Asymmetric information and investment decisions: Evidence from Vietnam, 2022

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION

AND TRAINING

HO CHI MINH

UNIVERSITY OF BANKING

PHAM THI ANH THU

ASYMMETRIC INFORMATION AND

INVESTMENT DECISIONS: EVIDENCE

FROM VIETNAM

BACHELOR THESIS

MAJOR: FINANCE – BANKING

CODE: 7340201

Ho Chi Minh City, November 2022

THE STATE BANK OF VIET NAM MINISTRY OF EDUCATION

AND TRAINING

HO CHI MINH

UNIVERSITY OF BANKING

Student name: PHAM THI ANH THU

Student code: 050607190515

Class: HQ7-GE14

ASYMMETRIC INFORMATION AND

INVESTMENT DECISIONS: EVIDENCE

FROM VIETNAM

BACHELOR THESIS

Major: FINANCE – BANKING

Code: 7340201

ACADEMIC ADVISOR

DR. VUONG THI HUONG GIANG

Ho Chi Minh City, November 2022

i

ABSTRACT

This paper investigates the impact of asymmetric information on the

investment decisions of firms and analyzes the effect of several internal factors on

investment decisions of firms. Further, we come up with some new practical

solutions, policy implications for the policy makers and recommendations for the

managers of enterprises. We use data from DataStream of 259 non-financial firms

with 1,789 firm-year observations collected from two stock exchange markets in

Vietnam covering a 10-year period from 2011 to 2021. We apply the least squares

based on Pooled OLS (Pooled Ordinary Least Square), Fixed-Effect Model (FEM)

and Random-Effect Model (REM), two-step GMM (two-step generalized method of

moments) to analyze the data. The findings reveal that fundamentally, information

asymmetry in Vietnamese non-financial firms has a negative impact on the

investment decisions of firms. Further, the results also find that the financial

leverage and cash is an important determinant of investment decisions and have a

positive impact on firms‟ investment decisions. The study is the first in Vietnam

that contributes empirical evidence for the negative impact of information

asymmetry on the investment decisions of non-financial firms in Vietnam – a

typical emerging country.

JEL classification: G11, G14, G32.

Keywords: Asymmetric information, Investment, Over-investment,

Leverage, Non-financial firms, GMM, Vietnam.

ii

DECLARATION OF AUTHENTICITY

This thesis with the topic “Asymmetric information and investment

decisions: Evidence from Vietnam” is the author's research work and the

research results are honest. There are no previously published contents or

contents made by other authors except for the cited references which are from

clear sources presented in the thesis. The author would like to be responsible

for my commitment.

Ho Chi Minh City, November 2022

Student in charge

Pham Thi Anh Thu

iii

APPRECIATION

This thesis would surely not be possible without the dedicated help

of my teacher. First and foremost, I would like to express my deep

gratitude to my advising instructor – Dr. Vuong Thi Huong Giang who has

always followed closely, supported, encouraged, and provided sincere

comments so that I can finish this thesis.

Second, I would like to express my special thanks to Mr. Nguyen

Thanh Binh and Ms. Ma Thi Thuy Trinh – mentors of my intern course at

SSI security joint stock company. They have encouraged me, while helping

me find documents and giving me practical advices.

In addition, I would like to express my thanks to the lecturer at

Banking University of Ho Chi Minh City for creating such favorable

conditions in the process of study and as well as doing my thesis.

Finally, I would also like to thank my family for their encouragement

in the process of doing my bachelor thesis as well as in my four-year

journey in University of Banking.

Ho Chi Minh city, November 2022

Author

Pham Thi Anh Thu

iv

TABLE OF CONTENTS

ABSTRACT............................................................................................................ i

DECLARATION OF AUTHENTICITY...............................................................ii

APPRECIATION..................................................................................................iii

TABLE OF CONTENTS...................................................................................... iv

LIST OF ABBREVIATIONS..............................................................................vii

LIST OF TABLES ..............................................................................................viii

LIST OF APPENDICES....................................................................................... ix

CHAPTER 1. INTRODUCTION .......................................................................... 1

1.1. Research background and research gap ...................................................... 1

1.2. Research objectives..................................................................................... 3

1.3. Research question........................................................................................ 4

1.4. Research scope and methodology ............................................................... 4

1.5. Research structure ....................................................................................... 4

CHAPTER 2. LITERATURE REVIEW ............................................................... 6

2.1. Theoretical literature review ....................................................................... 6

2.1.1. The Lemons‟ theory .......................................................................... 6

2.1.2. The Signaling theory ......................................................................... 7

2.1.3. The Screening theory ........................................................................ 8

v

2.1.4. The Pecking Order Theory................................................................ 9

2.1.5. The Agency theory.......................................................................... 10

2.1.6. The Free cash flow theory............................................................... 10

2.2. Empirical literature review........................................................................ 11

2.2.1. The impact of information asymmetry on the investment of firm.. 11

2.2.2. The impact of leverage on the investment of firm.......................... 14

2.2.3. The impact of cash flow on the investment of firm........................ 17

2.2.4. The impact of growth sale on the investment of firm..................... 19

2.2.5. The impact of profitability on the investment of firm .................... 20

2.2.6. The impact of size on the investment of firm ................................. 21

2.3. Research gap ............................................................................................. 24

2.4. Hypothesis development ........................................................................... 26

CHAPTER 3. RESEARCH METHODOLOGY ................................................. 28

3.1. Research design......................................................................................... 28

3.2. Sample....................................................................................................... 28

3.3. Variable measurement............................................................................... 29

3.3.1. Information asymmetry measurement............................................. 29

3.3.2. Investment measurement................................................................. 30

3.3.3. Remaining variable measurement................................................... 31