Tóm tắt luận án Tiến sĩ Financial risk management at enterprises of the Vietnam national Coal and Mineral industries holding corporation limited

From the above overall research objectives, the thesis sets out the following specificobjectives in terms of theory and practice:Firstly, systemize the theoretical issues of financial ri

THUONGMAI UNIVERSITY

-DAM THI THANH HUYEN

FINANCIAL RISK MANAGEMENT AT ENTERPRISES OF THE VIETNAM NATIONAL COAL AND MINERAL INDUSTRIES HOLDING CORPORATION LIMITED

Major: Banking - Finance Code: 9.34.02.01

Summary of economic doctoral thesis

Ha noi

Science instructor

1 Assoc.Prof.Dr Nguyen Thu Thuy

2 Assoc.Prof.Dr Pham Thi Thanh Hoa

Reviewer 1:

Reviewer 2:

Reviewer 3:

The thesis will be protected before the thesis review board meeting at ………

The dissertation can be found at

National Library

Thuongmai University Library

1 Urgency of the thesis topic

Vietnam is on the path of strong development and integration into the global economy Thisprovides a great advantage for Vietnamese enterprises in expanding their markets and businessfields and in penetrating into global markets Thanks to this, strong development steps forenterprises can be made, especially after WTO entry and the singing of Free Trade Agreements(FTAs) However, enterprises also face fierce competition with foreign companies and largemultinational economic corporations In fact, the experience of other countries shows that strongeconomic groups in both the state and private sectors will be the driving force to ensure thesuccessful integration process The development of economic groups is an inevitable part of theprocess of cooperation and development of various types of enterprises and investment cooperationrelationships based on the demand for market development and international economic integration.Among the economic corporations in Vietnam, the Vietnam National Coal and MineralIndustries Holding Corporation Limited (Vinacomin) is a state-owned economic group created bythe merger of Vietnam Coal Corporation (established in 1994) and Vietnam Minerals Corporation(established in 1995) Its main business lines include: Mining, processing coal and minerals;production of electricity, building materials, and mining chemicals; repair, assembly andmanufacturing of mining equipment Over the years, Vinacomin has exploited over 700 milliontons, becoming one of the strong economic groups of the country Vinacomin is currently one ofthe three pillars of ensuring national energy security, the largest coal producer and supplier, theonly alumina producer, and the largest non-ferrous metal producer and suppler for domesticeconomy and export Vinacomin is currently the State's top development priority Thus, Vinacominhas achieved many remarkable achievements and contributed to the country's economicdevelopment However, the management board of Vinacomin finds that enterprises in the groupstill had many potential risks such as the use of financial leverage, the ability to balance cash flow

to ensure solvency, bad debts, ineffective financial investment Therefore, it is necessary to have afinancial risk management mechanism to minimize losses, which has practical significance forenterprises of Vinacomin when there are many potential factors that cause instability in the group'soperations Moreover, in the context of many changes in the economy, corporate financial risk is anissue that needs to be taken care of Therefore, one of the necessary skills for financial managementactivities is to be equipped with in-depth practical skills on financial risk management inenterprises, including issues of risk identification and assessment, risk management tools, analysisand forecast of corporate financial risk To contribute to identifying, analyzing evaluating, andcreating a scientific and objective basis to propose solutions to prevent and limit financial risks atVinacomin’s enterprises under Vinacomin, the author has selected “Financial risk management atenterprises of the Vietnam National Coal and Mineral Industries Holding Corporation Limited” asthe thesis topic

2 Research objective

* Overall research objective

Based on applying the basic theory of financial risk and financial risk management, the thesisstudies financial risk management at Vinacomin’s enterprises during 2013-2019 From there, thethesis provides policy recommendations to strengthen financial risk management at Vinacomin'senterprises in order to prevent and minimize financial risk, and improve financial management qualityand business efficiency

* Specific research objectives

From the above overall research objectives, the thesis sets out the following specificobjectives in terms of theory and practice:

Firstly, systemize the theoretical issues of financial risk management at enterprises and

study practical experience of financial risk management at some enterprises in economic groups

Secondly, assess the current situation of financial risk, financial risk management and identify

the impact trend of factors affecting financial risk at Vinacomin's enterprises (such as: debt structure,solvency ), and analyze achieved results, limitations and their causes

Thirdly, propose solutions to strengthen financial risk management at Vinacomin's enterprises

3.1 Research subjects

The thesis focuses on studying financial risk management including identification,measurement, control and financing of financial risks in business activities of Vinacomin'senterprises

3.2 Research scope

- In terms of content: The thesis focuses on studying financial risk management contentsincluding financial risks such as: exchange rate risk, interest rate risk, financial leverage risk,commercial credit risk and liquidity risk in business activities at Vinacomin’s enterprises

- In terms of space: The thesis studies Vinacomin’s enterprises, including 1 parent companyand 32 subsidiaries

- In terms of time: The thesis focuses on the study and survey of the current situation offinancial risk management at Vinacomin’s enterprises; the actual data are studied in the years from

2013 to 2019 and proposed solutions are for the period up to 2035

4 Contributions of the thesis

The thesis has applied the MDA econometric model to analyze factors affecting the financialrisks at Vinacomin’s enterprises, including 1 parent company and 32 subsidiaries during the periodfrom 2013 to 2019

The thesis has assessed the current situation in financial risk management at Vinacomin’senterprises from 2013 to 2019 according to four main aspects: identification, measurement, controland risk financing in IPA model

The thesis has presented the achieved results and existing limitations in financial riskmanagement at Vinacomin’s enterprises and analyzed the causes of such limitations

From the above practical studies, the thesis has proposed solutions to strengthen financial riskmanagement at Vinaconmin’ enterprises, which are: solutions to enhance financial riskidentification, methods of financial risk measurement, financial risk control and financing risks,solutions to improve risk management capacity and suggestion on a financial risk management

model for Vinacomin’s enterprises These solutions are linked to ensure consistency and feasibility.

At the same time, several recommendations to the government and banks have been proposed in thethesis in order to facilitate the implementation of the mentioned solutions

5 Thesis structure

In addition to the introduction, conclusion and list of tables, figures, list of references andappendices, the thesis has 4 chapters:

Chapter 1: Literature review and research methods.

Chapter 2: Theoretical and practical bases of corporate financial risk management

Chapter 3: The current situation of financial risk management at Vinacomin’s enterprises

Chapter 4: Orientations and solutions to strengthen financial risk management at

Vinacomin’s enterprises

CHAPTER 1 LITERATURE REVIEW AND RESEARCH METHODS

1.1 Literature review

1.1.1 Studies on the theories of risk and financial risk

1.1.2 Studies on financial risk identification

1.1.3 Studies on financial risk measurement

1.1.4 Studies on financial risk control

1.2 Scientific and practical values of published studies; research gaps

1.2.1 Scientific and practical values

In general, relevant published studies so far have contributed to clarifying the theoreticalissues of financial risk and financial risk management of Vietnamese enterprises Doctoral theses aswell as scientific articles mainly analyzed the current situation and pointed out types of financialrisk and financial risk management procedures of enterprises in general in a certain research period;from there, they have proposed solutions to strengthen financial risk management in enterprisesAbout research methods: : Most of the published studies used qualitative methods; very fewstudies used quantitative methods

In the studying and writing processes, in order to come up with solutions to strengthenfinancial risk management at Vinacomin’s enterprises in the current period, the author has consulted

a part of the theoretical and practical basis as well as research methods of these studies The authorhas also consulted the financial risk management experience at enterprises of large economicgroups in some countries, thereby drawing lessons for Vietnamese enterprises Besides, the authorshas inherited the approach of quantitative models to study the current situation of financial riskmanagement or factors affecting financial risk at Vinacomin's enterprises

1.2.2 Research gaps and research directions of the thesis

From the literature review, it is shown that the published studies still have the followinglimitations and research gaps:

- These studies have mentioned a lot about corporate financial risk management; however,there has not been any specific research on financial risk management at Vinacomin's enterprises

- There has not been any published study on corporate financial risk management atenterprises in general and at enterprises of specific economic groups in Vietnam using the IPAmodel for analysis

- There have not been many in-depth studies on the financial risk management model usingthe MDA regression model to analyze the factors affecting the financial risks of Vinacomin'senterprises The expected results of the study will provide recommendations for managementagencies and risk management methods for Vinacomin's enterprises in particular and othereconomic groups in general.

Based on such limitations and gaps, the thesis will focus on clarifying the following maincontents:

- Synthesize theoretical basis and practical model in corporate financial risk management

- Analyze the current situation of financial risk management at Vinacomin's enterprises in theperiod of 2013 - 2019 through the IPA model

- Provide conclusions in verifying factors affecting financial risk at Vinacomin's enterprisesthrough the MDA model

- Propose solutions and recommendations for adjusting appropriate policies for financial riskmanagement activities atVinacomin's enterprises

1.3 Thesis research process and research methods

1.3.1 Thesis research process

To answer the above research questions, the author has proposed a research processconsisting of 6 steps:

Step 1: Identify the research problem

Step 2: Present literature review

Step 3 Identify research gaps and provide viewpoint on the thesis approach

Step 4 Systemize the theoretical basis related to the research topic.

Step 5 Study the current situation of financial risk, financial risk management and factors

affecting financial risk at Vinacomin's enterprises and present research results

Step 6 Based on the research results, provide viewpoints, discussions and recommendations

to strengthen financial risk management at Vinacomin's enterprises

1.3.2 Research methods

The thesis has applied methods of dialectical materialism and historical materialism to studysocio-economic issues Accordingly, the thesis has used a combination of research methods, whichare qualitative and quantitative research methods

1.3.2.1 Qualitative research methods

Qualitative research method aims to explore and understand deeper the practice of financial riskmanagement at Vinacomin's enterprises in the current context This qualitative research has beenconducted through in-depth interview technique with experts This is a very suitable research method toexplore the views and thoughts of research subjects The author has conducted the interview methoddirectly or by phone with leaders of enterprises who are the Board of Directors/Board of members,directors, deputy directors, financial experts, chief accountants and other experts, specialist inaccounting and finance

1.3.2.2 Quantitative research methods

The theis has applied the quantitative method on the basis of using information fromquestionnaires to collect data on the current situation of financial risk management at Vinacomin'senterprises As the characteristics of financial risk management is to prevent, limit and avoid lossdue to risks for enterprises, to assess the importance and usage level of each group of financial risk

management, the application of the IPA method is considered to be the most appropriate andfeasible It is because this model measures the characteristics of the types of financial risk based onthe difference between the importance of the types of financial risk and the usage level of the types

of financial risk by enterprises Results from the analysis of importance and usage level is shown

by scatter plot with the support of SPSS software version 20

In the traditional IPA model, the matrix is built based on two factors, namely "Performance"and "Importance", using the average value of these two factors to build a Quadrant matrixconsisting of 4 cells, with the following components:

Performance (Usage level)

Figure 1.1: Matrix of Importance - Performance Analysis with respective strategies

- In addition, the thesis has applied the MDA econometric model of Alexander Bathory to studythe factors affecting financial risks at Vinacomin's enterprises The observational sample of 33Vinacomin's enterprises is collected from audited financial statements, annual reports and otherrelated data for the period from 2013 to 2019 The data in this thesis are balanced panel data,consisting of 231 observations The thesis has applied the methods of quantitative analysis on paneldata (Panel Data), Pooled OLS, FEM, and REM to analyze factors affecting financial risk ofVinacomin's enterprises

Alexander Bathory (1984) analyzed 25 indexes including indicators reflecting profitability,capital structure , then focused on 5 indicators explaining financial risk (FRit) of the business:FRit = SZLit + SYit + GLit + YFit + YZit In which, SZLit: (Profit before tax + Depreciation offixed assets + Deferred income tax) / Short-term debt; SYit: Profit before tax / Total capital; GLit:Equity / Short-term debt; YFit: Residual value of fixed assets / Liabilities; YZit: Working capital /Total assets The feature of this model is applicable to all types of businesses because it is verysimple for calculating and forecasting the possibility of bankruptcy as well as measuring thefinancial capacity of the business Alexander Bathory (1984) states that the smaller the value of themodel (FRit), the higher the financial risk of the business

Table 1: Description of variables in the research model

QR Current assets - Inventories

Current liabilities (+)04

Average total assets (+)07

Interest rate IR Average interest rate on loans

of the commercial Bank (-)02

Firm age AGE Time calculated by year since

the enterprise was founded (+)

03 State ownership rate STATE State ownership rate (%) (-)04

The size of Members'

Council / Board of Directors BOD

Numbers of member inMember’s Council / Board of

director

(+)

Source : Results colleted from references

Based on experimental studies and related theory, the author proposes the following researchhypotheses:

- H1: Debt structure (DS) of VINACOMIN has a negative impact and has statistical significance

on FRit

- H2: The solvency (CR, QR, IGS) of VINACOMIN has a significant positive impact on the FRit

- H3: The profitability (ROA, ROS) of VINACOMIN has a positive influence on FRit

- H4: Performance (FAT, TAT, RT) of VINACOMIN has a significant positive influence on FRit

- H5: Financial structure (ES, FAS) of VINACOMIN has a significant positive impact on FRit

- H6: Interest rate (IR) of loan of VINACOMIN has a negative impact on Frit

- H7: Age (AGE) of VINACOMIN has a significant positive influence on FRit

- H8: The size of Members' Council / Board of Directors (BOD) of VINACOMIN has asignificant positive impact on FRit

- H9: State ownership ratio (STATE) has a negative impact and has statistical significance to FRit.

CHAPTER 2 THEORETICAL AND PRACTICAL BASES OF CORPORATE FINANCIAL REISK

MANAGEMENT

2.1 Corporate financial risk

2.1.1 Overview of corporate financial risk

Although there are many different approaches to the concept of risk, according to the author'sapproach:

- In qualitative aspect: Risk is uncertainty or a state of uncertainty.

- In quantitative aspect: Risk is the difference between the actual value and the expected value, measured by standard deviation.

The nature of risk is also reflected in its inherent characteristics, which are uncertainty,randomness and instability

2.1.2 Overview of financial risks at enterprises

From the above studies on financial risk, the author has introduced the concept of corporate

financial risk as follows: “Corporate financial risk is the risk arising from changes in interest rates, foreign exchange rates and the implementation of corporate financial decisions that cause fluctuations in the actual rate of return compared with the expected rate of return during the operation of an enterprise”.

2.1.3 Impact of financial risk on enterprises

2.1.3.1 Impact of financial risk on business costs

The impact of financial risks on business costs is reflected in three aspects: the cost of capitalmobilization (or the cost of using capital), business expenses and financial distress costs

2.1.3.2 The impact of financial risk on corporate profitability

When investing in a project, an enterprise considers if the return is worth the risks encountered?Theoretically, the higher the risk, the greater the return If enterprises do not manage project financeeffectively, long-term risks can cause "erosion" of profits Financial risks may occur leading to anincrease in the inefficient costs of the project, affecting profits

2.1.3.3 Impact of financial risks on business performance and competitiveness of enterprises

The impact of financial risks on business expenses and profit is the impact on businessefficiency and competitiveness of enterprises Business efficiency of an enterprise shows thecomparison between the results obtained with the costs spent to achieve that result in business Thelower the cost spent, the greater the profit obtained and the higher the efficiency, The higher thebusiness efficiency, the healthier the financial situation and the higher the competitiveness of anenterprise

2.1.3.4 Impact of financial risk on business value

Financial risks results in reduced cash flow and affects investor confidence Due to increased risk,investors demand high rates of return to compensate They all affect business value

2.2 Corporate financial risk management

2.2.1 The concept and necessity of financial risk management

2.2.1.1 The concept of financial risk management

Steven Li (2003); Triantis (2000); Drogt & Goldberg(2008); Assoc.Prof.Dr Nguyen Thi NgocTrang (2007); Assoc.Prof.Dr Vu Van Ninh and Dr Pham Thanh Hoa (2017), the authors would like

to introduce the concept of corporate financial risk management as follows: "Financial risk management is the identification of the level of financial risk that an enterprise accepts and the

measurement of the level of risk that an enterprise may have to bear, thereby using management tools and measures to adjust the actual level of risk according to an enterprise’s objectives”

2.2.1.2 The necessity of corporate financial risk management

- Ensure that production and business activities are not interrupted

- Help enterprises achieve their set strategic goals

- Help to build strong trust with investors

2.2.2 Contents of corporate risk management

2.2.2.1 Identify corporate financial risk

Risk identification methods

Traditional method: This method is based on the risks that enterprises encountered in the past to determine the risks that may be faced in the future.

Safe system approach: Since the risks in this field were mostly unknown in the past but

required maximum prevention, scientists had to build risk simulation models based on the analysis

of the operational process and environment, thereby detecting the risks arising in that simulated

environment.

Financial risk identification tools

Four common groups of tools are commonly used for risk identification:

- Risk analysis questionnaire: this is the main tool used in identifying financial risk The questions

can be arranged according to the origin of financial risk or by the impact environment (micro, macro,internal, or external environment) revolving around issues such as the corporate financial risksencountered, level of loss, the number of occurrences of the risk in a given period, precautions used andtheir effectiveness

- List of risks: this list includes common risks such as: interest rate risk, exchange rate risk,

investment risk, credit risk However, this list cannot cover all the risks that an enterprises mayencounter; it must be used in combination with other tools

- List of insured financial risks: This list can be obtained from insurance companies to determine

which risks can be moved or shared by insurance policies, and which risks cannot The statistics ofinsurance companies on financial risks that economic corporations may encounter also provide a goodbasis for determining corporate financial risks

- System of experts: these are pre-built financial risk identification procedures for each specific field,

which is a combination of all three tools above However, these systems are not always available and maynot be suitable for all enterprises in all circumstances

Financial risk identification procedure

Financial risk identification is usually carried out through the following four steps:

- Orientation: This is the first step that must be taken to detect financial risk The purpose is to

gain a broad and comprehensive understanding of the enterprise and its activities to guide theidentification of financial risk

- Document analysis: this is the analysis of documents related to the enterprise, including internal

documents and documents about the enterprise provided by external parties

- Interview: A lot of information cannot be found in documents but can only be obtained

through interviews with managers or employees The interviews were aimed at clarifying theinformation in the documents or supplementing the missing information

- Direct survey and investigation: On-site survey will help provide information that is often very

valuable, helping to identify financial risks that may not have been detected before

Signs to identify financial risks

- Identify exchange rate risk

- Identify interest rate risk

- Identify risks posed by financial decisions

2.2.2.2 Measurement of corporate financial risk

- Objectives of measurement of corporate financial risk

Identifying financial risks is the first step in the risk management process However, there aremany types of financial risks; enterprises cannot deal with, control and prevent all types of financialrisks at the same time due to limited financial resources and the fact that risks are unexpected events

so they cannot all be recognized There are types of financial risks that occur with high frequencyand those with very low frequency; there are also types that cause serious consequences or thosethat cause less serious impact As a result, appropriate financial risk management measures must

be taken To do so, enterprises needs to conduct the measurement, analysis and forecast of corporatefinancial risk; they are included in the process of quantifying and assessing the severity of corporatefinancial risks to ensure effective financial risk management

- Qualitative measurement methods

According to experts, experience of financial risk management shows that the following fivegroups of criteria are most widely used in qualitative measurement of financial risks

- The ratio of value of overdue debts or bad debts or written-off debts to total outstandingloans is increasing

- The proportion of debts that have been restructured or reversed, postponed, extended orfrozen compared to the total outstanding loans is increasing

- The ratio between provisions for bad debts, decrease in inventory price, and annual decrease infinancial investment price compared to provision to total assets is high and increasing

- Operational efficiency tends to decrease or become negative

- Performance tends to decrease

- Quantitative measurement methods

- One: using standard deviation and coefficient of variation

- Second: using the value of risk VaR (Value at Risk)

- Third: using the bankruptcy risk coefficient Z-Score

- Fourth: using the research model of Alexander Bathory

2.2.2.3 Control of financial risk

- Basic content of financial risk control: this often aims at the following five groups of

solutions: financial risk reduction, risk avoidance, risk prevention and mitigation, risk transfer orrisk sharing, risk taking

- Some measures to prevent financial risks: (1) Using derivative financial instruments; (2)

Controlling interest rate risk and financial leverage risk; (3) Controlling exchange rate risk; (4)Controlling trade credit risks

2.2.2.4 Corporate financial risk offset

Financial risk management is not about preventing all bad possibilities from happening,but accepting a reasonable cost to prevent and minimize losses due to risk A financial riskmanagement plan is only effective when it costs less than the damage caused by risk or theinsurance premiums an enterprise has to pay However, there are many types of risks thatcannot be transferred and an enterprise is forced to accept Therefore, the cost of financial riskmanagement cannot be the only factor to evaluate the effectiveness of corporate financial riskmanagement In order to cope with financial risks, enterprises must regularly ensure necessaryreserve funds and be ready to cover all possible losses to ensure safety for financial activities.Depending on the characteristics of each type of loss, an enterprise is entitled to use appropriatecapital sources to offset

2.2.3 Financial risk management model

Currently, there are 3 models of financial risk management in the world and in Vietnam asfollows:

(1) Centralized financial risk management model

(2) Dispersed financial risk management model

(3) Combined model of the above two models

2.2.4 Evaluation criteria for corporate financial risk management

Quantitative evaluation criteria:

- The level of understanding and interest of enterprises in corporate financial risks andfinancial risk management

- The degree of completion of the legal framework related to corporate financial riskmanagement

- The level of completion in terms of organizational structure, personnel, and physicalfacilities

- The level of compliance and implementation of the contents of corporate financial riskmanagement process

- The level of effectiveness and efficiency of financial risk management activities in eachstage of identifying, measuring, controlling and handling risks and financial risk offset of theenterprise

Quantitative evaluation criteria:

- The reduction in standard deviation or coefficient of variation of an enterprise's return onequity (ROE)

- The reduction in the ratio of overdue debt (or bad debt, written off debt) compared to thetotal outstanding debt of the enterprise

- Reduction in the ratio of provisions for risks

- In addition, businesses can also use the indicators of change in risk value (VaR), change

in risk coefficient of bankruptcy (Z-Score), research model of Alexander Bathory before andafter implementing risk management measures to evaluate risk management results

2.3 Factors affecting corporate financial risk management

2.3.1 Internal factors of enterprises

In this section, the author has presented the theory of factors affecting financial riskmanagement in the internal and external environment of enterprises, including: management level

of the leadership team, business line, management structure, and corporate financial policy

2.3.2 Internal factors of enterprises

In this section, the author has presented the theory of factors affecting financial riskmanagement in the internal and external environment, including: political environment, socio-cultural environment, regulatory environment, and economic environment

2.4 Experience in financial risk management at some enterprises of economic groups

in the world and lessons for enterprises of economic groups in Vietnam

Through studying the financial risk management process at enterprises in leadingeconomic groups in the world (such as: Petronas Group - Malaysia, NTT Group - Japan,TELUS Economic Group - Canada, US economic groups), the author has drawn a number oflessons learned for enterprises of economic corporations in Vietnam in risk management asfollows:

Firstly, raising awareness of financial risks for all enterprises of economic groups