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Luận văn thạc sĩ UEH the relationship between firms payout ratio, dividend yield and expected
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MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS - HOCHIMINH CITY
LE ANH TU
The Relationship between Firm’s Payout
Ratio, Dividend Yield and Expected
Earnings Growth
-A Case Study for Listed Firms in HOSE and HNX-
MASTER’S THESIS
Ho Chi Minh City -2012
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MINISTRY OF EDUCATION AND TRAINING
UNIVERSITY OF ECONOMICS - HOCHIMINH CITY
LE ANH TU
The Relationship between Firm’s Payout
Ratio, Dividend Yield and Expected
Earnings Growth
-A Case Study for Listed Firms in HOSE and HNXMajor: Master of Business Administration
Code: 60.34.05
MASTER’S THESIS
Supervisor: Dr. Vo Xuan Vinh
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i
Master thesis by Le Anh Tu
Supervised by Dr. Vo Xuan Vinh
University of Economics, Ho Chi Minh city- December 2012
I am grateful to Dr. Vo Xuan Vinh for his good insights and useful comments. His
experience and professionalism have certainly improved my research.
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ii
Abstract
The relationship between the payout ratio, dividend yield and the expected earnings
growth was investigated for listed firms in Vietnam stock market, specifically firms
listed on the HOSE and HNX stock exchanges. This research is based on the model
developed by Arnott and Asness (2003).The research outcomes are as follows. Firstly,
there is a positive relation between the dividend payout ratio and future earnings
growth. Secondly, this research is an extension of the research done by Arnott and
Asness (2003). It was shown in this research that the payout ratio is positively related
to the expected future earnings growth for the individual listed firms in the Vietnam
stock market. Afterwards, an expanded model with some other variables was
constructed to forecast the expected earnings growth. As a result, only two variables,
payout ratio and dividend yield, were found to be significant within the expanded
model. Overall, this research is unique because we have focused on Vietnam stock
market -listed firms.
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iii
Table of content
Acknowledgement .................................................................................................. i
Abstract .................................................................................................................. ii
List of tables ........................................................................................................... vi
List of figures ......................................................................................................... vii
Abbreviations ......................................................................................................... viii
Chapter 1: Introduction ....................................................................................... 1
1.1The context of the Research .................................................................... 1
1.2Structure of this paper ............................................................................. 2
Chapter 2: Current state of literature & Hypotheses Development .................. 4
2.1 Reason to Pay Dividends ........................................................................ 4
2.2 Dividend Returns ................................................................................... 5
2.3 Dividend Life Cycle Theory ................................................................... 5
2.4 The Dividend Decision Model by Lintner (1956) ................................... 7
2.5 Types of Dividend Payments ................................................................. 8
2.6 Stock Repurchases ................................................................................. 9
2.7 Preference for Dividends ........................................................................ 9
2.8 Relationship between Dividend and Profitability ................................... 11
2.9 The payout ratio predicts future earnings growth ................................... 13
2.9.1 Gordon’s Constant-Growth Valuation Model ............................... 13
2.9.2 Main conclusions by Arnott and Asness (2003) ............................ 14
2.9.3 Some Explanations for the Positive Relationship by Arnott & Asness
.............................................................................................................. 15
2.10 An extension of Arnott’s and Asness’s Research................................... 16
2.11 Hypotheses Development...................................................................... 17
2.11.1 Hypothesis 1 ................................................................................ 18
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2.11.2 Hypothesis 2 ................................................................................ 18
Chapter 3: Data & Methodology ......................................................................... 20
3.1 Introduction ........................................................................................... 20
3.2 Panel data analyses ................................................................................. 20
3.2.1 Sample construction ...................................................................... 21
3.2.2 Variable description and model building ....................................... 21
3.2.3 Methodology for panel data analyses ............................................ 21
3.2.4 Advantages of Panel Data ............................................................. 23
Chapter 4: Results ................................................................................................ 24
4.1 The regression results of the payout ratio and expected earnings growth
analyses .................................................................................................................. 24
4.1.1 Descriptive statistics ..................................................................... 24
4.1.2 Panel data regressions ................................................................... 26
4.2 Large- cap firms in HOSE versus small-cap firms in HNX .................... 30
4.3 Dividend yield and future profitability ................................................... 32
4.4 An expanded model to forecast future earnings growth .......................... 34
4.4.1 Variable description and model building when add DY ................. 34
4.4.2 Variable description and model building when adding DY, EIBT, TA,
ROE and ROA. ...................................................................................................... 36
Chapter 5: Conclusions and Recommendations ................................................. 40
5.1 Conclusions with respects to the first hypothesis .................................... 40
5.2 Conclusions with respect to the second hypothesis ................................. 41
5.3 Recommendations................................................................................... 41
References ............................................................................................................. 43
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