THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING PHAM THI ANH THU ASYMMETRIC INFORMATION AND INVESTMENT DECISIONS: EVIDENCE FROM VIETNAM BACHELOR THESIS MAJOR: FINANCE – BANKING CODE: 7340201 Ho Chi Minh City, November 2022 THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION AND TRAINING HO CHI MINH UNIVERSITY OF BANKING Student name: PHAM THI ANH THU Student code: 050607190515 Class: HQ7-GE14 ASYMMETRIC INFORMATION AND INVESTMENT DECISIONS: EVIDENCE FROM VIETNAM BACHELOR THESIS Major: FINANCE – BANKING Code: 7340201 ACADEMIC ADVISOR DR. VUONG THI HUONG GIANG Ho Chi Minh City, November 2022 ABSTRACT This paper investigates the impact of asymmetric information on the investment decisions of firms and analyzes the effect of several internal factors on investment decisions of firms. Further, we come up with some new practical solutions, policy implications for the policy makers and recommendations for the managers of enterprises. We use data from DataStream of 259 non-financial firms with 1,789 firm-year observations collected from two stock exchange markets in Vietnam covering a 10-year period from 2011 to 2021.
We apply the least squares based on Pooled OLS (Pooled Ordinary Least Square), Fixed-Effect Model (FEM) and Random-Effect Model (REM), two-step GMM (two-step generalized method of moments) to analyze the data. The findings reveal that fundamentally, information asymmetry in Vietnamese non-financial firms has a negative impact on the investment decisions of firms. Further, the results also find that the financial leverage and cash is an important determinant of investment decisions and have a positive impact on firms‟ investment decisions. The study is the first in Vietnam that contributes empirical evidence for the negative impact of information asymmetry on the investment decisions of non-financial firms in Vietnam – a typical emerging country.
Keywords: Asymmetric information, Investment, Over-investment, Leverage, Non-financial firms, GMM, Vietnam. i DECLARATION OF AUTHENTICITY This thesis with the topic “Asymmetric information and investment decisions: Evidence from Vietnam” is the author's research work and the research results are honest. There are no previously published contents or contents made by other authors except for the cited references which are from clear sources presented in the thesis. The author would like to be responsible for my commitment.
Ho Chi Minh City, November 2022 Student in charge Pham Thi Anh Thu ii APPRECIATION This thesis would surely not be possible without the dedicated help of my teacher. First and foremost, I would like to express my deep gratitude to my advising instructor – Dr. Vuong Thi Huong Giang who has always followed closely, supported, encouraged, and provided sincere comments so that I can finish this thesis. Second, I would like to express my special thanks to Mr.
Nguyen Thanh Binh and Ms. Ma Thi Thuy Trinh – mentors of my intern course at SSI security joint stock company. They have encouraged me, while helping me find documents and giving me practical advices. In addition, I would like to express my thanks to the lecturer at Banking University of Ho Chi Minh City for creating such favorable conditions in the process of study and as well as doing my thesis.
Finally, I would also like to thank my family for their encouragement in the process of doing my bachelor thesis as well as in my four-year journey in University of Banking. Ho Chi Minh city, November 2022 Author Pham Thi Anh Thu iii TABLE OF CONTENTS ABSTRACT. i DECLARATION OF AUTHENTICITY. iii TABLE OF CONTENTS.
iv LIST OF ABBREVIATIONS. vii LIST OF TABLES. viii LIST OF APPENDICES. Research background and research gap.
Research scope and methodology. Theoretical literature review. The Lemons‟ theory. The Signaling theory.
The Screening theory. The Pecking Order Theory. The Agency theory. The Free cash flow theory.
Empirical literature review. The impact of information asymmetry on the investment of firm. The impact of leverage on the investment of firm. The impact of cash flow on the investment of firm.
The impact of growth sale on the investment of firm. The impact of profitability on the investment of firm. The impact of size on the investment of firm. Information asymmetry measurement.
Remaining variable measurement. Empirical methods and analytic model. RESULTS OF RESEARCH. Descriptive statistics and correlation.
CONCLUSION AND RECOMMENDATION. Policy implications for the policy makers. Recommendations for the corporate managers. Limitation and recommendation for further research.
71 vi LIST OF ABBREVIATIONS AEC ASEAN Economic Community ASEAN Association of Southeast Asian Nations FEM Fixed effects model HOSE Ho Chi Minh City Stock Exchange HNX Hanoi Stock Exchange GMM Generalized method of moments Organization for Economic Co-operation OECD and Development OLS Ordinary Least Square POT Pecking order theory REM Random effects model SSC State Securities Commission of Vietnam TPP Trans-Pacific Partnership VIF Variance inflation factor WTO World Trade Organization vii LIST OF TABLES Table 2. A summary of relevant empirical research. A summary of variables. Pooled OLS regression.
Statistical hypothesis testing table of the Pooled-OLS model. Evaluating the suitability of regression models. Statistical hypothesis testing table of the FEM model. Robust test for GMM model.
44 viii LIST OF APPENDICES Appendix 1. Multicollinearity test of Pooled-OLS. Heteroskedasticity test of Pooled-OLS. Autocorrelation test of Pooled-OLS.
Estimated results from Pooled-OLS regression. Estimated results from FEM regression. Estimated results from REM regression. Multicollinearity test of FEM.
Heteroskedasticity test of REM. Autocorrelation test of REM. Estimated results from GMM regression. Robust test for GMM model.
INTRODUCTION This chapter depicts the introduction of the research. It comprises the research background, research question, research objective, research scope and methodology, and research structure. Research background and research gap Investment decisions are considered the most important decisions in corporate financial management due to they create the value of the business. And the enterprise‟s value is the basic and inevitable goal that any manager, shareholder or investor of the business is aiming for.
Investment decisions affect the working capital, inventory, cash balance of the business, financial leverage and many other decisions. Therefore, a right investment decision will contribute to increasing the enterprise value, thereby increasing the asset value for the owner, whereas a wrong investment decision will cause loss of business value, resulting in property damage to the business owner. Although, every business strives to make better investment decisions, deviates from investment efficiency resulting in over-investment or under-investment. There are many literatures that identify the reasons for investment inefficiency, and in this paper, the author focuses on studying the influence of information asymmetry on firms' investment decisions.
This thesis is conducted in the context of Vietnam, an emerging country with rapid development in recent decades. Driven by the opening and reforming economy since 1986, Vietnam proactively participates in many international organizations and agreements such as WTO, TPP, ASEAN, AEC, etc. To meet the requirements of these international organizations and agreements, Vietnam positively commits towards financial integration with international standards and transparency in information disclosure and Vietnam's stock market also strives to upgrade the market by 2025 (according to the press release of July 4, 2022 by the Ministry of 1 Finance). However, from the beginning of 2022 up to now, Vietnam's stock market has entered a period of significant depression.
Compared to the peak point at June 4, 2022, VN-Index at November 16, 2022 has decreased significantly by merely 38%. In many times, Vietnam's stock market ranked first in terms of price decline worldwide (according to Blomberg). In the information announced on November 11, 2022, the State Securities Commission of Vietnam informed that fluctuations in Vietnam's stock market in the past stem from many reasons, both domestic and international events. Specifically, according to the SSC, after the economic support policy after the Covid-19 pandemic, inflation has increased sharply in many parts of the world.
The Fed and many countries around the world stepped up tightening monetary policy to control inflation, leading to a wave of increasing interest rates. Concerns about slowing global economic growth due to high inflation, supply chain disruptions, global tightening, the world geopolitical situation, and especially negative market sentiment due to the arrests of several major company presidents related to stock manipulation and corporate bond issuance. The SSC informed that information disclosure violations still account for a high proportion of over 50% of the total sanctioned violations. From that, it can be seen that the information asymmetry that exists on the Vietnamese stock market and becomes more and more urgent.
Because, the more transparent the market is, the more investors can participate, especially foreign investors. Only then, our country's stock market will develop sustainably and be able to compete with the stock market in the region, aiming to upgrade the market in 2025. Understand the importance of information asymmetry to the stock market in general and to the investment decisions of enterprises in particular. In addition, noting that the findings of research in developed economies cannot be generalized to apply to emerging economies like Vietnam.
And finally, there is no research paper 2 in Vietnam to analyze the relationship between information asymmetry and investment decisions of enterprises while this issue is burning recently. Therefore, with the desire to apply economic knowledge in practice to contribute to solving the difficulties of financial managers in companies in Vietnam today, we chose to study the topic: Asymmetric information and investment decisions: Evidence from Vietnam. Aiming to examine the impact of asymmetric information to the investment of firms. Further, we explore the impact of leverage on firm investment and also examine the impact of the variables such as growth, profitability, cash and size to investment (Ahmad, Hunjra, and Taskin, 2021).
Finally, we come up with some new practical solutions to improve the financial management efficiency of Vietnamese's non-financial firms and increase knowledge. Our firm-level data include 259 non-financial listed companies with 2,216 firm-year observations collected from two stock exchange markets in Vietnam (HOSE and HNX) covering a 10-year period from 2011 to 2021. Least squares based on Pooled OLS (Pooled Ordinary Least Square), Fixed-Effect Model (FEM) and Random-Effect Model (REM), Two-step Generalized Method of Moments (GMM) are employed to analyze data. This study would provide us with comprehensive insight into the relationship between information asymmetry and firm‟s investment in Vietnam - a less developed market.
Research objectives The study investigates the impact of asymmetric information on the investment decisions of Vietnamese non-financial firms. Further, we examine the effect of firm‟s characteristics (including leverage, cash flow, growth, profitability and size) on the investment of firms. Subsequently, evaluate solutions to the problem of asymmetric information in investment decisions of non-financial firms in Vietnamese and come up with some 3 new practical solutions, policy implications for the policy makers and recommendations for the corporate managers. Research question This thesis is aimed to solve some issues: - Does asymmetric information affect the investment decisions of Vietnamese non-financial listed firms and how it affected? - How do the firm‟s characteristics affect investment decisions of Vietnamese non-financial listed firms? - What are the policy implications and recommendations to be drawn from the study? 1.
Research scope and methodology The thesis conducts research based on a data sample of non-financial firms listed on Ho Chi Minh City Stock Exchange and Ha Noi Stock Exchange over the period of 2010-2021. This research applies the Least squares based on Pooled OLS, FEM and REM, Two-step GMM to analyze data following Huynh, Wu, and Duong (2020). Research structure Chapter 1: Introduction The first chapter depicts the background of the research, research question, research objectives, general methodology and scope and research structure. Chapter 2: Literature Review and hypotheses development 4 Chapter two presents the definition of asymmetric information, leverage and reviews relevant studies, which are separated into theoretical and empirical studies.
Beside that, developing the hypotheses for the research‟s function.