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Trang chủ Share repurchase and cash dividend payout policy in vietnamese stock market subs...

Tài liệu Share repurchase and cash dividend payout policy in vietnamese stock market substitute or complement

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Since the share repurchasehas become more common practice in Vietnamese market, this research aims to investigate the relationship between share repurchase and cash dividend payout, the popular cash distribution methods applied by Vietnamese listed firms. The substitute or complementary relationship among these financial practices may contribution to the understanding of financial managerial behaviour in Vietnam, a fast development emerging market in Asia Pacific area. The empirical results show that there is a nonlinear relationship between the change in dividend and the repurchase yield. In addition, a significantly positive correlation reveals the dominant of complementary effect in the whole sample. The results are consistent in robustness tests. This study employs quantile regression to analyze the nonlinear relationship between share repurchase and cash dividend. Empirical results indicate that the substitute or complementary relationship between share repurchase and cash dividend varies with the scale of share repurchase yield. The higher the share repurchase yield, the more significant the substitution effect is for the relationship between share repurchase and cash dividend. Furthermore, the Vietnamese listed firms seem to more carefully take their future growth into consideration regarding share repurchase activities. However, the signaling and free cashflow hypotheses show marginally significances in this case. Key words: Vietnam, share repurchase, cash dividend payout policy.
中 原 大 學 商 學 博 士 學 位 學 程 博 士 學 位 論 文 股 票 買 回 與 現 金 股 利 之 交 互 影 響 : 替 代 或 互 補 ? 越 南 之 實 證 鄧 中 堅 中 華 民 國 109 年 6 月 中原大學 商學博士學位學程 博士學位論文 股票買回與現金股利之交互影響: 替代或互補? 越南之實證 Share Repurchase and Cash Dividend Payout Policy in Vietnamese Stock Market: Substitute or Complement? 指導教授:陳怡珮 研究生:鄧中堅 (Dang Trung Kien) 中華民國 109 年 6 月 摘要 由於過去文獻在股票買回與現金股利政策之替代或互補關係未有一致結論,本文以越南市 場進行驗證,探討股票買回與現金股利支付政策之關係。越南是亞太地區中快速發展的新 興市場,且具有股權集中度高、國家持股比例高等特色,而相較於傳統的現金股利制度, 在越南股票買回是較為新興的現金支付方式,且越為普遍,此議題希冀能利用越南實證的 特殊性豐富公司理財議題之文獻。 實證結果發現,現金股利變動率與股票買回規模存在非線性關係,但其中兩者高度顯著的 正向關係顯示在越南市場中以互補效果為主。接下來利用分量迴歸模型分析此非線性關 係,發現主要導因於股票買回規模的大小,股票買回規模的差異導致了股票買回和現金股 利之間的關係產生變化。亦即,股票買回規模越大,股票買回和現金股利之間的替代效果 越顯著。此外,越南上市公司進行股票買回決策時會以未來成長機會為主要考量。最後, 信號假說和自由現金流假設僅顯示出邊際顯著效果。 關鍵字:越南、股票買回、股利政策 i doi:10.6840/cycu202000209 ABSTRACT Since the share repurchasehas become more common practice in Vietnamese market, this research aims to investigate the relationship between share repurchase and cash dividend payout, the popular cash distribution methods applied by Vietnamese listed firms. The substitute or complementary relationship among these financial practices may contribution to the understanding of financial managerial behaviour in Vietnam, a fast development emerging market in Asia Pacific area. The empirical results show that there is a nonlinear relationship between the change in dividend and the repurchase yield. In addition, a significantly positive correlation reveals the dominant of complementary effect in the whole sample. The results are consistent in robustness tests. This study employs quantile regression to analyze the nonlinear relationship between share repurchase and cash dividend. Empirical results indicate that the substitute or complementary relationship between share repurchase and cash dividend varies with the scale of share repurchase yield. The higher the share repurchase yield, the more significant the substitution effect is for the relationship between share repurchase and cash dividend. Furthermore, the Vietnamese listed firms seem to more carefully take their future growth into consideration regarding share repurchase activities. However, the signaling and free cashflow hypotheses show marginally significances in this case. Key words: Vietnam, share repurchase, cash dividend payout policy. ii doi:10.6840/cycu202000209 ACKNOWLEDGMENT This study would not have been possible without the generosity; patience and guidance extended by these research oriented individuals who derive great satisfaction in helping others attain success: My advisor, Dr. Yi-Pei Chen, the researchers’ adviser, shares her knowledge, shows a greatly concern and support to the researcher; Dr. Han-Ching Huang and Dr. Yu-Lun Chen (Chung Yuan Christian University), committee members, for all the help, support and assistance; Dr. Jung-Hua Hung (National Central University), Dr. Tsui-Jung Lin (Chinese Culture University), Dr. Chi-Ping Hou (China University of Technology) and Dr. Jyun-Ji Tien (Tamkang University), committee members, for giving valuable suggestions to further prove the research study; The Fiinpro, provides the research data bank to accomplish the study; The researchers’ family for their undying support, emotionally, spiritually and financially; The researcher’ friends and classmates who have provided warm-hearted support along the way. The Researcher iii doi:10.6840/cycu202000209 CONTENTS 摘 要 ................................................................................................................................................. i ABSTRACT ................................................................................................................................... ii ACKNOWLEDGMENT ............................................................................................................. iii CONTENTS .................................................................................................................................. iv TABLE LIST ................................................................................................................................. v FIGURE LIST ............................................................................................................................... v I. INTRODUCTION ................................................................................................................. 1 I. LITERATURE REVIEW ..................................................................................................... 3 1.1. Share repurchases .......................................................................................................................... 3 1.2. Repurchase regulations and Tax policy in Vietnam ...................................................................... 5 1.3. The characteristics of Vietnamese listed firms .............................................................................. 7 II. DATA AND METHODOLOGY .......................................................................................... 9 2.1. Data collection............................................................................................................................... 9 2.2. Methodology ............................................................................................................................... 10 2.3. Dividend change measurement ................................................................................................... 11 III. EMPIRICAL ANALYSIS ................................................................................................... 13 3.1. General Statistic .......................................................................................................................... 13 3.2. Substitution and Complementary effects between share repurchases and dividends .................. 17 3.3. Robustness test ............................................................................................................................ 18 IV. CONCLUSION .................................................................................................................... 24 REFERENCE .............................................................................................................................. 25 iv doi:10.6840/cycu202000209 TABLE LIST Table 1: Tax rate by period in Vietnam .........................................................................................................6 Table 2: Variable definitions ........................................................................................................................12 Table 3: Descriptive Statisic ........................................................................................................................14 Table 4: Correlation analysis........................................................................................................................15 Table 5: Distribution of Share repurchases by the Change in dividend (DDiv) ..........................................16 Table 6: Panel regression for the relationship between share repurchase and dividend payout. .................18 Table 7: Robustness by different conditions for the relationship between share repurchase and dividend payout. ..........................................................................................................................................................20 Table 8: Robustness test using Repurchase ratio as explained variable .......................................................21 Table 9: Quantile regression for the relationship between share repurchase and dividend payout..............23 FIGURE LIST Figure 1: Distribution of Share repurchases by the Change in dividend (DDiv)....................... 17 v doi:10.6840/cycu202000209 I. INTRODUCTION For any organization, cash flow management is always one of the most important functions. When firms have positive income or available free cash, normally they will be willing to distribute the surplus to their shareholders as a response to their investment. For a long time, the world’s listed firms have overwhelmingly preferred to pay dividends in the form of cash, or even stock. Dividend policy becomes an important decision concerning whether profit should be distributed to investors or reinvested for future opportunities and growth. However, over the last few decades, share repurchase activity has experienced an extraordinary growth and has become a common practice in developed markets such as the US or Europe since the mid-1980s, said Grullon and Michaely (2004). For those strong economies of the Asia-Pacific region, this practice became common later with the approval of share repurchases by Australia in 1989, Hong Kong in 1991, Korea in 1994 and Japan in 1995. Today, share repurchases gradually have become more popular than dividends. For a new emerging market like Vietnam, starting with the establishment of the State Securities Commission - the regulator over the securities market from 1997 - repurchases have been allowed from the inital operation of its securities market in 2000: specifically, the opening of the Ho Chi Minh City Stock Exchange in July 2000 - a trading platform for the stock of relatively large corporations, and the Hanoi Stock Exchange in March 2005 for the stock of relatively SMEs (Kien & Chen, 2020). The Vietnamese securities market, as the founders had expected, has worked well to boost the national economy and maintain a high speed of development. This is especially due to the transformation of all state-owned enterprises which play a key role in Vietnamese economic sectors into joint-stock companies, under their “equitization”1 process (Webster & Amin, 1998). The stock market has grown significantly — only two stocks were traded in the beginning, compared to nearly 700 listed firms in the current market. Securities markets are now becoming the important capital mobilization channel for the Vietnamese economy.2 In general, most Vietnamese listed firms prefer using cash dividends, and a few use stock dividends, to distribute funds to shareholders. Share repurchase has been applied only recently but 1 Equitization is a Vietnamese English term that denotes the conversion of a state-owned enterprise in Vietnam into a public limited company or a corporation. Mobilized VND 1,000,000 trillion (≈USD 47.6 billion) for the Government; mobilized VND 700 trillion (≈USD 33.3 billion) for the enterprises via auctions for equitization and issuing shares, fund units, make the securities market capitalization reach nearly 40% GDP (as of July 2014). 2 1 doi:10.6840/cycu202000209 seems to have become more acceptable after 2007. Specifically, only 5 to 7 firms practiced buybacks in 2005 and 2006 respectively, but that number increased to 16 firms in 2007 and 18 firms in 2010. Note that 2005-2006 was a period of rapid expansion for the Vietnamese market, while in 2007, the market faced a recession with many shares devalued and many investors losing their invesments. Then in 2010, with the application of improvements in regulation as well as economic support policies, Vietnamese learned how to run their securites markets in a more stable way and bring it back to the development process. What are the reasons for this change in the behavior of firms’ payout? Why do some firms now prefer to spend the excess funds to buy back the shares rather than pay dividends? Through a number of studies have been conducted and are found in the literature, researchers mainly focus on two alternative hypotheses. They are the signaling (undervaluation) hypotheis and the free cash flow hypothesis. The signaling hypothesis argues that when managers think that their companies' stocks are undervalued, they will pay a premium to purchase their own shares to send a signal to lesser-informed outside investors that the company’s future value is not accurately reflected in its stock price, and the future prospects for any immediate investment into their stock will be improving. Alternatively, the free cash flow hypothesis argues that firms with excess cash but a poor porfolio of investment opportunities will face agency costs if the excess is not distributed to shareholders. Facing these agency costs, managers have incentives to invest the excess funds in compensation, empire building (mergers and acquisitions) or some other projects which may lead to negative net present value. In this case, stock repurchases will be key for the firms to distribute their excess free cash flow, hence limit the probability of any wasteful investment. To the best of my knowledge, there has been limited study on share repurchase using Vietnamese database. Therefore, this study aims to go further in investigating the contribution of share repurchase activities in the Vietnamese market. It is important because it will enhance the understanding of corporate payout policy in the Vietnamese market, an attractive emerging market with a recognized rapid pace of development. Furthermore, it may reveal some secrets for predicting future trends regarding share repurchases in this market, such as if repurchases can be used as a substitutes for dividends in the Vietnamese market. All of them are attractive trends for investigation. 2 doi:10.6840/cycu202000209 I. LITERATURE REVIEW 1.1. Share repurchases In the existing literature, there is a common motivation behind the study of repurchases, which is to examine in the framework whether the free cash flow hypothesis or the signaling hypothesis is correct. The signaling hypothesis is consistent with the idea of undervaluation, in which listed companies believe that their stocks are undervalued when compared to their real value. In this case, firms distribute their excess funds to their shareholders by repurchasing their own stocks. This practice reduces the number of outstanding shares, which normally may help increase the stock price. Hence, the announcement of a repurchase therefore is expected to bring a positive market reaction. This idea is widely accepted and is supported by many studies, such as Vermaelen (1981); Ikenberry et al. (1995); Grullon and Michaely (2004); Chan et al. (2004); and Firth, Leung and Rui (2010). Expanding the study, some other research reaveals that this market reaction is even greater in the case of smaller firms’ repurchases. This finding is according to Vermaelen (1981), and Hatakeda and Isagawa (2004). Explaining this issue, they believe that small firms face more serious information asymmetry problems. Less information from small firms will be disclosed to capital markets; also they are less researched by institutional investors, rating agencies often focusing on bigger size companies. Therefore, when a share repurchase is announced, markets should convey more undervaluation information to investors in the case of smaller firms. Another major explanation for buyback activities is the free cash flow hypothesis. Firms use repurchases in order to reduce agency costs, hence they will adjust their repurchase behavior to their cash position. When there is separation of ownership and control within a firm, Easterbrook (1984) and Jensen (1986) suggest that the payout of cash flows to shareholders through either a share repurchase, or as dividends, can lower agency costs. Supporting this idea, Byun et al (2006) show that firms with a high level of free cash tend to have a higher rate of repurchases. Whether the signaling or free cash flow hypothesis is correct, it is certain that in different cases, there are different reasons for repurchases. However, it raises another issue: Can dividend and share repurchases be interchangeable? From the viewpoint of John and Williams (1985), Bernheim (1991), and Allen, Bernardo, and Welch (2000), the conclusion is that management uses dividends, as opposed to share repurchases, to signal the firm's quality. Thus, it means dividends and repurchases are not interchangeable. While Dittmar (2000) studies the motives of repurchase 3 doi:10.6840/cycu202000209 activity, he concludes that the most relevant motives are taking advantage of share undervaluation and distributing excess cash, hence, repurchases do not replace dividends. Also, the research of Jagannathan and Stephens (2003) regarding the nature of repurchases, suggests that repurchases and dividends are independently used by firms at different times in the business cycle and by different firm characteristics. As a new market in security trading, it will be questionable if dividends and share repurchases are subsidiary or not in the Vietnamese market. We may find several published studies on dividends using Vietnamese data. Yen Nguyen (2011) tested the signaling theory of dividend announcements in Vietnamese market during 2006-2009 showing that the dividend payments have affected stock prices. While Kim Thu et al (2013) reveals the negative significance between dividend payout ratios and and firms’ profitability in the Ho Chi Minh stock exchange from 2007 to 2012. Also, according to Quoc Trung & Thu Ha (2014), Vietnamese listed firms have stable dividend policy behaviors. However, in the case of repurchases, only one study has been conducted by Byun & Bao Trung (2016) using a cumulative abnormal returns data period from 2005-2014, their findings supports consistency between repurchases and the signaling hypothesis in Vietnam. Most of researchers use the announcement-period abnormal returns to study the effect of repurchases on stock prices. However, there’s also concern about the operating performance changes surrounding the firms’ capital distribution activities. Lang and Litzenberger (1989) discuss these two alternative hypotheses’ effect on the form of corporate payout (dividends). Using Tobin’s q, they show that, markets react more to dividend changes of low-q firms than to those of high-q firms. Concerning this practice in share repurchases, Tom and Vefa (1997), view operating performance improvements in low Tobin q companies followed by repurchase activities, as the result of efficient utilization of assets rather than improved growth opportunities which is explained by the free cash flow hypothesis. A typical study in the case of the substitution hypothesis by Grullon and Michaely (2002) reveals the preference for repurchase in the US market; buyback activity seems to be a trend, especially for young firms. While Brown et al (2015), using Australia market data, shows the effect of tax treatment on the substitutability of repurchases and dividends. 4 doi:10.6840/cycu202000209 1.2. Repurchase regulations and Tax policy in Vietnam In Vietnam, regulations enabling share repurchases came into effect from the early time of the esrablishment of the security markets (in 2000). Followed by many approval laws, amendments and appendices such as the Securities Law of 2005, the Enterprise Law 2014, Decree 58/2012/NĐCP, and Decree 60/2015/ND-CP, in which firms are allowed to buy back their own stocks through four methods, namely, (1) open market repurchases, (2) fixed price tender offers, (3) Dutch auctions and (4) private negotiation repurchases. However, most Vietnamese firms chose the open market repurchases method as their main repurchase activity. Due to these laws, firms may repurchase a maximum of 30% of their total common stock. But the board of directors may only decide to buy no more than 10% of outstanding shares; in excess of this number, the decision can only be made upon the shareholders' approval in a general shareholder meeting. The source of funds for repurchases can be supplied only by retained earnings and/or the share premium account; they may also be funded by other sources but only if sufficiently backed by retained earnings and the share premium account. The repurchase cannot be held during an IPO or right offering activity. Also, the rules stipulate that a listed firm may purchase its own shares only at a price that is not above the market price for that security at the purchase date. The repurchased shares may be retained as treasury shares which can be used subsequently for stock dividend distributions or an employee share option scheme or may be resold to the market (after 6 months from the repurchase date). In addition, due to the concern of stockholders regarding capital gains taxes when repurchases occur, according to the law, before 2015, investors in Vietnam had two tax options when trading stock. The first option was that they could pay 0.1% of the total value of the trade immediately when the trade occurred. The second option was that they would be taxed at 20% at the end of the fiscal year for their taxable income. If the investor applied for the first option, whenever they gained or lost in trading, they still had to pay the tax. Otherwise, if they chose the second option, they would only be taxed when they had gains. However, to simplify the tax planning process, after 2015, Vietnamese authorities began only to accept the first tax option, which means, anytime investors trade, they have to remit 0.1% of their total trade to fullfil their tax responsibility. 5 doi:10.6840/cycu202000209 Similar to other emerging economies, the Vietnamese market observes a favorable number of firms making dividend payouts, with around at 80% during the period 2006 – 2011, according to Alphonse & Tran (2014). Recognizing this phenomenon, the authorities are encouraging more investment in the stock market by providing very attractive dividend tax policies in Vietnam. It’s worth noting that whether the corporate investors are foreign or domestic entities, they are all exempted from dividend taxes in Vietnam. In the case of individual shareholders, they are currently responsible for a 5% personal income tax for the cash dividends received; this is the flat tax rate for both Vietnamese and foreign investors without any consideration of their tax-resident status in Vietnam. Table 1 shows the tax rate on dividend on different period in Vietnamese market. Especially, government applied the 0% dividend tax of individual in some specific period to encourage more active securities trades. Table 1: Tax rate by period in Vietnam Before 2009 01/2010 – 07/2011 8/2011 – 12/2012 2013-present Individual investors 0% 5% 0% 5% Institutional investor (Vietnamese and foreign) 0% 0% 0% 0% Source: Circular No. 160/2009/TT-BTC; Circular No. 134/2011/TT-BTC; Decree No. 101/2011/ND-CP and Circular No. 111/2013/TT-BTC (Kien and Chen, 2020). According to Jacob & Jacob (2013), dividend and capital gains taxation are first-order determinants of the firm’s payout policy. With variety study support for the idea of possitive affect of tax on the choice of cash distribution to shareholders in different countries such as Sarig (2004), Moser (2007) with strong evidence from US market, especially during the period of high tax rates on dividend from 1993 to 2002 (Jacob & Jacob, 2013). The result is constent with Rau and Vermaelen (2002) and Oswald and Young (2004) for the United Kingdom data, or from a Asia market with the study of Lee et al (2006) when review the Taiwanese stock market. Thus, reviewing the the impact of different tax period to the payout for sure may broaden the view of relationship between dividend and repurchase activity in an emerging economics likes Vietnam. 6 doi:10.6840/cycu202000209 1.3. The characteristics of Vietnamese listed firms Starting from an remarkable even in December of 1986, a socio-economic reforms program, entitled "Renewal", was initiated by Vietanmese government, which is still on-going until today, resulting in a boost to the Vietnamese economic development. Playing a key role in this program, it has been about two decades since the Vietnamese stock market was established and developed. The stock market has become the main channel to mobilize the middle and long-term capital for the investment and development activites of national economic. It takes the mark with a remarkable growth when comparing to the day when Vietnam joined the World Trade Organization in January 2007. Within 10 years, the market capitalization of Vietnamese stock market has increased about 17 times, from 22.7% of GDP in 2006 to 78.5% of GDP in the first half of 2019, which attracts a big number of investors, both domestic and foreign ones, to enter the market. In detail, there are around 2.28 millions accounts to bebeen opened in the stock market (Vu, 2019). As a core of the "Renewal" movement in national economic, Vietnamese have transformed all of their State-owned business to be the listed firms, due to the poor peformance of many SOEs (State-owned equities). Turning the previous State-center economics to become an open market to the world. Identical to its neighbor giant economis, China, Vietnamese government when listed their State-firms to the private sector may expect more profit from the business while keeping control in the essential industrial area, which may affect the national wealth and security. This opinion leads to the concern of the contribution of government ownership into the capital distribution decision of the firms. A number of investigations have proved the differences in payout policies of the firms with the state element in the ownership. Chen et al. (2009) find that dividend payouts increase as the government owns more shares. Supported by Bradford (2013), the statecontrolled firms pay higher dividend when compared to the private business in the Chinese market. An earlier study by Brennan and Thakor (1990) also revealed that if the authorities run an effective tax policy for personal income tax, the low ownership holders will prefer dividend payout, while sufficiently large shareholders will encourage buyback decisions. Obviously, those firms with government at the back will have more advanges and at the same time, more effects, due to the legally and politically aspects and purpose. From the views of corporate governance and ownership structure, share repurchases result in a greater ownership concentration and strengthen controlling shareholders’ power (Ginglinger and L’her, 2011). Managers may practice the share buybacks to reinforce their control by increasing the number of share on hand and to fend off the takeover (Mork et al., 1988). Morever, 7 doi:10.6840/cycu202000209 the effects of majority or dominant shareholders in the determination of the firms’ financing decision have been recognized for a long time by economist and researchers. With a fixed cost of information and market analysis, majority shareholders will be beneficial more in a buyback campaign, while minority shareholders are vulnerable to the expropriation, said Brennan and Thakor (1990). However, in case of a Socialist economic system such as Vietnam, without a doubt that somehow the government played the role as a controller in the market. Even with a vast of stateowned firms now being equitilazatied and listed in the stock market, we still can not avoid the dominant of state in these firms. One again, with the legal and political aspect, it is hardly to let government to allow their firms being takeovered by other private investor. Thus, the purpose of using share repurchase to fend off the takeover activities may be not the first priority in the decision of initial state-owned listed companies. In other words, increasing the number of stocks on hand to strengthen managerial power may be not a big concern for state-dominated firms, especially those with more than half of ownership belongs to the government. Which making the repurchase less attractive for the Board when considering about different payout channels. The question about SOEs’ preference in distributing cash flows to the shareholders will be interesting. Will they be loyal to the traditional distribution method, dividend, or will they prefer flexibility to apply the alternative way, share repurchases? With a major number of listed firms which are initially state owned and government still holding large ownership, this characteristic makes a potential aspect to study from the point of view of payout policy, encourage researcher to learn about the payout behaviour of State-owned sector in Vietnamese stock market. From another point of view, recognize the creditor-oriented in governance perspective, Sáez and Gutiérrez (2015) documented the consequence of lacking legal rules to monitor the power of the dominant shareholders, make them use the payout policty to expropriate minority shareholders through the lower dividend payout ratios in the firms with concentrated ownership structure. In order to protect creditor, government may limit the cash distribution to shareholders until the debt is repaid, means all kind of distribution chanels such as dividends, repurchases will be covered under this provision. It is clear that a successful repurchase has impact to the financial structure by reducing the firms available cash, results in higher leverage ratio (Bagwell and Shoven, 1988; Opler and Titman, 1996). Furthermore, Saez and Gutierrez (2015) brings an idea that the firm’s current leverage level may affect its repurchase decision. It is consitent with the finding of 8 doi:10.6840/cycu202000209 Lie (2002), high leverage firms seem to have less buyback. However, Brown et al (2015) found insignificance in the leverage hypothesis when retesting the influence of debt ratio to the repurchase practice of listed firms. Therefore, the effect of capital structure was also reviewed via the explainary variable. Researcher wonder what is behind the screen of the relationship between the change in firms capital redistribution policies, using a complete up-to-date data set of Vietnamese listed firms. It will identical to the finding of Lang and Litzenberger (1989) by supporting the free cash flow hypothesis, or it will consistent with sighnal hypothesis as of the Byun & Bao Trung (2016), or there is special movement should be revealed. More directly, whether the substitute or complement effect may be found? II. DATA AND METHODOLOGY 2.1. Data collection Our sample consists of all of the undertaken repurchases in Vietnamese Stock Exchange from 2008 to 2017. Repurchase dates and other information such as cash availability, firms’ market and book value, total asset, leverage ratio, dividend payout, the repurchase volume and payment as well as firm ownership were collected from Vietnamese stock exchange database, the financial platform Fiinpro and other known analysis online source for Vietnamese data such as vietstock.vn and cophieu68.com website. As some Vietnamese firms may payout their dividend several times each year such as year, quarter or interim dividend, so the sum of all dividends within the year was used as its yearly dividend payout. The data will be cross-checked one more time via the firm's financial statement, while payout amount will be rechecked carefully from business announcement. The missing as well as some unclear data are removed from the tested sample. Thus, 174 observations are included into the study sample at the final. This study will focus on the value of previous repurchase, its expected future buy-back and the change of dividend value in the following period as a mean of differentiating between the signaling hypothesis and the free cash flow hypothesis. Thus, providing the connection between the buyback and dividend payout activities. If a firm’s intention in announcing a repurchase is to ‘signal’ to outsiders that the firm’s prospects are improving, then we should see a tangible decrease in dividend payout, as the retained earnings that should be used for dividend distribution now be spent on the buy-back. Alternatively, if the intention of management is to distribute free cash flow, in lieu of investing in perquisites, entrenchment, or other losing projects, investors should react to 9 doi:10.6840/cycu202000209 the repurchase announcement but the repurchasing firms may or may not exhibit improved performance. In short, signaling implies an improvement in performance, but a performance improvement need not imply signaling. 2.2. Methodology Basically, this study will follow the up-to-date study of Brown et al (2015), by investigating the relationship between Repurchase and the change in Dividend payout. In which, the difference between actual dividend and its expected amount will be used to represent the change in Dividend policy. While the repurchase yield will perform the level of buyback in firm financial actitivites. However, as repurchase still a raising trend but young, compared to dividend activity, in Vietnamese market, making the number of these two financial decisions have gap in different periods, thus author decides to include those companies with completed repurchase into the sample only. Understanding this financial payout behavior of those companies may help to draw a clearer picture of share buyback in Vietnamese market. With several previous studies about the relationship between repurchase and dividend payout, other researchers applied different methods, such as multinomial logit model by Jagannathan (2000), transition probability and cross-sectional regression by Grullon and Michaely (2004), time series vector autoregression by Lee and Rui (2007) or the truncated regression by Brown et al. (2015). These studies revealed unidentical results but mostly shared a similar characteristic of linear observation for payout methods. However, from the view that payout are fund distribution from the firm’s earning after tax, we know that the annual payout may or may not be the same each year as of its relationship to the stock returns is timevarying (nonlinear) (Kanas, 2005) and the board of director have to look for an optimal disbursement amount, to balance between profit sharing with firm development. It raises a question if the nonlinear relationship existed among financial payout methods. Therefore, based on the uniqueness of Vietnamese market data but lack of consistent studies in case of repurchase practicing, it encourages researcher to fulfill the gap of this question by applying the nonlinear panel regression. Robustness test will also be conducted under different given conditions, to ensure the consistent of finding results. Furthermore, as the level of payout contains huge difference between firms, some company may practice high level of capital distribution while other may spend a little money to maintain their payout policy. At the same time, there are unidentical cash that firm spend for dividend and buyback itself. The question of different groups rank among the conditional population is potential 10 doi:10.6840/cycu202000209 to review, in which quantile regression is a suitable statistical tool to answer it (Koenker & Bassett, 1978). Since the observed sample in this study included the group of completed share repurchase only, quantile regression is useful to analyze the censored data (Lin, 2009), while the nonlinear quantile regression is suitable for clustered data (Geraci, 2018). Thus, to answer for the concern of whether the relationship between dividend and repurchase depends on the program size of practiced buyback activity, the quantile regression model will be taken for further investigation to secure the accuracy of results. 2.3. Dividend change measurement Follow the study of Brown et al. (2015) by comparing the different between the actual dividend payment and its forecasted spending based on the previous dividend per share. Thus, the change in dividend payout will be calculated as follows; DDiv(t) = [ Div(t) – dps(t-1) * Outstanding(t) ] / MV(t-1) (1) In which, DDiv(t) represents the dividend change between year t and year t-1 Div(t) is the total money that company has spent for dividend payout at year t, dps(t-1) stands for the dividend per share in the previous year (t-1), Outstanding(t) is the total outstanding share of the firm at year t MV(t-1) is simply the market value of the firm in the last year. By estimate the difference in the current and previous dividend payout, the author aims to investigate the relationship between the Repurchase yield and the change of dividend of the company. Since the observations were the completed repurchasing, an increase or a decrease in the amount spending for dividend payout with significant correlation may reveal any existing connection among these financial practices. The following multivariate regression model was used to test the insign relationship between capital distribution methods of listed companies in Vietnamese security market. Ryieldt= a1+ a2 DDivt + a3 DDivt^2 + a4 Casht-1 + a5 MB t-1 + a6 Log(TA) t-1 + a7 Lev t-1 + error term(2) 11 doi:10.6840/cycu202000209
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