Studying the effect of goodwill information on the market value of companies listed on Vietnam’s stock market

has a negative impact on stock returns. In the current context of Vietnam, assessing the goodwill impairment is still a new and complicated thing, so there have been no empirical studies examining the impact of the goodwill impairment on the market value of companies listed on Vietnam's stock market. However, the study by Tran Manh Dung (2016) has clarified some complex issues when applying goodwill impairment in Vietnam. The study also pointed out implications for Vietnam when applying goodwill impairment. A number of studies have focused on assessing the level of compliance in disclosing information about goodwill of companies listed on the stock market (Izzo et al., 2013; Devalle and Rizzato, 2012; Carlin et al., 2009). Some studies also examine 5 the appropriateness of discount rates used by listed companies in assessing goodwill impairment by comparing the discount rates used by companies with the discount rates calculated independently by researchers (Finch and Carlin, 2010; Tran, 2011). The research results show that the level of compliance in disclosing information on goodwill of listed companies is low but tends to improve in a positive direction. Tran Manh Dung's (2014) study analyzed the improvement of compliance in disclosing goodwill information of listed companies in Hong Kong between 2005 and 2006 using the non-test Parameter Wilcoxon Signed Ranks test. The results have shown an improvement in the level of compliance in the disclosure of goodwill information of companies listed on the Hong Kong stock market. However, this study has only been compared for two years, so it is not possible to confirm with certainty that this improvement is trendy. In the context of Vietnam, the studies which assessed the compliance of listed companies in disclosing goodwill information are still at a simple level and small sample size (Doan Thi Hong Nhung, 2019). A number of studies mainly focus on discussing the accounting method of goodwill or comparing the difference between goodwill accounting according to Vietnamese accounting standards and goodwill accounting according to international accounting standards (Nguyen Minh Phuong and Le Hong Van, 2013; Nguyen Thi Kim Huong, 2015). 1.2 Research gaps On the basis of an overview of prior studies, the author found that some research gaps still exist as follows: Firstly, most of the quantitative studies on the impact of goodwill on the market value of listed companies are conducted with data collected from listed companies on the stock markets in the countries with developed economies such as the United States, the United Kingdom, Europe ... Thus, no studies assess the impact of goodwill on the market value of listed companies in the developing countries like Vietnam. Secondly, the researches in the world stop at considering the impact of goodwill on the market value of listed companies each year. No studies have compared the difference in the influence of companies with new goodwill during the period and those that did not have a new goodwill during the period to the average growth of market value of the companies. Thirdly, the studies mainly focused on assessing the impact of goodwill information in general. No studies have examined the impact of each type of detailed 6 information such as information on “purchase price” or information on “net asset value of the acquired company” on average growth in market value of listed companies. Fourth, the researchs were done with data a long time ago, from 1988 to 2010. This proves that the research results have not timely updated the changes of economies. The result from analysing of the research gap shows that the study of the influence of goodwill information on the market value of companies listed on Vietnam's stock market in the context of the developing economy of Vietnam is really necessary. Therefore, the author has chosen the research topic: "Studying the effect of goodwill information on the market value of companies listed on Vietnam's stock market". 7 CHAPTER 2: RATIONALE OF GOODWILL AND MARKET VALUE 2.1 Rationale for goodwill Goodwill is a very complex issue both from the perspective of identification and measurement (Dicksee and Tillyard, 1906). Therefore, there are many different views on goodwill in the world. The Super - Profit Theory of Goodwill: Leake (1921) defines goodwill as the right to develop all past efforts to seek profit, add value or advantage other in the future. Businesses that buy goodwill are essentially paying for the super profits they expect to gain in the future. (Leake, 1921 cited by Ratiu and Tudor, 2013). The Momentum Theory of Goodwill: The theory hypothesizes that a businessperson buys a thrust in place of a regular revenue. Nelson (1953) argues that the buyer needs to pay a fee for the acquired advantages of the acquired company instead of spending money to create those advantages from the beginning. IFRS 3 - Business combination announced the definition of goodwill “Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised” (IASB, 2004, p.13). Goodwill is measured on the basis of the difference between the cost of acquisition and the fair value of the net assets of the subsidiary at the acquisition date held by the parent company (Ministry of Finance, 2014). When conducting a business combination, goodwill arising in the acquisition process (if any) is recognized as an asset and presented in the consolidated financial statements of the acquiring company. After recognition of goodwill as an asset, depending on the regulations of each country, goodwill is amortized over a limited period of time or impaired annually. The acquirer should present and disclose goodwill information on the consolidated financial statements in accordance with specific regulations of each country. 2.2 Rationale for market value of companies listed on the stock market Market value is the price of an asset determined when trading on the market (Chen, 2019). 8 Currently, there are three methods of determining market value: Calculating market value using market capitalization; calculating market value by comparing with equivalent company; determining market value by the multiplier method In summary, in the case of valuing a listed company, the most appropriate method is to determine the market value based on market capitalization. 2.3 The relationship between goodwill and market value - Efficient market theory Studies of the impact of goodwill on the market value of listed companies are based on efficient market theory (Ohlson, 1995b; Ohlson, 1995a; Chauvin, 1994; McCarthy and Schneider, 1995; Wang, 1993; Qureshi and Ashraf, 2013). Efficient market theory first appeared in the research of Eugene F. Fama and colleagues at the University of Chicago in 1969. According to this theory, the efficient market is the market in which the price of these stocks fully reflects the market information (Eugene F. Fama et al., 1969). According to Fama (1970) efficient markets are divided into three types. Firstly, the efficient market is weak. Second, the efficient market is in medium form. Finally, the efficient market is strong. Goodwill information is presented on the consolidated financial statements of listed companies. Therefore, efficient market theory assumes that goodwill information will have an impact on the market value of listed companies. 9 CHAPTER 3: RESEARCH METHODS 3.1 Research process The overall research process of the thesis is done through seven steps: (1) Identify research issues; (2) Overview of research; (3) Identify research gaps; (4) Building models and research hypotheses; (5) Data collection; (6) Data analysis and (7) Report writing 3.2 Research models and hypotheses The model used in this study was developed from the Landsman model (1986) and the Ohlson model (1993). In this study, the author focuses on assessing the impact of goodwill information on the market value of listed companies. Therefore, the ASSET variable will be separated into the following two variables: the variable ALGW- The book value of the asset minus the goodwill and the variable GW- The book value of goodwill. The author added the model the variable TT202 - The effect of TT202 and the variable TT202*GW that is equal to TT202 multiplied by GW in oder to compare the impact of goodwill on the market value of companies listed on Vietnam’s stock market before and after the introduction of Circular 202/2014/TT-BTC. Regression model: MVi,t = β0 + β1*ALGWi,t + β2*GWi,t + β3*TLi,t + β4*INCi,t + β5*TT202i,t + β6*TT202*GWi,t + Ui + ei,t (3) In which: MV: Market value of listed companies; ALGW: Assets minus goodwill; GW: Goodwill; TL: Liabilities; INC: Profit after tax; TT202: Impact of Circular 202 In the regression model (3), the coefficient β2 of goodwill is the main factor of interest. If investors consider goodwill to be an asset which brings future economic benefits to companies, goodwill will have a positive impact on the market value of listed companies. Therefore, the coefficient β2 will be positively correlated with the market value of companies Hypothesis 1: H0: GW has no impact on the market value of listed companies H1: GW has an impact on the market value of listed companies. 10 If the goodwill information presented in the consolidated financial statements in accordance with the guidance of Circular 202/2014/TT-BTC is more reliable, the impact of goodwill information on the market value of listed companies before and after the Ministry of Finance issues Circular 202 will be different. Therefore, the coefficient β6 will be different from zero Hypothesis 2: H0: GW has the same impact on the market value of listed companies before and after TT202. H1:GW has a different impact on the market value of listed companies before and after TT202. To assess whether goodwill affects the average growth of market value of companies listed on Vietnam's stock market? The author compared the average growth of market value of the group of companies with increased goodwill and the average growth of market value of the group of companies without increased goodwill over the period from 2010 to 2017, the following hypothesis was tested: Hypothesis 3: H0: There is no difference between the average growth of market value of the group of companies with increased goodwill in the period compared with the average growth of market value of the group of companies without increased goodwill in period. H1: There is a difference between the average growth of market value of the group of companies with increased goodwill in the period compared with the average growth of market value of the group of companies without increased goodwill during the period. In the group of companies with increased goodwill during the period, the author of the thesis continues to check whether the disclosure of the information about "purchase price" and "net asset value of the acquired company" used to calculate goodwill affects the average growth of market value of these groups of companies by testing the following two hypotheses: Hypothesis 3a: H0: There is no difference between the average growth of market value of the group of companies that announced the “purchase price” during the period compared with the average growth of market value of the group of companies that did not announce the “purchase price” during the period. 11 H1: There is a difference between the average growth of market value of the group of companies that announced the "purchase price" in the period compared with the average growth of market value of the group of companies that did not announce the "buying price" in the period. Hypothesis 3b: H0: There is no difference between the average growth of market value of the groups of companies: the group discloses using “fair value of the acquired company”; the group declares to use the “carrying amount of the acquired company”; the group did not publish the information. H1: There is a difference between the average growth of market value of groups of companies: the group discloses using the "fair value of the acquired company"; the group claims to use the "carrying amount of the acquired company"; the group did not publish the information. 3.3 Data collection The data was directly collected by the author from the financial statements of companies listed on Vietnam's stock market for 8 years, from 2010 to 2017. Collecting the number of common shares published in the annual audited Notes to the financial statements of the companies listed on Vietnam's stock market. Collecting the closing prices of the first trading day of the second quarter every year on the websites of Ho Chi Minh City Stock Exchange, Hanoi Stock Exchange and websites such as www.ssi.com.vn ... Collecting value of total assets at code 270 on the annual audited consolidated balance sheet. Collecting the value of goodwill at code 269 on the annual audited consolidated balance sheet. Collecting value of total liabilities at code 300 on the annual audited consolidated balance sheet. Collecting value of profit after tax at code 60 on the annual audited consolidated income statement. The dummy variable TT202 receives value 1 in 2015, 2016 and 2017, receiving value 0 in the remaining years. 12 The variable TT202*GW is equal to the variable TT202 multiplied by the variable GW. Information about the company announcing the purchase price upon consolidation: The company announcing the purchase price will receive the value of 1, the company not announcing the purchase price will receive the value of 0. Information disclosed by companies on the use of net assets value of the acquired company when calculating the value of goodwill: The company that used the fair value will receive value of 2, the company that used the book value then will receive the value of 1, the company did not publish this information, the value is 0. Information of increased goodwill in a period: The company which disclosed the increase in goodwill during the period will receive value of 1, the company did not announce the increase in goodwill in the period will receive value of 0. Information disclosed to reduced goodwill during a period: If the company declared the value of decreased goodwill during the period, the value is 1, the company did not announce the decrease in goodwill during the period, it receives value 0. Information disclosed on the amount of goodwill amortized in the period: The company that disclosed the amount of goodwill amortized in the period will receive value 1, the company that did not announce the amount of goodwill amortized in the period will receive value 0. Information disclosed about the time to allocate goodwill: The company that announced the time to allocate goodwill will receive value 1, the company that did not announce the time to allocate goodwill will receive value 0 . Information disclosed to impairment of goodwill: A company which published impairment of goodwill will receive value 1, the company did not publish impairment of goodwill will get value 0. Sampling criteria: Sample was selected from joint stock companies listed on the Ho Chi Minh Stock Exchange and Hanoi Stock Exchange announced goodwill ≥ 0 in the financial statements during the period from 2010 to 2017. Companies were selected according to the industry standard ICB (Industry Classification Benchmark), including the following 10 sectors: Oil and Gas; Industry; Consumer goods; Medical; Consumer services; Telecommunication; Infrastructure services; Finance; Technology and Basic Materials. After removing unqualified samples, final research samples include 872 observations of 109 companies listed on Vietnam's stock market from 2010 to 2017. 13 3.4 Data analysis The author of the thesis used Stata software version 14 to perform statistical analysis steps describing the basic characteristics of the research variables such as maximum value, minimum value, average value and deviation between the mean value of the variables and the true value. The author of the thesis has also performed the steps of testing the research model such as multicollinearity test, model selection test, autocorrelation test, cross-correlation test, heteroscedasticity test and take corrective steps to get a consistent result. To compare the difference in growth of market value among groups of companies, the author of the thesis calculated the average growth of market value in 8 years of 109 listed companies in the research sample as follows: Average growth of market value = [(MV2011 – MV2010)/MV2010 + (MV2012 – MV2011)/MV2011 + (MV2013 – MV2012)/MV2012 + (MV2014 – MV2013)/MV2013 + (MV2015 – MV2014)/MV2014 + (MV2016 – MV2015)/MV2015 + (MV2017 – MV2016)/MV2016 ]/7 In which: MV: The market value of the companies corresponds to each year With the sample size of 109 companies, the author of the thesis has conducted the following verification steps: First, using the Mann-Whitney non-parametric test to test the difference between the average growth of market value of the group of companies with increased goodwill during the period and the average growth of market value of the group of companies without increased goodwill in the period. Second, using the Mann-Whitney test to examine the difference between the average growth of market value of the group of companies that announced the purchase price and the average growth of market value of the group of companies that did not announce purchase price when these companies have increased goodwill during the period. Finally, using the Kruskal Wallis test to assess the difference between the average growth of market value of the three groups of companies when disclosing information about the net assets value of subsidiaries used when calculating goodwill, includes: the first group is the group of companies disclosed using the fair value of net assets of its subsidiaries; the second group is the group of companies that disclosed using the net book value of subsidiaries and the third group is the group of companies that did not disclose this information. 14 CHAPTER 4: RESULTS AND DISCUSSION 4.1 The situation of disclosing goodwill information of companies listed on Vietnam's stock market By analysing the status of goodwill information disclosure of companies listed on Vietnam's stock market, the results show that the level of compliance in the disclosure of goodwill information of listed companies is very low. Simple information such as "the value of amortized goodwill" or the "time to amortize goodwill" is often well publicized by companies. Meanwhile, more complex information such as the "purchase price" and "net assets value of the acquired company" used to calculate goodwill are often overlooked. This proves that the complexity of the information affects the disclosure of goodwill information of companies listed on Vietnam's stock market. However, the trend analysis also shows an improvement in the disclosure of goodwill information of companies listed on the Vietnam’s stock market over the years. 4.2 Assessing the impact of goodwill information on the market value of companies listed on Vietnam's stock market The multi-collinearity test results show that the VIF coefficients are very high. Thus, the model exists multi-collinear phenomenon. The author has made independent variables and dependent variables in the model to overcome the multi-collinear phenomenon. The variables GW, TL and INC are deflated by dividing the book value of total assets and taking logarithms for the two variables MV and ALGW. The model using adjustment variables is rewritten as follows: lnMVi,t = β0 + β1*lnALGWi,t + β2*GW2i,t + β3*LEVi,t + β4*INC2i,t + β5*TT202i,t + β6*TT202*GW2i,t + Ui + ei,t (4) According to model test results (4), VIF coefficients are all smaller than 10. This proves that multi-collinear phenomena no longer occur for independent variables of the research model. Breusch and Pagan LM test results showed that the coefficient p <0.1, so the random effect model was selected. Next, the Hausman test was performed with p-value <0.1, so the fixed effect model was chosen. The results of the autocorrelation test showed that the coefficient p-value <0.1. This proves that the model has autocorrelation. 15 The author used Pesaran's test to check the independence between the residuals of cross elements and the result showed p-value <0.1, so the model has a cross correlation phenomenon. The test results show that p-value value <0.1 model exists heteroscedasticity phenomenon. To overcome the autocorrelation, cross-correlation and heteroscedasticity of model. The author has used the feasible general least squares regression method (FGLS). The results show that the heteroscedasticity phenomenon, autocorrelation and cross correlation were overcome. The results of regression analysis and the theoretical model of the impact of goodwill information on the market value of companies listed on Vietnam's stock market suggest that the linear regression equation for the model is built as follows: Regression equation: lnMVit = -0,6209 + 1,118*lnALGWit + 0,785*GW2it – 1,102*LEVit + 0,922*INC2it - 0,026*TT202it - 0,218*TT202GW2it The results of regression analysis show that the variables lnALGW, GW2, LEV and INC2 have an impact on lnMV at the statistical significance level of 5%. The variables lnALGW, GW2 and INC2 have a positive impact on lnMV. In case there is only the change of one independent variable and the other independent variables remain the same, when lnALGW increases by 1%, lnMV increases by approximately 1,118%, when GW2 increases by 1 unit, lnMV increases by 78.5%, when INC2 variable increased by 1 unit, lnMV variable increased by 92.2%. In contrast, the LEV variable has an inverse relationship with the lnMV variable. When the LEV variable is increased by 1 unit, the lnMV variable will decrease by 110.2%. The results show that the variable TT202 is statistically significant but the variable TT202 * GW is not statistically significant. Therefore, accepting H0, rejecting H1 in research hypothesis 2. This means the impact of goodwill information on the market value of listed companies before and after the Ministry of Finance issued Circular 202/2014/TT-BTC is the same. Thus, the reaction of investors on the information of goodwill announced before and after the effective Circular 202/2014/TT-BTC is not different. Although the statistical results show that goodwill accounts for a negligible proportion in the total assets of companies listed on Vietnam's stock market, the results of model that assesses goodwill information on the market value of companies listed 16 on Vietnam's stock market show the coefficient β2 = 0.785 with a 5% significance level (p-value = 0.004 <0.05). This proves that goodwill information has a positive impact on the market value of listed companies because investors believe that goodwill is an asset and it will bring benefits of economic for businesses even in the condition of developing economy of Vietnam. 4.3 Assessing the effect of disclosure of goodwill information on the average growth of market value of companies listed on Vietnam's stock market The test result of hypothesis 3 shows that with the 5% significance level (p- value = 0.007) we can conclude that the group of companies with increased goodwill in the period had average growth of market value higher than the average growth of market value of the group of companies without increased goodwill during the period. Test result of sub-hypothesis 3a shows that with the 5% significance level (p- value = 0.021) we can conclude that the group of companies announced the purchase price has an average growth of the market value higher than the average growth of market value of the group of companies did not disclose the purchase price. Testing the sub-hypothesis 3b with a 5% significance level (p-value = 0.071) we can conclude that there is no difference in the average growth of market value among the three groups of companies. 4.4 Discuss the research results By testing the effect of goodwill information on the market value of companie