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A Two Factor Model Influences The Risk Level of Viet Nam Commercial Electric Companies  

Dinh Tran Ngoc Huy
This research shows marketing factors such as business competitors could affect business market risk, from a quantitative point of view. Using a two (2) factors model, this research paper estimates the impacts of not only the size of firms’ competitors, but also leverage in the commercial electric industry, on the market risk of 99 listed companies in this category.
This paper founds out that the risk dispersion level in this sample study could be minimized in case the competitor size doubles (measured by equity beta var of 0,157) and leverage down to 20% or remaining as current.
Beside, the emprical research findings show us that when financial leverage increases up to 30%, max asset beta value decreases from 0,240 to 0,229 in case the size of competitor doubles.
Last but not least, this paper illustrates calculated results that might give proper recommendations to relevant governments and institutions in re-evaluating their policies during and after the financial crisis 2007-2011.

KEYWORDS : risk management, competitive firm size, market risk, asset and equity beta, commercial electric industry
  1. Introduction
In marketing and business, choosing competitors might affect business strategies, esp., during the crisis period 2007-2009 in which commercial electric firms experience many risks, although Viet Nam commercial electric industry is considered as one of active economic sectors, which has some positive effects for the economy.
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.  Next, session 8 covers the analytical results. Then, session 9 presents analysis of industry. Lastly, session 10 will conclude with some policy suggestions. This paper also supports readers with references, exhibits and relevant web sources.
  1. Research Issues
For the estimating of impacts of the selection of different industrial competitors on the risk measured by beta for listed commercial electric companies in Viet Nam stock exchange, research issues will be mentioned as following:
Issue 1: Whether the selection of different competitors makes the risk level of commercial electric industry firms under the different changing scenarios of leverage increase or decrease so much.
Issue 2: Whether the selection of doubling size competitor makes the dispersion of beta values become large in the different changing scenarios of leverage in this industry.
  1. Literature review
Goldsmith (1969), Mc Kinnon (1973) and Shaw (1973) pointed a large and active theoretical and empirical literature has related dfinancial development to the economic growth process.
Last but not least, Ana and John (2013) Binomial Leverage – Volatility theorem provides a precise link between leverage and volatility. Chen et all (2013) supports suspicions that over-reliance on short-term funding and insufficient collateral compounded the effects of dangerously high leverage and resulted in undercapitalization and excessive risk exposure for Lehman Brothers.
  1. Conceptual theories
Industrial competitor theories
There are many competitive advantages which are owned by industrial competitors. These advantages can be attributes such as access to natural resources or highly trained personel human resources or capital or leverage. Using leverage can help firms to obtain new technologies which are another competitive advantage.
  1. Methodology
In this research, analytical research method is used, philosophical method is used and specially, scenario analysis method is used. Analytical data is from the situation of listed commercial electric industry firms in VN stock exchange and applied current tax rate is 25%. The below table 1 shows us three cases of choosing different competitors.
Finally, we use the results to suggest policy for both these enterprises, relevant organizations and government.
Table 1 – Analyzing market risk under three (3) scenarios of changing competitors
  1. General Data Analysis
The research sample has total 18 listed firms in the commercial electric industry market with the live data from the stock exchange.
Firstly, we estimate equity beta values of these firms and use financial leverage to estimate asset beta values of them. Secondly, we change the competitors from what reported in F.S 2011 to those with size doubling and reducing slightly to see the sensitivity of beta values. We found out that in both cases of smaller competitors and double size competitors, asset beta mean values are reduced to 0,229 from 0,240 if the leverage up to 30%. Also in 3 scenarios of different competitors, we find out equity beta mean values are moving in the opposite direction with the leverage. Leverage degree changes definitely has certain effects on asset and equity beta values.
  1. Empirical Research Findings and Discussion
In the below section, data used are from total 18 listed commercial electric industry companies on VN stock exchange (HOSE and HNX mainly). In the scenario 1, current financial leverage degree is kept as in the 2011 financial statements which is used to calculate market risk (beta) whereas competitor size is kept as current, then changed from double size to slightly smaller size. Then, two (2) FL scenarios are changed up to 30% and down to 20%, compared to the current FL degree. In short, the below table 1 shows three scenarios used for analyzing the risk level of these listed firms.
Market risk (beta) under the impact of tax rate, includes: 1) equity beta; and 2) asset beta.
Based on the calculated results, we find out:
First of all, if competitor size is kept as current, both max and min values of asset beta vary in 3 cases (max values decreasing to 0,877 and increasing to 1,003 when leverage up 30% and down 20%). Secondly, if competitor size is chosen with total asset doubling, max and min values of asset beta vary in all 3 scenarios. Thirdly, if competitor is chosen with total asset slightly smaller, there is tiny change in min values of equity and asset beta in the case of leverage down 20% (for example, min asst beta increasing to 0,053 from 0,005).
Additionally, the below chart 1 shows us : in the case of doubling competitor size, the risk is less dispersed in case current leverage or Fl down 20%. Especially, if leverage down to 20%, equity beta var maintans at 0,172. On the  contrary, in the case of slightly smaller size competitors, if leverage up to 30%, equity beta var increases to 0,222.
Last but not least, from chart 2, we could note that in the case of slightly smaller size competitors, keeping the current leverage degree, asset beta mean value reduces to 0,319 from 0,327 (approximate size competitors). On the other hand, in the case of doubling size competitors, asset beta mean value goes up to 0,344.
Chart 1 – Comparing statistical results of equity beta var and mean in three (3) scenarios of changing FL and competitor size (source: VN stock exchange 2012)

  1. Conclusion and Policy suggestion
In general, the government has to consider the impacts on the mobility of capital in the markets when it changes the macro policies and the legal system and regulation for developing the wholesale and retail market. The Ministry of Finance continues to increase the effectiveness of fiscal policies and tax policies which are needed to combine with other macro policies at the same time.  The State Bank of Viet Nam continues to increase the effectiveness of capital providing channels for commercial electric companies. Furthermore, the entire efforts among many different government bodies need to be coordinated.
Last but not least, these companies might be aware of a minimum value of asset beta mean of 0,229 with either doubling size competitors or smaller competitors (leverage up 30%) and a maximum value of asset beta mean of 0,394 with approximate size competitors if leverage down 20%. In this case, the statement “the riskier the marketing strategy, the lower the market risk” is not totally correct.
Finally, this paper suggests implications for further research and policy suggestion for the Viet Nam government and relevant organizations, economists and investors from current market conditions.

I would like to take this opportunity to express my warm thanks to Board of Editors and Colleagues at Citibank –HCMC, SCB and BIDV-HCMC, Dr. Chen and Dr. Yu Hai-Chin at Chung Yuan Christian University for class lectures, also Dr Chet Borucki, Dr Jay and my ex-Corporate Governance sensei, Dr. Shingo Takahashi at International University of Japan. My sincere thanks are for the editorial office, for their work during my research. Also, my warm thanks are for Dr. Ngo Huong, Dr. Ho Dieu, Dr. Ly H. Anh, Dr Nguyen V. Phuc and my lecturers at Banking University – HCMC, Viet Nam for their help.
Lastly, thank you very much for my family, colleagues, and brother in assisting convenient conditions for my research paper.
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[1] MBA, PhD candidate, Banking University, HCMC – GSIM, International University of Japan, Japan,
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