The company's operations are determined by a small number of shareholders. Therefore, the concentrated ownership structure will increase the information asymmetry between internal shareholders and external shareholders. At the same time, a small number of shareholders holding a large number of shares will reduce the number of shares available for trading on the market, poor trading activities, increased transaction costs and limit the entry of other investors. When shareholders have different ownership purposes, it will lead to different trading behaviors and the trading behavior itself has a strong impact on TKCCP. The impact mechanism of concentrated ownership structure on TKCCP listed on the Vietnamese stock market can be explained based on the theory of asymmetric information and behavioral finance theory as follows:
Firstly, the strategic shareholder's goal is to invest in the long term to enjoy economic benefits and gain control, so the number of shares they hold is large and they hardly make any transactions for at least 03 years. Therefore, the number of shares available for trading on the market will decrease, trading activities will decrease, average transaction costs will increase and limit the entry of other investors.
Second, transactions of insiders and related parties such as members of the Board of Directors, Supervisory Board or founding shareholders are restricted and sometimes these transactions create noise signals in the market. Although the efficient market theory assumes that the behavior of investors in the market is completely independent of each other, behavioral finance theory explains that investors are always affected by rumors and crowd psychology. Outside investors always observe the trading activities of insiders because insiders have “inside information” and their buying/selling decisions are based on the analysis of inside information. Therefore, this behavior creates “crowd psychology” in the market, leading to the phenomenon of selling off or rushing to buy stocks, causing stock prices to fluctuate up/down abnormally.
Third, internal shareholders and related parties form a large group of shareholders holding a large number of shares, participating in management activities and having inside information of the company. With the advantage of information, the trading activities of this group of shareholders create noisy information in the market, especially in enterprises with low transparency and whose shares are not traded continuously in the market, the trading activities of this group of shareholders strongly affect the liquidity of the shares.
Therefore, transparent policies, information disclosure combined with a large number of shares available for trading are the main reasons for improving TKCCP in companies with dispersed ownership structures. Or increasing the ratio of freely transferable shares will help increase TKCCP listed on the Vietnamese stock market.
5.1.2.2. Sustainable Business Growth (VSGR)
Sustainable growth of enterprises has a positive impact on listed TKCCP. The higher the sustainable growth rate of enterprises, the better the TKCCP. A high VSGR ratio is a guarantee of sustainable asset growth of owners. When the income report of listed enterprises is announced, it will convey information to the market and affect the buying/selling decisions of investors. Because the decisions of investors are also anchored on basic economic signals.
According to the principle of efficient market distribution, investment capital will shift to enterprises with higher VSGR ratios and the stock prices of these enterprises will increase. Enterprises with high operating efficiency have higher "information" in stock prices, so the impacts from events outside the enterprise are limited. Stock price fluctuations depend on business results and prices are more stable when enterprises have good business performance. Therefore, when investment capital flows into stocks of these companies increase, trading volume increases sharply but has little impact on prices.
In addition, the requirements for information disclosure and transparency at these companies are also more stringent because the number of investors participating in evaluating business activities and monitoring enterprises has increased. Thus, at listed enterprises with high sustainable growth rates, stock liquidity is improved when stock transactions are conducted based on information and stock prices reflect the growth rates of listed enterprises.
5.1.2.3. State Ownership (SOE)
The characteristics of the transitional economy and the policy of equitization and divestment of State capital in listed enterprises have affected corporate governance, information disclosure policies as well as stock trading activities. The proportion of State capital has decreased recently, but the average level is still high in the ownership structure of listed enterprises. The State Capital Investment Corporation (SCIC) was established in June 2005 and officially operated in August 2006. The role of SCIC is to improve operational efficiency, increase competition of State enterprises, and at the same time separate the State management function from the function of representing State capital in enterprises; change the management method from administrative orders to capital investment and trading; the State plays the role of an investor and is equal to other investors in the market. It is expected that the process of State capital divestment will help improve the liquidity of stocks in the market.
The model testing results (MH7) are statistical evidence that SHNN has a nonlinear impact on TKCCP on the Vietnamese stock market and at the SHNN ratio of 11.72% is the threshold for reversing the impact on TKCCP from positive impact to negative impact with a confidence level of 95%. The nonlinear impact of SHNN on TKCCP can be explained as follows:
Firstly, the mechanism of impact of State shareholders on reducing TKCCP can be explained as follows: (i) State-held shares belong to the group of shares that are not freely transferable and the current large proportion of State-owned shares means that the number of State-owned shares available for trading on the market has decreased significantly. According to the offering regulations of some State-owned enterprises, specific industry groups such as restrictions on selling shares to foreign investors, shareholders after receiving the transfer do not transfer shares back to foreign investors and the low public offering rate makes investors concerned about the ability to trade, transfer and the shares of these enterprises are less attractive; (ii) at State-owned enterprises, State shareholders have an information advantage, thus increasing the situation of information asymmetry in the market; (iii) business goals are sometimes not for profit, so the operating efficiency of State-owned enterprises with large State-owned shares is often not high, which will affect the interests of other shareholders. These are the main reasons why the trading of stocks of these enterprises is less active, the average transaction cost increases and the liquidity of stocks decreases. The asymmetric information theory and the agency theory explain the impact of the large proportion of foreign ownership on the reduction of listed stocks on the Vietnamese stock market.
Second, on the contrary, it can be explained that the case where the State holds a moderate proportion will support the increase of TKCCP in the Vietnamese stock market as follows: (i) enterprises with large State-owned shares are usually enterprises with large market capitalization, specifically stock codes VCB, BID, VNM, GAS, BVH... The large number of outstanding shares and easy-to-find corporate information help investors increase investment opportunities for outside investors and save time and costs for conducting transactions; (ii) the advantage of scale has helped enterprises with large State-owned shares increase their competitiveness with enterprises in the industry. At the same time, the ability to access low-cost credit sources due to the "implicit guarantee" of the Government; (iii) in addition to the fields and industries in which the State needs to hold controlling rights, SCIC makes capital investments in industries, fields and projects that bring economic efficiency according to the provisions of law. Currently, the State still retains ownership in some industries with good growth potential. According to research data, in the period 2011-2019, such as insurance, banking, rubber products, and utilities, the profitability was good and the average state ownership ratio was 31%-52%. Thus, behavioral finance theory explains why when the state ownership ratio is below 11.72%, it will have a positive impact on listed TKCCP because of the "psychological trust" factor of investors in the State's guarantee, so the shares of listed enterprises with a state ownership ratio are chosen for investment.
In conclusion, SHNN has a nonlinear impact on listed TKCCP on Vietnam Stock Exchange and the results of this study are consistent with the conclusions in the study of Boubakri et al. (2017).
5.1.2.4. Dividend policy
Dividend payment method
The form of dividend payment combining cash and stock dividends (KH) helps to improve the best TKCCP, which can be explained as follows: First, paying dividends in stocks creates a larger number of outstanding shares, increasing stock transactions on the market. The issuance of stocks requires stricter information disclosure and transparency, reducing information asymmetry among shareholders. At the same time, splitting bonus shares will increase the proportion of freely transferable shares on the market. Second, when paying cash dividends, the stock price is adjusted down, so the income from the price difference of investors will decrease, so investors will choose larger cash dividends for stocks with lower liquidity. On the contrary, if investors expect the value of additional dividends in the future to be larger, they will accept to increase the number of shares held. Because investors' psychology and needs change over time or institutions change, investors have inconsistent demand for dividends. Therefore, the combination of cash and stock dividends helps to best improve the listed TKCCP on the Vietnamese stock market.
Dividend Payout Ratio (Pcs)
The nonlinear impact of the dividend payout ratio on TKCCP is explained as follows:
Firstly, high dividend payout ratio helps increase listed TKCCP because based on agency theory and signaling theory, dividends show that the enterprise has effective business operations and holds many promising projects in the future. Dividends are costly signals, so only enterprises that are truly effective are able to implement them. At the same time, dividends help reduce conflicts between owners and managers when corporate information is announced to external shareholders, ensuring fairness and benefits for small shareholders. Dividend payments increase the need for free cash flow of the enterprise. When enterprises use external capital sources, the requirement to disclose information about business operations is inevitable. Information disclosure and transparency help the market price stocks more accurately, so when the transaction value is large, the stock price fluctuation will also be insignificant. Therefore, dividends bring positive signals to TKCCP because dividends help improve trading activities, reduce average transaction costs and information asymmetry.
Second, the dividend payout ratio is too high, which will reduce the capital adequacy ratio. It can be seen that the Vietnamese stock market is not effective and any information about the policy announced will affect the stock price and capital adequacy ratio. Although dividends are distributed from the profit after corporate income tax and are a credit
Although the business is operating effectively, in reality, on the Vietnamese stock market, the rate of listed companies paying cash dividends exceeding their income still exists. The dividend payment rate of more than 100% shows that the listed company has used a part of its equity and retained earnings from previous years to pay dividends and is not based on the actual income scale of that year. Dividend policy becomes "noise information" for outside shareholders and is a tool for managers to "polish" the business in the market. This phenomenon occurs more frequently in businesses with poor information transparency policies, listed stocks with little trading activity and the majority of shareholders are major shareholders. This is the reason why the liquidity of stocks decreases when the dividend payment is too large.
5.1.2.5. Size of the enterprise
The larger the size of the enterprise, the higher the liquidity of the stock and vice versa. The positive impact of size on TKCCP can be explained by the following reasons:
Firstly, according to the principle of effective capital investment, Blue chips have high market prices but are always prioritized by cautious investors in their investment portfolios. Because, stocks of large-scale listed companies are assessed to have stable income, low risk, long development history and large market capitalization, while maintaining the ability to generate profits and pay stable dividends. The advantage of scale helps increase competitiveness with businesses in the industry. Expectations of increased income in the future make existing shareholders want to hold for a long time and at the same time, new investors are willing to pay more to own these stocks. With large-scale listed companies, the number of shares available for trading on the market will also be larger. Therefore, the stock prices and trading capital of these businesses increase.
Second, large listed companies are always attractive to investors, so the analysis of corporate information is carried out more frequently by individuals and organizations. Information about enterprises on the market becomes more available. Investors can save time and costs in searching for and analyzing information. Therefore, the liquidity cost when investing in small companies is larger than that of large companies due to the availability of corporate information on the market. In fact, according to the ranking of the "IR Awards Program", the group with large capital market capitalization always has a higher rate of meeting the standard than the group with small capital market capitalization. At the same time, when the scale increases, the need for funding sources will also increase, enterprises will need external capital sources and the requirement to provide information to the funding parties is inevitable. Information disclosure and transparency for large-scale listed companies are required more strictly, so it reduces information asymmetry between shareholder groups and increases TKCCP.
5.2. Recommendations to increase liquidity of listed stocks on the Vietnamese stock market
5.2.1. Recommendations to the Government
State ownership ratio in listed enterprises
The equitization and divestment of state-owned enterprises associated with listing activities during this period contributed a large amount of supply, increasing the size of the stock market. The research results show that the high proportion of state-owned enterprises in listed enterprises reduces the total value of shares, so accelerating the divestment of state capital in enterprises and industries that do not require state control is a measure to increase the total value of shares. The threshold model results suggest that the maximum level of state holding is approximately 11.72%, further consolidating the contribution of the state divestment process to improving the total value of shares listed on the Vietnamese stock market.
Although the Government has made great efforts to accelerate the equitization and divestment of State capital, by the end of the 2016-2020 period, there were still 89 State-owned enterprises that had not been equitized and the State capital divestment process was still slower than planned. Therefore, Decision No. 908/QD-TTg was issued on June 29, 2020, replacing Decision No. 1232 of 2017 approving the list of enterprises to divest State capital by the end of 2020, including 138 enterprises, with the aim of accelerating the divestment progress. In fact, in the Vietnamese stock market, the proportion of State capital still accounts for a large proportion in the ownership structure of State-owned enterprises. According to collected data, the proportion of State capital is 21.58%, foreign investors is 10.14%, domestic shareholders including individual and institutional investors is 17.39%. The proportion of enterprises with foreign ownership greater than 50% accounts for about 15% of the total 681 listed enterprises.
The process of State capital divestment has been strongly promoted since 2016, however, the State capital divestment from 2011-2018 has not changed much, only fluctuating between 22.28% - 25.22% and by 2019 there was a sudden decrease to 10.4%. According to regulations, a holding ratio greater than 5% is considered a shareholder and is subject to constraints when conducting stock transactions. Some listed enterprises still maintain a relatively high level of State capital divestment, research data shows that there are 87 enterprises with a State capital divestment ratio greater than 75% such as GAS, BID, AGR, BTS, BTP, VCB, PLC... The ownership ratio of 75% allows shareholders to have the right to control and approve all decisions of the company. It can be seen that, despite the process of transformation and equitization of State-owned enterprises, by 2019, SHNN was still very large with the State ownership ratio greater than 11.72%, accounting for about 40%. The research results recommend that the State should maintain the ownership level in State-owned enterprises at about 11.72% to increase the liquidity of stocks. Especially in enterprises with effective production and business activities and high sustainable growth rates to simultaneously increase the value of assets for the State and improve the liquidity of stocks.
In addition, the reality of the equitization and divestment process of State capital raises the following requirements: determining the value of equitized enterprises to avoid loss of State capital; clearly defining the responsibilities of valuation organizations; auctioning according to market mechanisms to attract strategic investors and professional investors. At the same time, for listed enterprises with State capital, it is necessary to improve management capacity and business efficiency, implement policies of public disclosure and transparency of information on business activities, dividend policies or transactions of insiders....
Dividend policy regulations
Research results on the nonlinear impact of dividend policy on stock liquidity. Correspondingly, if DNYY pays dividends higher than VND 8,703/share, TKCCP decreases and vice versa, if DNNY pays dividends less than VND 8,703/share, TKCCP increases. In the period of 2014 - 2019, DNNY has a cash dividend rate higher than earnings per share (EPS) by 10% - 14% out of a total of 681
DNNY on 2 SGDCK. With dividend payout ratio calculated by formula Pcs = ୈ ୗ ∗
ୗ
100% , Table 5.3 shows the dividend payout ratio of DNNY over the years.
Table 5.3. Statistics on the number of listed companies by dividend payment ratio over the years
Year
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
Pcs<0 | 6 | 7 | 4 | 8 | 6 | 2 |
Pcs>100% | 73 | 49 | 51 | 66 | 52 | 49 |
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Source: Author collected and calculated from ***
The data shows that the number of listed companies with Pcs ratios less than 0 - that is, these listed companies have loss-making operations but still pay dividends and Pcs greater than 100%, corresponding to the listed companies paying dividends greater than the income generated in the year. This is completely inconsistent with the dividend payment regulations in Enterprise Law No. 68/2014/QH13. Paying dividends becomes a tool for managers to "polish" the company in the market and consolidate their position in the company. When dividends are not implemented in their true nature and combined with regulations on adjusting market prices on the shareholder record date, it leads to sharp fluctuations in stock prices. In addition, there are some companies that owe dividends for more than 6 months to more than 1 year and the delay in paying dividends causes harm to shareholders. Enterprises do not comply with the law on dividend payment, but there are no clear regulations on penalties for late payment of dividends and for enterprises paying dividends higher than the scale of after-tax profits. Therefore, the government needs to issue regulations and sanctions for these cases, avoiding dividend policy as confusing information for investors in the market.
5.2.2. Recommendations to the State Securities Commission and the Stock Exchange
Concept of TKCCP and TKCCP measurement
The important role of liquidity for market participants has been mentioned in many theoretical and empirical studies. However, the term “liquidity” in general and “liquidity of securities” in particular have not been mentioned in legal documents related to Securities and the Stock Market in Vietnam. The concept of liquidity and liquidity measures need to be studied and supplemented in legal documents. The market needs to understand the true nature of liquidity in order to measure it effectively. Measures of liquidity also need to be published and explained in legal documents.
At the same time, the liquidity value of each stock and the industry average should be published as a criterion to assess the quality of listed stocks to support investors' decision making and evaluate market efficiency.
Raising the standard conditions for the ratio of freely transferable shares with CPNY
The State Securities Commission and the Stock Exchange are studying to add the free float ratio to the listing and maintenance conditions and to raise the free float ratio in the index construction principles. The free float ratio fluctuates between 48.5% and 51.4% - this is not a high ratio compared to other countries in the same Asian bloc such as the Thai stock market at 81.7%; the Indonesian stock market at 71.6%; the Malaysian stock market at 75.6% and the Philippine stock market at 69.8%; the emerging market group has an average ratio of 71.2%.
Table 5.4. Percentage of freely transferable shares over the years
Year
2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
Free-float > 5% | 594 | 595 | 588 | 590 | 587 | 587 |
Average free-float | 48.5% | 48.9% | 50.5% | 51.4% | 51.1% | 49.2% |
Free-float > average | 275 | 269 | 279 | 273 | 276 | 271 |
Source: Author's calculation and collection from ***
Table 5.4 shows the number of listed companies with a Free-float ratio greater than 5% and a Free-float ratio greater than the annual average value. The 5% level is determined according to the criteria for evaluating stocks for the VN-Index and HNX-Index baskets. Thus, among the listed companies conducting the research, approximately 14% of listed companies do not meet the requirements for this index. The average annual Free-float ratio does not fluctuate much with the highest value in 2014 being 53.8% and the lowest in 2019 with 49.79%. The dispersion of the Free-float ratio is relatively large for