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 – 2016 Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 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.Prof HO VIET TIEN Asso.Prof BUI KIM YEN HoChiMinh City – 2016 Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 i TABLE OF CONTENTS List of Abbreviations List of Tables List of Figures Chapter 1: Introduction 1.1 Research motivation 1.2 Research objectives 1.3 Research questions 1.4 Research scope 1.5 Research methods 1.6 Research contributions 10 1.7 Structure of the study 11 1.8 A summarize of thesis findings 13 Chapter 2: Literature review and Hypotheses development 16 2.1 Introduction 16 2.2 Theoretical literature on SEOs 16 2.2.1 Trade-off Theory 16 2.2.2 Growth Opportunities Theory 18 2.2.3 Market timing theory 20 2.2.4 Agency problem theory 23 2.2.5 Efficient Market Hypothesis 24 2.3 Literature review on SEOs empirical studies 27 2.3.1 Determinants of company’s SEOs motivation 27 2.3.1.1 Trade-off theory 27 2.3.1.2 Growth Opportunities Theory 28 2.3.1.3 Market timing theory 30 Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 ii 2.3.1.4 Agency problem theory 32 2.3.2 Market’s reactions to company’s SEOs 33 2.3.2.1 Growth Opportunities Theory 33 2.3.2.2 Market timing theory 35 2.3.2.3 Efficiency market hypothesis 37 2.4 Hypotheses building and variable measurements 40 2.4.1 Determinants of company’s SEOs motivation 40 2.4.2 Market’s reaction to company’s SEOs 43 2.5 Conclusion 45 Chapter 3: Data and methodology 47 3.1 Data 47 3.2 Methodology 51 3.2.1 Determinants of company’s SEOs motivation 51 3.2.2 Market reaction to company’s SEOs 56 3.2.2.1 Event study 56 3.2.2.2 Determinants of market reaction to company’s SEOs 64 Chapter Determinants of company’s SEOs motivation 71 4.1 Statistics summary 71 4.1.1 Distribution of SEOs over the sample period (2007-2013) 71 4.1.2 SEOs probability description 73 4.2 Determinants of company’s SEOs motivation 79 4.3 Determinants of company’s SEOs motivation by issuance method 85 4.4 Conclusion 91 Chapter Market’s reaction to company’s SEOs 92 5.1 Data description 92 5.2 Market reaction to company’s SEOs 93 5.2.1 Market reaction around announcement day 93 Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 iii 5.2.2 Market reaction around ex-right day 102 5.3 The relation between announcement day and ex-right day 111 5.4 Determinants of market reaction to company’s SEOs 112 5.4.1 Determinants of market reaction around announcement day 112 5.4.2 Determinants of market reaction around ex-right day 117 5.5 Conclusion 122 Chapter Conclusion and Suggestion 124 6.1 Conclusion 124 6.2 Suggestion for stakeholders 126 List of publications References Appendices Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 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 Table 3.1: VNIndex and Market capitalization of listed domestic companies (% of GDP) in 2006 -2013 50 Table 3.2 Classification criteria: 51 Table 3.3 SEOs-motivation independent variables description 55 Table 3.4 SEOs-price reaction independent variables description 69 Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 v Table 4.1 Distribution of SEOs over the sample period (2007-2013) 71 Table 4.2 SEOs probability data description 73 Table 4.3 Characteristics between SEOs companies and non-SEOs companies 75 Table 4.4 SEOs description by issuance method 78 Table 4.5 SEOs conducting probability 83 Table 4.6 Average marginal effects on SEOs probability 84 Table 4.7 SEOs by equity right and by equity bonuses or dividends probability 88 Table 4.8 Average marginal effects on SEOs equity right and by equity bonuses or dividends probability 90 Table 5.1 Characteristics of SEOs companies around event day data description 92 Table 5.2 AAR and CAR around announcement day 95 Table 5.3 AAR and CAR around announcement day in favorable and unfavorable market timing 97 Table 5.4 Market reaction around announcement day divided by criteria 100 Table 5.5 AAR and CAR around ex-right day 103 Table 5.6 AAR and CAR around XR day in favorable and unfavorable market timing 106 Table 5.7 Market reaction around announcement day by criteria 109 Table 5.8 Determinants of market reaction around SEO announcement day 116 Table 5.9 Determinants of market reaction around SEOs ex-right day 121 Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 vi LIST OF FIGURES Figure 1.1: Listing value and Market capitalization Figure 1.2: Research methods Figure 2.1: Conceptual framework 39 Figure 5.1 Relation between AD and XR 111 Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 CHAPTER 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 Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 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 mid2007 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 al., 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 al (1999) for Malaysia; Tan et al (2002) for Singapore; Marisetty et al (2008) for Indian, the findings of Cahit (2006) for Turkey; Chen et al (2007) and Shahid (2010) for China; and Lerskullawat (2011) for Thailand, on the other Viết thuê luận văn thạc sĩ, luận án tiến sĩ Mail : luanvanaz@gmail.com Phone: 0972.162.399 ... in Vietnamese market, especially to discover how much Vietnamese stock market can catch up with mature market This research also examines Vietnamese stock market characteristics, Vietnamese investors... Manufacturing industry SER: Service FBI: Financial – Banking – Insurance services AFF: Agriculture, Fishery and Forestry LIST OF TABLES Table 1.1: Vietnamese lending interest rate Table 3.1:... widespread and of interest in Vietnam Furthermore, SEOs on Vietnamese stock market also draw attention from researchers e.g Nguyen Quang Diep (2011) examines capability of Vietnamese investors in evaluating