Factors affecting price-to-earnings ratios of listed companies on Ho Chi Minh City stock market: Period 2008-2016: Khóa luận tốt nghiệp Đại học / Nguyen Minh Nguyet

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

NGUYEN MINH NGUYET

FACTORS AFFECTING PRICE-TO-EARNINGS RATIOS OF LISTED

COMPANIES ON HO CHI MINH CITY STOCK MARKET:

PERIOD 2008 - 2016

GRADUATION DISSERTATION

MAJOR: FINANCE - BANKING

CODE: 7340201

HO CHI MINH CITY, 2018

MINISTRY OF EDUCATION AND TRAINING STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

NGUYEN MINH NGUYET

FACTORS AFFECTING PRICE-TO-EARNINGS RATIOS OF LISTED

COMPANIES ON HO CHI MINH CITY STOCK MARKET:

PERIOD 2008-2016

GRADUATION DISSERTATION

MAJOR: FINANCE - BANKING

CODE: 7340201

SUPERVISOR

DR. NGUYEN TRAN PHUC

HO CHI MINH CITY, 2018

i

ABSTRACT

This dissertation studies the impact of influence factors on P/E ratios and to

build regression models for estimating and forecasting P/E ratios. It employs data of

123 listed companies on HOSE over the period 2008 -2016. Besides, the purpose of

the study is to provide empirical model foundations for investigating whether

portfolios consisting of low P/E ratio stocks provide better than average returns.

The empirical researches are divided into two parts. Firstly, descriptive

analysis, correlation analysis and regression process are used to examine the

correlations. Regression estimation and selection of estimation are built up the

estimation model. Finally, the author build up empirical model that investment in

low P/E ratio stocks provides higher returns than that in high P/E ratio stocks by

using the comparison between mean of overvalued stock return and undervalued

ones.

The empirical results demonstrate that dividend payout ratios, growth rate,

beta and return on equity have effect on P/E ratios and it is possible to invest in low

P/E ratios to beat the market. Moreover, the research effect will be better with more

factors employed.

ii

DECLARATION OF AUTHENTICITY

I declare that this dissertation is my original work, gathered and utilized

especially to fulfil the purposes and objectives of this study, and has not been

previously submitted to any other university for a higher degree. I have mentioned

all people who were significant facilitators of the work.

Ho Chi Minh City, May, 2018

Nguyen Minh Nguyet

iii

ACKNOWLEDGEMENTS

First of all, I want to send my gratitude and respect to Doctor Nguyen Tran

Phuc for his sharing, understandings and considerate supports to give me useful

recommendations and guidances during my study.

Finally, best regards to my lecturers, my friends, my classmates and my

beloved BUH for their sharing and supports during my Bachelor program.

Ho Chi Minh City, May, 2018

iv

TABLE OF CONTENTS

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

ACKNOWLEDGEMENTS.................................................................................... iii

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

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

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

LIST OF FIGURES ................................................................................................ ix

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

1.1. THE NECESSITY OF THE THESIS ..........................................................1

1.2. RESEARCH OBJECTIVES .........................................................................4

1.3. RESEARCH QUESTIONS ...........................................................................5

1.4. THE RESEARCH SUBJECT AND SCOPE OF THE STUDY ................5

1.4.1. The research subject ................................................................................5

1.4.2. Scope of the study.....................................................................................5

1.5. RESEARCH METHOD ................................................................................5

1.6. RESEARCH CONTRIBUTION...................................................................6

1.6.1. The scientific contribution.......................................................................6

1.6.2. The practical contribution.......................................................................6

1.7. RESEARCH STRUCTURE..........................................................................6

Chapter 2 : LITERATURE REVIEWS..................................................................8

2.1. Introduction....................................................................................................8

2.2. Theoretical background.................................................................................8

2.2.1. The concept of P/E ratio ..........................................................................8

2.2.2. Use of P/E ratio for stock selection .........................................................9

2.2.3. Factors affecting P/E ratios...................................................................10

2.3. Previous empirical studies...........................................................................15

2.3.1. Previous empirical studies in the international context......................15

2.3.2. Previous empirical studies in the Vietnamese context........................22

2.4. The position of this dissertation..................................................................25

v

2.5. Chapter conclusion.......................................................................................26

Chapter 3 : RESEARCH METHOD AND DATA...............................................27

3.1. Introduction..................................................................................................27

3.2. Estimation model..........................................................................................27

3.3. Measurement of variables and hypothesis.................................................28

3.3.1. Measurement of variables......................................................................28

3.3.2. Hypothesis...............................................................................................30

3.4. Source of data ...............................................................................................33

3.5. Steps of data analysis and estimation.........................................................33

3.5.1. Descriptive statistics...............................................................................33

3.5.2. Multicollinearity Test.............................................................................33

3.5.3. Residual Diagnostics...............................................................................34

3.5.4. Selection of estimation method..............................................................34

3.5.5. Test of the obtained empirical model ...................................................35

3.6. Chapter conclusion.......................................................................................35

Chapter 4 EMPIRICAL RESULTS AND DISCUSSIONS ................................36

4.1. Introduction..................................................................................................36

4.2. Descriptive statistics.....................................................................................36

4.3. Test of multicollinearity...............................................................................42

4.4. Residual Diagnostics ....................................................................................42

4.5. Selection of estimation method ...................................................................43

4.5.1. Pooled OLS .............................................................................................43

4.5.2. Random Effect Model (REM)...............................................................44

4.5.3. Fixed Effect Model (FEM).....................................................................45

4.5.4. Redundant Fixed Effect-Likelihood Ratio...........................................46

4.5.5. Correlated Random Effects Hausman Test.........................................47

4.6. Test of the obtained empirical model .........................................................51

4.7. Chapter conclusion.......................................................................................52

Chapter 5 : CONCLUSIONS AND RECOMMENDATIONS ...........................53

5.1. Conclusion.....................................................................................................53

5.2. Recommendations........................................................................................54

5.3. Limitations of this dissertation and new approaches in the future .........55

vi

5.3.1. Limitations..............................................................................................55

5.3.2. Future studies .........................................................................................55

REFERENCE..........................................................................................................57

APPENDIX ..............................................................................................................60

APPENDIX 1: The descriptive statistics for all variables...............................60

APPENDIX 2: The covariance of variables......................................................60

APPENDIX 3: Breusch-Godfrey Serial Correlation LM Test .......................60

APPENDIX 4: Heteroskedasticity Test: White's result for empirical model61

APPENDIX 5: Pooled OLS's result for empirical model................................61

APPENDIX 6: Random Effect Mode's result for empirical model................62

APPENDIX 7: Fixed Effect Mode's result for empirical model.....................63

APPENDIX 8: Fixed Effect-Likelihood Test' result for empirical model.....63

APPENDIX 9: Hausman Test's result for empirical model............................63

APPENDIX 10: Data for estimating P/E from the empirical model..............65

APPENDIX 10: Data for estimating mean of ‘higher than normal’ P/E ratio

stocks and ‘lower than normal’ .........................................................................66