Foreign ownership and dividend policy – the case of Vietnam

Abstract

The paper investigates the relationship between foreign ownership and dividend policy of firms in the Vietnam stock market. In other words, we attempt to shed light on the following questions: 1) Are foreign investors in Vietnam stock markets more likely to choose firms that pay high dividends?; 2) Do foreign investors cause firms to increase dividends when they have substantial shareholdings in Vietnamese firms? We use a rich and detailed data set, including both market data and firm attributes from 2007 to 2012. We employ a wide range of econometric techniques for panel data analysis including fixed effects and random effects. We further use the GMM estimator to address the bias due to the endogeneity and other biases of least squared estimators. We find that foreign investors in Vietnam prefer to invest in firms that pay low dividend and when become a larger shareholder, foreign investors tend to force firm managers to pay fewer dividends and retain higher income to exploit future emerging market oportunities.