Luận án tiến sĩ: Mô hình định giá doanh nghiệp nhất quán, biến dạng thuế do lạm phát và tốc độ tăng trưởng lợi nhuận - Nguyễn Kim Đức, UEH 2023

Ministry of Education and Training UNIVERSITY OF ECONOMICS HO CHI MINH CITY Business valuation models: Consistent valuation, Inflation-related tax distortions, and Earnings growth rates by Nguyen Kim Duc A thesis submitted for the degree of Doctor of Philosophy in the UEH School of Economics UEH College of Economics, Law and Government Ho Chi Minh City, Monday 10th April, 2023 Business valuation models: Consistent valuation, Inflation-related tax distortions, and Earnings growth rates by Nguyen Kim Duc B. in Economics (Valuation), UEH, 2011; B. in Accounting (Audit), UEH, 2014 M. in Finance and Banking (Finance), UEH, 2015 Practicing Valuer Registration | Certificate No.1479, 2016 Submitted to the UEH School of Economics on Monday 10th April, 2023, in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Development Economics supervised by Assoc.

Pham Khanh Nam, Ph. Thesis Copyright 2023 by Nguyen Kim Duc. All Rights Reserved. ii Declaration of Authorship I, Nguyen Kim Duc, declare that this thesis titled "Business valuation models: Consistent valuation, Inflation-related tax distortions, and Earnings growth rates" and the work presented in it are my own.

I confirm that: • This work was done wholly or mainly while in candidature for a research degree at the University of Economics Ho Chi Minh City. • Where any part of this thesis has previously been submitted for a degree or any other qualification at the University of Economics Ho Chi Minh City or any other institution, this has been clearly stated. • Where I have consulted the published work of others, this is always clearly attributed. • Where I have quoted from the work of others, the source is always given.

With the exception of such quotations, this thesis is entirely my own work. • I have acknowledged all main sources of help. • Where the thesis is based on work done by myself jointly with others, I have made clear exactly what was done by others and what I have contributed myself. Nguyen Kim Duc Ho Chi Minh City, Monday 10th April, 2023 iii iv Acknowledgements This thesis would have remained a dream had it not been for the assistance of professors, part- ners, friends, classmates, and my family.

I am indebted to all people who helped me throughout my Ph. journey and made this thesis possible. Above all, I owe my deepest gratitude to my big family. I started my Ph.

journey in my early 30’s and could not have come this far without their trust, support, and unconditional love. I am deeply indebted to my mother, Mong Hang, and my wife, Lan Anh, for their love and sacrifice. My mother has always been by my side, while my wife has supported me and sacrificed at all times. In addition, my Ph.

journey is also associated with my son’s childhood. I started my Ph. thesis in December 2018, and my son, Phuc Bao, was born in February 2019. His affectionate actions and sunny smile are an endless source of positive energy for me to complete this thesis.

This dissertation is as much them as it is mine. The thesis would not have been possible without my supervisor’s guidance, support, and discussion—Assoc. Pham Khanh Nam. With immense gratitude, I acknowledge the guid- ance and support of Dr.

Khanh Nam for his patience, advice, and warm-hearted support through- out my Ph. study at the UEH School of Economics. He has constantly challenged me to think critically and has taught me the value of thorough research. His enthusiasm, patience, knowl- edge, and inspiration for research have encouraged me and helped me when I was writing this thesis.

His expertise in economics and new ideas have improved my research skills and prepared me for future challenges. Khanh Nam has given me autonomy in decision-making and researching the topic while continuing to provide valuable feedback, advice, and encour- agement. I enjoy the long discussions with him in his office, from whom I have learned how to develop research ideas, understand research experience, and write professional academic articles. I would never imagine having a better advisor for my Ph.

I would like to thank the board of professors for my thesis in UEH—Prof. Nguyen Trong Hoai, Dr. Nguyen Hoang Bao, Dr. Vu Viet Quang, Dr.

Duong Nhu Hung, Dr. Le Trung Thanh, Dr. Tran Thi Tuan Anh, Dr. Pham Ha, and Dr.

Nguyen Thi Hong Nhung—for their valuable comments and suggestions. I also want to thank the professors—Prof. Nguyen Trong Hoai, v Prof. Tran Thi Tuan Anh, Assoc.

Tran Tien Khai, Dr. Nguyen Luu Bao Doan, Dr. Truong Dang Thuy, Dr. Ho Quoc Thong, MA.

Luong Vinh Quoc Duy, Dr. Ly Thi Minh Chau, and Dr. Le Van Chon—who provided the knowledge foundation and methodology on which I could my Ph. I sincerely thank two anonymous reviewers of the North American Journal of Economics and Finance and two independent external reviewers of the UEH board of professors, for many constructive comments and suggestions, which significantly enhance my paper’s exposition.

I also thank the conference participants at the 22nd ASEAN Valuers Association Congress in Thailand in 2019, the 38th EBES Conference hosted in Poland in 2022, and the 40th EBES Conference hosted in Turkey in 2022, for helpful comments. I would like to thank my dear colleagues at UEH and UEH School of Economics for their substantial influence. They provide the best environment for teaching, studying, and researching. I also give my thanks to colleagues in the UEH Department of Valuation at UEH School of Economics— Dr.

Hay Sinh, MA. Tran Bich Van, Dr. Nguyen Quynh Hoa, MA. Huynh Kieu Tien, and Dr.

Nguyen Thi Tuyet Nhung—they always supported and encouraged me in this study and helped me throughout my career. I also would like to thank professors, reviewers, and professional valuers in global and local valuation firms who gave me a lot of valuable comments and bits of advice. Their comments are one of the major contributing factors that allowed me to complete this version of the thesis. I would also like to thank all my classmates and friends for their support and suggestions along the way, especially Thanh Tam, Hoang Minh, Tuyet Nhung, Thanh Truc, Phuong Vy, Anh Nguyet, and Thiet Ha—Ph.

students like me. I really enjoy studying and discussing with all of them. Special thanks also go to the administrative staff in UEH School of Economics, Ph. pro- gram office, and UEH Finance-Accounting Department.

Their generous support and kind help greatly eased my daily life and the Ph. Thank you all very much. Nguyen Kim Duc Ho Chi Minh City, 06:00 Monday 10th April, 2023 vi Abstract This thesis contains three studies that provide a set of modifications and clarifications of business valuation models. The academy usually employs the adjusted present value (APV) method to develop new valuation models (e., Krause and Lahmann, 2016; Arnold et al., 2018) because it independently considers the net effect on value due to debt financing.

In contrast, the cost of capital (CoC) method is almost always used by practitioners (Ross, 2006). Under the equivalence, the discount rate in the CoC method must capture the unleveraged discount rate, tax benefits, and tax costs in the APV method. This means that the new version of the APV leads to the latest version in the discount rate of the CoC method. Therefore, the first study provides a new version of the APV, allowing the stochastic debt and considering the trade-off between corporate income taxes (CIT) and personal income taxes (PIT), and between tax benefits and costs of financial distress.

Then, we develop the discount rate in the CoC method to meet the CoC-APV consistency. In other words, the first study focuses on the denominator of the discounted cash flow (DCF) technique. In contrast, the second and third studies resolve the problems in the numerator of the DCF model (i. Consistent valuation: Extensions from bankruptcy costs and tax integra- tion with time-varying debt The first study in the thesis considers all the conditions required to provide a consistent valuation between the CoC method and the APV method at the highest level of the generaliza- tion.

The equivalent formulas developed in this study allow the stochastic debt and consider the trade-off between CIT and PIT, and between tax benefits and costs of financial distress. The value of expected bankruptcy costs follows the valuation aspect to ensure that it is possible for valuers to practically apply the formulas. The equivalence also captures the difference in the point of view of tax shields, between stockholders and debt holders when PITs are introduced. Finally, the results show that the equivalence in this study can collapse to, and is consistent with, previous standard formulas under their strong assumptions.

Macroeconomic contexts and business valuation models: Inflation-related tax distortions The second study modifies tax distortions in business valuation models when countries expe- rience inflation. This study is considered to analyze valuation methods from the tax perspective. The current CIT expense occupies just one line item on the statement of profit or loss and other comprehensive income. However, it is a unique line item following tax rules and not financial reporting rules.

The difference between these rules is that it reflects the effective tax rate (ETR), which can differ from the statutory tax rate (STR). With inflation, this ETR-STR difference can be more significant due to the contribution of tax distortions. In this study, we expand on the standard formulas for the ETR by analyzing the effects of inflation-related tax distortions when computed under the following four cases: (i) Historical-cost-based accounting under a nominal tax basis, (ii) Fair-value-based accounting under a nominal tax basis, (iii) Historical- cost-based accounting under a real tax basis, and (iv) Fair-value-based accounting under a real tax basis. Further, we suggest a modified model for business valuation considering these tax dis- tortions and provide a general formula to independently calculate the value of inflation-related tax distortions.

Published in the North American Journal of Economics and Finance, Vol. Earnings growth rates in business valuation models: Impossible quaternity The third study clarifies earnings growth rates in business valuation models to avoid valuation errors. This study analyzes valuation methods from the accounting perspective. First, we illustrate that cross-reference in calculation between the reinvestment rate, RIR (i., under the assumption that all reinvestment is at the end of each year), and return on invested capital, ROIC (i., average invested capital) leads to valuation errors.

We then clarify the formulas of earnings growth rates to avoid mistakes in two situations: reinvestment is at the end of each year, and reinvestment is at any time of each year. The study also shows the timing of capital reinvestment, where the false growth rate due to cross-referencing will be equal to the actual growth. We also highlight the case in which the incorrect growth rate is always higher than or lower than the actual growth rate. Numerical examples are used to illustrate that our models are correct and provide errors due to cross-referencing.

We deliver a practitioner guide for two scenarios: valuers directly estimate earnings growth rates, and clients provide future earnings and related information. Finally and most importantly, our results imply the principle of impossible quaternity for estimating earnings growth in the DCF framework. More precisely, it is impossible for a business valuation to have an available-expected growth rate, a fixed change in ROIC, independence in the timing of reinvestment, and a fixed level of actual reinvestment.