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1 – 10 of over 7000The purpose of this research is to examine the effect of heuristic biases on investment decisions through multiple mediation mechanisms of risk tolerance and financial literacy in…
Abstract
Purpose
The purpose of this research is to examine the effect of heuristic biases on investment decisions through multiple mediation mechanisms of risk tolerance and financial literacy in the Tanzanian stock market.
Design/methodology/approach
A sample of 316 individual investors in the Tanzanian stock market was obtained through questionnaires. The data were analyzed using structural equation modeling (SEM).
Findings
The findings show that financial literacy mediates insignificantly the effects of overconfidence, availability, anchoring and representativeness heuristics on investment decisions. Further, financial literacy does not influence the effect of risk tolerance and investment decisions. Risk tolerance is confirmed as a positive mediator of overconfidence, availability, anchoring and representativeness heuristics in investment decisions. Also, the study shows that overconfidence exerts a stronger influence on investment decisions, followed by availability, representativeness, risk tolerance, anchoring and financial literacy.
Research limitations/implications
The study deals with real investors. Therefore, it uses fewer items to measure the constructs in order to avoid respondent bias. Further research could examine the effects of heuristic biases on investment decisions by adding or modifying the items of particular constructs and studying institutional investors.
Practical implications
The findings can help individual investors to analyze and evaluate their behavior toward stock selection. Securities institutions can use this research to understand investors' behavior, evaluate future market trends and provide advice to the investors.
Originality/value
Previous studies have examined the impact of heuristics on the investment decisions of individual investors. The unique empirical analysis developed in this paper is that it examines the multiple mediation mechanisms of risk tolerance and financial literacy with respect to heuristic biases and investment decisions in the Tanzanian stock market.
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Pendo Shukrani Kasoga and Amani Gration Tegambwage
The purpose of the paper is to examine the financial management behavior (FMB) mediation mechanism in self-control, optimism, deliberative thinking and investment decisions in the…
Abstract
Purpose
The purpose of the paper is to examine the financial management behavior (FMB) mediation mechanism in self-control, optimism, deliberative thinking and investment decisions in the Tanzanian stock market.
Design/methodology/approach
A sample of 268 individual investors in the Tanzanian stock market was obtained through questionnaires. The data were analyzed using structural equation modeling.
Findings
The findings show that self-control, optimism and deliberative thinking are significantly and positively related to FMB and investment decisions. The findings also confirmed the mediating role of FMB in the influence of self-control, optimism and deliberative thinking on investment decisions among Tanzanian individual investors. These findings imply that people with good self-control, optimistic and deliberative thinking are more likely to save money, have better FMB and prefer to make investment decisions.
Research limitations/implications
The study deals with individual investors. Future research could examine the effects of psychological traits on investment decisions by adding or modifying the items of particular constructs and studying institutional investors.
Practical implications
Individual investors can use the information to study and evaluate their financial behavior and stock investment decisions. This research can be used by security firms to better understand investor behavior, forecast future market trends and advice investors. Individual investors require psychological features to manage their behavior in various aspects, ranging from affective behavior to cognition, which are relevant for investing decisions.
Originality/value
Few studies have examined the influence of self-control, optimism and deliberative thinking on the investment decisions of individual investors. The unique empirical analysis developed in this paper is that it examines the mediation mechanisms of FMB with respect to self-control, optimism and deliberative thinking and investment decisions among individual investors in the Tanzanian stock market.
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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 gender. The…
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.
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Stutee Mohanty, B.C.M. Patnaik, Ipseeta Satpathy and Suresh Kumar Sahoo
This paper aims to identify, examine, and present an empirical research design of behavioral finance of potential investors during Covid-19.
Abstract
Purpose
This paper aims to identify, examine, and present an empirical research design of behavioral finance of potential investors during Covid-19.
Design/methodology/approach
A well-structured questionnaire was designed; a survey was conducted among potential investors using convenience sampling, and 200 valid responses were collected. The research work uses multiple regression and discriminant function analysis to evaluate the influence of cognitive factors on the financial decision-making of investors.
Findings
Recency and familiarity bias are proven to have the highest significant impact on the financial decisions of investors followed by confirmation bias. Overconfidence bias had a negligible effect on the decision-making process of the respondents and found insignificant.
Research limitations/implications
Covid-19 is a temporary phase that may lead to changes in financial behavior and investors’ decisions in the near future.
Practical implications
The paper will help academicians, scholars, analysts, practitioners, policymakers and firms dealing with capital markets to execute their job responsibilities with respect to the cognitive bias in terms of taking financial decisions.
Originality/value
The present investigation attempts to fill the gap in the literature on the intended topic because it is evident from literature on the chosen subject that no study has been undertaken to evaluate the impact of cognitive biases on financial behavior of investors during Covid-19.
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Raghdaa Ali Ismail, Osama Zaki and Heba Abou-El-Sood
This paper aims to provide a systematic review of literature pertaining to how executive behavioral characteristics relate to financial reporting decisions.
Abstract
Purpose
This paper aims to provide a systematic review of literature pertaining to how executive behavioral characteristics relate to financial reporting decisions.
Design/methodology/approach
The authors review 44 papers published between 2001 and 2021 in top journals that are nested in leading business, economic and accounting journals.
Findings
Through the systematic review, the authors provide a framework for the emergence of narcissism and how it relates to decision making and hence, firm performance. Additionally, this paper identifies different measures of measuring narcissism with their pros and cons and suggest that different measures lead to different outcomes in prior literature.
Originality/value
The study contributes to a growing stream of research on executives' attributes influence on decision making. The authors recommend that future research may focus more on the chief financial officer (CFO) role as the majority of literature in CEO based. Additionally, the authors suggest that different settings may moderate the outcomes, and the authors propose that future research may be conducted to show how the regulatory environment affects or moderates narcissism effect.
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Yasmeen Al Balushi, Stuart Locke and Zakaria Boulanouar
Small and medium enterprises’ (SMEs) capital structure and financial policies are important areas of policy concern. Only a limited number of studies on capital structure have…
Abstract
Purpose
Small and medium enterprises’ (SMEs) capital structure and financial policies are important areas of policy concern. Only a limited number of studies on capital structure have, however, been conducted on SMEs, and this deficiency is particularly evident when investigating what influences funding decisions around Islamic finance. This paper accordingly aims to investigate whether Omani SME owner-managers’ intention to adopt Islamic finance is influenced by their knowledge of Islamic finance, their own characteristics and/or their firms’ characteristics.
Design/methodology/approach
The authors administered a questionnaire survey via face-to-face interviews to 385 SME owner-managers operating in Muscat, Oman’s capital city. The Kruskal–Wallis one-way analysis of variance (ANOVA) non-parametric test was used to analyse the questionnaire survey data.
Findings
The findings indicate that while SME owner-managers’ Islamic financial knowledge and personal characteristics do influence their intention to adopt Islamic finance, their firms’ characteristics have no significant influence on SME owner-managers’ decisions to accede to Islamic financing.
Research limitations/implications
The research’s first limitation is that it gathered data from SME owner-managers in Muscat only. Future studies could survey a wider sample of Omani SME owner-managers. Second, the study’s findings cannot be generalised to large and public firms, as the sample includes owner-managers of SMEs only. Finally, there is a need to investigate other factors such as nonfinancial and behavioural factors, which were not explored in the present study, but which may influence SME owner-managers’ Islamic financial decisions.
Originality/value
Theoretical and empirical studies on capital structure have focused primarily on large listed firms. Only a few studies have paid attention to the capital structure of SMEs, particularly in the context of an emerging market such as Oman. This gap in the literature is mostly evident when investigating the factors that influence the funding decision towards Islamic financing in a country, such as Oman, where Islamic finance represents a new banking sector offering.
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Guilherme Kirch and Paulo Renato Terra
This paper aims to examine the interdependence of financial decisions (investment, financing, dividends and cash-holding) under financial constraints.
Abstract
Purpose
This paper aims to examine the interdependence of financial decisions (investment, financing, dividends and cash-holding) under financial constraints.
Design/methodology/approach
The authors specify and estimate a system of simultaneous equations with panel data and firm fixed effects by three-stage least squares in a sample of firms from 62 countries from 1996 to 2010.
Findings
The main findings largely corroborate previous studies regarding the interdependence of financial decisions. The authors also find evidence suggesting that financial constraints have a major impact on firms’ financial decisions. The results also suggest that financial constraints manifest themselves in virtually all firms, indicating that such constraints are a matter of degree and not of kind.
Research limitations/implications
Implications regarding the impact of cash flows on investment and cash-holding decisions are only partially confirmed.
Practical implications
The results are consistent with the hypothesis that financial constraints distort the financial policies of firms. For the purpose of formulating policies that reduce these distortions, the authors emphasize the role of the availability of internal funds and the recoverable fraction of assets in easing financial constraints, thus allowing for greater investment on the part of firms.
Social implications
The results suggest that regulators should promote policies that reduce the dependence of corporate investment on internally generated cash flows.
Originality/value
Unlike previous studies, the authors account for the direct impact endogenous variables could have on each other. In addition, they explore the impact of each country’s particular legal environment on the pledgeability of assets at the company level.
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This study aims to provide an in-depth understanding of investors’ cognition and decision-making process with regard to internet financial products. The objective is to…
Abstract
Purpose
This study aims to provide an in-depth understanding of investors’ cognition and decision-making process with regard to internet financial products. The objective is to effectively guide users’ rational investments.
Design/methodology/approach
First, based on grounded theory, this study develops a tool for measuring users’ perceived value (PV) of internet financial products via in-depth interviews. Then, after comprehensively considering users’ environmental, individual and psychological characteristics, this study proposes a theoretical model of internet financial product investment decisions based on the PV of users. Finally, an empirical study is conducted on 693 valid sample data from e-commerce and online banking financial platforms.
Findings
The empirical results suggest that network externalities influence users’ financial behavior by herding (HE) (imitating others and discounting their own information) and PV. PV and HE are key factors in users’ investment decisions with regard to internet financial products. Moreover, users’ self-efficacy (SE) and platform type play moderate roles in the influence mechanism.
Practical implications
The research conclusions provide valuable references for designing financial products and establishing regulatory rules, which will help the internet financial industry to grow soundly and innovatively.
Originality/value
This study uncovers the mediating effect of HE and PV between network externalities and users’ investment intentions in the context of internet financial products. In addition, the moderating effect of users’ SE and platform types is revealed.
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Mustafa Nourallah, Peter Öhman and Muslim Amin
The purpose of this study is to describe and analyse the effect of a set of determinants on initial trust and behavioural intention to use financial robo-advisors (FRAs).
Abstract
Purpose
The purpose of this study is to describe and analyse the effect of a set of determinants on initial trust and behavioural intention to use financial robo-advisors (FRAs).
Design/methodology/approach
The theory of perceived risk and the behavioural finance paradigm were used to develop a conceptual model of retail investors’ initial trust in FRAs. Data collected from 554 young retail investors (YRIs) from Sweden and Malaysia were analysed using structural equation modelling.
Findings
The results of this study indicate that the amount of public information, social media information-seeking and a rational decision style are significantly related to initial trust in FRAs, which in turn is significantly and positively related to the behavioural intention to use this technology. However, none of the risks under study significantly affect the initial trust in FRAs.
Practical implications
Information is vital to inducing YRIs to rely on FRAs, so the more public and social media information is available, the higher their intention to use this technology. However, YRIs vary in decision style, and the results suggest implementing a more sophisticated system than the current “one-size-fits-all” approach to YRI behaviour.
Originality/value
The empirical-based model enhances the knowledge of the initial phase of trust-building, when YRIs lack sufficient experience of FRAs. By collecting data from two countries, the study’s novel conclusions may help in developing effective FRA services for the youth segment.
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Muskan Sachdeva and Ritu Lehal
Stock markets are considered as the largest and most important units for the development and growth of the economy. The present study attempts to provide a comprehensive view of…
Abstract
Purpose
Stock markets are considered as the largest and most important units for the development and growth of the economy. The present study attempts to provide a comprehensive view of factors influencing investment decision making process of stock market investors. A multi group analysis of gender is also carried out on the proposed model.
Design/methodology/approach
The data of 402 valid responses are collected through structured questionnaires from individual investors of North India. SPSS 23 is used to do the descriptive analysis and AMOS 22 is used to establish the validity of the constructs and for hypotheses testing. For performing multi group analysis, several invariance tests have also been conducted to check the robustness of the model.
Findings
The results reveal that all the factors such as firm image, accounting information, neutral information, advocate recommendation and personal financial needs significantly influence investment decision making concluding image of the firm being the most influential factor and advocate recommendation being the least influential factor for investment decisions. No significant differences between males and females were found.
Research limitations/implications
The current study suffers from the limitation of restricted geographical area of North India. Moreover, there is also a scope to incorporate more demographic factors for predicting investment decisions.
Originality/value
This study incorporates a range of factors which covers all the aspects of investment decision making. This study also highlights the notion of signaling theory, thus contributing to the limited literature in Indian context.
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