Microsoft Word - 3666-13814-1-SM-new.doc Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 203 The Volatility of Market Risk in Viet Nam Listed Consumer Good, Wholesale and Retail Company Groups during and after the Financial Crisis Dinh Tran Ngoc Huy Banking University, HCMC – GSIM, Intl. University of Japan, Japan E-mail: dtnhuy2010@gmail.com Received: May 25, 2013 Accepted: July 25, 2013 Published: December 1, 2013 doi:10.5296/ajfa.v5i2.3759 URL: http://dx.doi.org/10.5296/ajfa.v5i2.3759 Abstract The Viet Nam economy and especially, the stock exchange has been influenced by the global crisis during the period 2007-201. For specific industries, such as consumer good and wholesale/retail industries, the risk re-analysis and estimation for the listed firms in these industries become necessary. First, by using quantitative and analytical methods to estimate asset and equity beta of three (3) groups of sub-trading listed companies in Viet Nam material, consumer good, wholesale and retail industries with a proper traditional model, we found out that the beta values, in general, for most companies are acceptable, excluding a few cases. There are 72% of listed firms with lower risk, among total 229 firms, whose beta values lower than (<) 1. Second, through comparison of beta values among three (3) above industries, we recognized there are still 26% of total listed firms in the above group companies with beta values higher than (>) 1and have stock returns fluctuating more than the market index. Finally, this paper generates some outcomes that could provides both internal and external investors, financial institutions, companies and government more evidence in establishing their policies in investments and in governance. Keywords: Equity beta, Financial structure, Financial crisis, risk, Asset beta, Consumer good industry JEL Classification: G010, G100, G390 Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 204 1. Introduction Risk evaluation can be estimated by using various research methods. Here, we perform a market risk analysis based on asset and equity beta of 229 listed companies in the category of materials, consumer goods, and wholesale/retail firms. This paper emphasizes on analyzing un-diversifiable risk in the above industry in one of emerging markets: Vietnam stock market during the financial crisis 2007-2011. After the previous published article on estimated beta for listed construction company groups, we will compare the estimated beta results of listed Viet Nam consumer goods companies to those in its supply chain activities such as materials, wholesale and retail companies to make a comparative analysis and risk evaluation after financial crisis impacts. No research, so far, has been done on the same topic. This paper is organized as follow. The research issues and literature review will be covered in next sessions 2 and 3, for a short summary. Then, methodology and conceptual theories are introduced in session 4 and 5. Session 6 describes the data in empirical analysis. Session 7 presents empirical results and findings. Then, session 8 gives analysis of risk. Lastly, session 9 will conclude with some policy suggestions. This paper also provides readers with references, exhibits and relevant web sources. 2. Research Issues We mention a couple of issues on the estimating of beta for listed computer and electrical companies in Viet Nam stock exchange as following: Hypothesis/Issue 1: Among the three (3) companies groups, under the financial crisis impact and high inflation, the beta or risk level of listed companies in wholesale/retail industries will relatively higher than those in the rest two (2) industries. Hypothesis/Issue 2: Because Viet Nam is an emerging and immature financial market and the stock market still in the recovering stage, there will be a large disperse distribution in beta values estimated in the consumer goods and wholesale/retail industries. Hypothesis/Issue 3: With the above reasons, the mean of equity and asset beta values of these listed wholesale and retail companies tend to impose a high risk level, i.e., beta should higher than (>) 1. 3. Literature review Fama, Eugene F., and French, Kenneth R., (2004) also indicated in the three factor model that “value” and “size” are significant components which can affect stock returns. They also mentioned that a stock’s return not only depends on a market beta, but also on market capitalization beta. The market beta is used in the three factor model, developed by Fama and French, which is the successor to the CAPM model by Sharpe, Treynor and Lintner. As Luis E. Peirero (2010) pointed, the task of estimating cost of equity in emerging markets is more difficult because of problems such as collecting data in short periods. Then, Velez-Pareja (2011) referred to the lack of inadequate information on the stock market in emerging countries may undermine beta and relevant formulas. Marcin, Mariusz, Marek, and Karol (2012) mentioned that the reliability and fitness of calculated betas are relevant to the Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 205 valuation and investment of investors in merging markets. And Xiaowei Kang (2012) found that combining weighted or alternative beta strategies can gain significant traction in investment community and reduce risk. Next, Pablo Fernandez (2013) also stated that industry betas are very unstable. Finally, a portfolio beta can be calculated by taking market capitalization of each stock in the portfolio and then, average beta of each company security. 4. Conceptual theories Determinants of Equity and Asset Beta In financial markets, systematic risk relates to the overall risk of the whole market, is affected by some factors such as: interest rate fluctuations or economic crisis, can not be avoided by diversification, and is measured by a financial metric, beta which is also called systemic risk. Billio, Getmansky, Lo, and Pelizon (2010) defined systemic risk as any circumstance that threatens the stability of or public confidence in the financial system. Additionally, The European Central Bank (2010) mentioned it as a risk of financial instability with so widespread. Several factors affecting beta include, but not limit to, the volatility of expected return of a single stock, or the volatility of the expected return of the entire stock market index. Generally, beta values may vary from 0 to 2 with a few values < 0 in some specific cases and most values fall within a range from 0 to 1. In special cases, beta values can be higher than (>) 2, which means that the stock returns fall or rise doubling the values of the market returns. They are called higher-beta stocks and become riskier with the potential for higher return. And firms with beta > 1 will have the movement of stock price higher than the market benchmark. Then, beta can affects the outcomes of valuation of listed firms under cost of capital and CAPM model. 5. Methodology The period 2007-2011 is the time highlighting impacts from financial crisis. Therefore, we use the data from the stock exchange market in Viet Nam (HOSE and HNX) during the four or five years to estimate systemic risk results. Firstly, we use the market stock price of 229 listed companies in the materials, consumer goods, wholesale/retail industries in Viet Nam stock exchange market to calculate the variability in monthly stock price in the same period; secondly, we estimate the equity beta for these three (3) listed groups of companies and make a comparison. Thirdly, from the equity beta values of these listed companies, we perform a comparative analysis between equity and asset beta values of these 3 companies groups in Viet Nam. Finally, we use the results to suggest policy for both these enterprises, financial services institutions and relevant organizations. Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 206 The below table gives us the number of material, wholesale and retail firms used in the research of estimating beta: Market Listed Material companies (1) Listed Consumer Good companies (2) Listed Wholesale and Retail companies (3) Note (4) Viet Nam 55 70 3 Estimating by traditional method 44 51 6 Estimating by comparative method Total 99 121 9 Total firms in groups: 229 (Note: The above data is at the December 12th, 2012, from Viet Nam stock exchange) 6. General Data Analysis There is a sample of 229 firms in 3 categories of industries: materials, consumer goods, wholesale and retail companies groups, and the mean of equity beta is valued at 0,715 while that of asset beta is about 0,352. These data are acceptable values during the crisis. Furthermore, the sample variance of asset beta is quite low (0,0896) which is a good number, while that of equity beta is a little bit higher (0,2476). This shows us that the effectiveness of using financial leverage has decreased the systemic risk for the whole industry. However, the max and min values of beta are still somewhat large. Max equity beta value is up to 2,089 that is a little bit high, compared to max asset beta value is just 1,162 that is acceptable. Looking at the table 2 (below), we can see there is 26%, or 60 listed firms still have beta values larger than (>) 1, whereas there is 72% or 166 firms whose beta values lower than (<) 1 and higher than (>) 0. Value of equity beta varies in a range from 2,089 (max) to -1,712 (min) and that of asset beta varies in a range from 1,162 (max) to -1,377 (min). Some companies still has larger risk exposure than most of the others. There are 3 listed companies whose betas are lower than (<) 0, which means the stock return moves in a opposite direction to the market index. Next, Asset beta max value is 1,162 and min value is -1,377 which show us that if beta of debt is assumed to be zero (0), the company’s financial leverage contributes to a decrease in the market risk level. Lastly, we can see the relatively high difference between max equity and max asset beta values, which is about 0,9268, whereas there is a smaller difference between equity and asset beta variance values which is just 0,158; so, there is certain impact on systemic risk of certain firms in term of using leverage while it indicates for most of firms that financial leverage can enable them to reduce market risk . And there is not quite big effect from financial leverage Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 207 on the gap between company’s beta variance values. Table 1. Estimating beta results for Three (3) Viet Nam Listed Consumer Good, Wholesale and Retail Companies Groups (as of Dec 2012) (source: Viet Nam stock exchange data) Statistic results Equity beta Asset beta (assume debt beta = 0) Difference MAX 2,089 1,162 0,9268 MIN -1,712 -1,377 -0,3354 MEAN 0,715 0,352 0,3631 VAR 0,2476 0,0896 0,1580 Note: Sample size : 229 Table 2. The number of companies in research sample with different beta values and financial leverage Equity Beta No. of firms Financial leverage (average) Ratio <0 3 68,41% 1% 0 1 60 51,03% 26% total 229 51,9% 100% 7. Empirical Research Findings and Discussion A-Material listed companies group During the crisis 2007-2011, the market for these companies still exists, but has certain difficulties. The rising inflation and rising lending interest rates and higher opportunity costs makes input materials or production costs increasing. So, the market for these firms has been affected because selling prices increase. The table 3 below shows us the research of 99 listed firms in this category during the above period. In general, the mean of equity beta and asset beta are 0,747 and 0,371, accordingly. These values are good numbers in term of indicating a low and acceptable un-diversifiable risk. The market demand for such products as steel, plastic,… is still high. Besides, the variance of equity and asset beta of the sample group equals to 0,303 and 0,1246 accordingly which are higher than the variance of the entire sample equity and asset beta of 0,2476 and 0,0896. The effect from financial leverage makes these beta values fluctuate a little bit more from the sample beta mean. We might note that equity beta values of 99 firms in this material category are a little higher than those of firms in the rest two (2) groups. This might be considered as one characteristic of these industries. Among three (3) industries, the systemic risk of material group companies is a bit higher than those of the rest two groups. Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 208 Besides, the estimated equity beta mean is 0,626 and sample variance is 0,1749, which is not supporting our 2nd research hypothesis or issue that there would be a large disperse distribution in beta values estimated in this industry as well as our 3rd research hypothesis or issue that the mean of equity and asset beta values of these listed companies tend to impose a high risk level or beta should higher than (>) 1. Table 3. Estimating beta results for Viet Nam Listed Material Companies (as of Dec 2012) (source: Viet Nam stock exchange data) Order No. Company stock code Equity beta Asset beta (assume debt beta = 0) Note 1 COM 0,604 0,473 2 AAA 0,403 0,186 VID as comparable 3 ALV 0,890 0,618 MMC as comparable 4 AMC 0,781 0,450 CPC as comparable 5 APP 0,799 0,474 CPC as comparable 6 BGM 0,719 0,672 GTA as comparable 7 BKC 1,339 0,928 8 BMC 1,433 1,036 9 BMJ -1,712 -1,377 10 BRC 0,835 0,587 TPP as comparable 11 BVG 0,197 0,053 COM as comparable 12 BVN 0,531 0,163 BMC as comparable 13 CAP 0,543 0,205 CPC as comparable 14 CMI 0,875 0,384 KKC as comparable 15 CPC 1,211 0,937 16 CTM 0,350 0,178 DTT as comparable 17 CZC 0,090 0,028 HVT as comparable 18 DAG 0,435 0,134 DHC as comparable 19 DHC 1,170 0,461 20 DHM 0,432 0,240 HGM as comparable 21 DLG 0,055 0,014 SQC as comparable 22 DNS 0,076 0,025 BVG as comparable 23 DNY 0,063 0,018 SQC as comparable 24 DPM 0,785 0,686 25 DPR 1,043 0,808 26 DTL 0,027 0,011 DLG as comparable 27 DTT 0,605 0,517 28 GER 0,746 0,419 MMC as comparable 29 GTA 0,757 0,569 30 HAI 0,823 0,456 Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 209 31 HAP 1,280 1,018 32 HGM 0,691 0,535 33 HLA 1,833 0,339 34 HLC 0,397 0,045 35 HMC 1,227 0,348 36 HPG 0,969 0,424 37 HPP 0,627 0,268 KMT as comparable 38 HRC 0,971 0,750 39 HSG 1,821 0,587 40 HSI 0,748 0,154 41 HVC 0,314 0,083 HRC as comparable 42 HVT 0,238 0,105 43 KHB 0,550 0,486 DTT as comparable 44 KKC 1,717 0,860 45 KMT 1,259 0,386 46 KSA 0,859 0,530 KMT as comparable 47 KSB 1,103 0,705 48 KSH 1,766 1,162 49 KSS 2,089 1,049 50 KTB 0,485 0,366 COM as comparable 51 LAS 0,478 0,185 DPR as comparable 52 LCM 0,542 0,531 KHB as comparable 53 MAX 0,066 0,044 CZC as comparable 54 MDC 0,546 0,126 55 MDF 0,067 0,057 DNS as comparable 56 MHL 0,482 0,252 57 MIC 1,417 0,902 58 MIH 0,068 0,016 HVT as comparable 59 MIM 0,425 0,196 APP as comparable 60 MMC 1,183 0,990 61 NBC 1,129 0,273 62 NKG 0,007 0,002 DTL as comparable 63 NSP 0,811 0,719 ALV as comparable 64 NVC 0,353 0,050 65 PHR 0,471 0,268 66 PHT 0,912 0,477 67 PLC 1,338 0,448 68 POM 0,111 0,038 TIS as comparable 69 PTK 1,368 0,986 KSH as comparable 70 RDP 0,827 0,303 71 SHA 0,810 0,314 KSH as comparable 72 SHI 1,550 0,476 Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 210 73 SMC 1,142 0,266 74 SPC 0,062 0,015 VCA as comparable 75 SQC 0,174 0,148 76 SSM 1,402 0,710 77 TC6 0,678 0,127 78 TCS 0,900 0,152 79 TDN 0,587 0,127 80 TDS 0,398 0,146 PHT as comparable 81 THT 0,927 0,294 82 TIS 0,268 0,075 DPM as comparable 83 TLH 0,320 0,151 TDN as comparable 84 TNB 0,072 0,054 CZC as comparable 85 TNC 0,949 0,846 86 TNT 1,085 0,781 SSM as comparable 87 TPC 1,062 0,531 88 TPP 1,100 0,321 89 TRC 1,185 0,917 90 TSC 0,928 0,204 91 TTF 1,576 0,392 92 TVD 0,235 0,037 TRC as comparable 93 VCA 0,212 0,044 RDP as comparable 94 VDT 0,665 0,326 MMC as comparable 95 VFG 0,350 0,181 96 VGS 1,907 0,820 97 VID 0,757 0,272 98 VIS 1,289 0,500 99 VKP 0,877 0,131 Noted: Raw data, not adjusted Table 4. Statistical results for Vietnam listed Material companies Statistic results Equity beta Asset beta (assume debt beta = 0) Difference MAX 2,089 1,162 0,9268 MIN -1,712 -1,377 -0,3354 MEAN 0,747 0,371 0,3752 VAR 0,3030 0,1246 0,1785 Note: Sample size : 99 B- Consumer Good listed companies group In an emerging market such as Viet Nam, the market for consumer goods firms is definitely Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 211 established and potential because of the public need for such necessary vital products and though it may be affected by impacts from the financial crisis. The Table 5 below shows us the equity and asset beta mean of 121 listed consumer good companies, with values of 0,694 and 0,336, accordingly. This result, which means the risk is low and acceptable although the equity beta value is higher than that of the wholesale/retail firms, but the asset beta mean is a little lower. This partly, maintains the investor confidence of business operation of the whole industry and partly, indicates the good effect from using financial leverage. Besides, the variance of beta values among these 121 firms is normal, from 0,2142 to 0,0659 for equity and asset beta, accordingly, whereas there are some special cases with beta higher than (>) 2. Please refer to Exhibit 2 for more information. Table 5. Statistical results for Vietnam listed Consumer Good companies Statistic results Equity beta Asset beta (assume debt beta = 0) Difference MAX 2,056 1,151 0,9046 MIN -0,648 -0,085 -0,5624 MEAN 0,694 0,336 0,3579 VAR 0,2142 0,0659 0,1484 Note: Sample size : 121 C- Wholesale and Retail listed companies group Among 3 groups, this is the group with the smallest number of listed firms (sample size = 9) and with the lowest equity beta value of about 0,653. However, the asset beta mean of about 0,352 is a little higher than those of consumer good and material industries. The using of leverage has influenced these firms’ risk a bit more than the other two. Different from firms in the other industries, 9 listed wholesale/retail firms has lower equity and asset beta var values, estimated at 0,1069 and 0,0307, which implies there is a more concentration in market risks among firms in this industry. The equity and asset beta values are distributed in a smaller range, from 0,391 to 1,273, and from 0,126 to 0,64 which are acceptable, compared to those of 2 previous groups, esp., asset beta values are quite low, indicating the effectiveness of using financial leverage. Please refer to Exhibit 3 for more information. Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 212 Table 6. Statistical results for Vietnam listed Wholesale and Retail companies Statistic results Equity beta Asset beta (assume debt beta = 0) Difference MAX 1,273 0,640 0,6334 MIN 0,391 0,126 0,2657 MEAN 0,653 0,352 0,3002 VAR 0,1069 0,0307 0,0761 Note: Sample size : 9 Comparison among 3 groups of consumer good, wholesale and retail companies In the below chart, we can see among the 3 groups, equity beta value of the wholesale/retail group is the lowest (0,65) while asset beta value of the consumer good group is the lowest (0,34). Assuming debt beta is 0, financial leverage has helped many listed firms in these industries lower the un-diversifiable risk. Additionally, we see the asset beta mean values of all 3 groups have not big difference and acceptable. Therefore, it also rejects our 3rd hypothesis that the mean values of equity/asset beta of all 3 groups impose higher risks. Next, we can recognize from the chart that, the risk in the wholesale/retail industries lower than that in the other 2 industries. So, it rejects our 1st hypothesis. Last but not least, from the calculated results, variance of asset beta in the consumer good and wholesale/retail industries are low while that of equity beta in these industries. In number, equity beta var is from 0,11 -0,3 and asset beta var is from 0,03-0,12 which is not big. This also rejects our 2nd hypothesis. Finally, if we compare beta values of three (3) above industries to those of computer and electrical group companies, we see the asset beta mean values in the consumer good and wholesale/retail industries are a little bit lower (see exhibit 4). 0,75 0,37 0,30 0,12 0,69 0,34 0,21 0,07 0,65 0,35 0,11 0,03 0,00 0,10 0,20 0,30 0,40 0,50 0,60 0,70 0,80 Equity beta mean Asset beta mean equity beta var Asset beta var Material Consumer good Wholesale and Retail Chart 1. Statistical results of three (3) groups of 229 listed VN consumer good, wholesale and retail firms during/after the crisis period 2007-2011 Asian Journal of Finance & Accounting ISSN 1946-052X 2013, Vol. 5, No. 2 www.macrothink.org/ajfa 213 8. Risk analysis The consumer good and material industries have certain negative impacts from unexpected increasing price in the materials, selling prices and increasing lending interest rates which are affected by the high inflation of 23% in 2008; Although the inflation and interest rates decrease in later years but the prices can not decrease in a short time; so, they create risks in this period. Besides, these firms have to face other kinds of risks from competition as there are more and more similar provided goods or products for consumers. These risks can affect the performance and net cash flow of these companies. 9. Conclusion and Policy suggestion Material industry Even though beta mean values are fine, this is the industry which has both the highest equity/asset beta mean values and the highest asset /equity beta var (see chart 1). During the crisis, this industry has higher market risk and beta values of firms in the group are more fluctuated. After increasing rates period (see exhibit 1), financial services industries, the government and central banks have certain efforts and proper policies to support businesses and internal investors, and stabilize inflation. Consumer good industry Generally speaking, this is the industry which has middle values of equity beta mean and var, among 3 groups. The using of financial leverage can be a reason to reduce market risk, from 0,69 (equity beta mean) to 0,34 (asset beta mean). The market is established. Wholesale/Retail industry Through our comparative analysis on asset beta values, this is the industry which has the lower market risk exposure than that of the other two (2) above industries when we consider values of equity beta mean, or asset/equity beta var. Also the beta variance shows a small dispersion and smaller than, esp., material and consumer good firms. In general, our empirical findings state that they are not in favor of our 1st and 2nd and 3rd hypotheses or research issues. In summary, though Viet Nam is an emerging market with imperfect financial system, the beta values estimated are at acceptable level with 72% firms in the research sample while just a few companies’ beta values are risky (about 26% firms). Additionally, it indicates the higher the using of financial leverage, the lower the beta values. In reality, there are 72% of computer and electrical firms (166 among 229 firms) which has 0