Fundamental analysis and the use of financial statement information to separate winners and losers in frontier markets: evidence from Vietnam

Abstract

Purpose: The pupose of the paper is to study the usefulness of Piotroski (2000)'s F-score in separating winners and losers in Vietnam. Design/methodology/approach: The authors adopt a portfolio analysis and regression analysis on a sample of 501 of listed firms between 2009 and 2019 in Vietnam. Findings: The authors find that a hedge strategy that buys high-F-score firms and sells low-F-score firms yield market-adjusted return of over 30 percent annually, which is statistically and economically significant. The hedge strategy based on F-score is not only profitable for value (high book-to-market [BM]) firms but also earn abnormal returns in a sample of growth (low BM) firms, suggesting that the usefulness of F-score strategy is not just a phenomenon in value firms as documented in previous literature. Research limitations/implications: Whilst the authors' paper documents economically significant returns obtained from the F-score strategy, the authors do not examine what drives the abnormal returns. Practical implications: The results provide supporting evidence for the use of financial statement analysis as a screening tool to improve the performance of value investment in Vietnam stock market and for the training of financial reporting and fundamental analysis in universities. Originality/value: The authors' research is the first study examining the F-score strategy in Vietnam that provides insights about the usefulness of fundamental analysis in separating winners and losers in a frontier market and contributes to the literature on fundamental analysis and market efficiency in emerging and frontier markets.