Stock price performance and value creation in vietnam m&a market: A market efficiency perspective

Nội dung text: Stock price performance and value creation in vietnam m&a market: A market efficiency perspective

1. Hội nghị Sinh viên nghiên cứu khoa học năm học 2018-2019 STOCK PRICE PERFORMANCE AND VALUE CREATION IN VIETNAM M&A MARKET: A MARKET EFFICIENCY PERSPECTIVE GVHD: TS. Dang Huu Man SVTH: Tran Thanh Toan Trường Đại học Kinh tế - Đại học Đà Nẵng toantt41@due.edu.vn ABSTRACT I will draw a full picture of financial behavior in M&A in a typical developing market in a developing country in Southeast Asia which is faced with a wide range of problems, such as underdeveloped and illiquid stock markets, economic uncertainties, weak legal controls and lack of investor protection, and frequent government intervention. I discover that there has been cumulative abnormal return in Viet Nam. In my literature, the cumulative abnormal returns (CAR) occur in some windows on one month prior to the date of announcement. I also find that corporate information environment having impact on targret value creation. Key Words: Cumulative abnormal return; CAR, Target, Bidder, Acquirer, Acquired Firm 1. Introduction There have been significant number of papers related to mergers and acquisitions. These papers cover most crucial aspects of mergers and acquisitions namely reasons and results of mergers and acquisitions (Ali- Yrkko, 2002), acquirers’ location choice (Dang et al., 2016), the gains to bidding firms from merger (Asquith et al., 1983). However, there have been a surprisingly small body of research into the takeover value creation, the price mark-up and determinants of the acquisition value creation (Gondhalekar, Sant and Ferris, 2004; Wickramanayake and Wood, 2010; Brigida, 2011) and all of these types of research have not focused on market efficiency as an important factor causing run-up, mark-up. Moreover, apart from Brigida (2011), several highly-contributed studies of the bid value creation’s determinants are dated (Varaiya, 1987; Walkling and Edmister, 1985). Besides, most of these studies were conducted in developed markets which have shown huge differences from developing one. In this study, I will answer the first question of whether there has been the existence of abnormal returns before and after acquisitions announcement in target firms quoted in Vietnam markets in the period of 2001–2017 with the existence of market imperfection and information asymmetry. Then, my empirical paper examines the effect of target information environment on target shareholder’s value creation - that is an answer of the second question: Whether value creation is affected by corporate information environment. My research’s contribution is as followed. First, I will draw a full picture of financial behavior in M&A in a typical developing market that highly differs from many existing studies which have been just concerned almost exclusively with a single developed one (the US or recently the UK with more intense research such as Franks and Mayer, 1996 and Sudarsanam et al., 1996). Unlike other previous studies, my research will conduct in a developing country in Southeast Asia which is faced with a wide range of problems, such as underdeveloped and illiquid stock markets, economic uncertainties, weak legal controls and lack of investor protection, and frequent government intervention. Second, I will indicate the corporate 39
2. Trường Đại học Kinh tế - Đại học Đà Nẵng information environment is the most important determinants having impact on the price-raising behavior of target stock price. 2. Literature Background 2.1. Market efficiency in M&A If the capital market is efficient, then any information about a merger should be incorporated instantaneously into the corresponding stock prices. However, that definition is only suitable in the concept of the ‘informational efficiency’ rather than the ‘operational efficiency’ and the ‘allocative efficiency’. The operational efficiency refers to the efficiency of the microstructure of the market and is affected by several determinants such as the length of time needed to finish the order and the number of bad deliveries. In this paper, I just concentrate on analyzing market efficiency under the aspect of informational efficiency. When the market is inefficient there still exists the asymmetric information between market participants. In M&A, when the targets realize the intention of potential bidders, they will leak information to the public which then results in increasing that target stock price. The increase in target stock price can be seen as beneficial to its shareholders but detrimental to bidders’ shareholder. In contrast, if the bidders have more private information about the targets than public investors, they will find the way to mitigate the price that has to be paid to target stockholder. Additionally, Dodd (1980); Asquith (1983) pinpointed that investors are highly motivated to determine acquired companies and take long positions before M&A publish date so as to gain from the value creation, which then results in enhancing trading volume. Over the past half of century, most of financial economists concurred and acknowledged the efficient market hypothesis suggested by Eugene Fama's (1970) in an influential survey article "Efficient Capital Markets." We commonly believe that stock markets were totally efficient when it reflects information about individual stocks and about the stock market. The accepted view was that when information exists, its flow is integrated into the stock price without procrastination. Thus, the past stock prices analysis to calculate future prices (technical analysis) or financial information analysis such as information published in balance sheet, income statement, cashflow statement to choose underestimated listed companies (fundamental analysis) is impossible for helping investors to acquire abnormal returns. 2.2. Price runup The price runup is associated with the positive abnormal returns in the acquired firm stocks during a period prior to the M&A date of announcement. There have been two theories explaining the observed pre- bid price run-ups in target share prices. The first explanation is that price run-ups react to the investors’ anticipation of an upcoming takeover message. These forecasts come from information in media, social network, compulsory financial reports and observations by arbitragers. The second explanation is that price run-ups come from an increase in abnormal trading volume of firm insiders preceding the M&A date of announcement. The basic premise of the insider trading-information leakage hypothesis is that investors trade on this information when the insiders’ activities are officially reported. Jabbour (2000) indicated that however, the insiders have chances to gain positive abnormal returns during the period prior to the public realize the private information. To measure the runup effect, Schwert (1996) calculated the runup as the cumulative abnormal return (CAR) on the target's stock during the two-month period before the M&A announcement. Therefore, for an acquired company i, we can calculate: Rit = αi + βiRmt + εit t= = -320, -65 (1) where Rit is the day t return for target i, Rmt is the return on the market portfolio on day t, and t ranges from 320 to 65 days before the announcement of the acquisition. He used the estimated parameters from (1) to calculate abnormal returns, εit, for the periods. Run-up is then: Runup (t = −1, t=−42)= Sum( εit) (2) where t = 0 is the announcement date 40
3. Hội nghị Sinh viên nghiên cứu khoa học năm học 2018-2019 Runupt= it 2.3. Price markup However, run-up is only part of target shareholder’s value creation which also include post-bid mark-up. When the acquisition announcement happens, the market realizes that bidder’s intentions. Then, other potential bidders will be attracted to participate in to acquire the target company (Shwert, 1996). The bidder is winning if it is accepted by the target management and target stockholder or if other competing bidders give up. At that point of time, the final outcome occurs and the M&A process is completed. The abnormal return in target price during this period is called as mark-up (fully: post-bid mark-up). According to Swherte (1996), the markup is the cumulative abnormal return from the date of the merger and acquisition announcement through 126 trading days after the first bid or at the point of times which the target company is delisted on the stock exchange. Markupi = 2.4. Value creation Diaz, Azofra, & Gutierrez, (2009) defined that the bid value creation for target shareholders is associated with the extent that the offer price is higher than the market value of the shares of the target firm. The target shareholders’ value creation in this situation is thus defined as the difference between the offer price and the market price of the target before the announcement of the transaction. Target shareholders’ value creation= Utz Weitzel1 and Sjors Berns (2006) explained: the takeover value creation for target shareholders is the final bid price of the acquirer over the (stand-alone) market value of the target before the merger. If the value creation is greater than 1, the final bid price will consist of the pre-bid acquired company market value and the incremental net present value (NPV) of M&A synergies in the acquired firm shares. When two companies are merged, apart from the pre-merger value of two companies, they also create the synergies in M&A, for instance, the company can reduce the fixed cost per unit of product (economies of scale) or they have more channels to distribute their product to the end user. 2.5. Corporate information environment - Transparency The company's information environment reflects the transparency of the company on the basis of the availability of firm-specific information published to investors and outside business partners (Bushman et al., 2004). Good corporate information environment means that the company has information transparency, especially transparency in income disclosure (George et al., 2009). From a certain point of view, this is reflected in the financial reporting information and partly reflects the level of information asymmetry between insiders and outsiders of the company. Healy and Palepu (2001) argue that even in an efficient 41
4. Trường Đại học Kinh tế - Đại học Đà Nẵng capital market, it is still possible to have earnings management (earnings management) issues from managers. Transparency in information disclosure plays an important role in influencing investors' decisions on the stock market. That is why any change in transparency in information disclosure will lead to information asymmetry, and affect the true value of the company. The study by Barth et al. (2013) examine the relationship between transparency in income disclosure (reflecting income information asymmetry) and equity cost as well as changes in market value of companies. The study finds that companies with less asymmetry in income disclosure would have lower capital costs and more accurately reflect company values. Some other studies also find that companies with a better information environment, reflected through higher quality accounting, or better transparency in profit disclosure, were able to reduce asymmetry information and this leads to lower capital costs and debt costs (Bhattacharya et al., 2003; Francis et al., 2004, 2005), higher investment efficiency (Biddle et al., 2009) and lower trading cost around the income announcement date (Bhattacharya et al., 2007). Transparency in information disclosure in particular and the company's information environment in general will determine the financial policies of the company. 3. Hypothesis 3.1. Stock price run-up, mark-up in Vietnam Developing markets saw the popularity of asymmetric information problem and all companies carrying out business in these markets face the low standard of corporate governance and lack of law enforcement. Vietnam is a typical developing country with the stock market established only 20 years ago. The Vietnamese stock market has been responsible for unclear and loose regulations, weak reporting requirements, lack of investor protection and low accounting standard. Vietnam is the country with the low accounting standard. According to McGee (2009), Vietnamese Accounting Standards are not compatible with International Financial Reporting Standards. Although Vietnam has issued accounting and auditing standards that comply with international standards, those standards have not yet been fully implemented, also he points out that there are no sanctions for companies that fail to follow the rules. Therefore, I can suppose that Vietnam with low accounting standard and lack of law punishment can create low earning quality. Aboody, Hughes and Liu (2003) chose earnings quality as their measure of information asymmetry. There is one outstanding reason explaining for the role of earning quality in measuring information asymmetry. Under the low accounting standard, Francis et al. (2002) suggest that earnings quality is easily priced. If the cashflow components of earning are hard to be priced, accounting accruals components of earning are likely to management discretion and manipulation implying less private information may be pre-empted by earnings announcements. Therefore, in Vietnam, low earning quality can increase the information asymmetry. According to Brigida (2011), potential target firms with higher levels of asymmetric information experience more pronounced information leakages prior to a public acquisition bid. The stock price run-up of target firms is higher when conditions regarding the bidder, the target, or the regulatory environment result in less transparency and more potential for leakages of private information. Information leakage is also the center of Ma et al. (2009) research. They indicate that information leakage due to the poor legal environment and lack of law enforcement can create the stock-price run-up. Ma et al. (2009) hypothesize that developed countries have well-developed legal systems to protect shareholders’ interests as well as the welfare of consumers, which differs from many emerging economies that suffer from a poor legal environment as well as weak enforcement of existing laws. Information leakages in developing markets may be reflected in stock market valuations before the M&A announcement date. Therefore, they observe CAR days to examine the effect of information leakage before an M&A announcement in the emerging market. Their study also indicates the abnormal returns to shareholders of bidder firms around the day of M&A announcement for ten emerging Asian markets: China, India, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand. Using a sample of 1,477 M&A deals in the ten emerging Asian markets over six years from 2000 to 2005, they find that the stock markets have expected 42
5. Hội nghị Sinh viên nghiên cứu khoa học năm học 2018-2019 positive cumulative abnormal returns in three different event windows: a two-day (0,1) window, a three-day (-1,+1) window, and a five-day (-2,+2) window. From their result, I expect the financial market in Vietnam with the similar characteristics of other Asia countries can react to information leakage of upcoming bids. However, there are still other studies which indicate some characteristics of developing market make the stock price run-up and mark-up in these markets smaller than those in the developed one. Yılmaz and Tanyeri (2016) show that the magnitude of target CARs are significantly higher in developed markets than those in emerging markets. Target 3-day CAR is 9.56 percent in developed market countries and 2.88 percent in emerging market countries. On average, the CAR in the developed market is 1.62 percent in comparison with the developing market with the CAR is only 0.74 percent. The differences in CARs between developed and developing markets can be explained by the differences in market efficiency. Market efficiency may be different between developed and developing countries because of the differences in liquidity (as introduced by Chordia et al., 2008), or the differences in political and economic uncertainty (as introduced by El-Erian and Kumar, 1995). If markets are less efficient in some countries than others, market reaction may be slower in less efficient countries. Another reason explaining for the lower CARs in developing market is the preference of negotiated takeovers. That negotiated takeover can decrease a potential release of private information to unwanted bidders, competitors and capital market participants that may occur in public tender offers (Berkovitch and Khanna,1991). This risk is more pronounced when the target has poorer financial reporting quality (given the greater information asymmetry in the capital market), making a negotiated takeover more attractive in such cases. Since this information spillover risk exists irrespective of whether the bid is initiated by the target or by the bidder, both parties would prefer a negotiated takeover when opaque financial reports cause greater asymmetric uncertainty (Rogo, 2009). Therefore, in Vietnam with most of the deal is friendly, I expect the information leakage is low which decrease the cumulative abnormal return. Hypothesis H1: There have been stock price run-up and price mark-up around the bid announcement in Vietnam. 3.2. Corporate information environment and value-creation At the company level, asymmetric information theory suggests that the degree of information transparency varies considerably between target companies due to the difference in the information environment of the company. Therefore, target companies with a higher level of asymmetric information may lead to significant stock price increases before the announcement of the acquisition, and are consistent with the hypothesis of raising stock prices before the announcement acquisition was proposed by Keown and Pinkerton (1981). Jensen and Ruback (1983) and Jarrell and Poulsen (1989) argue that the increase in the target company's stock price before the date of announcement comes from market forecasts based on the company's public information. The study highlights the role of company's information disclosure for potential target stock price fluctuations before the announcement of the deal. Target information disclosure is also characterized by financial reporting quality. According to Skaife, and Wangerin (2012), acquirers rely extensively on targets’ financial reporting when negotiating the purchase price with the target. Low quality financial reporting contributes to greater uncertainty about a firm’s expected future earnings, creating greater uncertainty about the expected net future cash flows related to the acquisition as well as potentially greater operating risk for the acquirer that increases the acquirer’s cost of capital. Both of these consequences of targets’ low-quality-financial report suggest acquirers will discount transactions involving low-quality- financial-reporting targets resulting in lower deal premiums. On the other hand, low-quality-financial- reporting acquired companies’ shares could trade at a discount because their financial reporting is less reliable (Ashbaugh-Skaife, Collins, Kinney, and LaFond, 2009), resulting in higher deal premiums. Corroborating with prior research, they find takeover premiums are greater when a deal involves multiple bidders, is structured as a tender offer, use cash payment, the acquirer and target operate in the same industries, and the acquirer is a public company. Consistent with prior research, they also find that premiums 43
6. Trường Đại học Kinh tế - Đại học Đà Nẵng are lower when the acquirers use stock-based consideration. After controlling for these deal characteristics, they find that premiums are greater for deals involving targets with low quality financial reporting. Their finding suggests that based on targets’ publicly available financial information, acquirers perceive additional value beyond that priced by investors in low quality-financial-reporting targets at the time the acquisition agreement is signed. Bushman et al. (2004) point out that the company's information environment reflects the transparency of each company, and can be defined as the availability of specific information company for outsiders. According to Dow and Gorton (1997), Subrahmanyam and Titman (2001), a market with good liquidity will promote trading activities, especially information-based trading, thus improving the information of stock prices, reducing asymmetric information phenomenon. Therefore, at a certain point of view, stock liquidity partly shows the company's information environment. There are some other studies indicating the relationship between liquidity and transparency. For example, the study of Lang et al. (2012) show that greater liquidity (as measured by lower bid-ask spreads and fewer zero-return days) for firms with greater transparency (as measured by less evidence of earnings management, better accounting standards, higher quality auditors, more analyst following, and more accurate analyst forecasts). According to Ajina and Habib (2017), a greater earnings management (non-transparency) firms are responsible for stock illiquidity. Also, Chana et al. (2013) indicate that there is a positive relation between illiquidity and idiosyncratic volatility (transparency). In this study, I use only the illiquidity indicator of the stock measured by Amihud (2002). Studies of Gao and Oler (2004) consistently find a price run-up in the target firm’s stock that becomes statistically significant in the days or weeks before the date of announcement. This run-up is accompanied by higher- than-normal trading volume that may lead the price run-up by more than a week. According to Eyssell and Arshadi (1993), positive feedback investors who react to initial price and volume run-ups caused by the actions of registered insiders and informed outsiders. To the extent that the amount of publicly available information about a firm indicates its relative visibility in the marketplace, information leakages would be more likely for firms with greater publicly available information. The positive feedback hypothesis predicts that pre-announcement price run-ups will be accompanied by abnormal purchase volume by registered insiders, increasing total share volume, and a positive relation between available public information and the magnitude of the pre-announcement volume run-up. Hypothesis H2: Target shareholders’ value creation is highly affected by target information environment 4. Data And Methodology 4.1. Data 4.1.1. Data description The ideal sample size includes takeovers of publicly listed firms on the Ho Chi Minh Stock Exchange (HOSE) and Hanoi Stock Exchange (HNX). To be included in this study, target companies are required to have available accounting and share price data for at least the one year prior to the takeover announcement. Also, I require that (i) the sample only includes deals with a value of at least US$100.000, (ii) target firms are publicly listed and (iii) bidders acquire shares in target companies at least of 5% and do not hold less than 5% after the deal is completed. These requirements are needed to construct the necessary independent variables, as well as the calculation of takeover value creations and cumulative abnormal return. Finally, there are 486 deals in Vietnam over the period from 2005 to 2018. 4.1.2. Data sources I study a comprehensive sample of acquisitions involving listed target firms, announced between January 2000 through December 2017 in Vietnam. Information regarding acquisition announcement dates 44
7. Hội nghị Sinh viên nghiên cứu khoa học năm học 2018-2019 and bid-specific factors has been obtained from the Thomson Reuters SDC Platinum database while targets’ stock price data and financial data available in the Stoxplus. Other sources come from: publication information, newspaper, journal of finance and expert reports that present information about merger and acquisition worldwide as well as Vietnam. 4.1.3. Data construction In terms of data construction, I divide my data into three categories: stock price, target financial data and deal data. In sock price data, I collect the stock price of target firm during 304 days which include date 0 is the date of announcement, 261 days before the date 0 and 42 days after the date 0. In the situation that the stock exchange closed at the date of announcement (the target company do not have the stock price at that date), the date 0 is the nearest opening date of stock exchange before the date of announcement. In financial data construction, I collect financial information about the firm size, Tobin Q, growth rate, leverage in three years -1, 0, +1 in which year 0 is the year of announcement, year -1 is pre-bid year while year +1 is post-year. In deal data, I collect data related to the method of payment, cross-border or domestic takeover data, hostile takeover, toehold, relatedness. The deal is considered as cross-border if the nation of the target differs from the nation of the bidder, the deal is considered as toehold if the bidder initially build its ownership before acquiring the target while the deal is considered as a relatedness deal if the SIC code of the bidder (4 digits) is exactly the same with SIC code of the target (4 digits). I discover that most of M&A transaction in Vietnam is friendly and neutral therefore I exclude the hostile takeover data out of my dataset. 4.2. Methodology 4.2.1. Event study: Cumulative abnormal return (CARs) a) Normal and Abnormal return The normal return is defined as one that could be estimated unless the event occurs. Some popular methods are used to estimate the normal return such as Capital Asset Pricing Model (the CAPM model), the single-index model, the market model. In this paper, I select the market model rather than the CAPM or constant mean models to estimate the normal return. The market model supposes linear relationship between the stock return and market return. Rit=αi+βiRmt+εit (1) where t is the time index, i = 1, 2, , ,Rit is the stock return of company i and Rmt is the market return t. The return in the market portfolio is measured by the variation in some benchmarks, such as the VNIndex for the stock market, and εit is the error term for security i. With the estimates of αi and βi from equation (1), a “normal” return is predicted during the days covered by the event window. The prediction error (the difference between the actual return and the predicted normal return), commonly referred to as the abnormal return (AR), is then calculated from following equation: ARit=Rit-ᾱi-βiRmt (2) where ARit is the abnormal return for firm i on day t, Rit is the actual return for firm i on day t. 45
8. Trường Đại học Kinh tế - Đại học Đà Nẵng b) Cumulative abnormal return (CAR) A cumulative average abnormal return (CAR) is the sum of all abnormal returns over the event period. CAR is used to evaluate the long-run performance of stock returns following the acquisition announcements. The cumulative abnormal return thus captures the total firm-specific stock movement for an entire period when the market might be responding to new information. The cumulative average abnormal return (CAR) from date q date s is defined (3) c) Multivariate regression model From all the discussion above we propose the regression model to estimate the abnormal return: CAR(-40,-31) = α + βi∑ILLIQi,t-1+ β2∑CONTROLSi,t-1+ εi,t Measurement of control variables will be presented in APPENDIX d) Corporate information environment- illiquidity indicator (ILLIQ) Bushman et al. (2004) pointed out that the company's information environment reflects the transparency of each company, and can be defined as the availability of specific information company for outsiders. According to Dow and Gorton (1997), Subrahmanyam and Titman (2001), a market with good liquidity will promote trading activities, especially information-based trading, thus improving the information of stock prices, reducing asymmetric information phenomenon. Therefore, at a certain point of view, stock liquidity partly shows the company's information environment. In this study, I use only the illiquidity indicator of the stock built by Amihud (2002). When: is a poor liquidity index of stocks; Ridt the trading profit of stock i every day d in each year t; is the number of trading days that stock i trades in each year t; is the amount of stock i traded per day d in each year t; When the ratio of poor liquidity is high, i.e large, stock i is considered to have low liquidity. This ratio is considered to be the reaction of the daily stock price to the trading volume. The lower the liquidity ratio of the stock, the lower the stock liquidity, and vice versa. 5. Empirical Results 5.1. Short-term stock price performance Table 1: Testing for significant of CAR Variable Obs Mean Std. Err. Std. Dev. [95% Conf. Interval] t-test CAR(0,1) 302 0.02 0 .05 0.82 -0.07 0.11 0.40 CAR(-1,1) 302 0.05 0.06 1.11 -0.08 0.17 0.07 CAR(0,15) 302 0.61 0.32 5.65 -0.03 1.25 1.89* CAR(0,20) 302 0.85 0.43 7.43 0.012 1.69 1.99 46
9. Hội nghị Sinh viên nghiên cứu khoa học năm học 2018-2019 CAR(0,30) 302 0.85 0.43 7.43 0.01 1.70 2.00 CAR(0,40) 302 1.44 0.62 10.78 0.22 2.66 2.32 CAR(-1,0) 302 2.12 0.82 14.17 0.52 3.73 2.61 CAR(-5,0) 302 0.02 0.04 0.74 -0.06 0.11 0.57 CAR(-5,5) 302 0.18 0.12 2.15 -0.06 0.42 1.45 CAR(-20,-1) 302 0.34 0.22 3.81 -0.09 0.78 1.57 CAR(-30,-21) 302 0.45 0.19 3.37 0.07 0.83 2.34 CAR(-40,-31) 302 0.51 0.17 2.92 0.18 0.84 3.05 CAR(0,5) 302 0.47 0.14 2.50 0.19 0.75 3.27 CAR(0,10) 302 0.16 0.12 2.15 -0.08 0.40 1.30 An examination of the pre-event periods shows that cumulative abnormal return is significant for the period (-1,0); (-30,-21); (-40,-31). In the period of 1 month before the bid publishing date, the CAR for (- 30,-21);(-40,-31) are 0,45 and 0,51 respectively. However, from that date until the date of announcement, the CARs are found insignificant. It can be explained that when the information or the rumors of impending spreads, some public investors will reflect by buying stock of target making the target stock price run-up, this is consistent with my Hypothesis 1 that market reflects the information related to the impending bid. My empirical result supports for the empirical result of Dang and Henry (2016) in which CARs of partial-control acquisition during the pre-bid event windows from after day −30 are statistically significant and positive. In the post-acquisition period, the trend of CARs is again increasing with target shareholders experiencing positive returns from day 0 to day +20. On the other hand, they indicated that the return outcomes in full control acquisition are almost similar to the trend of the partial-control acquisition-related CARs for both the pre- and post-acquisition event windows. Table 2: Difference in CAR between cash and non-cash deal Non-cash Cash Difference testing Obs Mean Std.Err. Std.Dev Obs Mean Std.Err. Std.Dev CAR(0,1) 177 0.06 0.06 0.74 125 -0.04 0.08 0.91 0.97 CAR(-1,1) 177 0.10 0.08 1.01 125 -0.02 0.11 1.23 0.91 CAR(0,5) 177 0.28 0.15 1.94 125 0.00 0.22 2.41 1.12 CAR(0,10) 177 0.57 0.26 3.49 125 0.07 0.38 4.29 1.11 CAR(0,15) 177 0.87 0.39 0.11 125 0.25 0.56 -0.87 0.94 CAR(0,20) 177 1.14 0.51 6.80 125 0.44 0.74 8.26 0.80 CAR(0,30) 177 1.83 0.74 9.80 125 0.88 0.08 1.08 0.76 CAR(0,40) 177 2.61 0.97 12.85 125 1.43 1.42 15.87 0.72 CAR(-1,0) 177 0.06 0.05 0.70 125 -0.03 0.07 0.79 1.01 CAR(-5,0) 177 0.30 0.15 1.95 125 0.01 0.21 2.39 1.12 CAR(-5,5) 177 0.55 0.26 3.41 125 0.05 0.39 4.32 1.13 47
10. Trường Đại học Kinh tế - Đại học Đà Nẵng CAR(-20,-11) 177 0.76 0.23 3.06 125 0.03 0.33 3.73 1.86* CAR(-30,-21) 177 0.78 0.20 2.70 125 0.13 0.28 3.17 1.92* CAR(-40,-31) 177 0.74 0.18 2.39 125 0.09 0.23 2.62 2.22 I continue examining whether CARs differ across a number of deal-specific characteristics. The result indicates that there are significant differences in mean of CARs between two methods of payment in periods of one months before the date of announcement. Cumulative abnormal returns are higher in deal with non- cash payment as compared to deal paid by cash. Particularly, in the period of (-40,-31), the t-test for difference between two method of payments is 2,22 in which CAR in non-cash bid is 0.74 while CAR in cash bid is only 0.09. In the period of (-30,-21), the CAR is 0,78 in non-cash deal and 0.28 in cash with the t- test for difference is 1.92 and in the period of (-20,-11), the CAR is 0.76 in noncash acquisition as compared to 0.03 in cash payment with the t-test for difference is 2.22. Table 3: Stock liquidity in the pre-bid and post-bid periods (Pre-bid ) vs. Announcement (Announ. (Pre-bid ) vs. Pre-bid year year Post-bid year year) (Post-bid ) Std. Std. Std. N Mean Dev N Mean Dev N Mean Dev diff t-ratio diff t-ratio All deals 345 -2.39 3.17 346 -2.62 3.17 331 -2.57 3.37 0.23 1.54 0.18 0.94 Cash 141 -2.73 3.20 141 -2.84 3.26 141 -2.56 3.41 0.11 0.50 -0.17 -0.62 Non- Payment Cash 193 -2.16 3.11 193 -2.47 3.09 176 -2.66 3.38 0.31 1.57 0.42 1.84* Toehold 114 -2.08 2.92 114 -2.03 2.82 108 -1.89 3.09 -0.05 -0.23 -0.29 -0.97 Non- Toehold Toehold 220 -2.56 3.27 220 -2.93 3.29 209 -2.99 3.49 0.37 1.99 0.41 1.78* Cross- border 40 -2.37 3.09 40 -2.14 2.86 40 -2.21 3.48 -0.23 -0.63 -0.16 -0.34 Location Domestic 293 -2.41 3.18 293 -2.68 3.20 276 -2.67 3.39 0.27 1.72* 0.21 1.06 The result from table 3 indicates that in non-cash payment deals, the absolute value of Amihud illiquidity indicator in post-bid year is greater than that of pre-bid year significantly. Particularly, Amihud indicator in pre-bid year and announcement year is -2.16 and -2.66 respectively with the difference is 0.43. It means, in the payment of stock deals, targets have better liquidity before the year of announcement. It can be explained that target firms intend to run-up their stock price to exchange greater ownership in bidders. Table 3 also indicates that when the bidders do not build their previous ownership in the targets, liquidity in targets is greater in pre-bid year than the year of announcement and the year after announcement. Particularly, the absolute value of Amihud in announcement year is higher than that of pre-bid year (-2.93 as compared -2.56) and the absolute value of Amihud in pre-bid year is higher than that of announcement year (-2.99 as compared -2.56). As explained in the Hypothesis section, in this situation, the bidders do not have opportunity to approach target’s private information. The asymmetric information between targets and bidders is high. Therefore, target can run their stock price up which cause target liquidity to be higher. 48
11. Hội nghị Sinh viên nghiên cứu khoa học năm học 2018-2019 5.2. Corporate information environment and target shareholders’ value creation In Table 4, we consider the relationship between the target company's information environment and cumulative abnormal returns. Dependent variable (CAR (-40,-31)) reflects the abnormal return accumulated for 10 days, from t-40 to t-31 before the date of the announcement (note that this is also is the period of time to observe an increase in the behavior of raising stock prices as mentioned in Tables 1 and 2). The regression results show that stock illiquidity (ILLIQ) has a positive and statistically significant correlation at 1% with CAR (-40, -31), meaning that the targets with the low quality of information environment, the abnormal returns are higher. This result is also consistent with the hypothesis H2. Table 4 also indicates that there is a negative relationship between cash and CAR. It is explained that target shareholders prefer cash payment to avoid overvalued stock payment from the bidders. Table 4: Relationship between corporate information environment measured by Amihud illiquidity and CAR (-40,-31) CAR(-40,-31) Variables (1) (2) ILLIQ 0.097 0.107 (2.04) (2.10) SALESGROWTH 0.302 (1.26) LEVERAGE 1.047 (1.51) Q -0.119 (-1.03) RELATEDNESS 0.605 (1.01) CASH -0.690 (-2.21) TOEHOLD 0.225 (0.68) Constant 0.686 0.469 (3.61) (1.12) Industry effect Yes Yes Adj.R2 0.04 0.07 N 262 260 49
12. Trường Đại học Kinh tế - Đại học Đà Nẵng 6. Conclusion Using a comprehensive data set of deals in Vietnam in the period 2005-2018, my study results show that there have been behavior of raising the targets’ stock price before the date of announcement. I also observe that the price behavior has tendency to be strong in stock-paid transactions and shows a high level of expectation of target’s shareholders for stock ownership in acquirers in Vietnam's M&A market. To test a hypothesis of whether a poor information environment or higher information asymmetry in targets is the cause of stock price behavior, I use illiquidity indicator proposed by Amihud (2002). My results show that there is a difference in the liquidity of the target company before and after the deal is completed. This shows that the information environment is inferior, which means higher information asymmetry of target companies that raise prices. This result confirms that the information environment plays an important role in the behavior of target companies in particular and the business planning process in general. This study adds to the empirical basis of the relationship between information environmental efficiency and market-oriented corporate restructuring process in Vietnam. The research results provide some important policy implications. For policy makers, the paper's results help policy makers and managers in the financial sector better understand the role and the importance of the information environment in Vietnam M&A market. Since then, policy makers and managers can have appropriate policy to promote the transparency of the enterprise information environment, as well as develop policies that are suitable to encourage the development of the M&A market in Vietnam. Particularly, the legal system should have detailed regulations to limit risks for both sellers and buyers in both aspects: (i) procedures, principles, methods of valuation, rights and obligations of participants, ; (ii) situations dealing with problems arising after the M&A deal. For managers of acquirers, my study finds that the information environment of the target is important the company's value and the acquisition plan of the acquiring company. The identification and selection of potential target companies should be based on the quality of information disclosure of the target to the public. If the estimation of the potential synergist value generated from M&A is high and sustainable in the long term, the buyer should try to adjust the bid price to achieve acquisition expectations. In contrast, my study shows that acquirers should abandon target companies that have price-raising behaviors based on information asymmetry between insiders and outside entities. 50