Dr.MAI Huu Minh TRAN Thi Thanh Xuan
Dr. MAI Huu Minh TRAN Thi Thanh Xuan Download here: Viet Nam State Ownership
IFRC Founder & CEO
Professor Paris Créteil University, France
IFRC Financial Analyst
Master of Corporate Finance Rennes I University, France
 
   

 

Nowadays, state ownership in business firms tend to change in Vietnam due to the powerful influence of the State on the country’s market. On March 6th 2014, after the official proclamation of Resolution No. 15/NQ-CP by the government, some solutions such as the state-owned Enterprises Restructuring Project (2011-2015) seem to emerge to accelerate the equalization process and reduce the State’s control on these companies. However the enterprises that have a 100% state control contribute to the main sectors of the economy and still create value according to the State Budget Law (Law on Enterprises of 2005 and Law on State Enterprises of 2013). Since there is no official and special regulation for Investment and Management of Invested State Capital in Business, the government encourages and gives favorable conditions for foreign investors according to the Foreign Investment Law (2005) to invest in Vietnam.

 

While the relationship between state ownership and firm performance has been widely researched, the empirical evidence has provided mixed results over the world. For Vietnam, the research on the subject are still few and cover a short period.

 

This study examines the relationship between state ownership and firm performance (stock market performance and fundamental ratios) of about 600 companies listed on Ho chi Minh and Hanoi stock exchanges since December 2008 in controlling different factors such as market (exchange), size (capitalisation) and sector. The next step will extend the study period to 2000.

 

DATA

 

  • The ownership data are provided by STOXPLUS for all listed securities (Ho chi Minh and Hanoi stock exchanges) since December 2008.
  • Stock market and fundamental data are those of Intelligent Financial Research & Consulting (IFRC) of which history dates back to 2005. IFRC is going back in time to the creation of the stock exchange in Vietnam in 2000 shortly.

 

CONTROLLING FACTORS

 

The objective is to measure the performance of the firm (market and fundamental) in the percentage of shares held by the state and to compare to companies in the same market, size in terms of market capitalization, or activity sector.

  • Market: Ho chi Minh Stock Exchange (HOSE),  Hanoi Stock Exchange (HNX)
  • Size: Large, Medium, Small. Firms are ranked by market capitalization in a decreasing order. For example, Large Caps are those that accumulate a capitalization percentage of 80%, Mid-Caps are the ones between 80-95% and the remaining are Small Caps. Size groups are reviewed every year.
  • Sector: companies are classified into 10 sectors (Bank, Basic Material, Consumer Goods, Consumer Services,  Finance, Healthcare, Industrials, Oil & Gas, Technology, Utilities)

Concerning the Vietnam state ownership, we define 3 groups: Low, Medium and High.

Firms in the « Low » group are the non-state-owned firms. The remaining companies sorted into two quantiles; either they belong to the « Medium » group or « High » group.

 

 

 

To verify the state ownership effect in Vietnam stock market, we use abnormal performance.

For each month over the study period (December 2008 to July 2014), we calculate monthly returns of each company and controlling factor portfolio (market, size, sector and overall market).

 

Then, abnormal returns are calculated following each factor to measure the out (or under) performance to comparable companies. We define abnormal performances by analyzing the difference between the firm’s performance and the average group performance. If the abnormal performance is positive (negative), the company outperforms (underperforms) this group.

 

RESULTS

 

Difference between groups is tested by Student statistics. In the following tables, results are reported with different confidence interval (1-a) : * for a = 5% and ** for a = 1%.

 

Ownership distribution

 

At the end of June 2014, companies listed on HSX and HNX fall into three main groups. One third (235 companies, 36%) is companies with no involvement of the state, another third those having less than 50% and last one third of those over 50% state participation (180 companies, 27%).

 

Three highest state ownership companies, i.e. more than 90% are PetroVietnam Gas (96.72%), Commercial Bank For Investment And Development Of Vietnam (95.76%), Underground Works Construction (91.00%).

 

 

 

Table 1: State Ownership Distribution (June 2014)


Interval Nb % Cumulative %
0 235 35.82% 35.82%
0%-10% 50 7.62% 43.45%
10%-20% 53 8.08% 51.52%
20%-30% 46 7.01% 58.54%
30%-40% 50 7.62% 66.16%
40%-50% 42 6.40% 72.56%
50%-60% 140 21.34% 93.90%
60%-70% 20 3.05% 96.95%
70%-80% 15 2.29% 99.24%
80%-90% 2 0.30% 99.54%
90%-100% 3 0.46% 100.00%
100% 0 0.00% 100.00%

Source: IFRC Vietnam, www.ifrcresearch.com

 

 

Overall

 

  • Firstly, firms with higher state participation over-perform better than those with lower participation
  • Secondly, firms without state ownership underperform with average abnormal performance of -1.63% per year and firms with high state ownership over-perform with average abnormal performance of 3.89% per year at a 95% confidence interval

By Market

  • The firms in Ho Chi minh Stock Exchange follow a linear relationship from the Low Group to the High Group.

  • High and Low groups in the Ha Noi Stock Exchange tend to perform better than these ones in the Ho-Chi-Minh Stock Exchange. 

Table 2: Viet Nam State Ownership Excedent Performance by market (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Market Nb Perf % Nb Perf % Nb Perf % Nb Perf %
HNX 13,044 -1.00 4,466 -1.53 5,236 3.89 68 3.96
HSX 10,297 -2.35 4,157 3.07 3,418 3.53 68 5.55
All 23,341 -1.63 8,623 0.60 8,654 3.89 * 68 4.41

Source: IFRC Vietnam, www.ifrcresearch.com

Nb : Number of observations

% Perf : Abnormal performance over the periode

**  p_value = 1%

*   p_value = 5%

 

By Size

  • In Mid and Small Caps firms, the state ownership helps improve firms' performance. Moreover, among Small Caps firms, High group has the highest abnormal performance at 5.53% at a 95% confidence interval.
  • We find an inverted U-shaped relationship between firms performance and the percentage of equity owned by State for the Large Caps. In this case, the overall performance increases with the percentage of state ownership before reaching a turning point then decreases. 

 

Table 3: Viet Nam State Ownership Excedent Performance by size (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Size Nb Perf % Nb Perf % Nb Perf % Nb Perf %
LARGE CAPS 1,724 1.08 536 2.27 925 -3.26 68 0.49
MID CAPS 5,851 -0.36 2,423 0.34 2,392 0.54 68 2.13
SMALL CAPS 15,766 -1.72 5,664 -0.25 5,337 5.53 * 68 4.44
All 23,341 -1.63 8,623 0.60 8,654 3.89 * 68 4.41

Source: IFRC Vietnam, www.ifrcresearch.com

Nb : Number of observations

% Perf : Abnormal performance over the periode

**  p_value = 1%

*   p_value = 5%

 

 By Sector

  • The non-state ownership Oil & Gas firms has the best performance with 7.76% per year, the next best performance is High state-ownership firms in the same sector. It is clearly that oil-price movements and Government's oil-price controls affect investment in oil and gas firms.
  • In basic materials sector, consumer goods sector and banking sector, firms with higher state participation over-perform than those with lower participation. It may be that Viet Nam government focuses on these sectors and is willing to support them as well.  

 

Table 4: Viet Nam State Ownership Excedent Performance by sector (2009 - 2014)


LOW MEDIUM HIGH LONG-SHORT STRATEGY
Sector Nb Perf % Nb Perf % Nb Perf % Nb Perf %
BASIC MATERIALS 3,379 -2.31 423 4.26 1,004 6.26 68 11.21
BANKS 267 -3.37 138 1.18 76 10.37 68 8.03
CONSUMER GOODS 3,397 -2.48 1,275 -0.71 856 11.60 68 7.95
CONSUMER SERVICES 1,098 0.81 821 -0.53 793 -0.56 68 1.84
FINANCIALS 3,825 -0.26 832 0.04 635 1.55 68 1.19
HEALTH CARE 513 -6.53 402 10.04 152 -2.63 68 13.92
INDUSTRIALS 8,945 -0.76 4,187 -1.31 4,157 3.01 68 2.03
OIL & GAS 20 7.76 102 -2.16 150 0.48 12 -17.67
TECHNOLOGY 1,091 -0.16 191 0.98 124 -0.13 68 -4.23
UTILITIES 806 -0.35 252 -0.68 707 0.64 68 -1.13
All 23,341 -1.63 8,623 0.60 8,654 3.89 * 68 4.41

Source: IFRC Vietnam, www.ifrcresearch.com

Nb : Number of observations

% Perf : Abnormal performance over the periode

**  p_value = 1%

*   p_value = 5%

 

CONCLUSION

 

This analysis presents information about the relationship between the state ownership and the firms’ performance in Vietnam. We find only two portfolios created based on degree of state ownership that have significant abnormal performance. The other results found are insignificant. That is in line with those found by Zuobao Wei and Oscar Varela. They examine the relation between state equity ownership and firm market performance for China's newly privatized firms in 1994, 1995 and 1996 using Tobin's Q and monthly stock returns (MSR). The finding shows that the coefficient for State is insignificant, such that State is not a determinant of stock returns.  

In addition to better understand the Vietnamese Stock Market and the influence of ownership on listed firms, we conduct “Long-short strategies” defined as the difference in terms of performance between firms in the High group and firms in the Low group that have  better performance

However, this study is the pioneer in researching the relationship between Viet Nam State-owners and stock performance in Viet Nam while previous studies focused on relationship between State ownership and firm performance (accounting-based returns).

Further studies will help finding relationship between the state ownership and the fundamental ratio and more appropriate rate for division groups by state ownership. 

 

 

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