corporate governance: Cheung et al., (2007); Zhang and Li (2008); Andrade et al., (2014) pointed out that corporate governance characteristics are closely related to the disclosure level The composition of the Administration Board has a significant influence on the informtion transparency and disclosure of the listed companies On Vietnam Stock Exchange Market, Ngo Thu Giang and Dang Anh Tuan (2013), Nguyen Thi

Phuong Hong, and Le Hoang Trung (2016) found a connection between the company characteristics and the disclosure activities of the listed companies Disclosure is better done at listed companies with independent management between the Board of Directors and the Board of Administration

* Corporate size: Stiglbauer (2010); Dang Ngoc Hung (2016), Nguyen Thi Phuong Hong, and Le Hoang Trung (2016) pointed out that firm size is positively correlated with the information transparency and disclosure of the listed companies

* Ownership structure: Stiglbauer (2010) also indicated a positive correlation between ownership structure, information transparency of corporate governance and firm performance The disclosure levels of the listed companies are influenced by management ownership, family ownership, state ownership, foreign ownership (Fan and Wong, 2002; Eng and Mak, 2003; Cheng and Courtenay, 2006)

* Out-side control: Many studies concluded that auditing company had affected the level of financial disclosure of listed companies (Dang Ngoc Hung, 2016; Nguyen Thi Phuong Hong and Le Hoang Trung, 2016)

* Legal system: The legal system is an important cause that influence on the quality of information transparency and disclosure of the listed companies on VSEM (Nguyen Thi Hai Ha, 2011) Law regulations on disclosure are the compulsory basis that the listed companies had to implement and comply with World Stock Exchange Markets

2.3.4 Impact of transparency and disclosure on the cost of equity of the listed company

The effect of asymmetric information on the cost of equity based on financial economic theory is a relationship between yield and risk Information asymmetry increases investment risks; therefore, investors require higher yields (increase cost of equity) Barry and Brown (1985) had concluded that improving disclosure level can reduce the cost of equity by limiting the risk of portfolio diversification inability Verrecchia (1982) found that information transparency reduced the information asymmetry level and agency cost, thereby it decreased cost of equity as well There are two types of the cost of equity that are reduced due to information transparency, including increasing market liquidity by reducing transaction cost (Amihud and Mendelson, 1986; Diamond and Verrechia, 1991) and reducing information risks to investors (Coles et al., 1995) Yang and Li (2013); Khlif et al., (2015) concluded that the disclosure inversely affected to the cost of equity of the listed companies

2.3.5 Impact of information transparency and disclosure on the performance of the listed company

Aksu and Kosedag (2005) illustrated that the listed companies acquiring high transparency and disclosure index often achievied highly profitable Research by Stiglbauer (2010) shown that the information transparency in corporate governance had a positive correlation with firm performance Sharif and Lai (2015) concluded that the disclosure was proportional to the profit of the listed companies

Research by Ngo Thu Giang and Dang Anh Tuan (2013); Dinh Bao Ngoc and Nguyen Chi Cuong (2016) concluded that information transparency and disclosure are proportional to the profit of the listed companies in VSEM

2.4 Conclusion

First, the information transparency and disclosure of the listed companies are strictly related when the liested companies discloses its information on World Stock Exchange Market and Vietnam Stock Exchange Market Second, the basic theories to explain the factors affecting the information transparency and disclosure of the listed companies, and the impact of the information transparency and disclosure on the cost of equity and performance are asymmetric information theory, agency theory, and signal theory Third, the most relevant empirical studies and economic theories reviewed in the dissertation provide a basis for explaining the hypotheses set out in the following chapter

CHAPTER 3: METHODOLOGY

3.1 DATA COLLECTION METHODS

The dissertation’s sampling method is to study all listed companies (at least 5-year listed) on HOSE and HNX (except UpCom) According to the collection results, 484 companies are selected with consecutive data by years from 2014 to 2016; which includes 271 listed companies

on HOSE and 213 listed companies on HNX There are

1452 samples being observed Research data for analysis are the annual report of the listed companies; annual, semi-annual, and quarterly financial statements, disclosure reports of the listed companies at the State Security Commission, HOSE, and HNX and the website

of the listed companies

3.2 SET UP CRITERIA OF INFORMATION

TRANSPARENCY AND DISCLOSURE

3.2.1 Basis for setting up criteria set for evaluating transparency and disclosure

The dissertation uses the basis for setting up a set of the disclosure indexes of the following three models: (i) disclosure according to the Corporate Governance Score; (ii) transparency and disclosure index according to Standard and Poors (2002); (iii) management and transparency index and (iv) legal framework for disclosure of the listed company on Vietnam Stock Exchange Market (Circular 121/2012/TT-BTC; Circular 200/2014/TT-BTC; Circular 155/2015/TT-BTC; Decree 108/2013/ND-CP; Decree no 105/2013/ND-CP)

3.2.2 Theoritical Framework

Due to the limitation of the number of pages, the construction of a set of the transparency and disclosure criteria of the listed company is not presented in summary

Figure 3.4: Theoritical framework of the dissertation 3.3 DATA ANALYSIS

The dissertation uses descriptive statistics to describe the governance and financial characteristics of the listed

companies To determine the impact of factors on the information transparency and disclosure and the impact

of information transparency and disclosure on cost of equity and performance, the random effects model (REM) and fixed effects model (FEM) are used to estimate at models (3.4), (3.8) and (3.12) in the dissertation Hausman test is laterly used to find an appropriate estimation model However, the estimation results from these two estimations cannot be effective due to the endogenous phenomena in the models Two-stage least square method (2LSL) and Generalized Method of Moments (GMM) are used to overcome the endogenous phenomenon when it appears in the models Some tests named Sagan, Hansens’J and Wu-Hausman were used to determine the validity of the instrument variables and eliminate the endogeneity in the regression models

3.4 Experimental research model

3.4.1 Factors affecting information transparency and disclosure of the listed companies

The dissertation develop an equation to determine effects

of the independent variables in the model 3.4, which are the disclosure of in the past, the members of the Administration Board, the concurrent assumption of Administration Board’s Chairman of Administration Board cum Director General, the number of independent members of Board, firm size, ROA, and Tobin Q

The variables of numbers of Directors on Board, leverage, ownership structure, and listing place are used

as instrumental variables of the firm size variable in model 3.4

Model 3.4

it it it

it

it it

it t

it

TOBINQ ROA

Fsize

Mem Ind Dual

BSize TDI

5

4 3

2 1 ,

Table 3.6: Independent variables in model 3.4

mark TDI Transparency and disclosure index

BSize Members of the Administration

Board

+

Dual Dummy variable, is 1 if the

chairman of company cum general

director, is 0 if otherwise

-

IndMem Independent members in Board + FSize Firm size (logarit of total asset) +

TOBINQ Market value per Book value of

firm (time)

+

3.4.2 Effect of the information transparency and disclosure on the cost of equity of the listed companies

The dissertation develop an equation to determine effect

of transparency and disclosure index on the cost of equity; it has some variables including transparency and disclosure index, management ownership, firm size, leverage

Variables, such as independent members in Board, listed years, foreign ownership, and listing place, are used to overcome the endogenous phenomena in the estimation models of 2SLS and GMM in model 3.8

Model 3.8

it it it

it t

CE 1 , 2 3 4 