The Testing of Belief-Adjustment Model and Framing Effect on Non-Professional Investor’s Investment Decision-Making

Taufan Hanafi

doi:10.14414/tiar.v7i1.945

Abstract

This study aims to find out the effect of belief-adjustment model and framing effect on non-professional investor’s investment decision making. The designs of experiment used in this study are the presentation pattern of 2x2x2, disclosure pattern (step-by-step and end-of-sequence), disclosure evidence of information order (good news followed by bad news and bad news followed by good news), and framing effect (framing condition according to the information and framing condition with the reversed information). The research hypotheses in this study are tested using parametric test. The dependent variable used in this study is investment decision making, while, the independent variables used in this study are belief-adjustment model and framing effect. The number of participants involved in this study is 80 undergraduate students of STIE Perbanas Surabaya majoring in Accounting or Management. The results indicate that there are significant differences in decision making and recency effect occurs between the investors who receive good news followed by bad news and the investors who receive bad news followed by good news in the step-by-step disclosure pattern with framing condition according to the information. The results of this study also show that primacy effect occurs between the investors who receive good news followed by bad news and the investors who receive bad news followed by good news in the step-by-step disclosure pattern with framing condition in reversed information.

Highlights

In the current development, investment has become a global economic media that encourages economic players, especially investors when they have to invest
In Scenario T1, the participants are given short series of accounting information with step-by-step presentation pattern, presentation order of good news followed by bad news (++ -) with framing condition according to information
In scenario T5, the participants are given short series of accounting information with end-sequence presentation pattern, presentation order of good news followed by bad news (++--) with framing condition according to information

Summary

Introduction

Investment has become a global economic media that encourages economic players, especially investors when they have to invest. Kalbe Farma Tbk Company presents the financial statement and annual report separately, while Indo Farma Tbk Company combines both the financial statement and the annual report in one reporting This will affect the decision-making taken by investors. Previous research conducted by Teoh and Shiu (1990) provides empirical evidence that financial statement information is more important than social responsibility report for investors in Australia. This makes investors tend to see financial performance information rather than non-financial information. Based on the difference of presentation, investors are more likely to choose companies that present financial statements and annual reports separately, because investors can see the company's financial performance information directly in the financial statements without having to see the annual report first

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Conclusion