MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY
◆
RESEARCH ON THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND PROFITABILITY OF LISTED COMPANIES ON THE VIETNAMESE STOCK MARKET
DOCTORAL THESIS IN FINANCE - BANKING
HANOI - 2019
MINISTRY OF EDUCATION AND TRAINING
NATIONAL ECONOMICS UNIVERSITY
◆
RESEARCH ON THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND PROFITABILITY OF LISTED COMPANIES ON THE VIETNAMESE STOCK MARKET
Major: FINANCE - BANKING Major code: 9340201
DOCTORAL THESIS
HANOI - 2019
COMMITMENT
I have read and understand the academic integrity violations. I declare on my personal honor that this research is my own work and does not violate the requirements of academic integrity.
Hanoi, date month year 2019
Thesis author
ACKNOWLEDGEMENTS
The author would like to sincerely thank the staff and lecturers of the Institute of Banking and Finance and the Graduate School, National Economics University for their enthusiastic support during the process of writing the thesis. In particular, the author would like to express his deep gratitude to the two supervisors who have enthusiastically guided, supported and encouraged the author during the process of writing the thesis. The author would also like to express his sincere thanks to his friends, colleagues and family who have always been by his side during the process of studying and researching.
Despite many efforts, the thesis cannot avoid limitations and shortcomings. The author looks forward to receiving contributions from teachers, friends and colleagues so that the author can continue to complete the thesis.
The author would like to thank you very much!
INDEX
COMMITMENT i
ACKNOWLEDGEMENTS ii
TABLE OF CONTENTS iii
LIST OF ABBREVIATIONS vi
LIST OF TABLES vii
LIST OF FIGURES viii
INTRODUCTION 1
CHAPTER 1: THEORETICAL BASIS AND RESEARCH OVERVIEW ON THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND COMPANY PROFITABILITY 7
1.1. Theoretical basis of dividends and corporate profitability 7
1.1.1. Basic issues about dividends 7
1.1.2. Concept and criteria for evaluating profitability 15
1.1.3. Theoretical basis of the relationship between dividend changes and corporate profitability 17
1.2. Research overview 22
1.2.1. Overview of foreign research 22
1.2.2. Overview of domestic research 32
CHAPTER 1 CONCLUSION 38
CHAPTER 2: DIVIDEND STATUS, DIVIDEND CHANGES AND PROFITABILITY OF LISTED COMPANIES ON THE VIETNAMESE STOCK MARKET 39
2.1. Introduction to listed companies on the Vietnamese stock market 39
2.1.1. Number of listed joint stock companies 39
2.1.2. Sector of listed joint stock companies 40
2.2. Current status of dividends of listed companies on the Vietnamese stock market 41
2.2.1. Form of dividend payment 41
2.2.2. Cash dividend level 44
2.2.3. Comments on the current status of dividend payments of listed companies on the Vietnamese stock market in the period 2008-2016 48
2.3. Current status of profits and profitability of listed companies on the Vietnamese stock market in the period 2008-2017 49
2.3.1. Profits of listed companies on Vietnam Stock Exchange 49
2.3.2. ROA and ROE of listed enterprises on Vietnam Stock Exchange in the period 2008-2017 52
2.3.3. Comments on the profit situation and profitability of listed companies on the Vietnamese stock market in the period 2008 - 2017 55
2.4. Current status of dividend changes and changes in profitability of joint stock companies listed on the Vietnamese stock market 56
2.4.1. Current status of dividend changes of joint stock companies listed on the Vietnamese stock market 56
2.4.2. Profit fluctuations and profitability of listed companies on the Vietnamese stock market 57
CHAPTER 2 CONCLUSION 60
CHAPTER 3: RESEARCH METHODOLOGY 61
3.1. Research Gap 61
3.2. Empirical research models on the relationship between dividend changes and corporate profitability 64
3.2.1. Benartzi et al. (1997) model 64
3.2.2. Nissim & Ziv's (2001) model 65
3.2.3. Grullon et al. (2005) model 67
3.3. Hypothesis and research model on the one-way relationship between dividend changes and profitability of listed companies on the Vietnamese stock market 68
3.3.1. Research hypothesis 69
3.3.2. Research model 71
3.4. Research data 76
3.5. Research methods 79
CHAPTER 3 CONCLUSION 82
CHAPTER 4: TESTING THE RELATIONSHIP BETWEEN DIVIDEND CHANGES AND PROFITABILITY OF LISTED COMPANIES ON THE VIETNAMESE STOCK MARKET 83
4.1. Descriptive statistical analysis of the research sample 83
4.2. Results of regression models 85
4.2.1. Results of the relationship between dividend changes and profitability 2 years later of companies listed on the Vietnamese stock market 85
4.2.2. Results of the relationship between dividend changes and future profitability of state-controlled and privately controlled companies 95
4.2.3. Results of the relationship between dividend changes and future profitability: cases where the company buys back shares and cases where the company does not buy back shares on the market in the year of dividend change 98
4.3. Robust analysis with dependent variable being change in return on total assets 101
CHAPTER 4 CONCLUSION 106
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS 107
5.1. Conclusion 107
5.1.1. Summary of research results on the relationship between dividend changes and future profitability 108
5.1.2. Summary of research results on the relationship between dividend changes and profitability of companies by industry and by ownership factor 112
5.1.3. Summary of research results on the relationship between dividend changes and profitability in 2 cases: Dividend changes and stock repurchases vs. dividend changes and no stock repurchases in the year of dividend change 115
5.2. Recommendations 116
5.2.1. Recommendations for investors 116
5.2.2. Recommendations for businesses 118
5.2.3. Recommendations for State management agencies 125
5.3. Limitations of the thesis and future research directions 128
CHAPTER 5 CONCLUSION 129
CONCLUSION 130
LIST OF PUBLISHED WORKS OF THE AUTHOR RELATED TO THE THESIS 131
LIST OF REFERENCES 132
APPENDIX 144
LIST OF ABBREVIATIONS
Acronym
Interpretation | |
CP | Share |
CSCT | Dividend policy |
JSC | Joint Stock Company |
DN | Business |
State-owned enterprises | State-controlled enterprise |
Private Enterprise | Privately controlled enterprise |
HNX | Hanoi Stock Exchange |
HOSE | Ho Chi Minh City Stock Exchange |
HQHD | Operating efficiency |
KNSL | Profitability |
LNST | Profit after tax |
MLCP | Stock buyback |
Investor | Investor |
ROA | Return on assets |
ROE | Return on equity |
SHNN | State ownership |
SHTN | Private ownership |
Stock market | Stock market |
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LIST OF TABLES
Table 1.1: Summary of empirical research results between dividend changes and profitability in some countries around the world 31
Table 2.1: Number of joint stock companies listed on Vietnam Stock Exchange 39
Table 2.2: Sector and proportion of listed JSCs as of the end of 2017 40 Table 2.3: Number and proportion of listed companies paying dividends in the period 2008-2016 41
Table 2.4: Number and proportion of enterprises paying cash dividends according to ownership structure 43
Table 2.5: Number of companies paying cash dividends by industry in the period 2008-2016 44
Table 2.6: Cash dividend level in the period 2008-2016 45
Table 2.7: Average dividend level in the period 2008-2016 46
Table 2.8: Average dividend level by industry in the period 2008-2016 48
Table 2.9: Average profit of listed joint stock companies on Vietnam's stock market in the period 2008-2017 50
Table 2.10: Number of enterprises changing dividends of listed joint stock companies on Vietnam Stock Exchange 56
Table 2.11: Return volatility of dividend change observations 57
Table 2.12: ROA Variation of Dividend Change Observations 58
Table 2.13: ROE Variation of Dividend Change Observations 59
Table 3.1: Summary of variables in model 77
Table 3.2: Number of dividend change observations by year 78
Table 3.3: Number of dividend change observations by industry 78
Table 3.4: Hausman test results for 80 models
Table 4.1: Descriptive statistics of the study sample 83
Table 4.2: Regression results MH1, MH2 and MH3 86
Table 4.3: Regression results of model 4 89
Table 4.4: Regression results of model 5 91
Table 4.5: Model 5 results of SOEs and private enterprises 94
Table 4.6: Number of observations and dividend changes of SOEs and private enterprises 96
Table 4.7: Model 5 results of SOEs and private enterprises 96
Table 4.8: Regression results of model 5 with enterprises with MLCP and enterprises without MLCP . 99 Table 4.9: Regression results of the relationship between dividend changes and ROA changes 102 Table 4.10: Robust analysis results with enterprises with MLCP and enterprises without MLCP 104
LIST OF IMAGES
Figure 1.1: Dividend payment process of joint stock company 11
Figure 2.1: Number of joint stock companies listed on Vietnam's stock market 40
Figure 2.2: Sectoral proportions as of the end of 2017 (%) 41
Figure 2.3: Proportion of companies paying cash dividends and stock dividends by period
2008-2016 period 42
Figure 2.4: Cash dividend payment level in the period 2008-2016 46
Figure 2.5: Average profit by ownership structure of Vietnamese enterprises in the period 2008-2017 51
Figure 2.6: Profitability of Vietnamese enterprises in the period 2008-2017 52
Figure 2.7: ROA by ownership structure of enterprises in the period 2008-2017 53
Figure 2.8: ROE according to ownership structure of enterprises in the period 2008-2017 54
INTRODUCTION
1. The need for research
The dividend factor in common stock analysis is a much discussed topic in corporate finance. The famous book “Security Analysis” by Graham & Dodd (2017, 448-449) wrote: “Dividend yield is the dominant factor in common stock investment. A successful business pays dividends regularly and is expected to increase the dividend payout ratio over time. Because the concept of investment is closely linked to a reliable income figure. Accordingly, the price paid for common stocks will be determined mainly by the amount of dividends”. According to Graham & Dodd (2017), the dividend payout ratio and dividend payment history are among the factors involved in the process of valuing common stocks. Many domestic and foreign studies have analyzed the impact of dividends on enterprise value, as well as on stock prices on the market. These studies mainly evaluate the annual dividend payout ratio of the enterprise. Another research direction on dividends that many scholars have focused on analyzing is the change in corporate dividends, which is expressed through the dividend signaling theory. The content of the dividend signaling theory states that dividend changes contain information about the future profits and profitability of the enterprise, and managers use dividend changes to convey information about future prospects to investors. Many authors in the world have researched and clarified this issue. However, up to now, the question of whether dividend changes are a good signal for the future profitability of companies is still controversial.
Lintner (1956) argued that managers are willing to pay higher dividends when the current earnings of the firm are large enough to pay cash dividends. In other words, managers tend to increase dividends when they believe that future cash flows will offset the higher dividend payments and vice versa. Bhattacharya (1979), Miller & Rock (1985), John & Williams (1985) have proposed theoretical models of dividend signaling. These models show that when managers predict that they will achieve better performance, they will send this signal to the market by paying dividends.
There have been a number of studies worldwide analyzing the correlation between dividend changes and corporate profitability (CPA) and have become a topic of interest to many scholars and investors. The empirical results have drawn different conclusions, divided into two basic groups: The first group supports the view that dividend changes provide information about the future CPA of the enterprise; the second group does not support the above view and believes that dividend increases or decreases have no correlation with CPA.
changes in future earnings. Supporting studies include: Healy & Palepu (1988), Nissim & Ziv (2001) conducted on the US stock market showed that dividend changes are positively correlated with changes in profitability in the next 2 years, Kato et al. (2002) studied the Japanese stock market, Choi et al. (2011) conducted on the Korean stock market also found a positive relationship between dividend changes and profits 1 year later, Chinpiao Liu & An-Sing Chen (2015) studied the Chinese stock market showed that dividend changes are a sign of the prospect of return on equity.
In contrast, many studies find little or no correlation between dividend changes and corporate earnings. Studies including DeAngelo (1996), Benartzi et al. (1997), Grullon et al. (2005), Lie (2005) do not find a significant relationship between dividend changes and earnings changes, Jensen et al. (2010) show that corporate earnings rebound after a dividend cut.
In summary, there are still many different conclusions when forecasting KNSL of enterprises based on information on dividend changes. Moreover, these studies focus on changes in cash dividends without considering the possibility that enterprises simultaneously repurchase shares (MLCP) in the year of paying cash dividends, because share repurchase is also a form of profit distribution to shareholders, so it will affect the level of cash dividends. On the other hand, many authors have demonstrated that ownership structure affects dividend payments of listed companies. Therefore, the correlation between dividend changes and profitability may vary according to ownership structure. However, to the author's knowledge, there has been no study to clarify dividend signals according to ownership forms and in the case of enterprises repurchasing shares on the market.
In Vietnam, many studies on dividends have been conducted, but these studies focus on the topic of perfecting dividend policies or the impact of dividend announcements on stock prices on the market. To date, there has been no research on the impact of dividend changes on the forecast of KNSL in the following years of listed companies on the stock market, thereby providing useful information for investors and business managers.
Based on the above theory and practice, the author has chosen the topic: "Research on the relationship between dividend changes and profitability of listed companies on the Vietnamese stock market" as the research content.
2. Research objectives
This study aimed to test the unidirectional relationship between change
dividends and profitability in the next 2 years after changing dividends (year 1 and year 2) of companies listed on the Vietnam Stock Exchange, thereby finding empirical evidence on dividend signals on the Vietnam Stock Exchange. The specific objectives include:
- Assess the current dividend situation, dividend changes and profitability of listed companies on the Vietnamese stock market in the period 2008-2017.
- Test the one-way relationship between dividend changes and profitability in the next 2 years of listed companies on the Vietnamese stock market in general.
- Test the unidirectional relationship between dividend changes and profitability over the next 2 years in the case of state-controlled companies and the case of privately controlled companies.
- Test the one-way relationship between dividend changes and profitability in the next 2 years in 2 cases: companies that buy back shares and companies that do not buy back shares in the market in the year of dividend change.
From the above objectives, the thesis develops the following research questions:
(1) What is the current status of dividends, dividend changes and profitability of companies listed on the Vietnamese stock market in the period 2008-2017?
(2) Is dividend change a signal indicating the profitability of listed joint stock companies on the Vietnamese stock market in the following years?
(3) How does the one-way relationship between dividend changes and future profitability differ for state-controlled versus privately controlled firms?
(4) How does the one-way relationship between dividend changes and future profitability differ if the firm engages in share repurchases and if the firm does not repurchase shares in the market during the year of the dividend change?
(5) What recommendations for investors, business managers and State agencies are made from the above research results?
3. Research object and scope
3.1. Research subjects
The research object of the thesis is dividend changes and the one-way relationship between dividend changes and KNSL 2 years after dividend changes of listed companies on the Vietnam Stock Exchange. According to the Enterprise Law (2014), dividends of listed companies can be paid in the form of cash, shares or other valuable assets. However, the study only focuses on companies that pay dividends in cash, because the market