THE IMPACT OF EXCHANGE RATE DIFFERENCES ON
FINANCIAL STATEMENTS ON STOCK MARKET PRICE:
A CASE OF NON-FINANCIAL LISTED COMPANIES
CHU THI THU THUY, VU THI KIM LAN
The research clarified the impact of exchange rate differences on financial statements on market price per share of nonfinancial companies listed on the Vietnam’s stock market. The research sample was 154 non-financial companies which
had occurred exchange rate differences in period of 2009 -2017. The panel regression is used with supporting of Stata
14 software. The result of research was pointed out that the exchange rate differences on financial statements affected
significantly the non – financial company’s stock market price in period of 2009-2017. Moreover, the research also proved
that the change in accounting policy in period of 2009-2017 is a main factor which affects the level and sign impact of
exchange rate differences on market price per share.
Key words: Exchange rate differences, non-financial companies, market price per share, the Vietnam’s stock market
Introduction
Nowadays, most of companies have transactions
which related to exchange rate differences because
of the integration of world’s economy. Therefore, the
information of exchange rate differences reported on the
financial statement (FC) is one of important information
which investors use to analysis a company’s financial
situation and assess the company’s value. The exchange
rate differences on FC play a significant role in the
change in market price per share (MP), so in many
decades, there are a vast of researches focused on
analyzing the impact of exchange rate profits (losses)
on MP. The researches implemented in distinction
contexts and periods have pointed out the different
results related to sign and level effects...
In period of 2009-2017, Vietnam has had the
important change in the accounting policies, especially
in the accounting policy of exchange rate differences.
The change in accounting policy affects considerably
a company’s financial income and as a result, it brings
into relation with the determining in MP which
investors decide to buy or sell in these periods. On
the base of theory and practice, the objective of this
research is given to prove the impact of exchange rate
differences on MP of non-financial companies listed on
the Vietnam’s stock market and analyses the effects of
accounting policy change on the investor’s decisions.
Literature review
Overview of researches
In many recent decades, there is a variety of
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researches which centered on analyzing the impact
of exchange rate differences on FCs on MP. The
researches of Makin (1978), Pourciau and Schaefer
(1995), Salatka (1989), Ziebart and Kim (1987), Kim and
Ziebart (1991) elucidated that the investors reacted
negatively upon the application of the Statement of
financial Accounting Standards no 8 (SFAS 8) or the
increase in profits (losses) of exchange rate differences
causes the decrease in MP. The research of Louis
(2003) and Pinto (2005) were pointed out that the
exchange rate differences had negative relationship
with MP. Fluctuation in exchange rates will affect
the value of a foreign subsidiary primarily because
of the impact of exchange rates on production costs.
When the local currency appreciates, production
costs rise. In addition, appreciation of local currency
makes a foreign subsidiary harder to sell its goods
in an open market because foreign goods become
cheaper. Therefore, it may have to reduce sales price
to remain competitive. Moreover, it cannot adjust
easily its labor costs, so its labor costs are still higher.
As a result, the appreciation of local currency is not
only to cause in decreasing profit margins but also
company’s value (Louis, 2003).
The researches of Ohlson (1995), Bartov and
Bodnar (1995), Bazaz and Senteney (2001), Benjamin
et al (1986), Brown and Brandi (1986), Conover
(1988), Arey(1986), Soo and Soo (1994), Bartov (1997),
Redman et al (2013), Thanh, Le Vu Ngoc et al (2015)
proved that the exchange rate differences affected
significantly and positively MP. The relationship
between the change in MP and exchange rate
REVIEW of FINANCE - Issue 3, 2019
differences was studied by Redman et al (2013). The
research sample was used in their research, was
1851 American companies in period of 2010 -2011.
They found that if the profits (losses) of exchange
rate differences increased, MP would rise. Thanh, Le
Vu Ngoc et al (2015) applied Ohlson’s model to test
the relationship between exchange rate differences
and MP of companies listed on the Vietnam’s stock
market in period of 2009-2011. They concluded
that investors reacted positively to profits (losses)
recorded on the Income Statement but did not react
profits (losses) recorded on the balance sheet. The
increase in profits of exchange rate differences makes
investor’s expectation increase. This makes MP rise.
The weak impact of exchange rate differences
on MP were pointed out in a variety of previous
researches such as the research of Dukes (1978),
Shank et al (1979), Garlicki et al (1987), Rezaee
et al (1993). The exchange rate differences affect
insignificantly MP because of two main reasons:
Firstly, the proportion of profits of exchange rate
differences on a company’s income is not high,
the transactions relating to exchange rate occurs
irregularly. Secondly, the fluctuation of exchange
rate affects monetary assets and foreign debts but not
affects non-monetary assets. If a company uses swap
contracts to hedge risks for non-monetary assets and
foreign debts, the translation of profits (losses) of
exchange rate differences will not affect a company’s
value in the future.
Theoretical frameworks
The agency theory
The agency theory was mentioned by Ross (1973)
and then was developed by Jensen and Meckling in
1976. This is a theory of the governance of a company
which is based on the conflicts of interest between the
company’s owners and its managers. The conflicts
of interests always occur because the owners and
managers have different interests and objectives. The
agency theory which is applied for explaining why
managers choose different exchange rates in recording
transactions in order to increase accounting income
and in translating FCs to its country’s currency. The
manager’s choice of exchange rate in recognition will
affect the exchange rate differences…
The signaling theory
Signaling theory is useful for describing behavior
when two parties access different information. The
signaling theory is applied to explain the case which
the good information of exchange rate differences
on FCs is provided by managers in order to send
to positive signals about a company’s financial
performance. The information which is represented
on FCs is different when managers decide to choose
different accounting policies to record transactions.
Hence, in case of exchange rate differences on FCs,
the accounting policies which bring the best benefits
to company’s financial performance will be applied
for recording transactions and translating FCs.
As a result, the positive relationship between the
exchange rate differences and MP is supported by
the signaling theory.
Theoretical research model
In order to prove the impact of exchange rate
differences on FCs on MP and to explain the change
in accounting policies affecting investor’s decisions,
theoretical research model is built as followings:
Model 1: Model 1 is used to clarify the impact of
exchange rate differences on FCs on MP in period of
2009-2017.
LnPi = α0 + α1*BVPSi + α2*EPS1i + α3*CLTG1i+
α4*CLTG2i + α5*SIZEi +ei (1)
Model 2: Model 2 is used to explain the change in
accounting policies affecting investor’s decisions in
period of 2009-2017
Model 2.1: The period is from 2009 to 2013
LnPi = α0 + α1*BVPSi + α2*EPS1i + α3*CLTG1i+
α4*CLTG2i + α5*SIZEi +ei (2.1)
Model 2.2: The period is from 2012 to 2014
LnPi = α0 + α1*BVPSi + α2*EPS1i + α3*CLTG1i+
α4*CLTG2i + α5*SIZEi +ei (2.2)
Model 2.3: The period is from 2015 to 2017
LnPi = α0 + α1*BVPSi + α2*EPS1i + α3*CLTG1i+
α4*CLTG2i + α5*SIZEi +ei (2.3)
- Dependent variable (LnPi): Dependent variable is
LnP which is calculated by logarithm daily closed
average price from December 31 to March 31. The
daily price from 31/12 to 31/3 is chosen because
according to the Circular No.155/2015/TT-BTC, each
public company must disclose its audited annual
FCs within 10 days, from the date on which the
audit organization signs the audit report provided
not exceeding 90 days, from the end date of the
financial year. Hence, at the date of March 31,
investors obtained the sufficient information about
a company’s financial situation. The price which is
used to calculate the average price is the closed price.
- Independent variables: Independent variables
consist of exchange rate differences per share (CLTG1
and CLTG2), Book value per share (BVPS), Earnings
per share which do not include profits or losses of
exchange rate (EPS1), firm size.
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- Exchange rate differences per share (CLTG1 and
CLTG2): CLTG1 - Profits or losses of exchange rate
per share are represented on the Income Statements
and CLTG2 - Profits or losses of exchange rate per
share are represented on the balance sheets.
- Book value per share (BVPS): BVPS is calculated
by the average shareholders’ equity minus preferred
stock equity and then divided by the number of
outstanding common stocks.
- Earnings per share before profits or losses of exchange
rate (EPS1): EPS1 is calculated by net income minus
exchange rate differences and then divided by the
number of outstanding common stocks.
- Size of company (SIZE): SIZE is calculated by
logarithm the average total assets.
On the base of literature review, it is stated that the
impact of exchange rate of differences on MP in the
different research context is incompatible. Therefore,
the first couple of hypotheses given as followings:
H01: Exchange rate differences affect
insignificantly MP
H02: Exchange rate differences affect
significantly MP
In addition, Vietnam has been three changes in
the accounting policies in period of 2009-2017. The
changes in the accounting polices affected directly
the information of FCs. This is main information
which investors use to analysis financial situation and
company’s prospect. Somehow, the second couple of
hypotheses given as followings:
H02: Exchange rate of differences on FCs in
different periods has same impact on MP.
H12: Exchange rate of differences on FCs in
different periods has not same impact on MP.
Methodology
The research sample is non-financial companies
listed on the Vietnam’s stock market in period of
2009-2017. These are companies listed on the Hanoi
Stock Exchange and Ho Chi Minh Stock Exchange.
Companies operating in Bank, Finance and Insurance
sector or have not enough FC in period of 20092017 or have not transactions related to exchange
rate, would be not included in the research sample.
Moreover, these companies must have finacial year
which starts at January 1st and ends at December
31st. Therefore, the final sample is 154 companies
listed on the Vietnam’s stock market in which 53
companies are listed on the Hanoi Stock Exchange
and 101 companies are listed on the Ho Chi Minh
Stock Exchange.
To prove the research hypotheses, some
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research methods are used which consists of
descriptive statistical analysis, auto-correlation test,
multi-collinearity test, variance test, Ramsey’s test,
Hausman’s test and panel regression analysis with
support of Stata 14 software.
Results and discussion
Descriptive Statistical analysis
Table 1 pointed out the characteristics of sample
including mean value, min value, max value and
standard deviation of dependent and independent
variables. Firstly, the max value and the min value of
LnP1 are 12.35 and 7.48 respectively. The LnP1 mean
is 9.77 and LnP1 standard deviation is 0.85. It means
that most of companies have MP which is smaller
than their average price in period of 2009-2017 and the
dispersion of MP is large. Secondly, the mean value
of EPS1 is VND 2,996.251 per share and its standard
deviation is VND 3,229.707 per share. This stated
that the data has high dispersion. The max value of
EPS1 is VND 36,574.1 per share and the min value
of EPS1 is VND -10,127.84 per share. EPS1 value is
able to be negative or positive because it is calculated
from earnings after taxes. Thirdly, the mean value of
CLTG1 is VND -78.09227 per share. This means that
exchange rate difference management of Vietnam’s
companies in period of 2009-2017 is inefficient. Most
of companies obtain highly negative exchange rate
differences in which the min value of exchange
rate differences is VND – 2,789.467 per share. The
standard deviation of CLTG1 is VND 460.2253 per
share and the max value is VND 3,648.538 per share.
It stated that the dispersion of CLTG1 is high and
most of companies have CLTG1 which are smaller
than their CLTG1 mean value. Fourthly, the average
of CLTG2 is VND 5.826144 per share and its standard
deviation is VND 261.5589 per share. Its min value
and man value are VND-2,473.079 per share and
VND 3,382.074 per share respectively. It indicated
that the CLTG2 has high dispersion. Fifthly, the mean
TABLE 1: DESCRIPTIVE STATISTICS IN PERIOD OF 2009-2017
Variable
Obs
Mean
Std. Dev.
Min
Max
LnP1
1,386
9.773623
0.85119
7.482494
12.35187
EPS1
1,386
2,996.251
3,229.707
-10,127.84
35,838.5
CLTG1
1,386
-78.09227
460.2253
-2,789.467 3,648.538
CLTG2
1,386
5.826144
261.5589
-2,473.079 3,382.074
SIZE
1,386
27.31945
1.265198
24.23
32.21053
BVPS
1,386
18,761.08
8,508.875
1,667.006
84,147.63
Source: Calculated from collected data with support of Stata 14 software
REVIEW of FINANCE - Issue 3, 2019
value of SIZE is 27.31945 and its standard deviation
is 1.265198. The company which has the largest size
is Vingroup joint – stock company in 2009 and the
smallest company is Sai Gon Hotel joint – stock
company in 2017. Sixthly, the average value of BVPS
is obtained highly (VND 18,761.08 per share) with
its high dispersion of VND 8,508.875 per share. The
lowest BVPS is Phuong Nam joint stock company
in 2017 (VND 1,667.006 per share) and the highest
BVPS is Coteccons building joint – stock company
in 2017 (VND 84,147.63 per share). In conclusion,
with analyzing descriptive statistics of variables, it
indicated that the data has highly reliable and so the
data is suitable to analyze practical regression model.
Pearson’s Correlation matrix
TABLE 2: PEARSON’S CORRELATION MATRIX OF VARIABLES IN
PERIOD OF 2009-2017
LnP1
EPS1
.970**
CLTG1
.706**
CLTG2
.099**
SIZE
-.005
BVPS
.203**
Therefore, if CLTG1 tends to ascend, it will provide
positive information about a company’s ability of
financial management and its cashflow. This make
MP increase because of expectation increment of
investors.
CLTG2 and MP: The result of Table 2 was stated
that CLTG2 has a significant and positive impact on
LnP1 at the 1% level but the relationship between
CLTG1 and LnP1 is not tight with the correlation
coefficient of 0.099.
Size and MP: According to Table 2, the significant
value of size is larger than 5 percent, it means that the
impact of size on LnP1 is insignificant.
BVPS and MP: BVPS has a significant and
positive effect on LnP1. From view of theoretical and
practical standpoint, a company has high financial
performance, it will have high BVPS. The higher BVPS
value will affect considerably psychology of investors
and this makes MP tend to change positively.
Hausman’s test, multicollinearity test, autocorrelation
test and variance test
Hausman’s Test
TABLE 3: HAUSMAN’S TEST FOR MODEL 1 AND MODEL 2
2009-2017 2009-2011 2012-2014
“*” at significant level of 5%; “**” at significant level of 1%
Source: Calculated from collected data with support of Stata 14 software
Table 2 stated that dependent variables excepting
for SIZE variable are in relationship with LnP1 at the
significant level of 1 percentage.
EPS1 and MP: In accordance with Table 2, it
manifested that EPS1 affects significantly LnP1 at the
significant value of 1 percentage. The relationship
between EPS1 and LnP1 is strong because of high
correlation coefficient (their coefficient of 0.97). The
impact of EPS1 on LnP1 is positive or if a company has
high EPS1 value, it will have high LnP1. In addition,
if a company increases EPS1, its price will tend to
rise. When EPS1 increases, shareholders will have an
opportunity to receive more dividends. Otherwise,
according to the signaling theory, the increase in
EPS1 is good signal about a company’s financial
situation and its growth prospect in the future. As
a result, current shareholders want to hold its stocks
longer whereas investors will have to pay more
money if they want to become the new shareholders
of company. This causes MP rise up.
CLTG1 and MP: According to Table 2, the
profit (loss) from the exchange rate difference has
a significant and positive effect on LnP1 at the 1
percent level. It can be seen that CLTG1 contributes
to the increase or decrease in earnings after taxes.
2015 2017
Prob>chi2
0.0714
0.0000
0.0120
0.0617
Model
FE
RE
RE
FE
Source: Calculated from collected data with support of Stata 14 software
According to Table 3, Prob> chi2 of model 1 and
model 2 in period of 2015-2017 are 0.0714 and 0.0617
respectively which are large than the significant level
of 5%. It means that the H0 hypothesis is rejected
and accepted the H1 hypothesis or RE model is more
suitable to analyze regression. However, Prob> chi2
of model 2 in both period of 2009 -2011 and 2012-2014
are smaller than the significant level of 5%. Therefore,
TABLE 4: MULTICOLLINEARITY TEST, AUTOCORRELATION TEST
AND VARIANCE TEST
2009-2017
20092011
20122014
2015 2017
0.0000 0.0000
0.0000
Auto-correlation test
Prob>chi2
0.0000
Conclusions
Models have
autocorrelation
Variance Test
H0: sigma(i)^2 = sigma^2 for all i
Prob>chi2
Conclusions
0.0000
0.0008 0.0000
0.0000
sigma(i)^2 and sigma^2 for all i are different
Source: Calculated from collected data with support of Stata 14 software
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RE model is more efficient in regression analyzing.
Multicollinearity test, autocorrelation test and error
variance test
According to Table 4, Prob >chi2 coefficients are
smaller than 5%, so Ho hypothesis is rejected and is
accepted H1 hypothesis. It means that both model 1
and model 2 have auto-correlation and the different
errors variance.
The research result also shows, independent
variables in regression models are not correlated
because all VIF coefficients are smaller than 2 and all
Tolerance coefficients are larger than 0.1.
Regression Analyzing
Analyzing the impact of exchange rate differences on
MP in period of 2009 -2017
To analyze the effect of exchange rate differences
on MP, the panel data regression method is used in
this research. FGLS methods are used because there
is autocorrelation and different errors variance in
this regression model. The result of regression is
presented in Table 6.
The regression result shows that, the sig coefficient
of model (Prob>chi2 =0.000) is smaller than 5 percent,
it indicates that at least one coefficient of independent
variables is not equal zero or the model is suitable
to explain the change of MP in context of Vietnam’s
stock market. Additionally, the coefficient of adjust
R square is 0.5065, meaning that the 50.65 percent
of MP changes are due to independent variables
and 49.35 percent of the changes in MP are caused
by other factors which are not given in the research
model. On the other hand, in accordance of Ramsey’s
test, the F coefficient is 28.22 and the P-value
approximate to 0, so the model does not need to add
variables or the model is perfectly suitable to explain
the relationship between exchange rate differences
and MP of non-financial joint stock companies listed
on the Vietnam’s stock market. The regression result
shows that most of independent variables (except
for CLTG2) have significant effects on LnP1 with
the Sig value (P>z) less than 5 percent. The impact
of independent variables on dependent variable is
positive because their coefficients are greater than
0. The effect of independent variables on MP is
explained in details as follows:
- The impact of exchange rate differences on MP: The
research result indicated that investor’s reaction is
positive with exchange rate differences recorded on
the Income Statement and negative with exchange
rate differences presented on the balance sheet. The
coefficient of CLTG1 is 0.00014, meaning that when
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CLTG1 increases by VND 1 per share, MP will rise by
0.00014 percent. The research result is identical with
the results of previous researches consisting of the
research of Soo and Soo (1994), Bartov (1997), Redman
et al (2013), Thanh, Le Vu Ngoc et al (2015). The research
result is appropriate to both theory and practice in
finance. Firstly, the positive effect of CLTG1 on MP
is abided by the signaling theory. The good signals
of financial performance make investors’ expectations
of the company’s growth prospect increase, leading
to an increase in the MP trend. In fact, in period of
2009-2011, some of companies tend to choose to apply
flexibly accounting policy for transactions related to
exchange rate or translating FC – applying VAS10
or applying Circular No. 201 - to obtain positive
profitability of exchange rate differences on FCs. In
period of 2012-2014, the unanimous application for
Circular No. 179 helps managers choose the most
beneficial exchange rate in recording and presenting
exchange rate differences on FCs. In the period of
2015-2017, according to Circular No. 200 and Circular
No.53, companies are allowed to choose exchange rate
in recording and presentation, so the most profitable
exchange rate is chosen in order to enlarge profit
margin of exchange rate and reduce exchange rate
losses. Specially, according to the collected data in
2015-2017, the number of companies with exchange
rate difference is greater than 0, increasing from
55 companies in 2014 to 89 companies in 2017. The
research results also point out that the exchange rate
differences recorded in shareholder’s equity affect
insignificantly MP.
- The impact of EPS1 on MP: EPS1 has a significant
and positive effect on MP at significance level of 5
percent with its coefficient of 0.00010. A company has
higher EPS1, it will bring more profits to shareholders.
Therefore, its current shareholders will hold its stocks
longer, the investors who want to be shareholders,
will be willing to spend more money to buy the
company’s stock. As a result, the MP of companies
with higher EPS1 tends to be greater than other
companies. Otherwise, if a company is profitable,
it will retain a proportion of profits to reinvest and
expand its business. Conversely, this expansion of
business will increase its profits and cashflows in
the future. Finally, a company with high EPS1 will
provide a good signal on financial situation, which
makes the expectation of investors increase, leading
to a rise in its MP.
- The impact of company’s size on MP: The results
of Table 6 show that the scale of the company has a
significant impact on MP with P- value of 0.000. Its
REVIEW of FINANCE - Issue 3, 2019
regression coefficient is positive (0.05205), indicating
an increase in the size of the company will lead to
an increase in MP. In fact, large companies are better
able to manage cash flow than small companies.
Moreover, large companies can invest in long-term
projects, so cash flow that investors which are able
to receive, is often more stable and sustainable than
small companies. Moreover, big companies are
also attractive to good managers, so it brings more
benefits than small companies.
- The impact of BVPS on MP: BVPS is the book
value of assets of ordinary shareholders. From the
theoretical viewpoint, when BVPS tends to increase,
the book value of the company will increase. The
increase in BVPS of non-financial companies listed
on the Vietnamese stock market is mainly due to
the increase in accumulated retained earnings.
This demonstrates the effectiveness of financial
management including financial efficiency and
reasonable dividend policy. Therefore, a company
with high BVPS usually has and maintains high MP
in the stock market.
Analyzing the impact of exchange rate differences on
MP in each period of change in accounting policies
To analyse the impact of exchange rate differences
on MP, the panel regression is used in this research.
Since the model has auto-correlation and not equal
error variance, FGLS method (Cochrane-Orcutt) is
used. The regression results are shown in Table 6.
Specific results are explained as follows:
Firstly, the coefficients of adjusted R-square in
models are quite different. In the period of 20092011, 32.4% of change in MP is due to independent
variables, while in the period of 2012-2014,
independent variables explain 64.12% of change in
MP. However, in the last period (2015-2017), the
coefficient of adjusted R-square decreases to 49.32%.
In general, the changes in accounting policy affect
positively MP of non-financial joint stock companies
listed on Vietnam’s stock market.
Secondly, the ddifferent impact of CLTG1 through
all 3 stages is quite clear. In the first phase (2009-2011),
the change of CLTG1 did not affect significantly MP.
However, in the remaining two periods (2012-2014
and 2015-2017), CLTG1 has a significant impact on
changing of MP at the P-value of 5%. Moreover, this
effect is positive with their regression coefficients
of 0.000180 & 0.00011 respectively. In two periods
of 2012-2014 and 2015-2017, the positive changes in
accounting policy make profits (losses) of exchange
rate presented on Income Statements more accurately
than the previous periods. Therefore, the quality
of information about the exchange rate differences
is improved and therefore it becomes one of the
important information that investors analyze before
deciding to buy or sell stocks.
Finally, the effect of CLTG2 on MP in 3 phases
is different in both signs (+/-) and level of impact.
In the period of 2009-2011, CLTG2 had a significant
influence on MP at P-value of 5%. In this period,
companies are allowed to apply flexibly both
VAS10 and Circular No. 201 to record and present
transactions relating to exchange rates, resulting in
concealment and fraudulent in recording profits
or losses of exchange rate differences on income
statements. In this period, CLTG2 has a negative
effect on MP with its regression coefficient of -0.00010.
In period of 2012-2014, when CLTG2 increases by
VND 1 per share, MP will increase by 0.000213%.
With applying Circular No. 179, gains or losses of
exchange rate differences presented in Account No.
413 is more accurate than the previous periods. In
addition, the information on profits or losses of
exchange rate differences reflected on FCs is more
transparent and accurate because of the changes in
exchange rate used to record transactions. However,
in this period, there is transferring of policy between
two periods, so profits (losses) of exchange rate
differences recorded in Account No. 413 of some
companies are considered to be not accurately
reflected. As a result, the impact of CLTG2 on MP is
positive. In final period (2015-2017), with the change
in the regulations of recording, presenting and
translating exchange rate differences in Circular No.
200 and Circular No. 53, the information of exchange
rate differences on FC is reflected more exactly than
previous period. The changes in Circular No. 200
and Circular No. 53 are consistent with the main
contents of the international accounting standards
and American accounting standards.
Conclusions and suggestions
Some research results are pointed out in this
research as follows:
During the study period from 2009 to 2017,
exchange rate difference on Income Statement has
a significant and positive impact on MP. When
exchange rate difference on Income Statement
increases, the MP of non-financial companies listed
on Vietnam’s stock market will increase. In the other
hand, exchange rate differences on the Balance Sheet
affect insignificantly MP because the percentage of
exchange rate difference in total equities is quite small.
In practice, exchange rate difference is the income
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TABLE 6: THE REGRESSION RESULTS OF MODEL 2
2009-2011
2012-2014
2015-2017
EPS1
0.00003**
0.000157**
0.00009**
CLTG1
0.00005
0.000180**
0.00011**
CLTG2
-0.00010**
0.000213**
-0.00022**
SIZE
-0.11113**
0.130847**
0.10109**
BVPS
0.00003**
0.000024**
0.00002**
_cons
12.18853**
5.199072**
6.36871**
Prob > chi2
0.0000
0.0000
0.0000
Adjust R-Square
0.3240
0.6421
0.4932
F
29.90
36.47
68.60
Prob > F
0.0000
0.0000
0.0000
Ramsay test
“*” at significance level of 5%; “**” at significance level of 1%
Source: Calculated from collected data with support of Stata 14 software
of a company, so exchange rate differences must
be recorded in the items of the Income Statement,
especially the loss of exchange rate.
The impact of exchange rate differences on MP in
the 3 periods of changes in accounting policy is quite
different. This is expressed through the coefficient of
the adjusted R square and the sign of the regression
coefficient. The study has made it clear that exchange
rate differences on FCs will be more accurate when
they are recorded according to Circular No. 200 and
Circular No. 53.
Based on the research results, some
recommendations are supposed as follows:
- For investors, the MP of non-financial companies
listed on the Vietnam’’s stock market is affected by
the exchange rate difference on the FCs. Therefore,
before deciding to buy or sell a company’s stock with
a transaction involving exchange rates, investors
should consider the exchange rate difference
information. The change in profit or loss of the
exchange rate reflects the effectiveness of a company’s
exchange rate policy including selecting the exchange
rate in recording transactions and presenting FCs or
in using derivative instruments to prevent the risk of
exchange rates. This makes the company’s value tend
to increase in the future.
- For non-financial companies listed on Vietnam’s
stock market, the objective of financial management
is to maximize the value of company or increase MP.
On the basic of signaling theory, managers should
focus on two major issues related to exchange rate,
including the choice of exchange rate to record
transactions, present and translate the FCs and the
selection of derivative instruments to hedge risks of
20
exchange rate.
- For the government, exchange rate difference has
a significant impact on MP, which affects the stability
and sustainability of Vietnam’s stock market. The
research results show that the change in accounting
policy has different effects on MP of non-financial
companies listed on the Vietnamese stock market.
The current regulations are applied, including VAS
10, Circular No. 200 and Circular No. 53, which
are suitable for recording transactions related to
exchange rates and translating FCs and similar to
international accounting standard. These regulations
should be applied stably, avoiding changes in
accounting policies or applying two rules in a similar
period like in the past. In addition, the Ministry of
Finance should limit issuing many regulations on
exchange rate differences. Many regulations can lead
to different accounting policy choices that make the
company’s financial information inaccurate.
References:
1. Brown, B. C. & Brandi, J. T. (1986), ‘Security price reactions to changes in
foreign currency translation standards’, Journal of Accounting, Auditing &
Finance 1, 185-205;
2. Conover, T. L. (1988), ‘An empirical investigation of the effects of the
accounting treatment of foreign currency translation on management actions
in multinational firms’, Ph.D. dissertation, Texas A&M University, College
Station.
3. Garlicki, T. D., Fabozzi, F. J. & Fonfeder, R. (1987), ‘The Impact of Earnings
Under FASB 52 on Equity Returns’, Financial Management, 16(3), 36-44;
4. Jensen, M. C. & Meckling, W. H. (1976), ‘Theory of the firm: Managerial
behavior, agency costs and ownership structure’, Journal of Financial
Economics, 3(4), 305-360;
5. Pinto, J. A. (2005), ‘How Comprehensive is Comprehensive Income? The
Value Relevance of Foreign Currency Translation Adjustments’, Journal of
International Financial Management and Accounting, Vol. 16, No. 2, pp.
97-122;
6. Redman, A. L., Gullett, N. S. & Stover, R. (2013), ‘Foreign exchange effects
and share prices’, International Journal of the Academic Business World
(Spring), 7(1), 51-58;
7. Thanh, Le Vu Ngoc, Tu, Dinh Ngoc and Tuan, Doan Ngoc (2015), ‘The
relationship between stock market price and exchange rate differences from
revaluation of foreign currency transactions’, Journal of Asian Business and
Economic Studies, 26(8),71-91;
8. Vietnamese Ministry of Finance (2014), ‘Circular No. 200/2014/TT-BTC on
guides for accounting policies for enterprises’, promulgated and publicized at
22nd December, 2014.
Author’s information:
Chu Thi Thu Thuy Ph.D, Vu Thi Kim Lan MA
Thang Long University, Ha Noi, Vietnam
Email: thuyct2702@gmail.com, vukimlan@gmail.com
Thuy Chu Thi Thu