Announcements on the stock price of listed companies on vietnam stock exchange

Dissertation submitted in partial fulfillment of the

Requirement for the MSc in Finance

FINANCE DISSERTATION ON

THE EFFECT OF M&A

ANNOUNCEMENTS ON THE STOCK

PRICE OF LISTED COMPANIES ON

VIETNAM STOCK EXCHANGE

NAME OF STUDENT: Nguyen Tuan Nam

ID No: 21071836

Intake 5

Supervisor: Prof. Dr. Tran Thi Xuan Anh

September 2022

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ABSTRACT

This paper analyzes the influence of merger and acquisition announcements on

the stock price of 15 seller's companies listed on a stock exchange in 20 cases of M&A

from 2017 to 2021 in a developing Vietnamese market by using an event research

method. Before the announcement of the merger and acquisition announcement, the

cumulative average abnormal returns of the target companies were all positive and had

very good statistical significant, it is possible that the CAAR was affected by an insider

who leaked the private information for personal benefit. The finding that the target

price run-up before M&A announcements is associated with insider trading measures

raises the concern that rampant illegal insider trading may undermine corporate

governance. The pre-announcement run-up could add significant costs to mergers and

acquisitions, which may have a negative effect on the target firm. Those findings help

investors to form appropriate expected returns and policy makers to detect insider

trading prior to M&A announcements and protect their capital.

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ACKNOWLEDGEMENTS

I have received enthusiastic help and support from lecturers at University of the

West of England. Completing a thesis is a very meaningful thing for me, and I really

appreciate it. I would like to express my sincere thanks to University of the West of

England, Banking Academy for giving me the opportunity to gain more knowledge

about economics as well as finance, which will help me a lot for my career as well as

higher education.

In particular, I would like to thank Associate professor PhD. Tran Thi Xuan Anh,

Dean of the Faculty of Finance, Banking Academy for helping, instructing, overcoming

errors and wholeheartedly guiding me throughout the process of researching and

completing this thesis.

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STATUTORY DECLARATION

I hereby declare that the thesis is the result of the research, study and research

process. Independent research under the guidance of Associate professor PhD. Tran

Thi Xuan Anh, Dean of the Faculty of Finance - Banking Academy.

The research content in this article is thoroughly reviewed and the results of

the research are completely honest; The data in tables and figures are collected,

statistically and calculated by me. Evaluations and conclusions of other authors will

be cited with full references and sources. I hereby declare that this entire study has

not been presented or published anywhere before.

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Table of Contents

Chapter 1: INTRODUCTION.......................................................................................8

1.1 Rationale of the research.....................................................................................8

1.2 Research objective ..............................................................................................9

1.3 Thesis disposition .............................................................................................10

Chapter 2: LITERATURE REVIEW..........................................................................11

2.1 Theoretical background ....................................................................................11

2.1.1 Mergers and acquisitions...........................................................................11

2.1.2 Impact of merger and acquisition announcements....................................19

2.1.3 Market efficiency theory ...........................................................................28

2.2 Empirical research ............................................................................................33

2.2.1 Domestic research .....................................................................................33

2.2.2 Foreign research ........................................................................................36

Chapter 3: DATA AND METHODOLOGY..............................................................48

3.1 Data collection ..................................................................................................48

3.2 Methodology.....................................................................................................51

3.2.1 Event study................................................................................................51

3.2.2 Event window............................................................................................53

3.2.3 Abnormal return ........................................................................................54

3.2.4 Cumulative abnormal return......................................................................55

3.2.5 Inspection standards ..................................................................................56

3.2.6 Research hypothesis ..................................................................................56

3.2.7 Research implementation ..........................................................................57

Chapter 4: RESULT AND DISCUSSION..................................................................59

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4.1 Overview of M&A in Vietnam.........................................................................59

4.2 Result analysis ..................................................................................................66

4.2.1 Data description.........................................................................................66

4.2.2 Changes in stock prices upon M&A announcement. ................................67

4.2.3 Abnormal return and Cumulative abnormal return ...................................70

4.3 Discussion.........................................................................................................79

Chapter 5: RECOMMENDATION.............................................................................83

5.1 Recommendation for listed companies in Vietnam stock exchange market ....83

5.2 Recommendation for investors.........................................................................84

5.3 Recommendation for Vietnam government......................................................84

Chapter 6: CONCLUSION .........................................................................................87

6.1 Main findings and conclusion...........................................................................87

6.2 Research limitation and recommendation for the future research ....................88

6.2.1 Research limitation....................................................................................88

6.2.2 Recommendation for the future research ..................................................90

REFERENCES............................................................................................................91

APPENDIX.................................................................................................................95

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ABBREVIATIONS

HSX Ho Chi Minh Stock Exchange

M&A Merger and Acquisitions

IMF International Monetary Fund

EMH Efficient Market Hypothesis

AR Abnormal Return

CAR Cumulative Abnormal Return

CAAR Cumulative Average Abnormal Return

CPTPP Comprehensive and Progressive

Agreement for Trans-Pacific Partnership

EVFTA EU–Vietnam Free Trade Agreement

EVIPA EU-Vietnam Investment Protection

Agreement

FIA Foreign Investment Agency

CEO Chief Executive Officer

PPP Purchasing Power Parity

OLS Ordinary Least Squares

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LIST OF TABLES & FIGURES

Table 3.1: Statistics of 20 M&A deals from 2017 to 2021 used in the research 49

Table 3.2: Industry distribution of seller companies used in the research 50

Table 3.3: The timing sequence of an event in event study 53

Table 4.1: Observe the stock prices of the companies around the M&A

announcement

67

Table 4.2: AR and CAR of 20 deals with event window [t-1;t+1] 70

Table 4.3: CAAR of 20 deals with event window [t-5;t+5] 72

Table 4.4: CAAR of 20 deals with event window [t-10;t+10] 74

Table 4.5: CAAR of 20 deals with event window [t-15;t+15] 76

Figure 3: Market capital of firms used in the research in 2021 51

Figure 4.1: CAAR around 10 days of the date of the M&A announcement 73

Figure 4.2: CAAR around 20 days of the date of the M&A announcement 75

Figure 4.3: CAAR around 30 days of the date of the M&A announcement 78

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Chapter 1: INTRODUCTION

1.1 Rationale of the research

Since the outbreak of Covid-19 has directly affected economies around the globe,

companies even large or small have merged to diversify their business lines so that they

can overcome the pandemic together. In the three years since the Covid-19 epidemic

appeared, the number and value of mergers and acquisitions (M&A) deals has

increased rapidly in emerging Asian developing markets, including Vietnam. Mergers

and acquisitions are useful tools to attract capital from domestic and foreign sources to

expand the business scale of enterprises. Due to the increasing popularity of M&A

activities, researches on topics related to mergers and acquisitions are increasing. In

particular, recent studies show that M&A activities create resonance mainly on the

financial position of related companies.

Is the Vietnamese market affected by the merger and acquisition announcement?

When most studies mainly focused on developed regions such as North America,

Europe and countries such as Japan, Korea, and India, I chose the topic “Impact of

merger and acquisition announcements on share prices of listed companies on Vietnam

stock exchange” for the following reasons. First, Vietnam is a fast-growing country

with GDP (PPP) ranked 25th in the world and 14th in Asia (according to World

Economic Outlook Database, IMF). Next, Vietnam has witnessed a hot growth in the

number and value of M&A deals in the past five years. Mergers and acquisitions are

also considered as a channel for investment to expand the scale of enterprises,

restructure and promote investment beyond Vietnam's borders for further development

in the future. Moreover, the issue of benefits for shareholders from successful mergers

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and acquisitions is still controversial. A part of investors believes that many benefits

from facilitating the development of business systems of enterprises will bring to

shareholders when performing M&A. While the opposite party argues that this will

make the shareholders of the buying company face losses from the seller's company.

1.2 Research objective

M&A activity is on the rise worldwide, and it leads to a growth by globalization

and continuous technology breakthrough. In finance, merger events are one of the most

researched areas, most of the empirical research on mergers generally emphasizes on

daily stock returns nearby announcement dates and after mergers.

Researchers from all around the world have investigated the impact of M&A on

the value of both the acquired firm and the bidder firm. The evidence on mergers

indicates that the stockholders of target firms have earned significant abnormal/excess

return not only around the announcement period, but also in the weeks after the

announcement. Furthermore, when a target company is acquired, its stock price

frequently skyrockets. However, a great portion of the run-up occurs prior to M&A

announcements. The preannouncement run-up is enormous, indicating either an

extremely observant financial market or leaked information about potential deals.

Some research find the pre-announcement run-up is associated with prevailing rumors

and toe-hold acquisitions. Some research finds that the price-volume dynamics before

M&A announcements are more consistent with market anticipation hypothesis rather

than insider trading hypothesis.

The purpose of this study is to examine the effect of M&A announcements on

the stock price of listed companies on Vietnam stock exchange. This study covers the