Defense Thesis - Ngo Thanh Hien

Dissertation Topic:
The impact of Financial ratio on firms’ market return in the Vietnamese

context
Defense Session
Student: Ngo Thanh Hien
Tutor: Isabelle Miroir (Neoma BS)
ABOUT
Presentation
Motivation and Contribution of the study
• Vietnamese economy is growing with a rapid pace.
• The market return of Vietnamese firms’ shares has

outperformed other developed equity market.
• Vietnam has rapidly integrated to the global supply

chains and free capital flows by the participation to
various free trade agreements (FTA) with
developed economies, such as: the EU, the US,
and Asia Pacific areas.
2
LITERATURE REVIEW
FINANCIAL RATIOS STOCK RETURN THE IMPACT OF FINANCIAL

CONCEPT RATIOS ON STOCK RETURN
It is a calculation where The profit that is gained The financial ratios can
financial values are from stock investment in predict stock return
determined to get an a definite time period. • Profitability ratios
insight into the overall • Yield • Firm size & Stock
financial health of a • Capital Gain/Loss return
company and its market • Leverage & Stock
position. return
1. FINANCIAL
RATIOS CONCEPT Investors could conduct a fundamental
analysis, utilizing several ratios to measure
firms’ performance to evaluate whether
those firms are worthy investments on the
Vietnamese stock market. It is a notion that
companies with higher level of performance
tend to bring higher market return.
2. STOCK RETURN
YIELD CAPITAL GAIN (LOSS)
Yield refers to the amount of profit or cash flow Barro (1990) states that capital gain or loss
periodically deriving from an investment. refers to the rise or decline of a security’s price
(stock, bond, or debt), directly affecting the
Yield is computed by the proportion of the value of investments.
invested principal
Gains (losses) for investors obtained from
Dividend is distributed to shareholders if there excess selling price (purchase price) above the
is a surplus left after the company’s net income purchase price (selling price) which both occur
deducting tax paid, which is called returned in the secondary market.
earnings.
7/14/20XX Pitch deck title 5

3. THE IMPACT OF FINANCIAL
RATIOS ON STOCK RETURN
1. Profitability Ratios 2. Firm size and stock return 3. Leverage and stock return
Information asymmetry may To some extent, leverage can
Profits and stock prices are
have a greater impact on be understood as a surrogate
causally related in a unidirectional smaller companies. Smaller
for financial risk, and this
manner, and there is a businesses appear to have
higher returns than larger correlation between the two
cointegration between the two.
businesses, as stated by Banz factors, together with expected
Additionally, there is a causal
(1981). As a result, it is stock returns, can be
relationship between net
believed that the larger the predicted. The level of financial
operational profitability and stock
company, the lower the stock leverage in an organization is a
prices that works in both returns will be. Bigger good indicator of the amount
directions. companies, on the other of risk involved.
hand, are said to provide
safer stock market returns for
investors due to their larger
market capitalization.
6
RESEARCH
METHODOLOGY
1. RESEARCH PHILOSOPHY
• As shown in Figure 1, from the outside to the inside of

the diagram, research philosophy has been introduced
as a first step.
• This research uses positivism as its theoretical
framework to analyze the correlation between financial
measures and stock return in non-financial Vietnamese
businesses. In order to address the research question, it
provides the essential research procedures for
formulating hypotheses based on gathered historical
data, which may then be tested.
Figure 1: Research onion

RESEARCH
METHODOLOGY
(Continued)
2. RESEARCH APPROACH 3. RESEARCH STRATEGY

Given the extensive literature on the correlation This study employs a literature analysis of
between business financials and market independent variables that have been shown to
performance, testing whether or not VN 30 data have a significant impact on firms' market
are in line with prior beliefs is best done using a returns. The risk of internal validity is reduced
deductive rather than an inductive method. because the study samples data from 18 VN30
companies during the years 2019–2021. All data
comes from reputable sources.
RESEARCH METHODOLOGY (Cont)
4. Proposed Hypotheses
HYPOTHESIS 1 (H1) HYPOTHESIS 2 (H2) HYPOTHESIS 3 (H3)
Firms’ return on assets Firms’ market Firms’ debt-to-equity

ratios positively impact capitalization ratio significantly
their market returns. significantly impacts impacts their market
their market returns. returns
9
RESEARCH
METHODOLOGY
(Continued)
5. SAMPLE COLLECTION 6. MODEL FORMULATION

• The author collects the secondary data from As this study attempts to examine the relationship
firms listed on VN30 Equal Weight Index (VN30) between firms’ financial ratios and their market return,
at 30 June 2022, which 18 of them are non- the model is stated as follows:
financial companies. Rit = β0 + β1 MCit + β2 ROAit + β3 DEit + uit
• The time span of the collecting samples process
is from the year end of 2019 to the year end of
2021.
 The total observations are 54.
RESEARCH FINDING
1. DESCRIPTIVE SUMMARY
Table 1: Statistical Summary Figure 2 Annualized real return on equities in

selected countries worldwide from 2001 to 2020
Std.
N Minimum Maximum Mean
Deviation
R 54 -28.47% 182.44% 15.25% 38.04%
MC 54 8,592.20 387,432.34 116,265.88 99,916.10
ROA 54 - 25.79 9.66 6.16
DE 54 0.24 3.90 1.28 0.91

RESEARCH FINDING
1. DESCRIPTIVE SUMMARY
The standard deviation of the market return is 38.04%,

implying that VN30 returns were volatilized.
• “High risk, high rewards” is every stock investors’
statement. Table 1 also presents that there are firms’
stocks generating negative returns with the minimum
of -28.47%, and firms’ shares generating extremely
high profit with the maximum of 182.44%.
• Regarding return on assets, the average figure of
VN30 firms is 9.66% with a quite large standard
deviation. Figure 3 VN30 Index in the last five years
• In terms of debt-to-equity ratio, the average level of
leverage of non-financial VN30 firms is 1.28, which
means that on average, firms employed 1.28 dollar of
debt on each dollar of equity.
RESEARCH FINDING (Continued)
2. Correlation Matrix 3. Model Selection Explaning
Table 2: Correlation matrix Table 3: Result of model selection tests

R MC ROA DE
Breusch – Pagan Test Research model

p-value 0
R 1 0.82 0.65
Ho rejected? Yes
MC 0.35 1 0.21 -0.03
Pool OLS? No
ROA 0.82 0.21 1 0.34
Hausman Test Research model
DE 0.65 -0.03 0.34 1
p-value 0.3012
Ho rejected? No
Fixed/random
Random
effect
RESEARCH FINDING (Continued)
4. Model results
Table 4: Model result R2 of the research model is 42.25%, implying that the
explanatory variables can explain 42.25% of the change
Research model of firms’ market return.
Variable
p  This R2 could be considered as acceptable.
coefficient
value ROA’s coefficient in the research model and its p-value
MC suggest that ROA positively influences the market return
-1.92E-07 0.321
(β = 0.0096, p-value = 0.022, lower than 0.05).
ROA
0.0096 0.022
 Therefore, H1 is supported
The MC’s coefficient in the research model and its p-
DE
0.00051 0.003 value indicate that the relationship between market
capitalization and stock returns is insignificant (β = -
R2 42.25%
1.92E-07, p-value = 0.321, higher than 0.05).
 Hence, H2 is not supported.
The DE’s coefficient in the research model and its p-value
suggest that DE positively affects the market return (β =
0.00051, p-value = 0.003, lower than 0.05).
 Thus, H3 is supported.
CONCLUSION
The fundamental analysis, which relies on computing and analyzing
financial ratios, is an important step when investors select the right
stock to invest in.
ROA
The findings suggest that the association between ROA and firms’
market returns is actually positive. It confirms the current literature
regarding the positive relationship between firms’ profitability ratios and
market returns.
MARKET CAPITALIZATION
Firms’ market return is independent from their market cap. Despite the
academics’ suggestion in investing in penny or blue chips, this research
recommends investors selects stocks regardless of their firm size.
DEBT-TO-EQUITY
The empirical evidence shows that firms with higher leverage level
tends to bring higher market return compared with ones using no
leverage. The debt tax shields seem to help shareholders earn more
capital gains in the Vietnamese stock market.
First, the examination of 18 firms in 3 years period with 54 observations might
LIMITATION AND not be sufficient to generalize findings in a larger population. Even though the
sampling section provides a rationale why 54 observations are able to provide
DIRECTION FOR valid and robust research. Second, as this research objective is to examine
FURTHER STUDIES the effect of financial ratios on firms’ market returns, this study primarily
focuses on the three main determinants of profitability, market capitalization,
and debt-to-equity ratios but overlook other types of ratios.
Future studies could expand this research by incorporating other
measurements of firms’ performance such as the activity ratios and liquidity
ratios to examine their relationship with the firms’ market return.
THANK YOU
Ngô Thanh Hiền
[email protected]
17
TIME FOR Q&A

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Dissertation Topic:

The impact of Financial ratio on firms’ market return in the Vietnamese

• Vietnamese economy is growing with a rapid pace.

• The market return of Vietnamese firms’ shares has

• Vietnam has rapidly integrated to the global supply

FINANCIAL RATIOS STOCK RETURN THE IMPACT OF FINANCIAL

YIELD CAPITAL GAIN (LOSS)

7/14/20XX Pitch deck title 5

• As shown in Figure 1, from the outside to the inside of

Figure 1: Research onion

2. RESEARCH APPROACH 3. RESEARCH STRATEGY

HYPOTHESIS 1 (H1) HYPOTHESIS 2 (H2) HYPOTHESIS 3 (H3)

Firms’ return on assets Firms’ market Firms’ debt-to-equity

5. SAMPLE COLLECTION 6. MODEL FORMULATION

Table 1: Statistical Summary Figure 2 Annualized real return on equities in

R 54 -28.47% 182.44% 15.25% 38.04%

MC 54 8,592.20 387,432.34 116,265.88 99,916.10

ROA 54 - 25.79 9.66 6.16

DE 54 0.24 3.90 1.28 0.91

The standard deviation of the market return is 38.04%,

Table 2: Correlation matrix Table 3: Result of model selection tests

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