Firm-specific Factors Affecting on cost of equity in Vietnam

FIRM-SPECIFIC FACTORS AFFECTING

COST OF EQUITY IN VIETNAM

HoChiMinh city, Vietnam

2013

TABLE OF CONTENTS

LIST OF TABLES .......................................................................................... iv

LIST OF FIGURES.......................................................................................... v

ABSTRACT.................................................................................................... vi

CHAPTER I: INTRODUCTION...................................................................... 1

1.1. Background and motivation of the study.............................................. 1

1.2. Research Objectives ............................................................................ 3

1.3. Outline of the study ............................................................................. 4

CHAPTER II: OVERVIEW OF VIETNAM STOCK MARKET....................... 5

CHAPTER III:LITERATURE REVIEW ......................................................... 8

3.1. Cost of equity and estimation models .................................................. 8

3.1.1. Cost of equity .................................................................................. 8

3.1.2. Cost of equity estimation models ...................................................... 9

3.1.3. Alternative methodology for estimation of cost of equity capital ..... 12

3.2. Firm-level factors ............................................................................. 13

3.2.1. Beta ............................................................................................... 13

3.2.2. Size................................................................................................ 14

3.2.3. Debt to Equity ratio (DE) ............................................................... 15

3.2.4. Book to market ratio (BM)............................................................. 15

3.2.5. Assets turnover ratio...................................................................... 16

3.2.6. Inventory to total assets.................................................................. 17

CHAPTER IV: DATA & METHODOLOGY ................................................. 18

4.1. Data.................................................................................................. 18

4.2. Methodology ..................................................................................... 20

4.2.1. Estimating cost of equity ................................................................ 20

4.2.2. Hypothesis ........................................................................................ 20

4.3. Econometrics Testing ........................................................................ 21

4.3.1. Multicolinearity Test ..................................................................... 21

4.3.2. Auto-correlation Test..................................................................... 22

4.3.3. Fixed or Random Effects Model:.................................................... 23

4.3.4. Heteroskedasticity Test : ................................................................ 23

CHAPTER V: EMPIRICAL RESULTS ......................................................... 26

5.1. Data description................................................................................ 26

5.2. Econometric tests .............................................................................. 28

5.2.1. Multicolinearity Test ..................................................................... 28

5.2.2. Auto-correlation Test..................................................................... 28

5.2.3. Fixed or Random Effect Model ( Hausman Test) ............................ 29

5.2.4. Heteroskedasticity Test .................................................................. 30

5.3. Empirical Results ............................................................................. 31

5.3.1. Beta and Cost of equity...................................................................... 31

5.3.2. Size and Cost of Equity ..................................................................... 32

5.3.3. Debt to Equity and Cost of equity ..................................................... 32

5.3.4. Book to Market and cost of equity .................................................... 34

5.3.5. Total Asset Turnover and Cost of Equity .......................................... 35

5.3.6. Inventory to Total Asset and Cost of Equity ...................................... 36

CHAPTER VI: CONCLUSION...................................................................... 37

6.1. Conclusion ........................................................................................ 37

6.2. Suggestions for further research ........................................................ 39

6.3. Research limitation ........................................................................... 39

LIST OF REFERENCES ............................................................................... 41

APPENDIX.................................................................................................... 45

LIST OF TABLES

Table 1 : Hypothesizes...............................................................................................21

Table 2: Description Data .........................................................................................26

Table 3: Correlation ..................................................................................................28

Table 4 : Hausman Test.............................................................................................29

Table 5: Final Regression Result on firm-specific factors and cost of equity ......31

LIST OF FIGURES

Figure 1: The performance of VN-Index and trading volume from 2000-2013.....7

Figure 2 : The research framework. ........................................................................25

Figure 3 : Mean of Cost of Equity and Debt to Equity Ratio (2009-2012) ...........33

Figure 4: Mean of Cost of Equity and Book to Market Ratio (2009-2012) ..........34