MINISTRY OF EDUCATION AND TRAINING

STATE BANK OF VIETNAM

BANKING UNIVERSITY HO CHI MINH CITY

PHAN BUI GIA THUY

RELATIONSHIP BETWEEN BOARD'S CHARACTERISTICS AND
ASYMMETRIC INFORMATION OF LISTED FIRMS ON
HO CHI MINH STOCK EXCHANGE

SUMMARY OF PHD DISSERTATION

Major: Finance and Banking
CODE: 9 34 02 01

Academic advisor:
DR. NGO VI TRONG
DR. NGUYEN TRAN PHUC

HO CHI MINH CITY, 2020



CONTENTS
CHAPTER 1
INTRODUCTION.................................................................................................................. 1
1.1 Research problem ............................................................................................................ 1
1.2 Research objectives ......................................................................................................... 3
1.3 Research questions .......................................................................................................... 4

3.5 Research method ........................................................................................................... 18
3.5.1 Data collection ....................................................................................................... 18
3.5.2 Definition and measure of variables ...................................................................... 19
3.5.3 Regression analysis ................................................................................................ 19

CHAPTER 4
EMPIRICAL RESULTS AND DISCUSSION ................................................................. 22
4.1 Measuring asymmetric information ............................................................................ 22
4.1.1 Degree of asymmetric information ........................................................................ 22
4.1.2 Degree of asymmetric information for individual stock ........................................ 25
4.2 Board's characteristics and asymmetric information ............................................... 29

CHAPTER 5
CONCLUSIONS AND POLICY IMPLICATIONS ........................................................ 35
5.1 Highlights of study ........................................................................................................ 35
5.1.1 Asymmetric information measurement ................................................................. 35
5.1.2 Board's characteristics and asymmetric information ............................................. 35
5.2 Policy implications ........................................................................................................ 36
5.2.1 Policymakers .......................................................................................................... 36
5.2.2 Listed firms ............................................................................................................ 36
5.2.3 Investors ................................................................................................................. 36
5.3 Limitations and further research ................................................................................ 36
5.3.1 Limitations ............................................................................................................. 36
5.3.2 Further research ..................................................................................................... 37
5.4 Conclusion...................................................................................................................... 38

LIST OF AUTHOR'S PUBLICATIONS .......................................................................... 39


1

However, the results of the impact of the board's characteristics on asymmetric information


2

are still controversial and inconsistent due to differences in a specific country, research
period, and research method.
In addition to the inconsistent research results, the studies that mention the diversity of
the board, including women on board and the educational qualifications of directors that are
likely to impact asymmetric information is still limited.
Besides, not many studies have examined the effects of independent performance and the
knowledge level of board members on asymmetric information under a different type of
firm. Specifically, the number of studies that compare the effectiveness of independent
directors and the educational qualifications of board members in restricting asymmetric
information in state-owned firms compared with those in non-state-owned firms is limited.
Moreover, many researchers are less interested in the nonlinear relationship between
directorial ownership and asymmetric information.

1.1.2 Practical context
The world has witnessed many scandals involving information asymmetry. Typically, the
fraudulent actions of Enron's company (US) in 2001 through financial reporting fraud led to
the company filing bankruptcy, pushing more than seven thousand employees into
unemployment. Shareholders who invested in Enron's share investment deal suffered losses
of $74 billion, resulting in a total loss. Recently, the accounting scandal at Toshiba
Company (Japan) in 2015 caused a series of losses. First, the scandal caused trust among
investors and customers, overshadowing a brand with 140 years of corporate history.
Secondly, Toshiba's share value declined by 17% despite the Nikkei 225 index increasing
by 7.6% and a series of senior leaders in the Board of Directors resigning (Hass et al.,
2018).
Vietnam, a country whose stock market is ranked by international organizations as a

studies, measuring asymmetric information and estimating the relationship between the
board's characteristics and asymmetric information of listed firms on the Ho Chi Minh
Stock Exchange (HOSE) need to be researched and implemented.

1.2 Research objectives
The overall objective of the thesis is to focus on studying the impact of the board's
characteristics on asymmetric information of listed firms in Vietnam, based on which the
thesis recommends several policies to limit asymmetric information. The thesis aims to
achieve specific objectives as follows:
- Measuring the level of asymmetric information of listed firms on HOSE.
- Identifying the suitable asymmetric information measurement model in the context of
Vietnam.
- Identifying and measuring the factors related to the board's characteristics likely to
impact on asymmetric information.
- Recommending many policies to decline the degree of asymmetric information.


4

1.3 Research questions
In order to achieve the current research objective, the study seeks to investigate the
following questions:
- How is the trend of the level of asymmetric information of listed firms on HOSE over
the years?
- Which is an appropriate econometric model applied to measure asymmetric
information in the context of Vietnam?
- Are there the factors related to the board's characteristics likely to impact on
asymmetric information?
- Does the impact of non-executive independent directors and the education level of
board members on asymmetric information depend on the type of firm with stateowned firms?

the piecewise linear regression.
The research results will be the basis for the implication of a number of policies to limit
the degree of asymmetric information of listed firms in Vietnam.

1.6 The significance of study
Several main contributions of this thesis are as follows:
Firstly, the study proposes an appropriate asymmetric information estimation model that
can be used to measure asymmetric information in the context of Vietnam.
Secondly, the study provides evidence that expanding the price limit range from 5% to
7% is likely to increase the level of asymmetric information.
Finally, the study also adds some outstanding empirical pieces of evidence on the
relationship between the board's characteristics and asymmetric information. Specifically,
the effects of independent directors and the educational qualifications of board members on
asymmetric information depend on the moderating of the type of firm. Besides, there is a
threshold value of 1.74% of the shareholding ratio of the board members at which this ratio
tends to impact on asymmetric information in different forms.

1.7 The structure of study
The structure of the study is organized in five chapters. Accordingly, the chapters have the
following layout:
Chapter 1: Introduction
Chapter 2: Literature review
Chapter 3: Research methodology
Chapter 4: Empirical results and discussion
Chapter 5: Conclusions and policy implications


6

CHAPTER 2

2.2.3.2 Econometric method
The econometric method separates the adverse selection component from the bid-ask spread
to measure the level of asymmetric information. Some studies that apply this method to


7

measure asymmetric information include Glosten and Harris (1988) (GH model); Stoll
(1989) (Stoll model); George, Kaul and Nimalendran (1991) (GKN model); Lin, Sanger and
Booth (1995) (LSB model); Kim and Ogden (1996) (KO model); Madhavan, Richardson
and Roomans (1997) (MRR model). This method is more reliable, has fewer errors, and is
easier to estimate asymmetric information for the overall market and individual stock.
However, the significant downside is that these are arguable when using econometric
models together.

2.3 Review of studies
2.3.1 Research on asymmetric information measurement models
Table 2.2 below summarizes empirical studies applying models using econometric method
to measure asymmetric information.
Table 2.1. The studies using econometric method to measure asymmetric information
Ord_Num Studies
1

Affleck-Graves et al.
(1994)

Applied model

Market


NYSE
(04/1999 - 06/1999)
NYSE
(04/1999 - 06/1999)
Tokyo
(05/01/2000 - 31/3/2000)

50.0%

GKN serial covariance

2

Neal and Wheatley
(1998)

GH

GKN trade-indicator

3

Menyah and Paudyal
(2000)

Stoll
GKN serial covariance
KO

4


8

MRR
6

Van Ness et al. (2002)

Stoll

GKN serial covariance

7

Chakravarty et al. (2005)

GKN trade-indicator

LSB

8

Frijns và ctg (2008)

GH

MRR

9


(05/01/2000 - 31/3/2000)
NYSE/AMEX
(02/1998 - 04/1998)
NASDAQ
(02/1998 - 04/1998)
NYSE/AMEX
(02/1998 - 04/1998)
NASDAQ
(02/1998 - 04/1998)
NYSE
(01/01/2001 - 26/01/2001)
NASDAQ
(01/01/2001 - 26/01/2001)
NYSE
(01/01/2001 - 26/01/2001)
NASDAQ
(01/01/2001 - 26/01/2001)
New Zealand
(06/2001 - 08/2004)
New Zealand
(12/2002 - 08/2004)
New Zealand
(06/2001 - 08/2004)
New Zealand
(12/2002 - 08/2004)
HOSE
(01/2007 - 12/2007)
Singapore
(04/10/2002 - 31/10/2003)
NYSE

77.0%
70.3%
69.2%

Source: The studies are mentioned in the table

2.3.2 Research on relationship between board's characteristics and asymmetric
information
Jensen and Meckling (1976) point out, asymmetric information is the main cause of the
agency problem and the solution to this problem requires a corporate governance
mechanism under international practice, namely that board. According to Kanagaretnam et


9

al. (2007), Chen et al. (2007), Rutherford and Buchholtz (2007), an effective board can
reduce the agency cost, increase shareholder value, disclose information transparency, and
limit risk of information. One of the important factors contributing to the effective function
of a board is the board's characteristics (Zahra and Pearce, 1989; Nicholson and Kiel, 2004;
Hilb, 2012). The board's characteristics, often mentioned in corporate finance research and
corporate governance topics and likely to affect asymmetric information, include board size,
independent directors, female directors, education level of board members, duality, and
directorial ownership.
 Board size

According to the resource dependence theory, a company with a large board size has many
advantages compared to a company with a small board size. Specifically, with many board
members, executives will receive more information and better advice and direction (Pfeffer
and Salancik, 1978; Dalton et al., 1999; Hillman et al., 2009). Moreover, several studies
have also shown that the company with many directors is capable of limiting asymmetric

Gulzar and Wang, 2011; Qi and Tian, 2012), and restrict information risk between managers
and outside shareholders (Abad et al., 2017). In addition, the highlight of women is not
overconfidence (Lundeberg et al., 1994). They apply ethical standards to decision making
(Pan and Sparks, 2012), and take into consideration the level of risk more effectively than
men (Powell and Ansic, 1997; Byrnes et al., 1999).
 Education level of board members

Although Haniffa and Cooke (2002), Cai et al. (2006) have not found a relationship between
the education level of the board members and asymmetric information, highly educated,
well-trained, and in-depth directors tend to disclose more information outside (Ahmed and
Nicholls, 1994), contributing to the timeliness and reliability of financial reporting
information (Yunos, 2012); and therefore, limiting the degree of asymmetric information
(Chemmanur et al., 2009).
Moreover, the education level of board members contributes to increasing the
effectiveness of the board's activities (Jalbert et al., 2002). Chemmanur et al. (2009), Lewis
et al. (2014) have shown that board members with a higher level of education are more
responsible for information disclosure. On the other hand, Elbadry et al. (2015) have shown
that directors with a deep understanding of finance have a positive relation to stock
liquidity.
 Duality

Duality, the Chairman holding the position of Chief Executive Officer, may affect the
independence of board members. Therefore, separating duality will limit the concentration
of too much power on an individual and abuse of power and arbitrary decision-making,
which contributes to the effective monitoring of governance functions (Jensen and
Meckling, 1976). Besides, separating duality is likely to increase the effectiveness of
corporate governance, improve the quality of the level of information disclosure, and limit
asymmetric information (Forker, 1992; Gul and Leung, 2004).



Firstly, the authors have not yet agreed on the method of measuring asymmetric
information, which is the use of a benchmark price method or econometric model.
Secondly, the results of the impact of the board's characteristics on asymmetric
information are still controversial and inconsistent due to differences in a specific country,
research period, and research method.


12

Thirdly, in addition to the inconsistent research results, the studies that mention the
diversity of the board, including women on board and the educational qualifications of
directors that are likely to impact asymmetric information is still limited. More specifically,
the number of studies that compare the effectiveness of independent directors and the
educational qualifications of board members in restricting asymmetric information in stateowned firms compared with those in non-state-owned firms is limited.
Finally, many researchers are less interested in the nonlinear relationship between
directorial ownership and asymmetric information.


13

CHAPTER 3
RESEARCH METHODOLOGY
3.1 Asymmetric information measurement models
Vietnam stock market is a developing market, so there are limitations when accessing data,
such as difficult to collect daily trading data with a period of continuous and large enough,
and stock prices are limited by the price limit range. Therefore, we apply Glosten and Harris
(1988) model (GH model), George, Kaul and Nimalendran (1991) trade-indicator model
(GKN trade-indicator model), George, Kaul and Nimalendran (1991) serial covariance
model (GKN serial covariance model), and Kim and Ogden (1996) model (KO model) to
measure degree of asymmetric information of listed firms on Vietnam stock market.

In the equation (1), ∆Pt is the change in the closing price at the end of the day; Qt is a
trading indicator variable determined by Lee and Ready (1991), Qt = +1 if the closing price
is higher than the midpoint; otherwise, Qt = –1; Vt is the number of shares traded at the end
of the day.

3.1.2 George, Kaul and Nimalendran (1991) trade-indicator model
The below regression equation denotes the GKN trade-indicator model:
2RDTM,it = a0 + a1 (Sqi)[Qit – Qit–1] + εit

(3)


14

Where: RDTM,it = ∆Pit – ∆Mit is the difference between the change in the closing price at
the end of the day (∆Pit) and the change in the mean of the bid price and ask price or change
in the midpoint (∆Mit); Sqi is the difference between ceiling price and floor price; Qit is a
trading indicator variable determined by Lee and Ready (1991), Qit = +1 if the closing price
is higher than the midpoint; otherwise, Qit = –1; a1 = π is the order processing cost
component. Therefore, the average adverse selection component of the stocks is calculated
as 1 – a1.
Let xit = (Sqi)[Qit – Qit–1] and yit = 2RDTM,it correspond to each stock i, the average adverse
selection component of the stock i, ASCi,GKN is estimated according to the formula below:
T

ASCi ,GKN1  1  a1,i  1 

 (x
t 1


estimating asymptotic average adverse selection for each stock i in the GKN serial
covariance model; accordingly, ASCi ,GKN2 is estimated by the following formula:

ASCi ,GKN2  1 

2 Cov( RDTM ,it , RDTM ,it 1 )
1 T
 Sqit
T t 1

(6)

3.1.4 Kim and Ogden (1996) model
The below regression equation denotes the KO model:
̅ 2 + εi
SKO
= β0 + β1√𝑆𝑞𝑖
i

(7)


15

Where SiKO  2 Cov( RDTM ,it , RDTM ,it 1 ) is the spread in the KO model, with RDTM,it =
∆Pit – ∆Mit is the difference between the change in transaction price (∆Pit) and the change in
2
1 T
the midpoint (∆Mit); S̅ qi =  Sqit2 is the mean of the sum of the squared spreads, β1 is the



ASC
for sample

ASC
for stock i

ΔPt = c0ΔQt + c1Δ(QtVt)
+ z0Qt + z1QtVt + εt

2( z0  z1V )
2(c0  c1V )  2( z0  z1V )

2( z0i  z1iVi )
2(c0i  c1iVi )  2( z0i  z1iVi )

2RDt = a0 + a1 (Sq)[Qt – Qt–1]
+ εt

1 – a1

GH model
2. George, Kaul and
Nimalendran (1991)
trade-indicator model

T

1


t 1

GKN serial
covariance model
4. Kim and Ogden (1996)
model

 (x

it

(a)

 x) 2

2 Cov( RDTM ,it , RDTM ,it 1 )

(b)

1 T
 Sqit
T t 1

2 Cov( RDTM ,it , RDTM ,it 1 )

(c)

1 T 2
 Sqit
T t 1


3.3 Research framework
The quantitative studies of Cai et al. (2006), Armstrong et al. (2014), Goh et al. (2016),
Abad et al. (2017) illustrate that, the board's characteristics are likely to impact on
asymmetric information. In addition, the impact of non-executive directors and education
level of board members on asymmetric information could depend on type of firms with
state-owned firms, especially in the context of a developing market (Barberis et al., 1996;
Buck et al., 2008; Wang, 2012; Wang et al., 2016).
Based on the theoretical analysis framework and related empirical studies, the empirical
research framework on the relationship between the board's characteristics and asymmetric
information is built as Figure 3.1 below.


17

- Number of board
members

Asymmetric
Information

- Market characteristics
- Firm characteristics

- Female directors
- Duality

- Type of firm (stateowned and non-state
firms)


information.


18

H2b: There is a difference in the impact of the independent members on asymmetric
information between the state-owned and non-state-owned firms.
H3: There is a negative relationship between female directors and asymmetric
information.
H4a: There is a negative relationship between the educational qualification of board
members and asymmetric information.
H4b: There is a difference in the impact of the educational qualification of board
members on asymmetric information between the state-owned and non-state-owned
firms.
H5: There is a positive relationship between duality and asymmetric information.
H6a: There is a negative relationship between the shareholding ratio of board members
and asymmetric information.
H6b: There is non-linear relationship between the shareholding ratio of board members
and asymmetric information.

3.5 Research method
This study uses quantitative method to estimate the relationship between the board's
characteristics and asymmetric information of listed firms on Vietnam stock market. The
following is a description of how to conduct the study, including data collection, measure of
research variables, and method of data analysis.

3.5.1 Data collection
We collect data of listed firms on the Ho Chi Minh Stock Exchange (HOSE) from 2009 to
2015. The data of transaction price and order statistics of listed firms on HOSE is collected
at the time of Quarter 1, from January 1 to March 31 to measure asymmetric information

Board members

Number of board members

Outd

Independent non-executive
directors

The proportion of independent non-executive board
members

Gender

Female directors

The proportion of women on the board

Edu

Educational qualification of
board members

The proportion of board members with postgraduate
education

Dual

Duality



Level of growth opportunity

Opp = 1 if TobinQ > 1, high growth opportunity
Opp = 0 if TobinQ < 1, low growth opportunity
where: TobinQ = [market value of stock + total debt] /
total assets

Debt

Total debt ratio

Ratio of total of debt to total assets

Bank

Bank loan ratio

Ratio of bank loan to total assets

Bank_St

Short-term bank loan ratio

Ratio of short-term bank loan to total assets

Bank_Lt

Long-term bank loan ratio


Firstly, to estimate the relationship between the characteristics of board and asymmetric
information, we use the regression equation as follows:
ASCit   0  1 BoardSizeit   2 Outdit  3 Genderit   4 Eduit








J

 5 Dualit   6 Ownit    j ControlVarj ,it   it




(3.9)

j 1

Next, to test whether the impacts of independent directors and the education level of
board members on asymmetric information depend on the type of firms, state-owned and
non-state-owned firms, applying the method of DeMaris (2004), we, in turn, add two
interaction variables Gov*Outd and Gov*Edu into equation (3.9) to get the regression
equation (3.10) and (3.11) below as follows:
ASCit   0  1 BoardSizeit   2 Outdit  3 Genderit   4 Eduit



 5 Dualit   6 Ownit  8 Govit * Eduit    j ControlVarj ,it   it






(3.11)

j 1

The estimated results of the regression coefficient β7 of the Gov*Outd variable in
equation (3.10) and β8 of Gov*Edu variable in equation (3.11) could be the basis to reject or
accept the research hypothesis. Moreover, to clarify the difference in the impacts of Outd
and Edu on asymmetric information under type of firms, we divide the research sample into
two groups including state-owned and non-state-owned firms. The results of regression
estimation on two groups will illustrate the form and strength of the impact of these two
variables on asymmetric information for different types of firms.
Finally, to test the hypothesis there is a nonlinear relationship between the shareholding
of board members ratio and asymmetric information, we estimate the threshold regression
model according to Bai and Perron (2003). The threshold regression model has the
following form:
K

L

J

k 0



n

2

After estimating the threshold values τ, we test the strength of this value by applying the
piecewise regression method according to Morck et al. (1988), Hermalin and Weisbach
(1991). With the assumption of finding two threshold values of Own (τ1 and τ2), the
piecewise linear regression has the following equation form:
ASCit   0  1 BoardSizeit   2 Outdit  3 Genderit   4 Eduit  5 Dualit




3

J

s 1

j 1





  s Own _ Thrs ,it    j ControlVarj ,it  it




For panel data, we use regression techniques, including Pooled-OLS regression model
(Pool), fixed effect model (FEM), and random effects model (REM). The adoption of these
models will be considered based on Hausman and Breusch-Pagan tests.