MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY DINH THI THU HA SEASONED EQUITY OFFERINGS EVIDENCE IN VIETNAMESE STOCK MARKET DOCTORAL THESIS HoChiMinh City – 2017 TIEU LUAN MOI download : skknchat@gmail.com MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY DINH THI THU HA SEASONED EQUITY OFFERINGS EVIDENCE IN VIETNAMESE STOCK MARKET Specialization: Finance – Banking Specialization code: 62340201 DOCTORAL THESIS SUPERVISOR: Asso. HO VIET TIEN Asso. BUI KIM YEN HoChiMinh City – 2017 TIEU LUAN MOI download : skknchat@gmail.com i TABLE OF CONTENTS List of Abbreviations List of Tables List of Figures Chapter 1: Introduction .7 Structure of the study .8 A summary of thesis findings. 13 Chapter 2: Literature review and Hypotheses development .2 Theoretical literature on SEOs .1 Trade-off Theory .2 Growth Opportunities Theory .3 Market timing theory.4 Agency problem theory .5 Efficient Market Hypothesis .3 Literature review on SEOs empirical studies .1 Determinants of company’s SEOs motivation .1 Trade-off theory .2 Growth Opportunities Theory .3 Market timing theory.
30 TIEU LUAN MOI download : skknchat@gmail.4 Agency problem theory .2 Market’s reactions to company’s SEOs .1 Growth Opportunities Theory .2 Market timing theory.3 Efficiency market hypothesis .4 Hypotheses building and variable measurements .1 Determinants of company’s SEOs motivation .2 Market’s reaction to company’s SEOs. 45 Chapter 3: Data and methodology .1 Determinants of company’s SEOs motivation .2 Market reaction to company’s SEOs .2 Determinants of market reaction to company’s SEOs. 64 Chapter 4 Determinants of company’s SEOs motivation .1 Distribution of SEOs over the sample period (2007-2013) .2 SEOs probability description .2 Determinants of company’s SEOs motivation .3 Determinants of company’s SEOs motivation by issuance method. 91 Chapter 5 Market’s reaction to company’s SEOs .2 Market reaction to company’s SEOs .1 Market reaction around announcement day.
93 TIEU LUAN MOI download : skknchat@gmail.2 Market reaction around ex-right day .3 The relation between announcement day and ex-right day.4 Determinants of market reaction to company’s SEOs .1 Determinants of market reaction around announcement day.2 Determinants of market reaction around ex-right day. 122 Chapter 6 Conclusion and Suggestion .2 Suggestion for stakeholders. 126 List of publications References Appendices TIEU LUAN MOI download : skknchat@gmail.com iv LIST OF ABBREVIATIONS AAR: Average abnormal returns AD: Announcement day AR: Abnormal returns CAR: Cumulative average abnormal returns EMH: Efficient market hypothesis HOSE: Ho Chi Minh City Stock Exchange SEOs: Seasoned equity offerings XR: Ex-right day REC: Real estate and construction MAI: Manufacturing industry SER: Service FBI: Financial – Banking – Insurance services AFF: Agriculture, Fishery and Forestry LIST OF TABLES Table 1.1: Vietnamese lending interest rate .1: VNIndex and Market capitalization of listed domestic companies (% of GDP) in 2006 -2013 .3 SEOs-motivation independent variables description .4 SEOs-price reaction independent variables description. 69 TIEU LUAN MOI download : skknchat@gmail.1 Distribution of SEOs over the sample period (2007-2013) .2 SEOs probability data description .3 Characteristics between SEOs companies and non-SEOs companies .4 SEOs description by issuance method .5 SEOs conducting probability .6 Average marginal effects on SEOs probability .7 SEOs by equity right and by equity bonuses or dividends probability .8 Average marginal effects on SEOs equity right and by equity bonuses or dividends probability .1 Characteristics of SEOs companies around event day data description .2 AAR and CAR around announcement day .3 AAR and CAR around announcement day in favorable and unfavorable market timing .4 Market reaction around announcement day divided by criteria .5 AAR and CAR around ex-right day.6 AAR and CAR around XR day in favorable and unfavorable market timing .7 Market reaction around announcement day by criteria .8 Determinants of market reaction around SEO announcement day .9 Determinants of market reaction around SEOs ex-right day.
121 TIEU LUAN MOI download : skknchat@gmail.com vi LIST OF FIGURES Figure 1.1: Listing value and Market capitalization .1 Relation between AD and XR. 111 TIEU LUAN MOI download : skknchat@gmail.com 1 CHAPTER 1 INTRODUCTION 1.1 Research motivation: Seasoned equity offerings (SEOs) draw enormous attention from researchers around the world. This method is an effective and popular way to expand company financial resources to maintain and develop its activities, to reconstruct capital and stakeholder structure of company. In order to finance companies’ activities, they can choose either internal sources or external sources of funding.
While the former mainly refer to profit or retained earnings, the latter mention the concept of debt financing as well as equity financing. To estimate company’s financing decisions Modigliani and Miller (1958, 1963) suggest that capital structure is not consistent with firm value. Nevertheless, this observation is based on the important assumption that the market is perfect. The idea of perfect capital market consists of the following characteristics: (i) companies are classified based on their risk; additionally, companies having the same risk generate similar returns; (ii) perfect capital market which implies that there is no transaction cost, also no tax or bankruptcy cost; (iii) the interest rate for lending and borrowing activities are similar for private and investors as well as corporation.
However, in the real market, tax is deducted from interest expenditure. Nevertheless, debt financing pressure may discourage firms to entirely use debt financing instead of equity financing (Huang, 2012). Besides the trade-off theory which mainly discuss tax shield as well as financial distress, there are also other factors affect the financing decision of company including information asymmetry costs, agency conflict costs and the availability of promising growth opportunities Besides, a trend of increasing international equity issuance has also been reported, especially after the financial crisis in 2010. To compensate for the losses TIEU LUAN MOI download : skknchat@gmail.com 2 and larger writedowns suffering from the crisis as well as to raise capital in the prediction of more strict regulations will occur, global financial institutions have to raise equity issuance substantially.
A report of Bloomberg in July 2010 shown that financial institutions, mainly from Europe and the United States, since mid- 2007 had raised US$1.5 trillion equity issue to offset their crisis losses (Witmer, 2010). The paucity of literature and case study in emerging market where results are inclusive also urge a solution. There have been many research to find out company and market behavior such as determinants of companies that lead them to conduct SEOs, impact of SEOs on company stock prices when information about SEOs are publicized. The number of research on this topic has been increasing with many aspects have been discovered and applied in practice.
However, the majority of existing SEOs research are examined at developed market (Eckbo et., 2007) while only few research on cases of emerging market are conducted. The paucity of literature and case study in emerging market has drawn attentions from researchers to this market. Therefore, examining emerging economy case attracts the interest to fill the research gap and emphasize the own nature of this market. In additional, examining whether the results of developed markets can be carried over to emerging market also becomes appealing.
In addition to examining determinants of company’s SEOs decision, researchers also show that stock prices on the market will be affected when information about the issuance is publicized. In contrast to negative reactions in developed markets, the results of emerging markets are inclusive. While there is a trend of positive reaction in the research of Kim and Lee (1990) for Korea; Salamudin et. (1999) for Malaysia; Tan et.
(2002) for Singapore; Marisetty et. (2008) for Indian, the findings of Cahit (2006) for Turkey; Chen et. (2007) and Shahid (2010) for China; and Lerskullawat (2011) for Thailand, on the other TIEU LUAN MOI download : skknchat@gmail.com 3 hand show negative reaction. The development and new trend in financing resources of Vietnamese Stock market also become a driving force.
Since its first establishment with only two listed companies in 2000, Vietnamese stock market has witnessed remarkable development, the number of listed companies has strongly increased in both listed value and market capitalization (Figure 1. Especially, in 2007 - a remarkable year when Vietnam officially became member of the World Trade Organization, which also opened opportunities and threads for Vietnamese Economic in general and Vietnamese stock market specifically. Besides, Vietnamese stock market gradually becomes more attractive to foreign investors. International integration helps raise the position, foster Vietnamese stock market to a higher level among international financial market (e.
in 2013, the HOSE became official member of the World Federation of Exchanges), enhance the value of listed companies, attract more foreign investment, and achieve more opportunities so that it can access to international standards, exchange and absorb the experience of developed markets. With that impressive development, Vietnamese stock market, however, is still a very young market with the history of only over 15 years since its establishment. Vietnamese companies are still in favor of traditional finance such as loans borrow from banks. However, high lending interest rate (table 1.1) accompanied by the financial crisis in 2010 had strongly affect the banking system, firms were not confident in the possibility of providing loans from banks, and in return, bank themselves had no belief in firm’s ability to pay the loan since both sides were impacted due to the crisis.
Consequently, when bank financing can not play its traditional roles, companies turn their attentions to equity financing. TIEU LUAN MOI download : skknchat@gmail.1: Listing value and Market capitalization (Source: hsx.1: Vietnamese lending interest rate Year Lending interest rate (%) 2006 11.com) TIEU LUAN MOI download : skknchat@gmail.com 5 In addition, SEOs gradually become more appealing to Vietnamese companies. From 2007 to 2013, there were 482 cases that companies use SEOs to pay bonuses or dividends, or to increase their financial resources by issuing equity rights offerings. This fact has shown that SEOs is a popular method for companies to manage their financial and investment activities, gradually become more widespread and of interest in Vietnam.
Furthermore, SEOs on Vietnamese stock market also draw attention from researchers e. Nguyen Quang Diep (2011) examines capability of Vietnamese investors in evaluating long-run operating performance of the issuers. Vo Xuan Vinh and Doan Minh Thai (2015) investigate market reaction to company stock price and trading volume when information about cash dividend is publicized. Vo Xuan Vinh and Phan Thi Anh Thu (2015) examine market reaction to information about companies’ stock split.
Vo Xuan Vinh and Dang Buu Kiem (2015) investigate trading of foreign investors when information about cash dividend is announced. Recently, Vo Xuan Vinh and Dang Buu Kiem (2016) examine the stock market reaction measured by abnormal trading volume around ex-dividend day using data set of listed firms on HOSE. However, there is lack of study investigating thoroughly behavior of listed companies in regarding of why Vietnamese companies conduct SEOs and market reaction around event day when information about SEOs by dividend or rights are publicized. Therefore, limited number of SEOs literature in the context of Vietnam should be increased to fill this empirical gap.
The important function of SEOs in the Vietnamese capital market and in case of SEOs companies, accompanied by the role of enhancing knowledge of investors about behavior of SEOs companies and behavior of the market have led us to this comprehensive research. Base on the findings, we then point out relevant suggestions for related stakeholders such as SEOs companies and investors. TIEU LUAN MOI download : skknchat@gmail.com 6 In case of investors: should investors join or leave companies that intend to issue SEOs. Are there any signs to recognize the issuance in order to prepare necessary financial resources in case investors want to join the issuance? What are relevant investment strategies toward equity of company conducting SEOs in order to earn money? In case of SEOs companies: what methods could be applied to increase the effectiveness of the issuance in terms of maximizing proceeds collected from the issuance and increasing company value by conducting SEOs.2 Research objectives Vietnam is in the CIVETS group include Colombia, Indonesia, Vietnam, Egypt, Turkey, and South Africa which can be represented for new stardom candidates among emerging markets.