Transparency and information disclosure of listed companies on the Vietnam stock market

listed companies is decreased more and more. - When information asymmetry is reduced among the parties, the listed companies can reduce the cost of equity and increase the firm performance. 2.3 PREVIOUS EMPIRICAL STUDIES 2.3.1. Studies of disclosure index in the world The listed companies’ disclosures in the world were showed through on the following indicators: Corporate Governance Score (OECD, 2004); Transparency and Disclosure Index (TDI) of Standard and Poors (Patel, 2002); Information Disclosure and Transparency Rankings System (SFI, 2006); Governance and Transparency Index of Singapore (2012). The above indicators aim at the information transparency and reducing information asymmetry between investors and company managers. 2.3.2 Studies disclosure index in Vietnam Le Truong Vinh and Hoang Trong (2008) were the first pioneers to study the information transparency and disclosure of the listed companies at HOSE. Next, Gray Tower, Kelly Anh Vu, and Glennda Scully (2011) at Curtin University, Australia had used the corporate governance score set to establish the "VnDI" disclosure 10 index with 84 questions and to research on 45 listed companies at HOSE and HNX in year 2008. Ta Quang Binh (2012) studied the level of disclosure of 199 listed companies on VSEM in year 2009. The set of questionaire criteria was established based on the Enterprise Law year 2005 and Securities Law year 2006. Hieu and Lan (2017) applied the criteria set of Tower et al., (2011) to establishVietnam’s voluntary disclosure index with 42 questions based on the Circular no. 52/BTC/2012 on The disclosure of the listed companies for researching 205 listed companies on VSEM. Truong Dong Loc and Nguyen Thi Kim Anh (2016) developed a set of transparency and disclosure indecies based on TDI of S&P (2002) with 53 criteria and assessed 278 listed companies on HOSE in year 2014. Le Thi My Hanh (2015) studied the transparency of financial information of 178 listed companies on HOSE in years 2011-2012. The Linker scale method has been used to score 13 criteria on the transparency of financial information of the listed companies. There is afew study on the effects of disclosure index on cost of equity, firm performance and profitability of listed companies in VSEM. 2.3.3 Factors affecting the transparency and disclosure of the listed companies * Corporate governance: Cheung et al., (2007); Zhang and Li (2008); Andrade et al., (2014) pointed out that corporate governance characteristics are closely related to the disclosure level. The composition of the Administration Board has a significant influence on the informtion transparency and disclosure of the listed companies. On Vietnam Stock Exchange Market, Ngo Thu Giang and Dang Anh Tuan (2013), Nguyen Thi 11 Phuong Hong, and Le Hoang Trung (2016) found a connection between the company characteristics and the disclosure activities of the listed companies. Disclosure is better done at listed companies with independent management between the Board of Directors and the Board of Administration. * Corporate size: Stiglbauer (2010); Dang Ngoc Hung (2016), Nguyen Thi Phuong Hong, and Le Hoang Trung (2016) pointed out that firm size is positively correlated with the information transparency and disclosure of the listed companies. * Ownership structure: Stiglbauer (2010) also indicated a positive correlation between ownership structure, information transparency of corporate governance and firm performance. The disclosure levels of the listed companies are influenced by management ownership, family ownership, state ownership, foreign ownership (Fan and Wong, 2002; Eng and Mak, 2003; Cheng and Courtenay, 2006). * Out-side control: Many studies concluded that auditing company had affected the level of financial disclosure of listed companies (Dang Ngoc Hung, 2016; Nguyen Thi Phuong Hong and Le Hoang Trung, 2016). * Legal system: The legal system is an important cause that influence on the quality of information transparency and disclosure of the listed companies on VSEM (Nguyen Thi Hai Ha, 2011). Law regulations on disclosure are the compulsory basis that the listed companies had to implement and comply with World Stock Exchange Markets. 2.3.4. Impact of transparency and disclosure on the cost of equity of the listed company 12 The effect of asymmetric information on the cost of equity based on financial economic theory is a relationship between yield and risk. Information asymmetry increases investment risks; therefore, investors require higher yields (increase cost of equity). Barry and Brown (1985) had concluded that improving disclosure level can reduce the cost of equity by limiting the risk of portfolio diversification inability. Verrecchia (1982) found that information transparency reduced the information asymmetry level and agency cost, thereby it decreased cost of equity as well. There are two types of the cost of equity that are reduced due to information transparency, including increasing market liquidity by reducing transaction cost (Amihud and Mendelson, 1986; Diamond and Verrechia, 1991) and reducing information risks to investors (Coles et al., 1995). Yang and Li (2013); Khlif et al., (2015) concluded that the disclosure inversely affected to the cost of equity of the listed companies. 2.3.5. Impact of information transparency and disclosure on the performance of the listed company Aksu and Kosedag (2005) illustrated that the listed companies acquiring high transparency and disclosure index often achievied highly profitable. Research by Stiglbauer (2010) shown that the information transparency in corporate governance had a positive correlation with firm performance. Sharif and Lai (2015) concluded that the disclosure was proportional to the profit of the listed companies. Research by Ngo Thu Giang and Dang Anh Tuan (2013); Dinh Bao Ngoc and Nguyen Chi Cuong (2016) concluded that information transparency and disclosure are proportional to the profit of the listed companies in VSEM. 13 2.4 Conclusion First, the information transparency and disclosure of the listed companies are strictly related when the liested companies discloses its information on World Stock Exchange Market and Vietnam Stock Exchange Market. Second, the basic theories to explain the factors affecting the information transparency and disclosure of the listed companies, and the impact of the information transparency and disclosure on the cost of equity and performance are asymmetric information theory, agency theory, and signal theory. Third, the most relevant empirical studies and economic theories reviewed in the dissertation provide a basis for explaining the hypotheses set out in the following chapter. CHAPTER 3: METHODOLOGY 3.1. DATA COLLECTION METHODS The dissertation’s sampling method is to study all listed companies (at least 5-year listed) on HOSE and HNX (except UpCom). According to the collection results, 484 companies are selected with consecutive data by years from 2014 to 2016; which includes 271 listed companies on HOSE and 213 listed companies on HNX. There are 1452 samples being observed. Research data for analysis are the annual report of the listed companies; annual, semi-annual, and quarterly financial statements, disclosure reports of the listed companies at the State Security Commission, HOSE, and HNX and the website of the listed companies. 3.2 SET UP CRITERIA OF INFORMATION TRANSPARENCY AND DISCLOSURE 3.2.1 Basis for setting up criteria set for evaluating transparency and disclosure 14 The dissertation uses the basis for setting up a set of the disclosure indexes of the following three models: (i) disclosure according to the Corporate Governance Score; (ii) transparency and disclosure index according to Standard and Poors (2002); (iii) management and transparency index and (iv) legal framework for disclosure of the listed company on Vietnam Stock Exchange Market (Circular 121/2012/TT-BTC; Circular 200/2014/TT-BTC; Circular 155/2015/TT-BTC; Decree 108/2013/ND-CP; Decree no. 105/2013/ND-CP). 3.2.2 Theoritical Framework Due to the limitation of the number of pages, the construction of a set of the transparency and disclosure criteria of the listed company is not presented in summary. Figure 3.4: Theoritical framework of the dissertation 3.3 DATA ANALYSIS The dissertation uses descriptive statistics to describe the governance and financial characteristics of the listed 15 companies. To determine the impact of factors on the information transparency and disclosure and the impact of information transparency and disclosure on cost of equity and performance, the random effects model (REM) and fixed effects model (FEM) are used to estimate at models (3.4), (3.8) and (3.12) in the dissertation. Hausman test is laterly used to find an appropriate estimation model. However, the estimation results from these two estimations cannot be effective due to the endogenous phenomena in the models. Two- stage least square method (2LSL) and Generalized Method of Moments (GMM) are used to overcome the endogenous phenomenon when it appears in the models. Some tests named Sagan, Hansens’J and Wu-Hausman were used to determine the validity of the instrument variables and eliminate the endogeneity in the regression models. 3.4 Experimental research model 3.4.1 Factors affecting information transparency and disclosure of the listed companies The dissertation develop an equation to determine effects of the independent variables in the model 3.4, which are the disclosure of in the past, the members of the Administration Board, the concurrent assumption of Administration Board’s Chairman of Administration Board cum Director General, the number of independent members of Board, firm size, ROA, and Tobin Q. The variables of numbers of Directors on Board, leverage, ownership structure, and listing place are used as instrumental variables of the firm size variable in model 3.4. 16 Model 3.4 itititit ititittiit TOBINQROAFsize MemIndDualBSizeTDITDI      765 4321,1 . Table 3.6: Independent variables in model 3.4 Sign Measurement method Expected mark TDI Transparency and disclosure index BSize Members of the Administration Board + Dual Dummy variable, is 1 if the chairman of company cum general director, is 0 if otherwise. - IndMem Independent members in Board + FSize Firm size (logarit of total asset) + ROA Return of Asset (time) + TOBINQ Market value per Book value of firm (time) + 3.4.2 Effect of the information transparency and disclosure on the cost of equity of the listed companies The dissertation develop an equation to determine effect of transparency and disclosure index on the cost of equity; it has some variables including transparency and disclosure index, management ownership, firm size, leverage. Variables, such as independent members in Board, listed years, foreign ownership, and listing place, are used to overcome the endogenous phenomena in the estimation models of 2SLS and GMM in model 3.8. Model 3.8 itititittiit LevFsizeBSizeTDICE   432,1 17 Table 3.8: The variables being used in the equation effect of transparency and disclosure index on the cost of equity Sign Measurement method Expected mark TDI Transparency and disclosure index - Ma_owner The management ownership (%) + FSize Firm size (logarit of total asset) - Lev The leverage of company (time) - 3.4.3 Effect of the information transparency and disclosure on firm performance of the listed company The dissertation develop an equation to determine effect of transparency and disclosure index on performance; it has some variables including transparency and disclosure index, members of Administration Board, duality of Chairman of Administration Board, management ownership, foreign ownership, leverage, auditing company, listing place and the sector. Model 3.12 itit ititit ititititit Category ListingAuditLevownerFo ownerMaDualBSizeTDIFP       9 8765 4321 . . Table 3.10: The variables being used in the equation of effect of transparency and disclosure index on performance Sign Measurement method Expected mark TDI Transparency and disclosure index + BSize Members of the Administration Board - Dual Dummy variable, is 1 if the chairman of company cum general director, is 0 if otherwise. - 18 Sign Measurement method Expected mark FSize Firm size (logarit of total asset) + Lev The leverage of company (time) - Ma_owner The management ownership (%) + Fo_owner The foreign’s ownership(%) + Audit Dummy variable, is 1 if large auditing companies (Big4), is 0 if otherwise. + Listing Dummy variable, is 1 if listing place in HOSE, is 0 if otherwise. + Category Dummy variable, is 1 if firm’s category in non-finace, is 0 if otherwise. + CHAPTER 4: FINDINGS AND DISCUSSIONS 4.1 ESTABLISHMENT OF A SET OF CRITERIA OF INFORMATION TRANSPARENCY AND DISCLOSURE ON VIETNAM STOCK EXCHANGE MARKET 4.1.1 Basis for establishing criteria of information transparency and disclosure indecies of the dissertation * Circular 155/2015/TT-BTC in year 2015 The information transparency and disclosure index of the listed company on Vietnam Stock Exchange Market is applied under Circular 155 in Chapter 1 with Articles 3, 4, 5, 6, 7; Chapter 2 with Articles 8, 9, 10; Chapter 3 with Articles 11, 12, 13 and Chapter 7 with Articles 26, 27, 28, 30, 31. Financial statements, accounting reports according to Vietnamese accounting standards (TT200/2014/BTC or TT133/2016/BTC), annual reports 19 and corporate governance reports are in compliance with TT155/2015/BTC being used. * Circular 121/2012/TT-BTC in year 2012 Corporate governance regulations of the listed company in the content of Circular 121 are specified in Circular 155/2015/BTC. * Set of the information transparency and disclosure criteria of Standards and Poors Transparency and disclosure Index (TDI) are classified into three main parts: ownership structure and investor rights, transparency in financial disclosure, the structure of Administration and Executive Board, which has 98 questions in a questionare. The dissertation uses S&P criteria (2002) and combines disclosure regulations from Circular 155/BTC to develop this set of criteria. 4.1.2 The criteria of information transparency and disclosure of the listed company on Vietnam Stock Exchange Market The method of assessing the amount of disclosed information similar to the S&P method is used. The dissertation differentiated the level of information transparency in some questions having more detailed information in the context. - The contents that do not comply with the regulation of the criteria is scored 0. Each information detail provided on the question is scored 1. - The evaluation criteria are designed to show compliance with Vietnamese law and international law, according to the practice applied for the listed company and the voluntary disclosure characteristics. - The answers can be found on financial statements, annual reports, corporate governance reports, websites of 20 the listed companies, and websites of HOSE, HNX, and State Security Commission. Transparency and disclosure Index (TDI) are calculated based on three main components: the disclosure of ownership structure and investor's rights (18 scores), the financial disclosure (50 scores), and the disclosure of the structure of the Company’s Administration and Management Board (30 scores). The total score that the company achieved on the questionnaire was 98 scores (100%). The method of scoring questions on the set of the transparency and disclosure criteria is as follows: questions without disclosed information are given "0" score; otherwise, questions with disclosed information are given "1" score; some questions with the importance of disclosed information is given "2" scores provided that the information is disclosed fully and promptly (19 questions). Companies that violate disclosure on the market as notified by the State Security Commission are deducted 2 scores for each violation. The transparency and disclosure index of the company is calculated as follows: 100 79 1 x S S TDI tc i i j   Where: TDIj: Transparency and disclosure index of the j th company Si: Score of the surveyed i th criterion Stc: Total score of the set of evaluation criteria The results in Table 4.4 showed that the transparency and disclosure score of 484 selected companies varied from 36.7 to 79.6 scores, with an average score of 62.5 (at average level). The biggest score of the transparency and 21 disclosure belongs to the company's financial disclosure is 37.5 scores; the disclosure on the ownership structure and investor's rights is lower than its required 5.9 scores; similarly, information about the structure of Adminis- tration Board and operational activities are lower than its required 12 scores. The analysis results show that listed companies have low to moderate levels of information disclosure in all categories. Table 4.4 : The index of information transparency and disclosure of the listed companies in VSEM Content Min Max Ave Mode STD Ownership structure and investor rights 5.1 17.3 12.5 12.2 1.6 Financial transparency and disclosure 11.2 40.8 31.5 31.6 4.1 Board and management structure and process 7.1 26.5 18.6 18.4 2.7 Total score 36.7 79.6 62.5 63.3 5.8 Source: The analysis results using data source by author 4.2 OVERALL INFORMATION OF THE LISTED COMPANIES IN THE DISSERTATION * Research samples There are 505 listed companies in HOSE and HNX surveyed in the dissertation. Companies lacking extreme information and data, and the ones listed less than five years are eliminated to ensure that the selected listed companies have a similarity in listing time and governance characteristics. 484 listed companies have enough data in three consecutive years from year 2014 to year 2016 be selected. There are 1452 observations selected in VSEM to ensure the analysis scale of the dissertation. The results are presented in Table 4.6. 22 Table 4.6: The number of listed companies of survey in the dissertation Code Sector HNX HOSE (%) 01 Financials 23 17 8,26 02 Consumer Staples 20 31 10,54 03 Real Estate 7 32 8,06 04 Industrials 99 76 36,17 05 Materials 22 45 13,84 06 Consumer Discretionary 28 30 11,98 07 Ultilities 0 18 3,72 08 Energy 3 8 2,27 09 Health Care 8 8 3,31 10 Information Technology 3 6 1,85 Total 213 271 Source: The analysis results using data source by author * Characteristics of governance and finance corporate Analysis of financial characteristics of the listed companies in Table 4.8 shows that the firm size and leverage were less volatile during that period. However, the company's cost of equity increased after three years: from 7.7% in year 2014 to 10.7% in year 2016. Changing the cost of capital also has a significant affected on company profits. The return on equity ratio decreased from 9.2% in year 2014 to 8.3% in year 2016; similarly, the return on assets ratio decreased from 5.2% in year 2014 to 4.9% in year 2016. 23 Table 4.8: Summary characteristics of the listed companies in years Variables Year Min Max Ave STD Listing year 2014 0 14 5,3a 2,4 2015 1 15 6,3b 2,4 2016 2 16 7,3c 2,4 TDI 2014 43,9 73,5 61,4a 5,6 2015 36,7 78,6 62,9b 5,7 2016 42,9 79,6 63,3b 5,9 Firm’s size 2014 23,330 34,125 27,289 1,693 2015 23,282 34,377 27,395 1,712 2016 23,287 34,545 27,472 1,727 Leverage (time) 2014 0,015 0,967 0,498 0,232 2015 0,007 0,971 0,498 0,231 2016 0,001 0,967 0,487 0,242 Cost of equity 2014 0,000 0,100 0,077b 0,008 (time) 2015 0,054 0,069 0,062a 0,002 2016 0,000 0,327 0,107c 0,058 ROA (time) 2014 -0,365 0,386 0,052 0,071 2015 -1,587 0,784 0,054 0,109 2016 -0,418 0,374 0,049 0,075 ROE (time) 2014 -3,927 0,559 0,092 0,239 2015 -2,401 0,982 0,098 0,194 2016 -1,875 0,491 0,083 0,196 TOBIN_Q (time) 2014 0,297 6,774 1,065 0,495 2015 0,235 27,633 1,098 1,294 2016 0,195 17,687 1,126 0,949 MBR (time) 2014 0,254 14,454 1,140 1,036 2015 0,154 57,846 1,178 2,690 2016 0,098 26,709 1,185 1,487 Source: The analysis results using data source by author 24 4.3 FACTORS AFFECTING ON THE LEVEL OF INFORMATION TRANSPARENCY AND DISCLOSURE OF LISTED COMPANY Measuring the effects of administrative and financial factors on the level of information transparency and disclosure of listed companies on VSEM, the dissertation uses some estimation methods such as REM, FEM and instrumental variables (2SLS and GMM). Estimated results from the models are presented in detail in Table 4.17. The variables: Board of Directors, Foreign ownership, Management ownership, leverage, listing place, TDI in the past are used as instrumental variables for firm size variables based on pair correlation coefficients in Table 4.16. The results of the 2SLS and GMM estimation methods from the "model 4" are consistent with the test results. The results of the 2SLS and GMM estimation models show that the level of information transparency and disclosure is influenced by factors such as TDI in the past, numbers of independent members of Administration Board, corporation size, ROA, firm value, and have the same direction with the estimated results at the basic estimation model (REM model). The dissertation concludes: (i) the number of independent members of Administration Board is positively correlated with the level of information transparency and disclosure; increasing numbers of independent members of Administration Board will reduce information asymmetry between managers and shareholders; (ii) firm size is positively correlated with the information transparency and disclosure of listed companies; (iii) firm performance measured by the ROA ratio has a positive effect on information transparency and disclosure. The companies 25 having high profit margins will disclose more information, and their agents will use this for better contracting; (iv) firm value measured by TobinQ is positively correlated with the level of information transparency and disclosure of listed companies; (v) the degree of information transparency and disclosure in the previous period is positively correlated with the disclosure in the current. Table 4.17: Factors affecting on the level of information transparency and disclosure of listed companies Variables REM FEM 2SLS GMM constant 20,31*** 25,35 14,01*** 15,38*** (7,49) (1,06) (3,35) (3,77) TDI t-1 0,548 *** -0,337*** 0,586*** 0,602*** (20,13) (-7,57) (18,39) (19,44) Board’s size 0,125 0,116 0,0599 0,0441 (1,20) (0,67) (0,64) (0,47) Duality of the -0,499 -2,149*** -0,417 -0,489 Chairman (-1,43) (-2,69) (-1,23) (-1,45) Independent 0,358** -0,0992 0,287* 0,365** members (2,43) (-0,26) (1,77) (2,28) Firm’s size 0,268*** 2,147** 0,426*** 0,344** (2,78) (2,44) (2,48) (2,06) ROA 6,686*** 0,603 6,599*** 6,752*** (4,06) (0,27) (3,93) (4,16) TOBIN_Q 0,140 -0,358 0,138* 0,135* (1,00) (-0,88) (1,78) (1,79) Observations 968 968 968 968 R2 (%) 71,07 1,7 42,27 42,42 Wald/ F test 564,8*** 9,6*** 548,5*** 599,2*** Hausman(FE/RE) 669,6 *** Wu-Hausman 1,85 ns 0,95 ns Sagan/ Hansen’s J 7,54 * 7,54 * 26 Source: The analysis results using data source by author Note: * Significant at the 10% level, ** significant at the 5% level, *** significant at the 1% level. The analysis results use Hausman test to select model REM/FEM; Sagan, Hansen’s J test to identify instrumental variables in GMM; Wu-Hausman test to identify endogeneity variables; the number in parentheses presents for t and z-value in the model. 4.4 EFFECT OF INFORMATION TRANSPARENCY AND DISCLOSURE ON THE COST OF EQUITY OF LISTED COMPANY The results of the 2SLS and IV-2SLS regression models indicate that the cost of equity of listed companies is influenced by factors such as the degree of information transparency and disclosure, firm size, leverage and are proportional to the estimated results in the basic estimation model (FEM). The firm size is positively correlated with