Estimating beta of Vietnam listed contrusction company group during the financial crisis 2007 - 2009

This paper provides both internal and external investors with two risk parameters, Equity and asset beta, indicating investment parameters, as reference in their investment activities, because of a normal concept that riskier investment requyring better ROI. It alsogives financial institutions, companies and government more evidence in managing their policies.
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Estimating beta of Vietnam listed contrusction company group during the financial crisis 2007 - 2009International IntegrationDinh Tran Ngoc HuyMBA, University of Economics andFinance (UEF)– GSIM, InternationalUniversity of Japan, JapanAfter the financial crisis 2007-2009, the Vietnam stock market, in general, hascertain unexpected movements and the Vietnam construction industry, in detail,has to re-evaluate the risk level.First, we use proper traditional model to estimate Equity beta and asset beta of three (3)groups of listed companies in Vietnam construction industry and found out that the values ofbeta during 2007-2009 acceptable, excluding a few cases.Second, through comparison among three (3) different groups, we find out that there is notlarge disperse in beta values in these construction firms. Besides, beta values of firms in realestate industry tend to be higher than those in building material and construction industries.Finally, this paper provides both internal and external investors with two risk parameters,Equity and asset beta, indicating investment parameters, as reference in their investmentactivities, because of a normal concept that riskier investment requyring better ROI. It alsogives financial institutions, companies and government more evidence in managing theirpolicies.Keywords: Equity beta, financial structure, financial crisis, risk, asset beta,construction industry84PHÁT TRIỂN & HỘI NHẬP Số 5 (15) - Tháng 7-8/2012International Integrationconstruction companies tend toimpose a high risk level or betashould higher than (>) 1.Literature reviewIntroductionAlthough the issue of measuringbeta as one main factor in the CAPMmodel has been done by lots ofresearchers, this paper emphasizeson analyzing a very short periodin construction industry in one ofemerging markets: Vietnam stockmarket during the financial crisis2007-2009. Then, we compare theestimated results of listed Vietnambuilding material companies tothose in its supply chain activitiessuch as construction and real estatecompanies to make a comparativeanalysis and suggestion for usingexternal financing after financialcrisis impacts. No research, so far,has been done on the same topic.This paper is organized asfollow. The research issues andliterature review will be coveredin next sessions 2 and 3, for a shortsummary. Then, methodology andconceptual theories are introducedin session 4 and 5. Session 6describes the data in empiricalanalysis. Session 7 presentsempirical results and findings.Next, session 8 gives analysis ofrisk. Lastly, session 9 will concludewith some policy suggestions. Thispaper also provides readers withreferences, exhibits and relevantweb sources.Research IssuesDuring the financial crisis, wepay attention to a few issues onthe estimating of beta for listedconstruction companies in Vietnamstock exchange as following:Hypothesis/Issue 1: Amongthe construction group includingcement companies, constructioncompanies and real estatecompanies, under the financialcrisis impact and high inflation,the beta or risk level of listedcompanies in cement and buildingmaterial industries will relativelyhigher than those in the rest twoindustries.Hypothesis/Issue 2: BecauseVietnam is an emerging andimmature financial market and thestock market still in the startingstage, there will be a large dispersedistribution in beta values estimatedin the construction industries.Hypothesis/Issue 3: With theabove reasons, the mean of Equityand asset beta values of these listedAswath, Damoradan., (2008)pointed several factors whichaffect beta estimation. They are:firstly, different time periodsgenerating different beta values,and therefore, different returns.Secondly, different return intervalsuch as daily, weekly, monthly canalso affect beta estimation.Regarding to researches onfinancial crisis, risk and cost ofcapital, Herring and Watchter(2003) found that many financialcrises are results from bubbles inreal estate industry. And Allen,Franklin., Babus, Ana., andCarletti, Elena., (2009) pointedduring crisis the borrowing amountagainst various collateral types canvary significantly.Bebczuk,Ricardo.,andGalindo, Arturo J. (2010) foundthat the financial crisis doest nothave a large impact on listed firmsin Latin America. Fama, EugeneF., and French, Kenneth R., (2004)said in CAPM, we should measurethe risk of a stock relative to themarket portfolio including not onlyfinancial assets but also real estateand human capital. But not manyresearches so far have been done forgroups of construction companiesduring crisis period 2007-2009.Conceptual theoriesDeterminants of Equity and AssetBetaThough not much researchesor theories mention it, Beta’sdeterminantsincludesomeparameters such as financialleverage by which the company’stotal asset is financed, movementsSố 5 (15) - Tháng 7-8/2012 PHÁT TRIỂN & HỘI NHẬP85International Integration(up and down) of the company’sstock and market index, theexpected return from the marketand other macroeconomics factorssuch as inflation and interest rates.Besides, beta can be used as avariable to estimate WACC andused in CAPM model to eitherselect between two projects ordetermine Net Present Value orIRR as measurements of financialeffectiveness. Most of us know that,“market beta” is one of the famousconcepts in which it measuresthe exposure of a stock to returnson the stock market as a whole.Besides, a stock with a market betaof 1.0 appreciates by 1 percentagepoint, on average, when the marketreturn is one percentage point.Additionally, market betas above1.0, of stocks, show relatively highmarket risk exposure.Beta, in CAPM model,measures market risk. Aswath,Damoradan., (2008) stated differentbeta estimating methods used indifferent models such as APM,CAPM, and multi-factor models.A ...