Dissertation submitted in partial fulfillment of the Requirement for the MSc in Finance FINANCE DISSERTATION ON DETERMINANTS OF DIVIDEND POLICY: EMPIRICAL EVIDENCE OF VIETNAM HOANG DANG QUANG ID No: 21071805 Intake 5 Supervisor: PhD. DO THI VAN TRANG September 2022 17014126150711000000 ABSTRACT Vietnam's building industry is the largest producer of materials. And to this day, the construction industry continues to play a pivotal role by ensuring and bolstering the production and service capacities of all economic sectors. This dissertation used the OLS model with 5-year data (from 2017 to 2021) for 120 companies listed on the Ho Chi Minh Stock Exchange to evaluate what a suitable dividend policy would be.
This dissertation makes recommendations to strengthen the dividend policy of Vietnam companies based on the findings of the research. 1 ACKNOWLEDGEMENTS Prior to anything else, I would want to express my thanks to my supervisor, PhD. Do Thi Van Trang, for her unwavering support of my master’s studies and research, as well as for her patience, encouragement, excitement, and vast knowledge. Her assistance was invaluable during the research and writing of this dissertation.
For my master’s studies, I could not have asked for a greater supervisor and mentor. In addition to my supervisor, I would like to extend my deepest and most sincere gratitude to all the teachers and friends who have provided me with highly useful information. Without their instructions and assistance, it would not have been possible to complete this dissertation successfully. Lastly, I’d like to thank my family and loved ones, who have always encouraged and motivated me to complete this dissertation.
Hoang Dang Quang 2 STATUTORY DECLARATION I affirm that this is the result of my own study. These are analyses, evaluations, and outcomes based on the fundamentals of the discipline, the information sources, and the data acquired from the primary sources of business reports. Please be certain that the topic’s content has been acknowledged and the citation information has been supplied. I accept full responsibility for this Council and School commitment.
Hanoi, September, 2022 Hoang Dang Quang 3 TABLE OF CONTENTS ABSTRACT .Research method, objectives and questions. 8 CHAPTER 2: LITERATURE REVIEW. Theoretical background of dividend payout policy .1 Hypothesis of the Irrelevance of Dividends: .2 The Hypothesis of Agency Cost and Free Cash Flow: Free Cash Flow and Agency Costs:. Bird-in-Hand hypothesis:.
Empirical evidence from determinants impact on dividend payout policy. Variables and hypotheses:. 23 CHAPTER 4: RESULTS AND DISCUSSIONS. Diagnostic tests and define regression models .31 CHAPTER 5: SUMMARY, CONCLUSIONS AND RECOMMENDATION.
Maintain a stable dividend policy in combination with other dividend payment methods. Ensuring that a stable dividend policy is followed on an annual basis. Combining with other dividend payment methods. The balancing between shareholder interests with enterprise investment potential.
Meet the investment requirements of shareholders and entice investors. Enterprise Investment Opportunities .37 5 LIST OF TABLES Table 3. Summary of selected measurements of dependent variable and independent variables .Panel regression results( Author calculate with eview). Final estimation result.
Motivation There are three decisions in corporate finance that are crucial to the growth of business: investment decisions, financing decisions, and dividend payment decisions. Each of these decisions plays a unique part in the evolution of businesses. In order to enhance the value of the company, each of the three policies must be executed consistently. The dividend policy of a firm specifies the proportion of a company's earnings that are paid out to shareholders, as well as the proportion of profits that are kept by the company for further investment.
There have been a great number of research done on the elements that impact the dividend policy of corporations. However, different empirical studies come to different conclusions about the level of influence. For example, (Ahmed and Javid 2009) contend that the size of the firm, equity has a negative effect, whereas (Brockman and Unlu 2009) again came to the conclusion that both have a positive impact on the dividend policy of firms. However, (Rozeff 1982) points out that organizations with high growth rates would have capital needs.
(Adu-Boanyah et al. 2013)claim that growth rate has a beneficial influence to communicate that businesses are doing well. substantial, which means that it will restrict the payment of dividends. In addition, the majority of the research is conducted in economies that have already been established.
In the first 6 months of 2022, the accrued number of newly opened accounts Vietnamese stock market in the first 6 nearly 3 times higher than the same period last year and 21% higher than the level of 1.5 million new accounts opened in 2021. Since 2000, the stock market of Vietnam has played a significant role in the Vietnamese economy. The stock market is the stock market is one of the main channel to raise capital for operation, especially when they have difficulties in raising capital from the debt market. On the other hand, the stock market is also one of the most popular investing channel for investors due to its high liquidity and integrity.
So, it can be said that the growth of the stock market is directly related to the growth of the economy because the stock market helps redistribute the capital in the economy, which 7 not only reduce the amount of idle money but also optimize the use of capital in creating economic value. In recent years, public corporations have focused more on establishing a reasonable dividend policy. However, optimally fulfilling this objective is challenging. Even the company's shareholders represent a variety of issues.
Different investors have varying levels of interest in dividend policy, making it challenging for a dividend policy to satisfy the needs of all shareholders equally. In contrast, the business activities of these companies underwent ups and downs, resulting in the passive distribution of dividends to shareholders. In addition, the professional capacity and vision of many managers in determining dividend policy remain limited. Therefore, developing a realistic and strategic long-term dividend policy remains a crucial aspect of the growth of listed firms in Vietnam.
Furthermore, investors in the Vietnamese stock market are beginning to express worry about a variety of concerns, one of which is the dividend policy. Even if there are a lot of research on the elements that impact dividend policy decisions, earlier studies are no longer applicable and do not meet the requirements for dividend policy in the present day. The earliest organization in Vietnam is the Ho Chi Minh Stock Exchange HOSE. It has a substantially greater market capitalization than the Hanoi securities trading center HNX.
In addition, the conditions for listing on HOSE are higher in terms of revenue and profit, as well as more transparent regulations for disclosing related information, which helps to decrease investor risk. Therefore, in order to inherit the previous studies and to diversify the research factors, I decided to conduct the study entitled "Factors affecting dividend policy of enterprises listed on the Ho Chi Minh City Stock Exchange.Research method, objectives and questions The study's focus is on corporate dividend policies. The author examines the impact of endogenous elements on the overall financial condition, production, and business of enterprises, including: firm size, financial structure, profitability, growth rate, liquidity, and cash holding ratio to enterprise dividend policy. The research focuses on non-financial firms listed on the Ho Chi Minh Stock Exchange between 2017 and 2021.
Eliminate firms engaged in banking, securities, and 8 insurance because these are industries with distinct business operations. Financial statements are necessary in accordance with the sample. The data is derived from yearly financial statements of businesses, Osiris Bureau van Dijk, cophieu68.vn, and vietstock. This study aims to answer two questions: +) Overview of dividend payment policy of companies listed on Ho Chi Minh City Stock Exchange today? +) Factors affecting the dividend payout ratio of enterprises and the degree of influence of the factors? Chapter 1: Introduction: Introduces the dissertation's motivation, research aims and research questions, and research methods.
Chapter 2: Literature review: Discussing the theoretical foundation of dividend policy and evaluating the findings of past research articles on the factors influencing firm dividend policy. Chapter 3: Methodology: Discuss the dissertation's data sources and research methodology. Estimation results and major discoveries are presented in Chapter 4: presenting the estimation findings, testing for the most accurate outcomes, and interpreting these results Policy ideas for improving the dividend policy of Vietnamese firms, limitation of the research and recommendation, conclusion are presented in Chapter 5. 9 CHAPTER 2: LITERATURE REVIEW This chapter discusses the conceptual foundation of the inquiry in addition to the empirical evidence that was gathered.
The fundamental theories of dividend policy, such as the conventional theory of dividend policy, the contemporary theory of dividend policy (M&M theory), the bird in the hand theory, the signaling theory, and the asymmetric information theory, are included in the conceptual framework. The second half of the chapter focuses on providing actual data on the factors that determine dividend policy. A variety of academics, from different fields, offer support as well as critique for the concepts that are covered in this chapter. As a consequence of this, it is believed that by discussing the theories and evaluating their benefits and drawbacks, more light will be shed on the theoretical background of the study, and the researcher will gain assistance in directing future research.
Theoretical background of dividend payout policy This section offers a concise summary of the theoretical literature that pertains to various dividend policy perspectives. However, this is merely a synopsis of the most significant issues that have been presented over the course of the past fifty years; it is in no way a comprehensive review.1 Hypothesis of the Irrelevance of Dividends: (Graham and Dodd 1934) state that the purpose of business is to advance corporate governance because the only reason for business to exist is to pay dividends, and in order for businesses to grow, they need to sell more shares of their company with high prices. After that, Miller and Modigliani's research (Miller and Modigliani 1961) provided a new historical perspective on corporate governance by proposing that dividends are not related to maintaining company value from a particular point of view. This was a significant development in the field of corporate governance.
Miller and Modigliani have published in the market where there is rational investment behavior, where investors are continually striving to raise the value of an asset regardless of whether it is in the form of cash or arbitrage, and where they have done so in a market that has been described as "efficient." stocks and the question of whether or not they can be located with absolute certitude and accuracy. They will invest on behalf of investors, and their profits will be certain as well, in a market that 10 is ideal in every way, in which no single entity has the ability to influence the market, and the value of the company is not dependent on the actions of the government. As a consequence of this, it has very little bearing on the value of the company. This assertion is supported by the equation that is presented below, which was derived from (Miller et al.,1960): According to the author, the variables that determine firm value include operating cash flow and even needed rate of return, both of which are unaffected by dividends.
There is a clear lack of a correlation between dividends and the value of a company as it evolves over time, as shown by the equation above. As a direct consequence of this, there is no correlation between dividend policy and the valuation of the company. The pursuit of anger among investors is useless and should be avoided at all costs. It makes little difference to investors whether they get their money back in the form of cash or capital gains; what concerns them is the value of the company in terms of the anticipated increase in the value of their investment in the future.