MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY ----------o0o--------- KHƯU CẨM TÚ DETERMINANTS OF DIVIDEND POLICY CASE STUDY: LISTED COMPANIES ON HOCHIMINH STOCK EXCHANGE MASTER THESIS Ho Chi Minh City - 2011 TIEU LUAN MOI download : skknchat@gmail.com MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HOCHIMINH CITY ----------o0o--------- KHƯU CẨM TÚ DETERMINANTS OF DIVIDEND POLICY CASE STUDY: LISTED COMPANIES ON HOCHIMINH STOCK EXCHANGE MAJOR: BANKING AND FINANCE MAJOR CODE : 60.12 MASTER THESIS INSTRUCTOR : DOCTOR TRẦN PHƯƠNG NGỌC THẢO Ho Chi Minh City - 2011 TIEU LUAN MOI download : skknchat@gmail.com ACKNOWLEDGEMENT First and foremost I would like to thank my supervisor, Doctor Tran Phuong Ngoc Thao for her guidance and support. In addition I would also like to express my gratitude to Doctor Vo Xuan Vinh for his valuable feedback on the problems of the study. Special thanks also go to all of my lecturers at Banking and Finance Faculty, University of Economics Hochiminh City for their teaching and guidance during my Master of Banking and Finance course. I also wish to thank my friends in Dong A Securities, Au Viet Securities, Thang Long Securities and China Trust Bank for their great support.
Finally, my greatest thanks would go to my family including my parents, my husband and my baby who are the greatest encouragement for me to overcome all difficulties in my life. i TIEU LUAN MOI download : skknchat@gmail.com ABSTRACT This thesis aims to add empirical evidence to the corporate finance literature by looking at firms’ dividend policy in the context of Hochiminh Stock Exchange (HOSE) of Vietnam as an emerging market. The thesis consists of five chapters. After an introductory chapter, the study reviews the existing literature on the dividend policy controversy with an emphasis on the recent empirical works.
The following third chapter provides the research methodology for the study. The study applies panel data procedures, random effects logistic regression, random effects generalized least square (GLS) regression and multinomial logistic regression to estimate and test the determinants of dividend policy of l09 firms listed on HOSE. While the main findings of this study which are consistent with theory are reported in the fourth chapter, there are new major insights that represent the special case of emerging markets in general and Vietnam in particular. These main insights, as well as the main conclusions of the study, are summarized in Chapter 5, including some limitations and recommendations for future research.
Our findings is that many of the factors that are found to be significant in the determination of dividend policy of the firms listed on HOSE are the same as those found in developed capital markets such as profitability, firm size and tangibility. Besides, we find that the listed firms on HOSE fail to pay dividend only because of making loss or too small profit in business operation, not because of having investment opportunities in the future. We also find some evidence to support the life cycle theory. Our findings suggest that firms with greater investment, as measured by growth rate of sales are more likely to prefer paying stock dividends to cash dividends.
Keywords: Dividend policy, Vietnam, HOSE. ii TIEU LUAN MOI download : skknchat@gmail.com CONTENTS Acknowledgement. iii List of Figures. vi List of Tables.
ix CHAPTER 1: INTRODUCTION 1. The usefulness of the research .5 The structure of the research. 4 CHAPTER 2: LITERATURE REVIEW 2. Dividend theories and concerned empirical studies.
Empirical studies on the determinants of dividend policy .11 iii TIEU LUAN MOI download : skknchat@gmail.12 CHAPTER 3: RESEARCH METHODOLOGY 3.1 Research sample description.1 Variables those vary both across firms and time.1 Return on assets (ROA).2 Variables that vary only across firms .3 Dependent variables – Dividend policy. Empirical model specifications .21 iv TIEU LUAN MOI download : skknchat@gmail.com CHAPTER 4: DATA ANALYSIS AND FINDINGS 4.3 Correlation matrix of explanatory variables .4 Results of Model 1.5 Results of Model 2.6 Results of Model 3.3 The implications of the research .4 Limitations and recommendations for future research .46 Appendix A – Regression results of 3 models.51 Appendix B – List of 109 non-financial firms, classified industries and beta .58 Appendix C – The Dividend Time Lines of 109 firms on HOSE 2007-2009 .62 Appendix D – Explanatory Variables calculated from Financial Statements .74 v TIEU LUAN MOI download : skknchat@gmail.com LIST OF FIGURES Figure 1. The structure of the research. Outline of chapter 3.
Summary of research data collection.15 vi TIEU LUAN MOI download : skknchat@gmail.com LIST OF TABLES Table 4. Summary of the industry structure. Summary of the dividend policy of 109 firms listed on HOSE. Summary of the dividend forms of payers listed on HOSE.
Descriptive statistics of the explanatory variables. Variance inflation factor (VIF) for the explanatory variables. Correlation coefficients among the explanatory variables. The reported results of Model 1.
Descriptive statistic of ROA of dividend non-payers and payers. The reported results of Model 2. Summary of current debts/total debts ratio. Summary of cash dividend per share of firms in the different classified industries.
The reported results of Model 3. Summary of revenues growth of cash dividend payers and stock dividend payers. Summary of dividend forms of firms in Basis Material sector. Summary of dividend forms of firms in Consumer Staples sector.
Summary of dividend forms of firms in Consumer Discretionary sector .38 vii TIEU LUAN MOI download : skknchat@gmail. Results of Model 1: Fixed Effects versus Random Effects. Results of Model 2: Fixed Effects versus Random Effects .39 viii TIEU LUAN MOI download : skknchat@gmail.com ABBREVIATIONS HOSE Hochiminh Stock Exchange DPS Dividend per share EPS Earning per share ROA Return on assets SIZE Firm size DEBT Financial leverage TANG Asset tangibility GROW Growth rate of revenues LOGIT Logistic regression GLS Generalized least square regression VND Vietnam Dong ix TIEU LUAN MOI download : skknchat@gmail.com Determinants of Dividend Policy CHAPTER 1 : INTRODUCTION 1. INTRODUCTION Problems concerning dividend policy have puzzled both academics and corporate managers for several decades.
Dividend may enhance the market value of the company but on the other hand it may mean less of available internal funds and more dependence on external sources for expansion purposes. Furthermore, while determining dividend payment, a prudent management strikes a balance between shareholder’s expectation and firm’s long term interest. A deeper understanding as to the motivation behind dividends will provide opportunity to better value stock, as most current stock valuation models include dividends as a key element. Besides, it might held the policy makers to find the loop holes and to craft a better policy for future.
Dividend policy decision is affected by many factors. These factors may vary substantially from country to country. Most of the studies on determinants of corporate dividend policy have been conducted using data from developed countries. To date, to the author’s knowledge, no quantitative study has been conducted using data from Hochiminh Stock Exchange (HOSE) of Vietnam and corollary of insufficient information for academics, policy makers and investors on Vietnam stock market.
This has inspired the author to conduct this study , which is expected to guide the dividend policy of Vietnamese companies. The remainder of this chapter provides general introduction about the usefulness of the research, the research objectives, research methodology and the structure of the research 1 TIEU LUAN MOI download : skknchat@gmail.com Determinants of Dividend Policy 1. THE USEFULNESS OF THE RESEARCH Firstly, this study provides insights and guidance for investors in choosing the kind of stocks having dividend payment level and dividend form suitable to their preference (details presented in chapter 4). Secondly, this study provides a useful caution that investors should not be fooled when the firms say “we do not pay dividend because we have investment opportunities”.
In fact, the listed firms on HOSE fail to pay dividend only because of making loss or too small profit in their business operation, not because of having investment opportunities in the future. In other words, the probability of paying dividend of firms listed on HOSE totally depends on their business profit. Finally, we also provide academics with empirical evidence on determinants of dividend policy of Vietnam stock market. Our findings is that many of the factors significant in the determination of dividend policy of the firms listed on HOSE are the same as those found in developed capital markets such as profitability, firm size and asset tangibility.
We also find some evidence to support the life cycle theory. Our findings suggest that firms with greater investment, as measured by growth rate of sales are more likely to prefer paying stock dividends to cash dividends. On the other hand, mix of both cash and stock dividend payers are associated with bigger firm size than cash dividend payers. RESEARCH OBJECTIVES The research is planned in the context of firms listed on Hochiminh Stock Exchange (HOSE) of Vietnam.
The main purpose of this paper is to investigate the dividend policies of the non-financial firms listed on HOSE for the period of 2007- 2009, and to explain their dividend payment behavior. Research questions are specified to solve research objectives as follows : 2 TIEU LUAN MOI download : skknchat@gmail.com Determinants of Dividend Policy Q1: What factors determine the probability of paying dividend of firms listed on HOSE? What reasons make the firms not pay dividends? Q2: What factors determine cash dividend per share of firms listed on HOSE? Q3: What factors determine the probability of choosing the different forms of dividend payment (stock dividend, or cash dividend or mix of cash and stock dividend)? Q4: Do firms in different classified industries have different dividend policies? 1. RESEARCH METHODOLOGY The paper uses a firm-level panel data set of 109 publicly traded non-financial firms on Hochiminh Stock Exchange between 2007 and 2009. The empirical steps to examine the above mentioned research objectives proceed as follows : Descriptive statistics Correlation matrix Using random effects logistic regression model to test the determinants of the probability of paying dividend Using random effects generalized least square (GLS) regression model to test the determinants of cash dividend per share of firms listed on HOSE Using multinomial logistic regression to test the determinants of the probability of choosing the different forms of dividend payment (stock dividend, or cash dividend or mix of cash and stock dividend) Stata software version 11 is used as an data analysis tool to implement this research.
3 TIEU LUAN MOI download : skknchat@gmail.com Determinants of Dividend Policy Figure 1. Methodology Literature review Theory/hypothesis/model Data collection Estimation and testing Are results No consistent Yes with theory? Conclusion and feedback 1. THE STRUCTURE OF THE RESEARCH The organization of the paper is as follows. The next section reviews some important previous studies abroad.
The third section describes the data and methodology. The fourth section presents the results and the last section contains the main conclusions of the study. The structure of the research is summarized in figure 1.2 as follows : 4 TIEU LUAN MOI download : skknchat@gmail.com Determinants of Dividend Policy Figure 1. Structure of the study Chapter 1 Introduction Chapter 2 Literature Review Chapter 3 Research Methodology Chapter 4 Data Analysis and Findings Chapter 5 Conclusion 5 TIEU LUAN MOI download : skknchat@gmail.com Determinants of Dividend Policy CHAPTER 2 : LITERATURE REVIEW 2.
INTRODUCTION This chapter reviews relevant theories and models of dividend problem in the literature. The purpose of this review is to provide the background for the research hypotheses as well as the research models which will help to test our mentioned research objectives in Vietnam stock market as an emerging market. DIVIDEND THEORIES AND CONCERNED EMPIRICAL STUDIES The bird-in-hand theory, a pre-Miller-Modigliani theory, postulates that investors prefer dividends from a stock to potential capital gains because of the inherent uncertainty of the latter. In other words, investors prefer the certainty of dividend payments to the possibility of substantially higher future capital gains.