FINANCE DISERTATION ON THE FACTORS THAT IMPACT THE PERFORMANCE OF LISTED COMPANIES ON VIETNAM STOCK EXCHANGE NGUYEN VIET LONG ID No: 21071810 Intake 5 Supervisor: Assoc. Tran Thi Xuan Anh 1 17014126232651000000 Executive Summary The goal of this dissertation is to examine factors that have possible impacts on the performances of listed companies on the Vietnam Stock Exchange. The research is conducted on 370 companies listed on the Ho Chi Minh Stock Exchange in the period from 2010 to 2020. The author uses regression models with fixed and random models for panel data of enterprises.
The factors concerned in this thesis include internal factors, which are size of the business, revenue growth, financial leverage level, tangibility and liquidity, and external factors which are Gross Domestic Product (GDP), Consumer Price Index (CPI), and interest rate. The multiple regression analysis is applied to demonstrate the relationship between the performances of the listed companies, which are measured by ROE and ROA, with the above internal and external factors. The study's findings indicate a relationship between a collection of good internal and external elements and the enterprise's financial performance. In which the success of the company is directly attributable to the collection of internal criteria that includes business size, revenue growth, financial leverage, asset structure.
Business liquidity, on the other hand, has no irrelevant to the performance of a listed company. The author employs a set of variables related to economic growth, inflation, and interest rates for the category of external factors. However, the research model will eliminate 1 of 2 variables from the regression because of the strong correlation between inflation and interest rates. The findings of the study demonstrate that the performance of businesses is positively impacted by economic growth, CPI, and rate of interest.
2 Acknowledgement I'd like to express my heartfelt gratitude to everyone who has helped me so far to finish this thesis as well as my studies at the University of the West of England and Banking Academy First and foremost, I'd like to thank my supervisor, Associate Professor Tran Thi Xuan Anh, for your enthusiastic and substantial support. This thesis would not have been possible without your invaluable advice and feedback. I am also grateful to all of my professors and classmates from the Finance (MSc) course at The University of the West of England and the Banking Academy Last but not least, I'd like to thank my family and close friends who have been supportive during this course. 3 Contents Executive Summary.
Background of the dissertation. Purpose of the dissertation. Scope and Methodology.9 Chapter 2: Literature Review .1 The measurement of firm performance .1 Internal Factors that impact firm performance. 14 Size of the business.
External Factors that impact firm performance. 26 A whole market perspective. 27 Chapter 3: Data and Research methodology. External factors variables.
Characteristics of research data. Description of data statistics. The research process. 47 Chapter 4: Result and discussion.
Checking for multicollinearity. Impact of financial factor on firm performance. Regression with REM model. Regression with FEM model.
Hausman test with dependent variables. For intermediary institutions. Expectation of research results. Results of full-variable model regression by FEM and REM methods.
Results of test of variance magnification factor VIF. Model regression results by REM method. Model regression results by FEM method. Results of Hausman test.
Background of the dissertation The stock market plays a vital role in the Vietnamese economy because it directly affects the government, the listed companies, and the investors. In the national economy, the stock market helps to mobilize and use capital efficiently (Dung, 2020). Government capital is raised through the sale of bonds to invest in state projects. The stock market helps promote the equitization process of state-owned enterprises (state-owned enterprises).
The stock market also helps the government to implement effective monetary policies by buying and selling bonds to adjust the rise and fall of market interest rates. Lastly, the listed companies are able to sell shares abroad, helping to attract foreign investment into Vietnam. The time period from 2020 to 2022 are challenging years for the economy as a result of the phenomenal Covid-19 Pandemic. In general, the epidemic has affected on a global scale, disrupting the supply chains of many products and goods in the world, and stalling in production and business; temporary decline in demand from China for goods and services, affecting global growth (Nguyen, 2013).
Vietnam has a relatively large economic border and is geographically located close to China, so the epidemic will comprehensively affect all socio-economic fields of Vietnam and people's psychology. and production - business, trade and tourism activities, thereby 6 affecting Vietnam's economic growth and indirectly affecting the state budget situation. The survival and stability of major public companies are essential elements to sustain a healthy economy as well as to prepare the path for its growth after the pandemic is over. Therefore, assessing factors that affect firms’ performance is crucial to determine which areas should be closely monitored to maintain healthy profitability.
With this purpose in mind, this dissertation aims to examine potential internal and external factors that may have effects on the profitability of public companies in the Vietnam Stock Exchange. This thesis looks over more than 370 public companies currently listed on Ho Chi Minh City Stock Exchange (HOSE) throughout the period from 2010 to 2020. From these data, we can investigate the direction, as well as, the extent to which a factor could impact firms’ profitability. This dissertation collects data and examines internal and external factors that have impacts on firms’ performance.
Return-on-Assets (ROA) and Return-on-Equity (ROE) are measurements for the ability to generate profits of public companies. These two indexes are also common to determine the profitability of a firm. The higher the ROA and ROE, the higher performance of the firms. The internal factors of firms are their size, sales growth, financial leverage, tangibility, and liquidity.
These internal factors are commonly monitored and vary depending on a firm’s financial strategy. On the other hand, the external factors are GDP, inflation, and 7 lending interest rate. These are the popular indexes that affect the Vietnamese economy in which the listed companies operate. Purpose of the dissertation Taking into account the crucial importance of maintaining a healthy business performance in regard to the wellbeing of the economy, the assessment of internal and external factors is essential to ensure stable operation.
Therefore, this thesis examines the impacts of those factors upon key profitability ratios, which are ROA and ROE. The dissertation expects to determine the relationship as well as the possible correlation between these factors and the performance of the listed firms. The relationship includes the direction and the extent of the effects made by these factors. The result could be used for firms’ management to reassess their financial strategy, identify possible risks, and to make changes in areas where improvement is possible.
Scope and Methodology Although there are many possible factors impacting profitability of a firm, this thesis limits to investigate major internal factors such as revenue growth, financial leverage, tangibility and liquidity ratio. The external factors, on the other hand, include macro-economic factors that affect the market as a whole such as GDP growth rate, CPI, and central bank’s discount rate. 8 Examples of other factors, that may have effect on performance but not included in the scope of the research, are political factors, social factors and technological advance. Research Questions Overall, this thesis aims at examining factors that may have effects on profitability of listed companies on Vietnam Stock Exchange.
The research questions are: 1. What are the main internal and external factors that have a significant impact on profitability of listed companies on Vietnam Stock Exchange? 2. What are these effects’ directions and to what extent do these variables affect these firms’ profitability? 3. What are implications concluded in order for firm’s management to consider based on the study’s result? 5.
Chapter 1: Introduction This chapter presents the background that motivates the author to write the dissertation as well as the purpose of writing the dissertation. After discussing the background of the dissertation, the author announces the purpose of the dissertation as well as the scope and methodology of the research. Before moving on the second 9 chapter, the author lists out the research questions and explains the structure of the thesis. Chapter 2: Literature Reviews This chapter reviews and summaries that are relevant, including researches and studies conducted that are related to the topics.
The researches collected are from Vietnam and international institutions which shares the similar factors that are studied in this thesis. The first part of this chapter describes how the thesis will assess the performances of listed companies through return-on-equity (ROE) and return- on-assets (ROA). Secondly, the author describes the internal factors that may have an impact on firms as well as showcases some relevant researches. The internal factors include size of the business, revenue growth, financial leverage, tangibility, and liquidity.
Finally, GDP, CPI, Interest Rate are discussed at the end of the chapter with literatures that have examined the relationship between these factors and performance of firms. Chapter 3: Data and Research Methodology This chapter demonstrate the methods of conducting the research, including describes the dependent variables and the independent variables. The method of data collection will also be mentioned in this chapter, in addition to the regression model 10 used. The characteristics of research data will be explained before presenting the data statistics.
Result and discussion This chapter presents the resulting regression model based on the data collected. Two regression models would be demonstrated, which are REM model and FEM model. This chapter then conducts a Hausman test with dependent variables to determine which model is the most suitable with this range of data. Recommendation This chapter turns the result from the research into useful information for a firm’s stakeholder and management based on the findings from the data collected.
11 Chapter 2: Literature Review 2.1 The measurement of firm performance Firm profitability reflects the relationship between the size and profitability of the business over a given period of time. Typically, profitability is measured through a number of common metrics such as return on assets (ROA), return on equity (ROE) or return on sales (ROS). For businesses, profitability is seen as the result of using the assets and capital of the business. High profitability will help the production and business activities of enterprises take place smoothly.
On the contrary, if the profitability is low, the production and business activities of the enterprise may be difficult and unable to maintain the financial balance in the enterprise. There have been many studies conducted to assess the impact of factors on the performance of businesses. Bentivogli and Mirenda (2017), Tsouknidis (2019), Nhung et al. (2021), Merhan (1995), Abor (2005), Saeedi and Mahmoodi (2011) are among those studies.
In these studies, the dependent variables commonly used to measure the efficiency of a company include return on assets (ROA), return on equity (ROE), and Tobin’Q. These financial ratios are calculated based on the figures from published financial statements of companies. Nieh et al. (2008) used ROE and EPS to examine the factors affecting the business performance of 143 companies within the electricity industry that are listed on the Taiwan Stock Exchange in the period from 1999 to 2004.
With the same research 12 method, Saeedi and Mahmoodi (2011) used ROA, ROE, EPS and Tobin'Q to analyze panel data with a sample of 320 companies listed on the Tehran Stock Exchange. In the study conducted by Nhung et al. (2021), ROE and ROS are also key ratios to measure the performance of businesses. The research has shown that the total asset turnover and revenue growth have a significant impact on ROE and ROS.