UNIVERSITY OF ECONOMICS ERASMUS UNIVERSITY ROTTERDAM HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES VIETNAM THE NETHERLANDS VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS SELLERS'S REACTIONS TO TAKEOVER RUMOURS AND ANNOUNCEMENTS BEFORE M&A: THE EVENT STUDY ON HOSE BY NGUYEN THI HONG NGOC MASTER OF ARTS IN DEVELOPMENT ECONOMICS HO CHI MINH CITY, DECEMBER 2017 123doc UNIVERSITY OF ECONOMICS ERASMUS UNIVERSITY ROTTERDAM HO CHI MINH CITY INSTITUTE OF SOCIAL STUDIES VIETNAM THE NETHERLANDS VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS SELLERS'S REACTIONS TO TAKEOVER RUMOURS AND ANNOUNCEMENTS BEFORE M&A: THE EVENT STUDY ON HOSE A thesis submitted in partial fulfilment of the requirements for the degree of MASTER OF ARTS IN DEVELOPMENT ECONOMICS By NGUYEN THI HONG NGOC Academic Supervisor: DR. VU VIET QUANG HO CHI MINH CITY, December 2017 123doc DISSERTATION DECLARATION I declares that I am the sole author of "Seller's Reaction to Takeover Rumours and Announcements before M&A: The event study on HOSE", and to the best of my knowledge and belief that all of outcomes included data, ideas and analyzed is written or published another by neither person. Besides, I also declare that my thesis has not been summited or being simultaneous submitted for any Degree, Diploma or any other University or any educational institution. Date: December 01, 2017 Signature: Nguyen Thi Hong Ngoc 123doc ACKNOWLEDGEMENTS The dissertation could not be possible without the genuine encouragement of many great and wonderful people.
First and foremost, I would like to express my whole-hearted gratitude to Dr. Vu Viet Quang. He has truly dedicated to instructing us from the head start of the thesis and has given me deep motivation and clear guideline so that I can implement the research project in the right way. In addition, he has also given me a chance to learn from trials and errors with specific advice for each progress report so that I can make the gradual improvement.
Moreover, I also would like to send my truly sincere my thanks to all of my team "Cao Hoc Ha Lan" in VNP, who has always supported me, read a lot of my revisions, and given me professional feedback and advice. Khang and Ms. Ha provided helpful comments, insights, and also a different perspective to the discussion along the way. Furthermore, I would like to thank the Vietnam - The Netherlands Program for M.A in Development Economics for imparting me invaluable knowledge and creating a great space for me during my study period.
I also wish to thank the Doctors who taught me in the M.A environment for giving me an opportunity to study and providing knowledge in the most beautiful university. Sincere thanks are also given to the staff of University of Economics Ho Chi Minh City for their help and support to me. Finally, I would like to thank my family, my lover, and close friends for their love and motivating me to higher achievements. Again, many thanks and my honest gratitude to all of you.
123doc ABSTRACT This paper examines the trading activity of target firms in the days before acquisition announcement. Using a sample of acquisition announcements in HOSE during the period of 2012 - 2016, the results showed that significantly abnormally trading volume precedes share price movements. In order words, using intraday data, active-selling in target shares in pre- announcement increased, which compensates rising active-buying. It means that sellers might lose a lot of money if an unexpected acquisition occurs.
Thereforee, the explanations showed that sellers are the mixture of liquidity and noise traders who overreact to takeover rumours. Furthermore, it might lose money when an acquisition is actual. It is consistent since most cases of acquisition rumours are materializing into public announcements. Results also provide evidence that highly uncertain information in takeover rumours are reflected by pre- announcement 123doc TABLE OF CONTENTS: CHAPTER 1: INTRODUCTION.
Problem Statement and Significance Research. The Research Objectives and Research Questions. 3 CHAPTER 2: LITERATURE REVIEW. Prior Research on Pre-announcement Trading Activity.
Prior Research on Takeover Rumours. 7 CHAPTER 3: HYPOTHESIS DEVELOPMENT. Abnormal Returns and Abnormal Trading Volume in The Pre-announcement. Sell-Side Trading Before Announcement Day.
Rumours are reasons why increasing trading volume lead to price movement. 11 CHAPTER 4: DATA AND METHODOLOGY.1 Selection of Target Firms and Matching Firms. Differences-in-Differences Estimation .1 Measuring Abnormal Returns .2 Measuring Abnormal Trading Activity .3 Measuring Abnormal Relative Spread .4 Measuring Abnormal Quoted Depth .5 Shorting Takeover Rumours - Measuring Abnormal Returns .6 Robustness Test – Multiple Rumours. 20 CHAPTER 5: FINDINGS AND DISCUSSIONS.
Daily Returns and Trading Activity. Trade Imbalances in Buy-side and Sell-side Transaction. Change in Ask-Bid Spread and Quoted Depth. Takeover Rumours: Noise and Rational Traders.
Robustness test – Multiple Rumours. Relation between Takeover Rumours and Highly Trading Volume-Leading-Returns. 48 123doc CHAPTER 1: INTRODUCTION 1. Problem Statement and Significance Research During the post-WTO globalization process, Mergers and Acquisitions (M&A) in Vietnam became serious, which might be a complex signal of the economy’s next period of transition (Vuong et al, 2014).
In 1990–2010, M&A data in Vietnam showed that foreign firms attempt to acquire domestic ones by M&A about 79. Vietnam’s M&A wave happens with anomalies and transactional characteristics, especially it could help explain economic occurrence consisting of security, banking, non-bank financial, portfolio investment, and real estate market (Vuong, 2010). According to Bloomberg (2016), M&A deal activities continue to expand in Vietnam and are looking ahead to hit a fresh record, indicating that M&A models as investment trends are booming strongly in the market. Moreover, they also offered a new opportunity for investors or country’s deeper and wider development.
The booming of M&A in Asia has caught the attention of both investors and academia (Wright et al, 2005). When corporate acquisition is announced, it is considered as a major new event for trading volume of the target firm. While many previous studies have found evidence on stock price run-ups and high trading volume in pre-announcement, the controversy on pre-announcement trading in target stocks highly indicates the non-criminal market anticipation or insider trading. From various kinds of previous literature reviews, most studies on the effects of M&A announcements focus on developed countries.
There were few studies in emerging countries, especially in Vietnam. The investigation of abnormal returns around the day of M&A announcement is analyzed for ten emerging countries in Asia by J. Ma, Pagan, & Chu (2009). The findings showed that it has a positive reaction to the announcement of M&A deals.
Almost all studies aim to investigate abnormal returns in post-announcement that are advantages of active arbitrages. These active arbitrages might be against the efficient market and have a certain impact on abnormal returns. However, Vietnam’s stock markets have a primary market, different from the previous studies. Hence, the investigation of an anomaly, which an abnormally high volume precedes the price movement in Vietnam, is a motivation.
Moreover, the results from previous researches also showed that increased in both price and trading activity before the announcement. Then, there are a lot of debates of whether the pre- announcement trade reflects insider trading or non-criminal market anticipation. 1 123doc Notwithstanding, this study will focus on the abnormally high volume preceding the price movement. Based on these findings, it is the motivation to examine the phenomenon of the volume-leading-return with the Vietnam’s dataset and then by explaining its actuality.
Furthermore, the trading activity translates into the price discovery before the announcement day, or an extreme informational event will be shed light. Compared with corporate activities, the predications of acquisition announcements are so rare. However, if investors who can anticipate these acquisition, their profits can be high. Thereforee, takeover rumours, often preceded the announcement, may reflect these substantial incentives for investors.
It is an opportunity to study how the market operates with the highly uncertain information impact on stock prices. Most previous studies examine trading activity on target stock at the time surrounding the announcement period focus on buyer-initiated trades (Gao & Oler, 2012). The price run- up is due to insider trading assumed by Keown & Pinkerton (1981). Thus, this study will focus on share transactions both buying-active and selling-active which are contradictory.
In term of every transaction, it is obvious that it has a buy side and a sell side, but the “active” for buying or selling is determined by the initiating party. The transactions from active sellers or buyers usually are started by posting a market sell or buy order for a transaction immediately. Besides, the transaction is facilitating for passive buyers and sellers. While most previous research studies used buy-side transactions since they are able to be initiated by potential acquires constructing a toe hold in targets, the seller-side is less clear (Gao & Oler, 2012) (Vuong, Tran, & Nguyen (2009) showed that using a particular case study, under pressure of unspecified source M&A rumours, Vietnamese investors often quickly spent money on any stock.
Due to lack of a system for tracking M&A transactions, they just collected a part of the attributes – buy active for their data. Thereforee, this study will be motivated to make completely of the lack of data’s Vuong, the sell-side will be collected and examined. Thereforee, using intraday data, this study will show a phenomenon which increased transactions on both active buy-side and active sell-side. However, a question asks why sellers sell their target stocks before acquisition announcements.
Meanwhile, sellers could wait a bit longer and get profits. To investigate this problem more deeply, the study follows the previous way, used by Gao in 2008 methodology that evaluated the active “money- losing” selling in target stocks before takeover announcements with three possible explanations. 2 123doc Following the previous studies, this study focuses on the trading activity of target firms in the days before acquisition announcement. This study will expand Vuong’ results with larger data for all cases of M&A from 2012 to 2016 with 542 deals at Ho Chi Minh Stock Exchange (HOSE).
The abnormal returns and abnormal trading volume are examined by using M&A announcement data. Then, by using Gao & Oler (2012) methodology, the takeover rumour data are collected with 419 rumours between 2012 and 2016 to investigate “money-losing” sellers. The Research Objectives and Research Questions In particular, the study attempts to answer why sellers sell their target stocks before acquisition announcement. There are three main objectives.
This study uses Zephyr’s data and data stream from 2012 to 2016. The first objective is to find the evidence that abnormally high volume precedes the price movement before announcement date by using intraday data and comparison of trading volume and returns in target stocks. Then, the phenomenon of the increase in transactions on both buy-active and sell-active is showed. The second objective is to evaluate possible explanations for the sellers sell their target stocks by divide sellers into three groups: liquidity traders, noise traders and rational traders.
While liquidity trader is evaluated by expecting increased liquidity follow Lee-Ready algorithm approach, noise traders and rational traders are classified into two kind of investors who get profits or lose money by calculating buy-and-hold abnormal returns around 70 trading days. The third objective is to examine whether rumours are the reasons why high volume precedes the price movement. The final objective investigates whether a company has more than one deals, and whether different sellers react in the same ways. The empirical contribution of this study is to utilize the latest data about M&A in Vietnam in 2012 to 2016 to study the trading activity of target firms in the days before acquisition announcement.
These results provide insight into the M&A environment in Vietnam through stock activations where the market reacts to both certain information (M&A announcements and uncertain information (takeover rumours). With more doubt on the future, the findings also contribute to the kind of investors in Vietnam and policies relevant to Vietnam in term of protecting investors against insider trading and non-criminal market.