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Article
Publication date: 1 March 1995

JoAnne Stilley Hopper

Investigates family financial service choice behavior includinginsurance, investments, and banking services. Indicates that, for themajority of the couples surveyed, both…

Abstract

Investigates family financial service choice behavior including insurance, investments, and banking services. Indicates that, for the majority of the couples surveyed, both spouses participate in financial decision making. Results support the overwhelming need for financial services institutions to target wives as well as husbands in promotional strategy and product/service development.

Details

Journal of Services Marketing, vol. 9 no. 1
Type: Research Article
ISSN: 0887-6045

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Content available
Book part
Publication date: 24 October 2019

Tarek Ibrahim Eldomiaty, Panagiotis Andrikopoulos and Mina K. Bishara

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial

Abstract

Purpose: In reality, financial decisions are made under conditions of asymmetric information that results in either favorable or adverse selection. As far as financial decisions affect growth of the firm, the latter must also be affected by either favorable or adverse selection. Therefore, the core objective of this chapter is to examine the determinants of each financial decision and the effects on growth of the firm under conditions of information asymmetry.

Design/Methodology/Approach: This chapter uses data for the non-financial firms listed in S&P 500. The data cover quarterly periods from 1989 to 2014. The statistical tests include linearity, fixed, and random effects and normality. The generalized method of moments estimation method is employed in order to examine the relative significance and contribution of each financial decision on growth of the firm, respectively. Standard and proposed proxies of information asymmetry are discussed.

Findings: The results conclude that there is a variation in the impact of financial variables on growth of the firm at high and low levels of information asymmetry especially regarding investment and financing decisions. A similar picture emerges in the cases of firm size and industry effects. In addition, corporate dividen d policy has a similar effect on firm growth across all asymmetric levels. These findings prove that information asymmetry plays a vital role in the relationship between corporate financial decisions and growth of the firm. Finally, the results contribute to the vast literature on the estimation of information asymmetry by demonstrating that the classical and standard proxies for information asymmetry are not consistent in terms of the ability to differentiate between favorable or adverse selection (which corresponds to low and high level of information asymmetry).

Originality/Value: This chapter contributes to the related literature in two ways. First, this chapter offers updated empirical evidence on the way that financing, investment, and dividends decisions are made under conditions of favorable and adverse selection. Other related studies deal with each decision separately. Second, the study offers new proxies for measuring information asymmetry in order to reach robust estimates of the effects of financial decisions on growth of the firm under conditions of agency problems.

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Article
Publication date: 23 August 2013

Joyce K.H. Nga and Leong Ken Yien

Financial planning is important in promoting the social well‐being of a nation. Without proper financial planning, individuals may be ill‐prepared in coping with the…

Abstract

Purpose

Financial planning is important in promoting the social well‐being of a nation. Without proper financial planning, individuals may be ill‐prepared in coping with the escalating cost of living, medical costs as well as enjoying their desired quality of life. However, financial decision making is not always made in a rational manner. This study aims to investigate the influence of personality traits, genders and course majors on decision making dimensions of risk aversion, cognitive biases and socially responsible investing (SRI) criteria among Generation Y undergraduates.

Design/methodology/approach

The study utilizes a sample of undergraduates from a business school in Klang Valley, Malaysia. The study adapts the Big 5 personality scales from McCrae and Costa. The scales for the financial decision making dimensions, namely risk aversion, cognitive biases and SRI constructs, were developed for this study based on concepts developed from the extant literature. The validity and reliability of the scales were tested using exploratory factor analysis and Cronbach's alpha respectively. Hypotheses were tested using multiple linear regressions, t‐tests and ANOVA methods.

Findings

Conscientiousness, openness and agreeableness were found to have a significant influence on risk aversion, cognitive biases and SRI respectively. Gender and course majors taken were not significant in financial decision making.

Research limitations/implications

Future research should extend this to different cohorts of individuals including working adults and retirees. The mediating influences of personality and moderating influences of demographic factors such as education level, age and religiousity should also be explored to better target potential investors and fulfill their financial goals.

Practical implications

Awareness of the influence of specific personality traits in financial decision making would help financial planners tailor products more effectively to cater for the understanding and lifestyle of the younger generation. There may also be a need in the future for business schools to introduce courses on behavioural finance in their curriculum.

Originality/value

Studies on financial planning have more often focused on rational aspects of financial decision making rather than on personality dimensions. This study bridges the gap by investigating the influence of the Big 5 personality traits in financial decision making. The study also posits that the influence of personality traits is more significant than demographic factors in financial decision making.

Details

Young Consumers, vol. 14 no. 3
Type: Research Article
ISSN: 1747-3616

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Article
Publication date: 16 June 2021

Kirsten Rauwerda and Frank Jan De Graaf

In order to better understand how heuristics are used in practice, the authors explore what type of heuristics is used in the managerial domain of financial advisors to…

Abstract

Purpose

In order to better understand how heuristics are used in practice, the authors explore what type of heuristics is used in the managerial domain of financial advisors to small and medium-sized enterprises (SMEs) and what influences the shaping of these heuristics. In doing so, the authors detect possible fast-and-frugal heuristics in day-to-day decision-making of independent financial advisers who help owners of SMEs to acquire capital (e.g. loans, factoring, leasing and equity).

Design/methodology/approach

The authors inductively assessed the work of financial advisers of SMEs. Based on group discussions, the authors drew up a semi-structured interview-protocol with descriptive questions about how financial advisers come to a deal for their clients. The interviews of 19 professionals were analysed by relating them to the theory of fast-and-frugal heuristics.

Findings

Within their decision-making, advisers estimate the likelihood of acceptance by a few financial providers they know well in their personal network with a strong bias towards traditional banking products, although there are a large number of alternatives on the Dutch market. “Less is more” seems to be a relevant principle when defined as satisficing. Heuristics help advisers to deal with behavioural and economic limitations. Also, the authors have found that client interaction, previous working experience and the company the adviser is working for influences the shaping of the simple rules the adviser is using.

Research limitations/implications

The study shows how difficult it is to understand the ecological rationality of a certain group of professionals and to understand the “less is more” principle. Financial advisers to SMEs use cognitive shortcuts and simple rules to advise SME-owners, based on previous experiences, but it is difficult to determine whether that leads to the same or even better solutions for them and their clients than using probability theory and financial optimisation models. Within heuristics, satisficing seems to be a dominant mechanism. Here, heuristics help advisers in recognising possibilities by searching for similarities between a current financing case and previous experiences. The data suggests that if “less is more” is defined as satisficing for one or more stakeholders involved, the principle dominates the decision making of financial advisers of SME's.

Practical implications

The authors suggest the relevance of a behavioural approach to finance by assessing the day-to-day decisions of financial advisers of SMEs. Also, the authors suggest that financial advisers are guided by previous experiences, and they do not fully assess a wide range of options in their work but need shortcuts to fulfil the needs of their clients.

Originality/value

The study comes close to day-to-day decision-making in finance by assessing how professionals make decisions. The authors try to understand types of heuristics in relation with “ecological rationality” and the less is more principle. The authors assess financial advisers of SME-companies, a group that has gotten little research attention until now. The influence of client interaction and of the company the adviser is working for is remarkable in the shaping of the advisers' simple rules.

Details

Management Decision, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0025-1747

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Article
Publication date: 25 June 2021

John E. Grable and Eun Jin Kwak

Using data obtained from 525 individuals who were surveyed during early spring 2020, this study addressed three aims: (1) to ascertain the degree to which disappointment…

Abstract

Purpose

Using data obtained from 525 individuals who were surveyed during early spring 2020, this study addressed three aims: (1) to ascertain the degree to which disappointment aversion and expectation proclivity are related; (2) to identify who is most likely to exhibit patterns of disappointment aversion; and (3) to determine to what extent the combination of disappointment aversion and expectation proclivity is associated with financial risk aversion.

Design/methodology/approach

Several analytic methods were used in this study. Descriptive statistics were calculated for each of the measures examined in this study. Correlation, analysis of variance (ANOVA) and regression techniques were used to estimate associations between and among the variables of interest in this study.

Findings

A negative relationship between disappointment aversion and expectation proclivity was noted, which is counter to conventional thinking. It is traditionally thought that those who establish high expectations will experience the greatest disappointment when choice outcomes fall below expectations. In this study, it was determined that when a financial decision-maker consistently establishes high outcome expectations and results fall below expectations, the financial decision-maker feels less disappointment. More precisely, those who consistently establish high expectations tend to be more disappointment tolerant than others.

Research limitations/implications

This paper provides evidence that categories of disappointment aversion and expectation proclivity are associated with financial risk aversion and certain demographic characteristics.

Practical implications

This paper adds support for assertions made in the International Journal of Bank Marketing (IJBM) that it is important for financial service professionals and bankers to manage customer expectations to reduce disappointment with products and services. This paper shows that combinations of disappointment aversion and expectation proclivity are related to the financial risk aversion of customers.

Social implications

Findings from this paper indicate that a commonly used heuristic that decision-makers should reduce expectations to avoid disappointment may not be accurate or particularly useful in the context of financial decision-making.

Originality/value

Findings from this study add to the existing body of literature by showing that aversion to disappointment and the establishment of expectations, while distinct concepts, are interrelated.

Details

International Journal of Bank Marketing, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0265-2323

Keywords

Content available
Article
Publication date: 25 March 2021

Mohd Adil, Yogita Singh and Mohd. Shamim Ansari

The purpose of the study is to examine the impact of behavioural biases (i.e. overconfidence, risk-aversion, herding and disposition) on investment decisions amongst…

Abstract

Purpose

The purpose of the study is to examine the impact of behavioural biases (i.e. overconfidence, risk-aversion, herding and disposition) on investment decisions amongst gender. The authors further examine the moderation effect of financial literacy in the relationship between behaviour biases and investment decisions amongst gender.

Design/methodology/approach

The study considered a cross-sectional research design. For this survey, the data have been collected through a structured questionnaire from 253 individual investors of the Delhi-NCR region. To analyse the validity and reliability, the Pearson correlation and Cronbach's alpha test have been taken into account respectively. For testing the hypothesis, hierarchical regression analysis has been used in the study.

Findings

The results of the study reveal that amongst male investors, the influence of risk-aversion and herding on investment decision was negative and statistically significant, while the influence of overconfidence on investment decision was positive and significant. However, the influence of disposition was found statistically insignificant. The results stated that amongst female investors the effect of risk-aversion and herding on investment decision was negative and statistically significant. However, the effect of overconfidence and disposition was statistically insignificant influence the investment decision. It has been observed that financial literacy has significantly influenced investment decisions amongst male and female investors. The results of the interaction effect amongst male investors stated that the interaction between overconfidence and investment decision was significantly influenced by financial literacy. However, the interaction of financial literacy with the remaining three biases, i.e. risk-aversion, herding and disposition was found insignificant. The results for the interaction effect of financial literacy with overconfidence, risk-aversion, disposition and herding were found statistically significant amongst female investors.

Research limitations/implications

Based on this present research finding, the study is more productive for the portfolio manager and policymakers at the time of making an investment portfolio for the investors based on their behavioural biases. The study recommends that investors need training programmes, workshops and seminars that enhance financial literacy and financial knowledge of investors which helps them to overcome the behavioural biases while making an investment decision.

Originality/value

The current study aims to explore whether several behavioural biases can affect investment decisions amongst gender. Moreover, the authors would like to examine whether these associations are moderated by financial literacy. In this sense, financial literacy might also show a substantial part in the prediction of investments. The current study might be of the first study that examines the moderation effect financial literacy amongst male and female investors.

Details

Asian Journal of Accounting Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2443-4175

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Article
Publication date: 21 December 2020

Maqsood Ahmad and Syed Zulfiqar Ali Shah

This paper aims to show how overconfidence influences the decisions and performance of individual investors trading on the Pakistan Stock Exchange (PSX), with the…

Abstract

Purpose

This paper aims to show how overconfidence influences the decisions and performance of individual investors trading on the Pakistan Stock Exchange (PSX), with the mediating role of risk perception and moderating role of financial literacy.

Design/methodology/approach

The deductive approach was used, as the research is based on the theoretical framework of behavioural finance. A questionnaire and cross-sectional design were employed for data collection from the sample of 183 individual investors trading on the PSX. Hypotheses were tested through correlation and regression analysis. The Baron and Kenny method was used to test the mediation effect of risk perception and the moderation effect of financial literacy. The results of mediation and moderation were also authenticated through the PROCESS and structural equation modelling (SEM) technique.

Findings

The results suggest that risk perception fully mediates the relationships between the overconfidence heuristic on the one hand, and investment decisions and performance on the other. At the same time, financial literacy appears to moderate these relationships. The results suggest that overconfidence can impair the quality of investment decisions and performance, while financial literacy and risk perception can improve their quality.

Practical implications

The paper encourages investors to base decisions on their financial capability and experience levels and to avoid relying on heuristics or their sentiments when making investments. It provides awareness and understanding of heuristic biases in investment management, which could be very useful for decision makers and professionals in financial institutions, such as portfolio managers and traders in commercial banks, investment banks and mutual funds. This paper helps investors to select better investment tools and avoid repeating the expensive errors that occur due to heuristic biases. They can improve their performance by recognizing their biases and errors of judgment, to which we are all prone, resulting in better investment decisions and a more efficient market. The paper also highlights the importance on relying on professional knowledge, giving it greater weight than feelings and biases.

Originality/value

The current study is the first to focus on links between overconfidence, financial literacy, risk perception and individual investors' decisions and performance. This article enhanced the understanding of the role that heuristic-driven bias plays in the investment management, and more importantly, it went some way towards enhancing understanding of behavioural aspects and their influence on the investment decision-making and performance in an emerging market. It also adds to the literature in the area of behavioural finance specifically the role of heuristics in investment strategies; this field is in its initial stage, even in developed countries, while, in developing countries, little work has been done.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

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Article
Publication date: 6 August 2020

Ali Kutan, Usama Laique, Fiza Qureshi, Ijaz Ur Rehman and Faisal Shahzad

The extant literature provides substantial evidence that various facets of national culture play a significant role in corporate financial decision making. We…

Abstract

Purpose

The extant literature provides substantial evidence that various facets of national culture play a significant role in corporate financial decision making. We systematically review the role of national culture on the various thematic domains of corporate financial decision making to outline what have been studies thus far and what needs to be studied.

Design/methodology/approach

Keywords such as national culture, organizational culture, power distance, uncertainty avoidance, masculinity, risk aversion and individualism for a search in the prominent academic literature databases are used. The studies related to the corporate financial decision making that is tied with these keywords are identified and selected for the systematic review.

Findings

The review of extant literature suggests strong evidence that national culture has a significant role in influencing corporate cash holding, corporate risk-taking, individual behaviour of the financial managers and initial public offering by the corporations. The review also indicates, although extant studies have examined the role of national culture in the key corporate financial decisions, evidence on the role of national culture in the firm's investment efficiency aspects is rather scarce. Also, what explains the role of national culture in corporate financial decision making has not been empirically exploited through causal mechanisms.

Practical implications

The findings of the studies help advance our understanding of the current research status concerning the role played by the national culture in shaping corporate financial decisions and raise important future calls.

Originality/value

To best of our knowledge, no prior study has systematically reviewed the role of national culture in the thematic domains of corporate financial decision making.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

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Article
Publication date: 8 October 2020

Arief Wibisono Lubis

This study examines whether financial literacy is a relevant factor that determines authority in household financial decision-making, an area that is often viewed as…

Abstract

Purpose

This study examines whether financial literacy is a relevant factor that determines authority in household financial decision-making, an area that is often viewed as boring, difficult and full of uncertainties. Cognitive ability and personality traits are also included as additional explanatory variables.

Design/methodology/approach

The logistic regression technique was applied using a sample of more than 2,300 microfinance institutions' clients in three provinces in Indonesia.

Findings

This study finds that financial literacy correlates positively with authority in household financial decision-making only among men. This does not mean that financial literacy is irrelevant for women's agency, since the skill might be important for authorities in other decision-making areas, including those outside households. Meanwhile, the relationship between cognitive ability and household financial decision-making authority is more universal.

Research limitations/implications

This study does not collect information on the levels of financial literacy of other household members and does not capture respondents' perceptions of household financial decision-making.

Social implications

The overall low level of financial literacy calls for the need for more targeted efforts to address this issue by policymakers. Education policy should also be designed to improve cognitive ability, as this ability is important for human agency and well-being.

Originality/value

Household decision-making has received significant attention in the literature. Authority in household decision-making is important because it represents a person's agency and has a profound impact on well-being. To the best of author's knowledge, studies on the importance of skills in household financial decision-making are very limited.

Details

International Journal of Social Economics, vol. 47 no. 11
Type: Research Article
ISSN: 0306-8293

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Article
Publication date: 31 August 2020

Taejun (David) Lee, Bruce A. Huhmann and TaiWoong Yun

Government policy mandates information disclosure in financial communications to protect consumer welfare. Unfortunately, low readability can hamper information…

Abstract

Purpose

Government policy mandates information disclosure in financial communications to protect consumer welfare. Unfortunately, low readability can hamper information disclosures’ meaningful benefits to financial decision making. Thus, this experiment tests the product evaluation and decision satisfaction of Korean consumers with less or more subjective knowledge and with or without personal finance education.

Design/methodology/approach

A between-subjects experiment examined responses of a nationally representative sample of 400 Korean consumers toward a Korean-language credit card advertisement.

Findings

Financial knowledge improves financial product evaluation and decision satisfaction. More readable disclosures improved evaluation and satisfaction among less knowledgeable consumers. Less readable disclosures did not. Consumers without financial education exhibited lower evaluations and decision satisfaction regardless of readability. More knowledgeable consumers and those with financial education performed equally well regardless of disclosure readability.

Practical implications

Financial service providers seeking more accurate evaluations and better decision satisfaction among their customers should use easier-to-read disclosures when targeting consumers with less prior financial knowledge.

Social implications

One-size-fits-all financial communications are unlikely to achieve public policy or consumer well-being goals. Government-mandated information should be complemented by augmenting financial knowledge and providing personal finance training.

Originality/value

Although almost a quarter of the world’s population lives in East Asia, this is the first examination of readability in disclosures written in East Asian characters rather than a Western alphabet. Previous readability research on Asian-originating financial disclosures has been conducted on English-language texts. This study extends knowledge of readability effects to growing East Asian markets.

Details

International Journal of Bank Marketing, vol. 38 no. 7
Type: Research Article
ISSN: 0265-2323

Keywords

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