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

We study the usefulness of Piotroski (2000)’s F-score in separating winners and losers in Vietnam. Using a sample of 622 of listed firms between 2009 and 2019, we find that value firms with high F-score earn positive abnormal return while value firms with low F-score earn negative abnormal returns. As a result, a hedge strategy which buys high-F-score firms and sells low-F-score firms yield a raw return of 30.8 percent and market-adjusted return of 30.5 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) firms but also earn abnormal returns in a sample of growth (low book-to-market) firms, suggesting that the usefulness of F-score strategy is not just a phenomenon in value firms as documented in previous literature. Our results provide supporting evidence for the use of financial statement analysis as a screening tool to improve the performance of value investment in Vietnamese stock market and for the training of financial reporting and fundamental analysis in universities.