VIETNAM NATIONAL UNIVERSITY, HANOI

INTERNATIONAL SCHOOL

STUDENT’S SCIENTIFIC RESEARCH REPORT

Financial distress likelihood of the listed companies in Vietnam

Scientific research

Hanoi, May 4th 2019

 INFORMATION OF THE GROUP

1. Project name
Financial distress likelihood of the listed companies in Vietnam

2. Principal Investigator
Tran Thu Trang – ID number: 16071253 – Class: AC2016A

3. List of members

Name Class ID number

Tran Thu Trang AC2016A 16071253
Tran Ngoc Quynh Nhu AC2016C 16071222
Chu Thi Quynh Anh AC2016C 16071147
Nguyen Quang Tuan AC2016B 16071260
Phung Minh Son AC2016B 16071237
4. Instructor
Do Phuong Huyen - Lecturer
- Deputy Head
Department of Social Science, Economics and Management
International School - Vietnam National University, Hanoi

Hanoi, 4th, May, 2019)

Advisor’s signature Group leader

(Signature, full name) (Signature, full name)

 TABLE OF CONTENTS
LIST OF TABLES .........................................................................................................................1
LIST OF FIGURES .......................................................................................................................1
INTRODUCTION .........................................................................................................................2
OBOJECTIVE .............................................................................................................................. 3
CHAPTER 1: LITERATURE REVIEW – THEREOTICAL BACKGROUND ....................4
1.1.RATIONALE ...........................................................................................................................5
1.2.THEORETICAL BACKGROUND: ......................................................................................5
1.2.1.BACKGROUND THEORY .................................................................................................9
1.3.EMPIRICAL RESEARCH AND RESEARCH HYPOTHESES EXPERIMENTAL .... 10
1.3.1.INTERNAL FACTORS: .................................................................................................... 10
1.3.2.MARKET FACTORS ........................................................................................................ 12
1.3.3.MICRO-ECONOMIC FACTORS .................................................................................... 12
1.3.4.MACRO-ECONOMIC FACTORS................................................................................... 12
1.4.DEFINITION OF VARIABLES .......................................................................................... 12
1.4.1.ACCOUNTING VARIABLES .......................................................................................... 12
1.4.2.MARKET VARIABLE ...................................................................................................... 13
1.4.3.MACROECONOMIC VARIABLE .................................................................................. 13
CHAPTER 2: DATA & METHODOLOGY ............................................................................. 14
2.1.SCOPE ................................................................................................................................... 14
2.2.METHOD .............................................................................................................................. 14
2.3.SOURCES OF DATA ........................................................................................................... 16
CHAPTER 3: DATA ANALYSIS .............................................................................................. 17
3.1.ANALYSIS ............................................................................................................................ 17
3.2.REGRESSION RESULT ..................................................................................................... 27
3.3.RESULT DISCUSSION ....................................................................................................... 29
CHAPTER 4: CONCLUSION & RECOMMENDATION ..................................................... 30
REFERENCES............................................................................................................................. 32

2
List of Tables

Number Table Name

1 Table 3.1.1 Descriptive Analysis of Cash to total Asset
2 Table 3.1.2 Descriptive Analysis of Debt to total Asset
3 Table 3.1.3 Descriptive Analysis of Sales to total Asset
4 Table 3.1.4 Descriptive Analysis of Retained earnings to total Asset
5 Table 3.1.5 Descriptive Analysis of Stock price of the company
6 Table 3.1.6 Descriptive Analysis of Scale of the company
7 Table 3.2.1 Descriptive statistics
8 Table 3.2.2 Correlations matrix among Variables
9 Table 3.2.3 Regression results (REM)
10 Table 3.2.4 Predict correction of model

List of Figures

Number Table Name

1 Figure 3.1.1 Cash to total Asset
2 Figure 3.1.2 Debt to total Asset
3 Figure 3.1.3 Sales to total Asset
4 Figure 3.1.4 Retained earnings to total Asset
5 Figure 3.1.5 Stock price of the company
6 Figure 3.1.6 Scale of the company
7 Figure 3.1.7 Interest of T bill

1
Abstract
This paper uses the Logistic regression model to estimate financial distress
likelihood of the listed companies in Vietnam. The population and samples
used in this study are 120 listed companies with the data range from 20015 to
2018. The paper identified firms’ internal factors that affect the financial
distress in Vietnam business such as sales to total asset, firm size. Macro
factors, market elements and some ratios have no impacts on the financial
distress. At the same time, the study aims to estimate model of financial
distress for the business with the correct prediction rate on population of 120
firms.
Keywords: Financial distress, logistic regression model, internal factor.
INTRODUCTION
Financial distress forecasting is an issue increasingly attracting the attention of
investors, creditors and managers. Determining when a company falls into
financial distress is essential because it helps managers make appropriate
decisions to maintain operations and motivate the company to continue
development helps investors and creditors have a full measure of the level of
risk they are suffering when the company falls into financial distress.
According to the General Statistics Office, in 2018, Vietnam's GDP growth rate
reached 7.08%, higher than the previous year (6.81%). The number of newly
established enterprises reached 131.3 thousand with a total registered capital of
VND 1,478.1 trillion, an increase of 3.5% in number of enterprises and an
increase of 14.1% in registered capital compared to 2017. This is a positive sign
of economic growth. This also shows that corporate executives are expecting the
prosperity of businesses in the future.
However, in 2018, the number of enterprises falling into difficulties is forced to
dissolve, suspend operation for a definite or indefinite time also increases
significantly. According to the General Statistic Office, the number of
enterprises suspended operation is 90,651, an increase of 49.7% over the
previous year, including 27,126 enterprises registered to suspend business for a
definite time, up 25.1% and 63,525 temporary enterprises stop operating without
registering or waiting for dissolution, up 63.4%; 16,314 enterprises completed
dissolution procedures, up 34.7%. This shows that it is necessary to early
identify financial distress to find solutions to help businesses survive and
develop.

2
 Most of the well-known studies of financial distress have been implemented in
the US and European countries. In Vietnam, this research topic is still new and
only implemented by a few domestic researchers. From the above-mentioned
realities, this study is undertaken to find a suitable and appropriate financial
distress forecast model for listed companies Viet Nam stock market.
Objective
The purpose of this study is to examine the possible uses of Ohlson’s O-score
(1980) in relation to Vietnam data and to observe how it applies to modern
Vietnam firms of today. That includes analyzing the differences between the
original model, published in a paper in 1980 and an altered model based upon
the same statistical methods and variables, but on Vietnam listed firms being
active during recent years. Basically, we aim to examine how Ohlson’s studies
can be employed today in order to determine the probability of a Vietnam listed
firm becoming bankrupt or reaching another condition related to financial
distress. Furthermore, since the models are almost entirely relying on
accounting-based information derived from the annual reports, we would like to
examine whether there is a gain to be attained in also considering the quality of
these reports, with regard to the model. That is, can we increase the
predictability of corporate failure by inducing an audit element and
incorporating data regarding the audit reports into the model? Above all this,
the underlying purpose is, with Ohlson’s O-score as a starting point, to find a
model that can easily be understood and applied by investors investing in
Swedish stocks on as many levels as possible. This also includes that the data
should be easily acquirable and used as input in the model.
The general objective of the study is to identify suitable financial distress
prediction model for companies in Vietnam. The specific objectives are:
1) To provide a detailed demonstration of the regression model that was
developed by Ohlson (1980)
2) Is it the model applicable in predicting financial failure of companies and a
useful tool for investors in the Vietnam or not?
3) Providing solutions and possible ways to use regression model more accurate

3
CHATER 1: LITERATURE REVIEW – THEREOTICAL BACKGROUND

4
1.1. Rationale
Since Vietnam has joined in WTO, there has been faced with financial distress that
caused strong impacts on various sectors of the economy such as investment,
banking, stock market…Vietnamese enterprises have been deeply affected and had
many difficulties to stabilize. Facing with challenges, some businesses have found
their own strategies to overcome crisis. However, some businesses cannot
overcome the crisis and the rate of bankruptcy is increasing. The problem now is
how to identify a business in the financial distress.
Financial distress has pointed to shortcomings in the assessment and management
of loans that have a huge impact on business performance. Therefore, it is
necessary to research the financial distress of the Listed Industrial Firms Stock.
There are many factors that can help to predict the probability of a company's
financial distress like internal and external ones. It leads to find the best forecasting
model that helps firms to forecast the corporate operation situations according to
the information provided by the financial distress prediction system, set up the
right direction and measurement in order to get rid of the financial distress and
increase the value of the enterprise and the investors and creditors can make the
right investment choice by dynamic analyzing on the financial forecasting
indicators.
1.2. Theoretical background:
The term "financial distress" of the business is said by the researchers as a state, a Commented [C1]: Nhóm đã sử dụng khái niệm Financial
distress dùng trong textbook cô gửi cho Trang chưa? Chap
difficult period of business arising before the time the business declares bankruptcy 30 – nên có 1 formal definition ở đây, có nguồn tham khảo
until the bankruptcy business. Serious financial distress is leading to bankruptcy đáng tin cậy
(Altman, E. I., & Hotchkiss, E., 2006). However, in some case financial distress is
likely to be detected before the company falls into insolvency. As such, it is noted
that financial distress does not warrant for a bankruptcy. The financial distress is Commented [C2]: Rấtnhiềunhậnđịnh đưa ra mà ko có
nguồn trích dẫn?
divided into two phases, the first stage is the business falls into temporary or
permanent difficulties in the repayment of due debt due to joint lack of cash; in the
latter stage, the enterprise is completely unable to repay, after repeated negotiations
and restructuring with the creditor but fails to meet the target, the enterprise must
complete the procedure with the court to declare bankruptcy.
Firm with a greater risk of experiencing financial distress will borrow less than
firms with a lower firm of financial distress (Ross, W.J., 2013). For example, all
other things being equal, the greater volatility in Earnings Before Interest and Tax
(EBIT), the less a firm should borrow. In addition, financial distress is more costly
for some firms than others. The costs of financial distress depend primarily on the
firm’ assets. In particular, financial distress costs will be determined by how easily
ownership of those assets can be transferred.
Altman, a researcher, introduced multiple linear discriminate projections into the
financial distress prediction field in 1986. He marked the companies according to

5
the multiple linear discriminate methods and set up Z score model. Then when he Commented [C3]: Dùng sách textbook , nói rõ thêm về Z-
score – khoảng nửa trang
predicted the companies 1 year before bankruptcy, 95 percent of the results are
correct (Altman, E. I., & Hotchkiss, E., 2006). The risk of bankruptcy for the
company can be seen and measured through the financial statements by performing
a ratio analysis to the financial statements issued by the company concerned. The
analysis is known as Z-score analysis. The Z-Score analysis itself is a predictor of
bankruptcy made by Dr. Edward I. Altman in 1968. This method uses certain ratios
in predicting the risk of bankruptcy of a company. This method has also been
revised in 1983, by altering some of the variables in the formula in the Z-Score
analysis (Arifin, 2007). Altman Z Score analysis model is a tool to find out how
the company’s financial performance.
Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E
Where:
A = working capital / total assets
B = retained earnings / total assets
C = earnings before interest and tax / total assets
D = market value of equity / total liabilities
E = sales / total assets
Z score calculation result indicates the company's conditions as follow:
- Z-score <1.81: high bankruptcy probability
- Z-scores > 2.99: not bankrupt
- Z-scores between 1.81-2.99: gray area.
However, The Z-score is not a perfect metric and needs to be calculated and
interpreted with care. For starters, the Z-score is not immune to false accounting
practices. As WorldCom demonstrates, companies in trouble may be tempted to
misrepresent financials. The Z-score is only as accurate as the data that goes into it.
The financial distress is, therefore, different from the bankruptcy. In particular,
financial distress occurs when firms may not be able meet financial obligations
from their creditors due to a loss in firm’s business operating, illiquid assets, high
fixed cost. On the other hand, bankruptcy is a final state when firms stop doing
business because businesses still cannot meet their financial obligations in the
financial distress.
There are several definitions of financial distress, according type, namely
economic failure, business failure, technical insolvency, insolvency in bankruptcy,
and legal bankruptcy (Brigham and Gapenski, 1997).
- “Economic failure”: is a situation where the company's revenues cannot Commented [C4]: Các định nghĩa này đều lấy từ 1 hay
nhiều nguồn, nên sử dụng nhiều nguồn để đa dạng
cover the total cost, including the cost of capital. The business can continue
to operate throughout the lenders would provide capital and its owner will Các định nghĩa nếu copy paste nguyên bản thì phải để trong
“” ko sẽ thành đạo văn
accept return rate (rate of return) in the bottom of the market. Although there
is no injection of new capital assets when parents had to be replaced, the

6
 company can also be economically viable, new capital assets when the
parents had to be replaced, the company can also be economically viable.
- “Business failure”: is defined as a business that ceased operations with
consequent losses to creditors.
- “Technical insolvency”: A company is said to be in a state of technical
insolvency if it cannot meet current liabilities as they fall due. Inability to
pay the debt technically indicate a temporary lack of liquidity, which if
given the time, the company may be able to pay its debts and survive. On the
other hand, if the technical insolvency are the first signs of economic failure,
this may be the first stop toward financial disaster.
- “Insolvency in bankruptcy”: A company is said to be in a state of insolvent
in bankruptcy if the debt book value exceeds the market value of assets. This
condition is more serious than technical insolvency because, generally, it is
economic failure sign, and even lead to the liquidation of the business.
Businesses in insolvent circumstances in bankruptcy does not need to be
involved in bankruptcy claims legally.
- “Legal bankruptcy”: Companies say bankruptcy law if it has been filed
formally with the demands of the legislation (Brigham and Gapenski,1997).
Most of the research adopts bankruptcy as a standard, and generally can be divided
into two models: one based on pure financial indicators and the other mixed model
based on financial and non-financial indicators. The financial distress prediction
which based on financial indicators dates happened from the 1930s. Fitzpatrick Commented [C5]: Năm nghiên cứu, là năm nào?

(1932) firstly studied a one variable bankruptcy prediction by having selected 19

companies as sample, and divided the sample into two groups called bankruptcy
and non-bankruptcy according to a single financial ratio. Then he found that net
profit/shareholders’ equity and shareholders’ equity/debt is indicators with highest
capable of discriminating. In the late of 20 centuries, in order to avoid the one-
sidedness of the research, many scholars tried to introduce non-financial indicators
into the financial distress prediction model. Marquette (1980) suggested
introducing macro-economic indicators into the establish of model, such as interest
rate, inflation rate, indicators of changes in economy and so on. Izan (1984)
introduced the relative percentage of industry into the model and found that it had
a great effect on telling the difference between financial distress companies and
health companies. In the 21st century, it began to pay attention on establishing
financial distress prediction model by adding non-financial indicators into the
model. Zhang Jian (2004), Chen Lianghua and Sun Jian (2005) studied the
financial distress from the internal governance mechanisms and ownership
structure. The study found that the proportion of independent directors and the
ratio of the largest shareholder’ stocks have something with the financial distress.

7
After studying the 125 listed industrial companies in China, Cao Defang (2006)
found that the ownership structure had great effect on the financial distress.
In business, profit is one of the general financial information that can reflect the Commented [C6]: Cáchđánhsốnày ko hiểu ntn?

process leading to financial distress. No profit is the failure of sales, competition

...resulting in financial distress. Dwitridinda (2007) examined the effect of Commented [C7]: Bổ sung năm nghiên cứu , ví dụ
Dwitridinda (1995)
corporate governance implementation to the possibility of companies experiencing
financial distress. The study showed that companies size variables, the
implementation of corporate governance, as well as profit have a significant
association with financial distress. Meanwhile, Hanifah (2013) study examined the
influence of corporate governance structure and financial indicators on financial
distress condition. The result showed that the size of the board of directors,
managerial ownership, institutional ownership, leverage, and operating capacity
have a significant influence on financial distress.
Enterprises are in danger of falling into financial distress when having one of the Commented [C8]: Phầnnàysáchnói 2 cách xác định
financial distress, value based, và operating cashflow, nên
following signs: the securities of such enterprises are put under control or placed bổ sung cho dày dặn và đủ các khía cạnh
under warning, the profit after tax is negative, the profit after tax has not been
Từ nửa đến 1 trang
distributed and the business violations of the regulations on information disclosure.
According to Ross et al the company is facing bankruptcy when its assets values
are equal that of the debts. When this happens, the equity value is equal to zero,
and control the company is shifted from stockholder bondholder.
The company is said to be in financial distress if the asset value falls below the
lower threshold as long as the company operates. According to Ross and
Wasterfield (1996), financial distress is a condition where the company’s operating
cash flow is not able to cover or meet the current liabilities, and that financial
distress can lead a company into failure (bankruptcy) (Ross, W.J., 2013). Cash
flow statement is a summary of the company’s cash receipts and disbursement in a
certain period. One of the uses of cash flow information is to understand the result
of the company’s operational activities. If the company’s cash flow runs smoothly,
it indicates that the company’s operational activities run well. The higher the
operational cash flow ratio of the company, the easier the company to get away
from the financial distress condition. If the ratio of cash flow from the company
operational activities is low, then it may lead the company to have fewer profits,
resulting the company to experience financial distress and harder to get away from
its condition. Operational cash flow measured by operational cashflow / total
capital positively affects financial distress in manufacturing companies in 2016
listed on the Indonesian Stock Exchange. The result of this study is in accordance
with Imam and Reva (2012), which stated that the level of operating cash flow
might lead the company to experience financial distress. This study is also
consistent with research by Almilia (2006), which concluded that companies with a

8
low rate of operational cash flow have a greater chance to experience financial
distress (Amelia F. 2017)
1.2.1. Background theory
1.2.1.1. Cash management Theory (Baumol, 1988): The loss of control over cash
management will affect the business situation of the business, affect the
profitability of the business, potentially threatening financial distress at a
time. Therefore, when there is a loss of control on cash management, it
will affect the business situation of the enterprise, affecting the
profitability of the business, potentially threatening financial distress in a
certain time (Baumol, W. J., 1988).
1.2.1.2. Trade-off theory (Kraus & Litezenberger, 1973): Corporate value is
directly proportional to the value of the tax shield and inversely
proportional to the current cost of financial distress. In particular, the
value of the tax shield is the amount of corporate income tax payable to
the government, which is reduced by reducing taxable income due to
additional borrowing costs from borrowing. Thus, the cost of financial
distress arises at the same time with funding from the debt of the
enterprise. At a certain level of debt, this financial cost outperforms the
tax benefits of businesses, and rapidly increases with increasing debt
ratio, thereby rapidly reducing corporate value, pushing businesses are at
risk of financial distress. The cost of financial distress arises mainly due
to the use of corporate debt. The more businesses use debt, the greater the
cost of financial distress increasing the risk of financial distress. (Kraus,
A., & Litzenberger, R. H., 1973)
1.2.1.3. Classification theory (Myers & Majluf, 1984): Managers have more Commented [C9]: Cô đọc mà chưa connect dc với financial
distress
information about businesses than outside investors. Current investors
Commented [MOU10R9]:
have more information than new investors. Therefore, new investors
often require a higher profitability when accepting capital funding for Commented [MOU11R9]:

businesses, which makes the cost of newly funded capital become more
expensive than the present capital. Therefore, when enterprises seeking
funding for their investment needs, they should prioritize funding from
internal sources (retained profits) and then come from debt financing,
ultimately the funding of common stock. The use of corporate resources
from retained earnings will reduce the risk of financial distress. (Myers,
S. & Majluf, N.,1984)
1.2.1.4. The cost representative theory (Jensen & Meckling, 1976) refers to the
conflict of interests of 3 groups: Shareholders, managers and creditors.
The manager is the person who acts on behalf of the shareholders to
directly run the business. However, in the process of running the
business, for the immediate benefits managers can only care about the

9
 short-term benefits (maximizing the existing share price) of the business,
not paying attention to long-term goals of the business (maximizing
business value), damaging the business, harming the interests of
shareholders and creditors. Large-scale enterprises often perform internal
control activities well by the control department which operates
independently of the Board of Directors, acting as a supervisor of the
board of directors. Therefore, large-scale enterprises reduce the risk of
financial distress (Jensen, M. C., & Meckling, W. H., 1976)
1.2.1.5. Signal theory (Miller & Rock, 1985) Managers and the Board of Commented [C12]:

Directors know more about the prospects of businesses than potential Commented [C13]: Phần abcd này ko thấy connect với
financial distress?
investors. When businesses forecast good prospects, managers and Board
of Directors do not want to share profits for new investors. On the
contrary, when enterprises forecast prospects of not doing well, they want
to share risks for new investors. Therefore, the financial situation of the
business is reflected in the capital mobilization signal of the enterprise.
According to this theory, when an additional share issuance is usually a
risk-sharing enterprise, the share price will fall and vice versa. So stock
price volatility reflects the "health" status of the business (Miller, M. H.
& Rock, K., 1985)
1.3. Empirical research and research hypotheses
Experimental studies on measuring and forecasting financial distress are
divided into groups of factors affecting financial distresss.
1.3.1. Internal factors: Commented [C14]: Nguồntríchdẫn ?

These are only held in some enterprises. Poor management experience has led
to erroneous or subjective financial decisions, conservative investment and
management, slow technological innovation, rigid business planning, product
quality, non-compliance with payment discipline… that makes companies get
into financial distress.
1.3.1.1. Enterprise Cash Management Policy: The relationship between the level
of money holdings and financial distress is counter-trend. The company's
cash management policy reflects the amount of cash the company
reserves to meet the needs of fast, reserve, speculative. The imbalance
between cash inflows and outflows leads to wastage or the risk of
business failure. Thereforethe higher the amount of cash the bank will be
able to secure, the faster repayment of debt and reducing the risk of
financial distress (Jiming & Weiwei, 2011). Almilia conducted a study on
«Predicting Financial Distress in Listed Companies Using Logit
Multinomial Analysis». The results showed that the financial ratios from
the income statement, balance sheet and cash flow statement have a
significant influence in predicting financial distress. (Almilia, L.S. 2006).

10
1.3.1.2. Capital structure of business: The relationship between debt ratio and
financial distress is the same trend. An enterprise with a capital structure
financed primarily by debt, equity is less, the risk of falling into financial
exhaustion is very high. (Kraus, A., & Litzenberger, R. H. 1973.
Pranowo conducted a study on the «Determinant of Corporate Financial
Distress in an Emerging Market Economy: Empirical Evidence from the
Indonesia Stock Exchange 2004 - 2008» in 2010. The results of the study
showed that the variables of current ratio, efficiency, equity, and dummy
variable of good financial condition, have a positive and significant
impact on the financial distress, whereas leverage variable has a negative
and significant impact on the financial distress. (Pranowo, K. 2010)
1.3.1.3. Operational capacity: Relationship between firm size and financial
distress is counter-trend andthe relationship between asset efficiency and
financial distress is counter-trend. Performance capability reflects the
scale (size of assets) and market share (size of sales) of the business. The
lower the capacity of the enterprise, the higher the likelihood of financial
abuse. The larger the size of the enterprise, the stronger the company's
ability to overcome the difficult times in business, thus reducing the risk
of bankruptcy. (Jiming, L., & Weiwei, D. 2011)
1.3.1.4. Profitability Debt affordability: The relationship between the rate of
return and financial distress is counter-trend. Profitability reflects the
level of profit generated by the investment of the business. Enterprises
with low profitability, the risk of falling into financial distress is high.
Debt repayment refers to the retained earnings of an enterprise used to
pay off corporate debt. The lower enterprise’s repayment capacity, the
higher the risk of falling into financial distress.(Beaver, W. H. 1966).
1.3.1.5. Corporate Governance Capability: The relationship between board
ownership and financial distress is counter-trend. Corporate governance
capabilities reflect the management capabilities of the board of directors,
the level of management and control of the board of directors and the
board of directors. The higher the equity ownership ratio of the board of
directors, the lower the representation cost, the less the risk of financial
exhaustion for the business. (Chen, L., & Sun, J. 2005). Hanifah (2013)
study examined the influence of corporate governance structure and
financial indicators on financial distress condition. The result showed that
the size of the board of directors, managerial ownership, institutional
ownership, leverage, and operating capacity have a significant influence
on financial distress. Furthermore, the variable of ownership
concentration, managerial ownership, the proportion of independent
directors, the managerial agency costs, and audit opinion, have a

11
 significant effect on the likelihood of financial distress while government
ownership variable has no significant influence (Fadhilah, F.N. 2013).
Otherwise other researcher named Anggraini has researched 42 listed
companies on Kompas 100 index from 2011- 2013 proved that
managerial ownership has no significant influence on financial distress
like that of institutional ownership has (Anggraini, D. 2015)
1.3.2. Market factors
The relationship between stock price and financial exhaustion is the opposite.
The transparency of the business information helps investors to trust their
finances in the business and motivate the business to perform better for business
results. All market reactions to business information are focused on the
volatility of corporate stock prices. Corporate stock prices rose sharply as
investors rated good prospects for the business, and corporate stock prices fell
sharply indicating signs of business failure in the future. The higher the
transparent information factor, the lower likelihood of the business falling into
financial distress. (Black, F., & Scholes, M. 1973)
1.3.3. Micro-economic factors
Micro-economic factors like risk-free rate (government bond interest rate),
inflation rate. The relationship between government bond yields and financial
distress is the same trend. When risk-free interest rates increase, or inflation
increases, the cost of corporate capital increases the risk of financial distress.
(Christidis, A. C. & Gregory, A. 2010)
1.3.4. Macro-economic factors
In the late of 20 centuries, about the side of non- financial indicators into the
financial distress prediction model. Marquette (1980) suggested introducing
macro- economic indicators into the establish of model, such as interest rate,
inflation rate, indicators of changes in economy and so on. Izan (1984)
introduced the relative percentage of industry into the model and found that it
had a great effect on telling the difference between financial distress companies
and health companies. Other researcher named Mohmad Isa on his research in
Malaysia (2004) added macroeconomic variables and found that the Gross
Domestic Product (GDP) serves as a significant variable in predicting financial
distress in Malaysia. The result showed that except the micro-economic
indicators, the macro-economic factor could explain the company’s financial
distress.
1.4. Definition of variables Commented [C15]: Phần này phải move sang phần data
chứ?
This study is conducted on a dataset which covers approximately 120 listed firms
in Hanoi stock exchange (HNX) and Ho Chi Minh stock exchange (HOSE) for the
period from 2015 to 2018.
1.4.1. Accounting variables

12
1.4.1.1. Cash to total asset: It measures the portion of a company's assets held in
cash or marketable securities. Although a high ratio may indicate some
degree of safety from a creditor's viewpoint, excess amounts of cash may
be viewed as inefficient.
Cash to total asset= Cash/Total asset
1.4.1.2. Debt to total asset: a leverage ratio that defines the total amount of debt
relative to assets. This metric enables comparisons of leverage to be
made across different companies. The higher the ratio, the higher the
degree of leverage and, consequently, financial risk. The total debt to
total assets is a broad ratio that analyzes a company's balance sheet by
including long-term and short-term debt (borrowings maturing within one
year), as well as all assets - both tangible and intangible, such as
goodwill.
Debt to total asset= (Short-term Debt + Long-term Debt)/ Total asset)
1.4.1.3. Sales to total asset: The sales to total assets ratio measures the ability of a
business to generate sales on as small a base of assets as possible. When
the ratio is quite high, it implies that management is able to wring the
most possible use out of a small investment in assets.
Sale to total asset= (Gross sales - Sales allowances)/ Total asset
1.4.1.4. Retained Earnings to total asset: The ratio of retained earnings to total
assets helps measure the extent to which a company relies on debt, or
leverage. The lower the ratio, the more a company is funding assets by
borrowing instead of through retained earnings which, again, increases
the risk of bankruptcy if the firm cannot meet its debt obligations.
Retained Earnings to total asset= Retained Earning/ Total asset
1.4.2. Market variable
The price indicates for the market base which is calculated as the average price
of the stock price of that firm in one year. Another variable is the size of the
firm. Storey (1994) also stated that the factors that affect the bankruptcy of one
of them is the size of the company. Companies that have a larger size tend to
avoid bankruptcy. The size of the company can be seen from the total assets.
This is in line with the definition of financial distress that by Kahya and
Theodissiu (1999) that one of the characteristics of companies experiencing
financial difficulties is a decrease in total assets, or in other words, a decrease in
the size of the company (Kahya and P. Theodossiou. 1999.)
1.4.3. Macroeconomic variable
The effect of the macroeconomic environment on the default model is very
significant. The higher value of Treasury bill leading to interest rate climb
sharply, the bankrupt rate will hike.

13
 In summary, the combination of the accounting-based, market-based and
macroeconomic variables impacting on the financial distress is used to cover
various aspects of the default risk, which is a signal of financial distress.

CHAPTER 2: DATA & METHODOLOGY

2.1. Scope
To calculate the financial ratios, data was collected from the annual reports
published by State Bank of Vietnam (SBV) and State Securities Commission of
Vietnam (SSC). SSC regulates and monitors the financial and governance
matters for the listed companies in Vietnam. Sample period for the study is
from 2015 to 2018 for the 120 manufacturing firms. The study has excluded
those firms having data for less than 5 years. Firms are considered as distressed
if the firm is quoted below the 50 percent of its face value in the market or any
firm with negative book value of equity (Hanafi and Hamid, 2012). We use the
panel data methodology to control for unobservable heterogeneity, as well as of
the cross-sectional estimation to incorporates the specificity of each company
2.2. Method
2.2.1. Descriptive analysis
The research design applied was a descriptive study and Data analysis used the
following ratios: Working Capital/total assets (liquidity), retained
Earnings/total assets (earned surplus, leverage), earnings before interest and
taxes/total assets (earning power), Market value equity/book value of total
liabilities (solvency), sales/total assets (sales generating capability). The study
was descriptive with secondary data obtained through review of literature
including articles, journals and published financial reports. The study examined
some financial ratios in the financial reports of both sound and financially
distressed firms for the period between 2015 and 2018.The aim was to
determine the most reliable and significant ratios that can be used for the
prediction of company financial distress. The study drew the sample from
companies listed in the HOSE and HNX in the non-financial sector from 2015
to 2018 which came to a total of 120 companies. After the ratios were selected,
they were analyzed using the backward stepwise method to determine the
statistically significant ones. Discriminant analysis method was used to estimate
the model that predicts financial distress. Statistical models were then used to
test the predictive power of the ratios which led to the conclusion that the
variables that reveal financial distress are those related to profitability, leverage

14
 and operational efficiency. The study also confirms that financial ratios can
predict financial distress for non-financial listed in HOSE and HNX. According
to the study, the best predictor ratios were net income to total assets, total
liabilities to total equity, and total liability to total assets and current assets to
sales. Profitability, liquidity, leverage and operational efficiency were therefore
seen as crucial the determination of the financial health of a company and even
though profitability ratios are the most significant, it is of much more
importance to have a combination of ratios since it gives a more accurate
model.
2.2.2. Logistic regression model
In this paper, the Logistic regression model is mainly adopted in this section we
develop a model that provides a relationship between independent variables
(Phạm Thị Hồng Vân (2018)).
This model in line with the seminal studies such as Binary logistic regression
(Logit), logit model of Ohlson (1980), Pindado and La Torre (2008), Campbell
RN, et al. (2011)
The analysis of this study is carried out in two parts. In the first part, we
estimate the logit model for Vietnam listed firms by using the financial ratios.
These financial ratios are selected on the basis of their significance in prior
literature. Data from 2015 to 2018isused to estimate the model. The next part
of the study, we run a regression on the hold-out sample using the data set from
year 2015 to 2018 to check the accuracy rate.
Statistical equation for logit model is as follows:
’
e β0 + βi. Xit-1 + µi + Uit-1
Log (P0/(1-P0)) = Log {P(Y=1)/P(Y=0)} = β0 + βi. Xit-1’ + µi + Uit-1
’ ’
P = (e β0 + βi. Xit-1 + µi + Uit-1) / (1+ e β0 + βi. Xit-1 + µi + Uit-1)
Where:
-P (Y=1) = P0 is probability of distress of year t
-P (Y=0) = 1 – P0 is probability of not distress of year t
-Odds is a ratio measure exactly probability of distress Odds= P0/(1-P0)

15
 -βi is a vector (1*n) involve coefficient of regression in proportion to
independent variable of the model
- Xit-1’: (1*n) presents the value of vector of independent variable of year t-1. It
including:
CASHit-1/TAit-1: cash to total asset
DEBTit-1/TAit-1: debt to total asset
SALEit-1/TAit-1: sale to total asset
REit-1/TAit-1: retained earnings to total asset
Ln_TAit-1: size of the firm
Ln_priceit-1: stock’s price of the firm
Gov_Ratet-1: Coupon rate of Treasury bonds
2.3. Sources of data
Research using data of financial statements of 120 joint stock companies are
industry enterprises listed industry, enough continuous data for these model
variables in the period 2015 - 2018. To reduce the distance between values, the
independent variables in the study are the active capacity dynamic according to
size and stock prices are measured by taking logarithms, in which the property
takes the application VND million, stock price taken in VND units. Scale of the
business variable taken by VND million unit. This variable is understood as the
value of owner equity over the years from 2015 to 2018. Cash to total asset, Debt
to total asset, Sale to total asset and Retained earnings to total asset ratio are taken
by percentage.
With the research data set, by scale, in this time period, there are 45 big business
(capital 100,000,000 billion copper), 50 medium-sized enterprises. The number of
enterprises capable of financial exhaustion under the classification ranges from 5 to
15 businesses.
The study uses STATA 14 software to conduct a correlation analysis between
variables, build regression models and test models. The study explains the degree
of impact of independent variables on variables depending on the research results.
Finally, a model for forecasting the financial exhaustion of industry enterprises is
estimated and the forecast level of the model from the research sample is assessed.

16
CHAPTER 3: DATA ANALYSIS
3.1. Analysis
3.1.1. Cash to total asset

2015 2016
0.600 0.800
0.500 0.700
0.400 0.600
0.300 0.500
0.200 0.400
0.100 0.300
0.000 0.200
33
17
25

41
49
57
65
73
81
89
97
105
113
1
9

-0.100 0.100
-0.200 0.000

105
113
65
17
25
33
41
49
57

73
81
89
97
1
9

-0.300 -0.100

2017 2018
1.000 0.500

0.800 0.400
0.600
0.300
0.400
0.200
0.200
0.100
0.000
33

105
113
17
25

41
49
57
65
73
81
89
97
1
9

-0.200 0.000
65

105
113
17
25
33
41
49
57

73
81
89
97
1
9

-0.400 -0.100

Figure 3.1.1: Cash to total asset (2015-2018)

Source: Author’s calculationData, processedsao lại để tên nguồn thế này? Formatted: Font: Bold, Not Highlight
Formatted: Font: Bold, Not Highlight

2015 2016 2017 2018 Commented [C16]: Đây chính là bảng Descriptive analysis,
bỏ bớt các tiêu chí mà ko hiểu, chỉ cần giwac lại, mean, SD,
Median , MOad, mode, min max, count, range
Mean 0.088799 0.101301 0.087143 0.08017 Cần có tên bảng, source, đánh số bảng

17
Median 0.053062 0.060699 0.058612 0.047254
Mode 0.07 0.04 0.19 0.01
Standard Deviation 0.122005 0.118042 0.120944 0.089854
Sample Variance 0.014885 0.013934 0.014627 0.008074
Range 0.7782 0.7896 0.9796 0.5219
Minimum -0.2182 -0.0596 -0.1796 -0.0619
Maximum 0.56 0.73 0.8 0.46
Sum 10.65594 12.15611 10.45721 9.620373
Table 3.1.1: Descriptive Analysis of Cash to total Asset
Source: Author’s calculation

Mean of Cash to total Asset is the highest among 4 years, which is 0.1 (10%). It
means that the percentage of cash over total asset is not significant. The standard
deviation is highest in 2015 (0.122) which means that the differences in cash to
total asset among 120 businesses in 2015 are highest in the 4 years period. The
mean of cash to total asset fluctuate throughout 4 years, which increased in 2016
and decreased in 2017 and 2018. Mean of Cash to total asset is from 8% to 10%, it
shows that the companies didn’t keep much money in cash.

3.1.2. Debt to total asset

18
 2015 2016
0.800 0.800
0.700 0.700
0.600 0.600
0.500 0.500
0.400 0.400
0.300 0.300
0.200 0.200
0.100 0.100
0.000 0.000
105
113

25

105
113
17
25
33
41
49
57
65
73
81
89
97

17

33
41
49
57
65
73
81
89
97
1
9

2017 2018
0.700 0.700
0.600 0.600
0.500 0.500
0.400 0.400
0.300 0.300
0.200 0.200
0.100 0.100
0.000 0.000
105
113

25

105
113
1
9
17
25
33
41
49
57
65
73
81
89
97

9
17

33
41
49
57
65
73
81
89
97

Figure 3.1.2: Debt to total asset (2015-2018)

Source: Author’s calculationSource: Data, processed

2015 2016 2017 2018

Mean 0.272248 0.278977 0.271287 0.261269

Median 0.2408 0.2733 0.2608 0.2432
Mode 0 0.4994 0.0613 0
Standard
Deviation 0.181899 0.183276 0.177044 0.171903
Sample Variance 0.033087 0.03359 0.031345 0.029551
Range 0.704 0.6793 0.6515 0.6619
Minimum 0 0 0 0
Maximum 0.704 0.6793 0.6515 0.6619
Sum 32.6697 33.4772 32.5544 31.3523
Table 3.1.2: Descriptive Analysis of Debt to total Asset
Source: Author’s calculation

19
The highest mean of debt to total asset is in 2016, which accounts for 0.28. Mean
of Debt to total Asset had fluctuated throughout 4 years period which increased in
2016 and decreased in 2017 and 2018. However, the differences among four means
debt to total asset throughout 4 years are not significant (less than 0.01) and it
indicates that the companies keep the proportion of debt around 0.27 so that they
can control the debts and will not let it become higher. In comparison with Cash to
total Asset ratio, the percentage of debt to total asset is higher. Furthermore, the
standard deviation of debt to total asset has decreased from 0.18 to 0.17 during 4
years. It is highest in 2016, which accounts for 0.183 and it demonstrates that the
differences in debt to total asset among 120 companies fluctuated the most in 2016.

3.1.3. Sales to total asset

2015 2016
4.500 4.500
4.000 4.000
3.500 3.500
3.000 3.000
2.500 2.500
2.000 2.000
1.500 1.500
1.000 1.000
0.500 0.500
0.000 0.000
105
113

25

105
113
1
9
17
25
33
41
49
57
65
73
81
89
97

9
17

33
41
49
57
65
73
81
89
97

2017 2018
4.500 4.000
4.000 3.500
3.500 3.000
3.000
2.500
2.500
2.000
2.000
1.500
1.500
1.000 1.000
0.500 0.500
0.000 0.000
25
17

33
41
49
57
65
73
81
89
97
105
113
1
9
33
17
25

41
49
57
65
73
81
89
97
105
113
1
9

-0.500

Figure 3.1.3: Sales to total asset (2015-2018)

Source: Author’s calculation
Source: Data, processed

20
Table 3 2015 2016 2017 2018

Mean 1.037677 1.008582 1.001265 1.016161

Median 0.907147 0.845246 0.917804 0.900314
Mode 0.70 0.73 0.6 0.74
Standard Deviation 0.824154 0.797355 0.760326 0.78635
Sample Variance 0.679229 0.635775 0.578096 0.618346
Range 3.822672 4.005153 3.813318 3.743667
Minimum 0.031737 0.084082 -0.00321 0.016333
Maximum 3.854409 4.089235 3.810109 3.76
Sum 124.5213 121.0299 120.1518 121.9393
Table 3.1.3: Descriptive Analysis of Sales to total Asset
Source: Author’s calculation
In a 4-year period (2015 to 2018), mean of sales to total asset has been witnessed a
downward trend. In 2015, the mean sales to total asset is highest among 4 years,
which accounts for approximately 1.04 and it decreased slowly in 2016, 2017.
From 2017 to 2018, it has increased by 0.015. However, in comparison with cash
to total asset and debt to total asset, the proportion of sales to total asset is
significant, which is above 1.03. However, the downward trend in this ratio
demonstrates that there are some company facing the problem in sales so the sales
has decreased throughout 4 years, which can be the reason of financial distress.
Moreover, the standard deviation of sales to total asset is high (from 0.76 to 0.8),
which means that the differences in sales to total asset among 120 companies in
each year are significant.

21
3.1.4. Retained earing to total asset
2015 2016
3.000 2.500
2.000
2.000 1.500
1.000
1.000
0.500
0.000
0.000
0 50 100 150 -0.500 0 50 100 150
-1.000 -1.000
-1.500
-2.000 -2.000

2017 2018
3.000 4.000
3.000
2.000
2.000
1.000
1.000
0.000 0.000
0 50 100 150 -1.000 0 50 100 150
-1.000
-2.000
-2.000
-3.000
-3.000 -4.000

Figure 3.1.4: Retained Earnings to total Assets (2015-2018)

Source: Author’s calculationSource: Data, processed

2015 2016 2017 2018

Mean 0.07936743 0.07531981 0.05081864 0.04071357
Standard Error 0.02416977 0.02305614 0.03038315 0.04251805
Median 0.07095842 0.05968577 0.06973855 0.06452376
Mode 0.1 0.05 0.07 0
Standard
Deviation 0.26476651 0.25256738 0.33283077 0.46576195
Sample
Variance 0.07010131 0.06379028 0.11077632 0.21693419
Range 3.7635162 3.59723956 3.95099581 5.96528997
Minimum -1.541294 -1.6972396 -1.8259958 -2.7986233
Maximum 2.22222222 1.9 2.125 3.16666667
Sum 9.52409174 9.0383776 6.09823625 4.88562836

22
Table 3.1.4: Retained Earnings to total Assets (2015-2018)
Source: Author’s calculation
(Source: f3.vietstock.vn)

The mean of Retained Earning to total Asset is the highest (0.07936743) in 2015. It
means that the percentage of Retained earnings over total asset is not significant.
The standard deviation fluctuates between (0.26476651) and (0.25256738) in 2015
and 2016. However, it is suddenly continuously increasing in 2017 (0.33283077)
and in 2018 (0.46576195). The minimum of Retained Earning to total Asset ratio is
dramatically decreasing from (-1.541294) in 2016 to (-2.7986233) in 2018. The
negative sign in the Retained Earning to total Asset ratio may indicates that there
are some companies having negative Retained Earnings. When you give dividends,
you have less to contribute to retained earnings. It's possible the accumulated
deficit results from too big a dividend and not retaining enough earnings. You may
have to cut back on future dividends to avoid it happening again. Some businesses
have run into trouble using borrowed money to pay dividends even when the
company's unprofitable.
3.1.5. Stock price of the company

2015 2016
300000 160000
140000
250000
120000
200000 100000
150000 80000
60000
100000
40000
50000 20000
0 0
0 50 100 150 0 50 100 150

2017 2018
250000 160000
140000
200000 120000
150000 100000
80000
100000 60000
40000
50000
20000
0 0
0 50 100 150 0 50 100 150

Figure 3.1.5: Stock price of companies (2015-2018)

23
Source: Author’s calculation
Source: Data, processed

2015 2016 2017 2018

Mean 19401.1167 20186.6833 24239.0833 27521.1167
Standard
Error 2377.49153 1768.73223 2697.32635 2683.78194
Median 13512.5 14922.5 15174.5 18567.5
Mode 16499 10400 7180 9500
Standard
Deviation 26044.1148 19375.4908 29547.7297 29399.3581
Sample
Variance 678295915 375409643 873068330 864322258
Range 251040 136782 206456 144700
Minimum 2700 2700 1200 1300
Maximum 253740 139482 207656 146000
Sum 2328134 2422402 2908690 3302534
Table 3.1.5: Stock price of companies (2015-2018)
Source: Author’s calculation
(Source: f3.vietstock.vn)
In a 4-year periods (2015-2018), the mean of Stock price is the lowest in 2015
(19401.1167) and the highest in 2018 (27521.1167). Although the maximum price
decrease from (253740) to (146000), and the minimum price decrease from (2700)
to (1300). When a stock price falls, that means the company must sell additional
shares of stock to raise the same amount of proceeds. That means when a stock price
is depressed, doing stock-based deals gets more expensive. These downward stock
price numbers may lead to the financial problems of some companies, especially
these small ones.

24
3.1.6. Scale of the business.
2015 2016
40,000,000 50,000,000

40,000,000
30,000,000
30,000,000
20,000,000
20,000,000
10,000,000
10,000,000

0 0
0 50 100 150 0 50 100 150

2017 2018
60,000,000 120,000,000
50,000,000 100,000,000
40,000,000 80,000,000
30,000,000 60,000,000
20,000,000 40,000,000
10,000,000 20,000,000

0 0
0 50 100 150 0 50 100 150

Figure 3.1.6: Scale of company (2015-2018)

Source: Author’s calculationSource: Data, processed

2015 2016 2017 2018

Mean 1984658.892 2185311.958 2394690.36 3074059.96
Standard
Error 445074.6567 476279.7609 532877.846 903910.568
Median 576525 701263 741964 841686
Mode 367200 507374 633425 721001
Standard
Deviation 4875548.585 5217383.375 5837384.33 9901844.16
Sample
Variance 2.3771E+13 2.72211E+13 3.4075E+13 9.8047E+13
Range 37558877 45249478 52555400 99057592
Minimum 17966 16917 1610 1460

25
Maximum 37576843 45266395 52557010 99059052
Sum 238159067 262237435 287362843 368887195
Table3.1.6: Scale of company (2015-2018)
Source: Author’s calculation

As we can see in the descriptive table, the mean of Scale of business in 2015 is the
lowest (1984658.892), whereas, the mean of Scale of business in 2018 is the
highest (3074059.96). The mean scale of business is annually increasing, which
shows that all the companies are likely to develop overtime. However, the standard
deviation in 2015 is (4875548.585) and it continues to rise to (9901844.16).
Moreover, the minimum Scale of Business become smaller from (17966) to (1460)
within 4 years, and the maximum Scale of Business become larger from
(37576843) to (99059052). These number indicates that within 4 years (2015-
2018) there is a growth in some big company, which leads to the increase in the
mean and the maximum of the business scale. The minimum is decreasing and the
difference between business’s scale of some companies seems to be bigger and
bigger, perhaps, it shows that some companies are having some financial problems,
distress, bankruptcy, …

3.1.7. Coupon rate of Treasury bonds

Interest rate of T - Bill

6.2

5.8

5.6

5.4

5.2

4.8
2014.5 2015 2015.5 2016 2016.5 2017 2017.5 2018 2018.5

Figure 3.1.7: Interest rate of T bill (2015-2018)

In a 4-year periods (2015-2018), the interest rate of T bill is the lowest in 2018
(4.98353) and the highest in 2016 (5.97295). When an interest rate of T bill falls,
interest rate also goes down and therefore industries and investors will borrow

26
more to invest in the stock market which replicates in a booming and growth
economy. So T bill rate have a negative relationship with stock market return but
are not significant
3.2. Regression Result
Variable Obs Mean Std. Dev. Min Max
CASH_TA 480 0.089353 0.113392 -0.2182 0.8
DEBT_TA 480 0.270944 0.178139 0 0.704
SALES_TA 480 1.015921 0.79001 -0.00321 4.089235
RE_TA 480 0.061555 0.339032 -2.79862 3.166667
IR_Bill 480 5.553956 0.395638 4.98353 5.97295
SCALE_BUS 480 2409680 6757233 1460 9.91E+07
PRICE 480 22837 26535.08 1200 253740
Table 3.2.1: Descriptive statistics
Where:
Variable Formula Meaning
CASH_TA CASHit-1/TAit-1 Cash to total asset
DEBT_TA DEBTit-1/TAit-1 Debt to total asset
SALES_TA SALESit-1/TAit-1 Sales to total asset
RE_TA REit-1/TAit-1 Retained earnings to total asset
IR_Bill Coupon rate of Treasury bonds
SCALE_BUS Size of the firm
PRICE Stock’s price of the firm

According to the analysis, Table 3.2.1 demonstrates the summary of descriptive

analysis which includes mean, standard deviation, Min and Max of independent
variables.

Table 3.3.2 is correlation analysis which shows the relationships among

independent variables. The results indicate that the coefficient of correlations is not
high. The highest coefficient of correlation is 0.3388 which means that there is
weak relationship among independent variables.
Table 3.2.2 is matrix of correlation of independent variables. The variables are
binary so they are not used to calculate the coefficient of correlation person.

27
 CASH DEBT SALES_TA RE IR_Bill Ln_Price Ln_Scale
CASH_TA 1
DEBT_TA -0.1971 1
SALES_TA 0.096 0.1541 1
RE_TA 0.1801 -0.0912 0.1176 1
IR_Bill 0.0538 0.0312 -0.0091 0.0213 1
Ln_Price 0.3013 -0.1082 0.3042 0.3388 -0.0523 1
Ln_Scale_Bus 0.037 -0.0523 -0.163 0.2359 -0.0154 0.2981 1
Table 3.2.2: Correlations matrix among Variables

The number of companies facing financial distress are low so Fixed effect model
(FEM) with logit is unable to run. Therefore, the number of companies meeting
with financial distress is low, the model has a fixed impact with logit that does not
allow running. Therefore, result of Random effect model (REM) on logit will be
used.
The regression results according to REM are shown in Table 3.2.3. When the p-
value smaller than a predetermined level of significance (0.05) can be interpreted
that the independent variables has a significant influence on the dependent
variable. Independent variables which are Sales / TA, Ln_Scale_BUS is valued at
p_value < 0.05, which indicate that these variables have significant influence on
the dependent variable (the likelihood of financial distress). There are three
remaining independent variables, which are Cash/TA, Debt/TA, RE/TA, IR_Bill,
Ln_Price have value of p_value > 0.05 so they are not statistically valued.
According to the regression results table, the research identifies the regression
model reflecting the level of influence of factors on the possibility of financial
distress of enterprises listed on the stock market of Vietnam.
Log (Yit =1/Yit =0) =- 4.43569*SALESit-1/TAit-1 - 4.91222*Scale_Busit-1
From the Beta coefficients of the model, the calculated research shows the value of
Odds ratio = exp (ßj) to explain the results. The regression model demonstrates the
following results:
-When the asset turnover ratio increases by 1 unit, it will reduce 98.82% Odds
financial distress in the following year
-When the scale of the business increases by 1 unit, it will reduce 98.49% Odds
financial distress in the following year

28
From the regression results, determine P0 is the probability of financial distress
according to the equations:
P0 = (e2.879974*REit-1/TAit-1 -4.19222*Ln_Scale_Bus+ µ + U)/(1+ e-2.879974*REit-1/TAit-1 -
4.19222*Ln_Scale_Bus
+ µ + U)

DIS Coef. Std. Err. z P>z [95% Conf. Interval]

CASH_TA -11.6571 14.01359 -0.830 0.405 -39.1232 15.80907
DEBT -4.01785 5.626591 -0.710 0.475 -15.0458 7.010067
SALES_TA -4.43569 2.186698 -2.030 0.043 -8.72154 -0.14984
RE_TA 2.879974 1.99933 1.440 0.150 -1.03864 6.798589
IR_Bill -0.20654 1.778689 -0.120 0.908 -3.69271 3.279621
Ln_Price -0.80359 1.278247 -0.630 0.530 -3.30891 1.701725
Ln_Scale_Bus -4.19222 0.817624 -5.130 0.001 -5.79473 -2.5897
Table 3.2.3: Regression results (REM)

Table data does not allow forecasting. Forecasting only applies to cross data or
time series. However, to make a table about the forecast rate, we run the OLS data
and we have result:
Reality
Forecasting Financial distress un-financial distress Total
Financial distress 10 4 14
un-financial distress 46 420 466
Total 56 424 480
Predict correction 89.58%
Table 3.2.4: Predict correction of model

Applying a model to forecast financial distress according to the research model in

2017 to predict whether enterprises are distressed or not distressed in 2018, the
results are as follows: With the forecasted results financial exhaustion in 2017, the
model has a correct prediction rate of 83.58% overall.
3.3. Result discussion
Regression coefficient of the independent variables of the model in the study
shows that:

29
 - Business size increases, financial distress will decrease. This means that a
large-scale enterprise will have enough financial capacity to overcome
difficult periods, which will reduce the risk of financial exhaustion.
- The greater the efficiency of asset uses, the less financial distress. This is
entirely consistent with the fact that the enterprise creates more and more
profit due to sales of many products, the possibility of financial exhaustion is
unlikely.
- In particular, the Cash to Total asset, the Debt to Total asset, the Retained
Earning to Total asset, the Board of Directors' ownership rate, the stock
prices and the interest rates of government bond do not affect the ability to
financial distress. This shows the fact that the level of independence of the
managers and investors in industry enterprises are not high. Moreover, the
stock price cannot fully reflect the "health" status of the business in the
context that the Vietnamese market economy is not really transparent, the
rate of government bond has not strongly affected the financial market.

CHAPTER 4: CONCLUSION & RECOMMENDATION

This study identifies the impact of factors on the ability to financial distress and
predicts the possibility of financial distress for industry enterprises listed on the
stock market in Vietnam in the period 2015 - 2018. The results of empirical
research show that the rate of retained earnings has a positive impact on financial
exhaustion while the debt ratio, the rate of holding money, the size of enterprises,
the efficiency of using assets will have negative impacts. This forecast model has
the correct forecasting rate of 89.58% overall. The accuracy rate of the current
study is higher than the 81% reported by Lê Cao Hoàng Anh (2012) and slightly
lower than the 93.12% reported by Phạm Thị Hồng Vân (2018) for Vietnam
companies.
When researching in the same overall businesses with the same characteristics of
business lines, subject to the same influence from macroeconomic factors and
market factors, the internal factors of each enterprise will affect to the possibility
of financial distress. As mentioned above, among the 6 internal factors, there are 2
factors affecting financial exhaustion, the factor that does not affect financial
exhaustion is the degree of independence of managers and investors.

30
The results are consistent with some previous research, i.e Phạm Thị Hồng Vân
(2018) which states retained earnings to total asset, debt to total asset, sales to total
asset and the size of firms has a significant influence in financial distress on
companies. Moreover, Evangelos C. and Ian Garrett, et.al (2018) state that retained
earnings-to-total assets, size of the firms are negatively associated with the
probability of bankruptcy.
The current status of organization and operation of joint stock companies in
Vietnam is not really popular, so the role of managers as well as the level of
independence between managers and investors are not yet thorough.
This research has shown that the problem of internal management of enterprises is
the determinant of the "health" status of the enterprise. The internal factors in the
business determine the ability to financial distress in each business sector and are
almost not dominated by macroeconomic factors, market factors. If there is an
impact, it will be when comparing between different careers. Therefore, depth
study of each industry will help managers realize the importance of investment,
funding policies and operate as well as run business better.
As any other empirical study, my research is not free of limitations, which can be
re-garded as a starting point for future research. Firtsly, the sample period is not
long enough to study some issue as causality of variables and endogeneity
problems. Secondly, we should go into detail about the reasons that lead to
institutional investors to take a passive role in management control and monitoring
to get over financial distress. Further research could analyze these issues to better
understand the complexity of the financial distress process and their causes.
Several recommendations for future research can be proposed from this study, such
as companies should concentrate on the issue of accounting disclosure as well as
presenting all the information which will help in throwing light on the company’s
performance and its development concerning economic and social sides. As well
as, when companies submitting their quarter or annual reports to the State
Securities Commission of Vietnam (SSC), it is recommended that companies
present their reports with graphs, charts and figures because such graphs illustrate
clearly profits or achievements of the company and save time for investors,
managers or researchers
Moreover, Investors in stock markets should pay attention to the process of
investment and market analysis. Financial analysis is able to evaluate the
performance of companies and the strength of its financial position and

31
profitability, while technical analysis is functional in the study of prices in the past,
present, and then in predicting the future prices. The financial techniques decide
when the investor can buy stock of the company or when to sell, while the
financial analysis can help investor have a good picture of the company's financial
position and profitability
REFERENCES
Altman, E. I., & Hotchkiss, E. (2006), Corporate Financial Distress and
Bankruptcy, 3rd Ed, New Jersey: John Wiley & Sons, Inc.
Almilia, L.S. (2006). Prediksi Kondisi Financial Distress Perusahaan Go
Public dengan Menggunakan Analysis Multinomial Logit. Jurnal
Ekonomidan Bisnis, XII (2).
Anggraini, D. (2015). Financial Distress Model Prediction for Indonesian
Companies. International Journal of Management and Administrative
Sciences (IJMAS),3(4):74-84.
Baumol, W. J. (1988), ‘Economists as Innovators: Practical Products of
Theological Research’, Journal of Economic Literature.
Beaver, W. H. (1966), ‘Financial ratios as predictors of failure’, Journal of
Accounting Research.
Black, F., & Scholes, M. (1973), ‘The pricing of options and corporate
liabilities’, Journal of Political Economy.
Chen Jin, “The Empirical Analysis on the Financial Distress Prediction of
the Listed Corporate,” Accounting Research. 4, pp. 31-38,1999.
Chen, L., & Sun, J. (2005), ‘Corporate Governance and Financial distress:
Evidence from Shanghai security Market’, Journal of Southeast University
Philosophy and Social Science.
Christidis, A. C. & Gregory, A. (2010), Some new models for financial
distress prediction in the UK, Center for Finance & Investment.
Dwitridinda 2007 Pengaruh Penerapan Corporate Governance Terhadap
Kemungkinan Perusahaan Mengalami Financial Distress. Jakarta:
Universitas Indonesia.

32
Hanifah, O.E. (2013). Pengaruh Struktur Corporate Governance dan
Financial Indicators Terhadap Kondisi Financial Distress. Diponegoro
Journal of Accounting,2(2).
Jensen, M. C., &Meckling, W. H. (1976), ‘Theory of the firm managerial
behavior, agency costs and ownership structure’, Journal of Financial
Economic.
Jiming, L., &Weiwei, D. (2011), “An Empirical study on the corporate financial
distress Prediction based on logistic model”.
Koech, Emmy Cherotich (2018) Prediction of financial distress in the light of
financial crisis
Kraus, A., & Litzenberger, R. H. (1973), ‘A stage – preference model of optimal
Financial Leverage’, The Journal of Finance.
Li Jiming, Du Weiwei (2011) An Empirical Study on the Corporate Financial
Distress Prediction Based on Logistic Model: Evidence from China’s
Manufacturing Industry.
Miller, M. H. & Rock, K. (1985), ‘Dividend policy under asymmetric
information’, The Journal of Finance.
Myers, S. & Majluf, N. (1984), ‘Corporate financing and investment decisions
when firms have information that investors do not have’, Journal of Financial
Economics.
Phạm Thị Hồng Vân (2018) Đo lường khả năng kiệt quệ tài chính tại các
công ty cổ phần ngành công nghiệp Việt Nam.
Pindado, J., Rodrigues, L. & De la Torre, C. (2008), ‘Estimating financial distress
likelihood’, Journal of Business Research.
Phù Kim Yến&Nguyễn Mạnh Hiệp (2014), ‘Mô hình hóa rủi ro kiệt quệ tài chính
của các doanh nghiệp niêm yết Việt Nam’, Tạp chí Kinh tế & Phát triển.
Pranowo, K. (2010). Determinant of Corporate Financial Distress in An Emerging
Market Economy. Euro journal Publishing, Inc.2010,52.
Rodrigues, B. D. & Stevenson, M. J. (2013), ‘Takeover prediction using
forecasting combinations’, International Journal of Forecasting.
Ross, W.J. (2013). Fundamental of Corporate Finance, McGraw-Hill, Irwin.

33
Tinoco, M. H. & Wilson, N. (2013), ‘Financial distress and bankruptcy prediction
among listed companies using accounting, market and macroeconomic variables’,
International Review of Financial Analysis.

34