The corporate bond market is an important link between savings and investments with the publicly traded debt instruments issued by borrowers to raise capitals from a wide range of diverse investors.
There have been a lot of studies on the role of corporate bond market. Hankansson (1999) showed that an economy with a developed corporate bond market has stronger market discipline than an economy in which bank financing plays the central role. A developed corporate bond market entails greater disclosure of information and transparency, a strong community of professional financial analysts, good rating agencies, a large number of corporate debt instruments leading to the rising demand for credit analysis, and efficient corporate reorganization or liquidation processes, allowing market forces to function more effectively. As a result of the effective corporate bond market, the systemic risk and the probability of a crisis may be lowered. Diamond (1991) and Rajan (1992) mentioned the cost advantages of borrowing in the bond market over bank lending. On condition that banks' loans are decided based on firms' creditworthiness, the bond issuance allows the firm to avoid the monitoring costs for banks and to reduce the information rent possibly charged by banks.
Pipat Luengnaruemitchai and Li Lian Ong (2005) identified crucial elements for the corporate bond market development, namely benchmarking, corporate governance and transparency, credit risk analysis and pricing, and the development of hedging instruments. In addition, they also studied about factors affecting the demand for and supply of corporate bonds, including local as well as foreign investor base, issuance costs, taxation, and government policies related to issuance process.
In the case of Vietnam rated as the BB-credit country, bank lending and equity finance are the major financing options for the corporate sector. Although the private Small-and-Medium-sized-Enterprise sector is regarded as the main source of Vietnamese sustainable growth in the long run, using those financing options in large scale has been out of small firms' reach (Vuong, quan Hoang and Tran, Tri Dung, 2010).
In addition, in Vietnam, there are three kinds of bonds, namely government bonds issued by State Treasury or Vietnam Development Bank, municipal bonds issued by three local governments including Hanoi, Ho Chi Minh City and Dong Nai, and corporate bonds. Government bonds still dominate the market with 86% and the rest 14% is divided equally for corporate bonds and municipal bonds (Source: Ministry of Finance of Vietnam.)
The Vietnamese corporate bond market has witnessed the strong growth particularly since Vietnam entered WTO. However, this market still remains underdeveloped with the small size compared to government bonds or the very tiny percentage of GDP. Up to now, there have been about 63 firms issuing 152 bonds, accounting for 31.5% of the 200 largest corporations of Vietnam and a small portion of 350,000 enterprises existing in Vietnam. It is obvious that Vietnamese corporate bond market is now dominated by State-owned Enterprises and large corporations, which keeps SMEs from this debt financing option (Vuong, Quan Hoang and Tran, Tri Dung, 2010). Listed corporate bonds may be traded in the secondary market on the Hanoi Security Trading Center or HCMC Stock Exchange. However, the secondary market is still small and illiquid with a few players; and the majority of corporate bonds issued are unlisted.
There are very few studies on the causes of the underdevelopment of Vietnamese corporate bond market. In the capital market diagnostic review of Vietnam, Thai Thu Hong and Margarete O.Biallas mentioned some reasons for the underdevelopment of Vietnamese corporate bond market, for examples, the lack of awareness of Vietnamese corporations about bond instrument, inexperienced intermediation service providers, or expensive corporate bond issuance due to rules and procedures.
A study conducted by Jonathan A. Batten and Peter G. Szilagyi emphasized Japan's demand for the corporate bond market development and raised the obstacles for the development of Japanese corporate bond market in particular and financial markets in general. Some impediments for corporate bond issuance in corporate bond markets include poor credit ratings, strict rules and procedures which result in the limited quality bond issuer supply. "Inadequate market infrastructure including competitive auctions secondary market trading systems, and clearing and settlement systems" and a narrow investor base caused by limited savings schemes, undeveloped investment trusts, the over-regulated asset management industry and the limitation in insurance companies' role are other impediments that need to be considered.
Krishnan Sharma (2000) also issued the paper focusing on "the underlying institutional constraints to corporate bond market development in Thailand, Malaysia and Indonesia". The results of the paper showed that the close and "interlocking relationships" among corporations, banks and governments were one of the main reasons for the underdevelopment of the demand side of the corporate bond market and have prevented companies from issuing bonds. Based on the results, the author recommended the strong institutional change as the major solution to develop the corporate bond market in those countries besides the measures to strengthen market infrastructure.
Structure of literature review
Corporate bond market
Role of corporate bond market
Factors affecting the demand for and supply of corporate bonds
Crucial elements for corporate bond market development
Background of the case - Vietnamese corporate bond market
Access to capitals in Vietnam
Bank lending
Vietnamese equity markets
Other financing mechanisms
Vietnamese bond market
Vietnamese corporate bond market
Vietnamese corporate bond market structure
Regulatory Framework
Opportunities and challenges
1.2.0 Significance of study
In Vietnam, the majority of the corporate sector is classified as Small-and-Medium-sized Enterprise but these SMES always meet difficulties in raising capital in large scale through bank lending, share issuance, and other financing mechanisms like leasing. This fact requires the further development of corporate bond market to provide enterprises with another financing vehicle. The study focuses on the situation of Vietnamese corporate bond market over the past twenty years and the reasons why this market still remains underdeveloped in order to contribute concrete recommendations for the further development of this market. The study will provide the deep analysis of the facts preventing Vietnamese corporate bond market development that helps to find out solutions to develop Vietnamese corporate bond market, which is useful for corporations to diversify their funding sources.
1.3.0 Research questions and objectives
The following research questions and objectives will be covered in this study:
1.3.1 Research questions
1. What is the situation of Vietnamese corporate bond market over the past twenty years?
2. What are the causes of the underdevelopment of Vietnamese corporate bond market?
The research wants to study the situation of Vietnamese corporate bond market over the past twenty years and find out the causes of the weaknesses of the market. Based on the analysis of those reasons, the research will recommend the relevant solutions to develop this market.
1.3.2 Research objectives
1. To examine the situation of Vietnamese corporate bond market and prove the underdevelopment of that market.
2. To find out the reasons for the underdeveloped situation of Vietnamese corporate bond market.
To achieve the first objective, the researcher will analyse existing data sets related to Vietnamese bond market and Vietnamese corporate bond market and compare those data with ones about other developed corporate bond markets to prove the underdevelopment of Vietnamese corporate bond market.
In terms of the second objective, the researcher will make use of some literature and surveys. Interviews and questionnaire items will be designed so as to collect data on the experts' assessment about Vietnamese corporate bond market and the reasons making this market underdeveloped
1.4.0 Research methodology
This section will show the procedures of the study and method as well as instruments applied to collect data, analyse them and draw conclusions.
1.4.1 Research design
The study applies both quantitative and qualitative approach. The researcher chooses case study method with the case of Vietnamese corporate bond market. The researcher will collect not only secondary data taken from different sources but also primary data based on questionnaires and interviews.
The researcher will sample financial employees in large companies, financial organizations, and SMEs, the financial managers of some publicly listed companies or financial organizations, and some financial lecturers.
1.4.2 Data collection
Secondary data, for examples, statistics about Vietnamese corporate bond over the past years, will be collected from some sources such as Ministry of Finance of Vietnam, IMF, World Bank, ANZ, Vietnamese Bond Market Association, and previous studies. In addition, the researcher will deliver 50 questionnaires to financial lecturers at Academy of Finance and financial employees in large companies, SMEs, and financial organizations, for examples, Vietnamese Bond Market Association, World Bank in Vietnam, BIDV, Vietcombank, Bao Minh Insurance Corporation. Five interviews will be also conducted with the financial managers of above publicly listed companies and financial organizations.
These methods are used with the purpose of examining the situation of Vietnamese corporate bond market over the past twenty years and finding out the reasons for the weaknesses of this market.
It is predicted to take the researcher six weeks to collect data: one interview/day plus questionnaire administration (4 weeks); secondary data collected for 2 weeks.
After accomplishing the data collection stage, the researcher will flexibly choose the method to analyse data under the instructor's guidance.
Nvivo software and Statistical Package for Social Science software may be used to analyse responses to questions of questionnaires and interviews if the researcher is instructed to get to know how to use these programs.
Data will be presented in tables, graphs, charts, etc, based on which findings will be inferred so that the researcher will draw conclusions and contribute appropriate recommendations.
1.4.3 Ethical permission
The researcher guarantees the authorized access to the secondary data and the permission of respondents before carrying out surveys like interviews and questionnaires. The name of or other confidential information about the respondents will not also be required as that is unnecessary for data analysis or viability of the study.
The copy of Research Ethics Release Form is attached in Appendix 1.
1.5.0 Time scale
This study is divided into four stages and the duration of each stage in particular and that of the study in general are predicted as follows:
Stages
Study
Duration
1
Review of literature
4 weeks
2
Data collection
6 weeks
3
Data analysis and presentation
6 weeks
4
Research conclusion and recommendation
4 weeks
It is flexible to change the duration of study subject to the situation of study or unpredictable problems occurring during the research process
1.6.0 Resources
The researcher's research process will be carried out with the resources such as a laptop computer, an electronic voice recording device, internet, online library, and finance.
The researcher also requires the support of the instructor Peter Sorensen, the lecturer of Academy of Finance. In particular, the researcher needs the instructor's guidance of how to use software to analyse data, for examples, Nvivo, SPSS, or others.
