The objective of first chapter is to introduce the research background of the study, the situation of economics of Vietnam as well as the condition of Vietnamese real estate enterprises.
In addition, this chapter also explains problem identification, the essential of researching Return on Equity to attract capital and discusses the scope of research, research objective. Form that, author give research questions to satisfy research purposes. The author hope this dissertation will have some contributions for further researches.
1.1 Research background
According to data reported to World Bank (2016), since joined World Trade Organization, GDP of Vietnam has a significantly increase from 66.37 USD Billion in 2005 to 193.60 USD Billion in 2015. Being a member of WTO, there are many opportunities as well as challenges to economic integration process of Vietnam (Quan & Ly, 2015). In that context, the real estate market became one of the most important markets which attract more attention and investment of individuals and society, in specific real estate market accounts 34.2% in market capitalization of Vietnam (HOSE, 2015). Real estate market is also the market inputs of the production process beside the capital market and the labor market. However, property market is not simple, it is complex with erratic progress. Due to this market accounts for a large capital, market fluctuation negatively will have a strong influence on economy.
In recent years, the real estate market in Vietnam have developed instability, even have time “freeze” affecting the macro-economic balance which leading negative impact on the background economy. Many real estate businesses and trading real estate services were difficult, especially for small and medium sized companies. From end of 2013 to 2015, the real estate market has been in the recovery trend; for instance, liquidity improved and the number of successful transactions is increasing (Chu et al, 2015). Those are positive signs for the real estate market. However, according to Nguyen Tran Nam - Deputy Minister of Construction of Vietnam, although the market have positive signs in the transaction, the problem has not been solved completely. Therefore, firms in the sector require the effective business strategy to get high profit to the business. Vietnamese businesses actually are still in a vicious circle, no way out while the majority of projects under construction are in progress, too much property in stock causes difficult in capital rotation; therefore, investors do not have the capital to continue to build, customers also stop contributing capital. The access to funding difficultly forces these
firms have to borrow short-term loans at high interest rates. Moreover, businesses are unable to access medium and long-term funding as well as from other credit funds.
To solve this problem and to improve the efficiency of operation and reasonable capital management, businesses also need to consider the financial indicators. Financial indicators are tool for analysts find the trends of the business as well as investors, creditors and lenders check the financial health situation of enterprise. One of financial indicators plays an important role – an effective leverage in attracting capital is Return on Equity - ROE (Nguyen, 2009). ROE is a financial ratio that is used for comparisons between companies in order to assess profitability and to enable shareholders identify investment opportunities and establish the best suited to their return requirements (Popov & Roosenboom, 2009). This ratio is influenced by some factors such as Asset Turnover, Current liquidity ratios, Net Profit Margin ratio, total Assets and solvency. That is reason why author choose to study about ROE and factors affecting ROE of real estate companies to hope that providing appropriate solutions to improve ROE of this enterprises.
To know exactly about ROE of property entrepreneurs, we need to find the place where the data is clearly and be updated every moment. Ho Chi Minh Stock Exchange (HOSE) is the largest stock exchange in Vietnam and the secondary capital market. On July 10th 1998, the Prime Minister signed Decree No. 48/1998/ND-CP on stock and securities market and a Decision to set Ho Chi Minh City Securities Trading Center. After 9 years of growing and integrating into the global securities market, the government signed Decision No. 599/QD-TT on May 11th 2007 to transfer the Ho Chi Minh City Securities Trading Center to Ho Chi Minh Stock Exchange (HOSE). To be listed on the HOSE market, companies must satisfy all the conditions in capital and financial activities of publicity, ROE in most recent year was at least 5% and the company have to report a profit. Companies must regularly update the financial situation monthly, quarterly and annually. Therefore, HOSE is also a clearly and transparent financial channel for shareholders, investors consider buying shares and investing in industries in Vietnam.
Therefore, through this research, researcher aims to improve ROE and the factors that influence ROE through an analytical model to devise appropriate measures. That is why the author studied the topic: "Determinants of Return on Equity of enterprises in the real estate industry listed on HOSE".
1.2 Research questions
The target of this essay is want to find out determinants of Return on Equity (ROE) with regard to real estate companies listed on HOSE between 2007 and 2016. This research will study about the real estate market of Vietnam, the ROE and the factors affecting to ROE of this kind of companies and the relationship between research factors to companies. Besides that analyzing the current situation of ROE and its factors of companies help find the best solutions to improve the business performance of Vietnamese estate companies nowadays. Thus, research question for this study are:
1. What are factors affecting to ROE of the companies in the industry of real estate listed on HOSE?
2. How do these factors influence to ROE of the companies in the industry of real estate listed on HOSE?
1.3 Research significance
The research has examined the determinants of ROE of Vietnamese estate companies. The necessary of this research can be considered from two elements: theoretical contributions and practical implications. In theory, the study fixes an important gap in previous literature that is, exploring the determinants affecting to ROE in specific kinds of companies (real estate firms).
Therefore, the findings of this research can supplement to the existing problems of the literature and can serve as a starting point on which future studies can be improved. On the practical side, in the context of fierce competition among real estate enterprises to attract investors and customers, this study can help firm managers to identify the important factors that may determine ROE of companies in order to build more strategy to attract capital and find methods how to improve their firms’ operations. Such information should help managers make decisions adjust the shortcomings for reaching and attracting investors. In the other hand, it also helps investors look right to choose and evaluate appropriate companies to invest; credit analysts to assess the ability of companies and securities analysts to the company's effectiveness, risk, and prospects.
1.4 Research structure
Here is research structure described steps that author will conduct in next chapter in dissertation. Firstly, defining the problem and giving topic of research. Secondly, researching the literature review of each factor depends on previous research and finding out the gap of that studies as well as developing new model in this paper. Next is showing methodology from data
collection and analyzing the collected data. Last, giving conclusion after testing model of this problem and answering the research question as well as recommendation to improve the research quality.
Figure 1.1 Research flowchart Define research problem
Literature review Determine research question
Methodology
Data collection
Data analysis
Conclusion and suggestion