Investment Decision Process Research Articles

Financial reporting quality, audit fees and risk committees

PurposeThe purpose of this paper is to examine the association between the existence of a risk committee (RC) in a firm and financial reporting quality. We also investigate whether having an RC has an effect on audit pricing. We argue that the existence of an RC in a firm contributes to higher financial reporting quality and this, eventually, affects audit pricing.Design/methodology/approachThis study uses two different proxies for RC measures and investigates the impact on financial reporting quality and audit pricing. Multivariate regression analysis and propensity score matching techniques are both applied to data from the Australian Stock Exchange's listed companies for the years 2001–2013.FindingsThe results indicate that the existence of an RC reduces the discretionary accruals; this means the financial reporting quality improves when RCs are in operation. Our findings also indicate that the existence of an RC increases audit fees.Practical implicationsThe findings from this study will be beneficial to the regulatory authorities responsible for improving the compliance of corporate governance (CG). An RC can serve as a risk-mitigating tool in the investment decision-making process. Finally, the results are beneficial for the development of best practices in CG by promoting the existence of an RC.Originality/valueThis study goes beyond the traditional focus on CG as we use the existence of an RC as an indicator of better governance practices to mitigate financial and non-financial risk factors. To the best of our knowledge, this paper is among the first to investigate the consequences for firms operating with RCs. This issue has implications for investors, auditors, directors and regulators.

Optimum spending on cybersecurity measures

PurposeThis purpose of this paper is to provide insight through analysis of the data collected from a pilot study, into the decision-making process used by organizations in cybersecurity investments. Leveraging the review of literature, this paper aims to explore the strategic decisions made by organizations when implementing cybersecurity controls, and identifies economic models and theories from the economics of information security, and information security investment decision-making process. Using a survey study method, this paper explores the feasibility for development of a strategic decision-making framework that may be used when evaluating and implementing cybersecurity measures.Design/methodology/approachA pilot study was conducted to evaluate the ways in which decisions are made as it relates to cybersecurity spending. The purpose of the pilot study was to determine the feasibility for developing a strategic framework to minimize cybersecurity risks. Phase 1 – Interview Study: The qualitative approach focused on seven participants who provided input to refine the survey study questionnaire. Phase 2 – Survey Study: The qualitative approach focused on information gathered through an online descriptive survey study using a five-point Likert scale.FindingsThe literature review identified that there is limited research in the area of information security decision making. One paper was identified within this area, focusing on the research completed by Dor and Elovici [22]. This exploratory research demonstrates that although organizations have actively implemented cybersecurity frameworks, there is a need to enhance the decision-making process to reduce the number and type of breaches, along with strengthening the cybersecurity framework to facilitate a preventative approach.Research limitations/implicationsThe partnership research design could be expanded to facilitate quantitative and qualitative techniques in parallel with equal weight, leveraging qualitative techniques, an interview study, case study and grounded theory. In-depth data collection and analysis can be completed to facilitate a broader data collection which will provide a representative sample and achieve saturation to ensure that adequate and quality data are collected to support the study. Quantitative analysis through statistical techniques (i.e. regression analysis) taking into account, the effectiveness of cybersecurity frameworks, and the effectiveness of decisions made by stakeholders on implementing cybersecurity measures.Practical implicationsThis exploratory research demonstrates that organizations have actively implemented cybersecurity measure; however, there is a need to reduce the number and type of breaches, along with strengthening the cybersecurity framework to facilitate a preventative approach. In addition, factors that are used by an organization when investing in cybersecurity controls are heavily focused on compliance with government and industry regulations along with opportunity cost. Lastly, the decision-making process used when evaluating, implementing and investing in cybersecurity controls is weighted towards the technology organization and, therefore, may be biased based on competing priorities.Social implicationsThe outcome of this study provides greater insight into how an organization makes decisions when implementing cybersecurity controls. This exploratory research shows that most organizations are diligently implementing security measures to effectively monitor and detect cyber security attacks. The pilot study revealed that the importance given to the decisions made by the CIO and Head of the Business Line have similar priorities with regard to funding the investment cost, implementing information security measures and reviewing the risk appetite statement. This parallel decision-making process may potentially have an adverse impact on the decision to fund cybersecurity measures, especially in circumstances where the viewpoints are vastly different .Originality/valueCybersecurity spend is discussed across the literature, and various approaches, methodologies and models are used. The aim of this paper is to explore the strategic decision-making approach that is used by organizations when evaluating and implementing cybersecurity measures. Using a survey study method, this paper explores the feasibility for development of a strategic decision-making framework that may be used when evaluating and implementing cybersecurity measures.

How Much is a Goal in the Football Championship Worth? Match Results and Stock Price Reaction

In the past many researchers have argued that psychological factors influence stock returns. In this paper, we try to show the relationship between the outcome of football events and stock returns, based on the thesis that sports results affect investors’sentiment. We analyzed stock price performance indicators and football results, by taking 25 Soccer Listed Companies into account. The most extensive database ever used (11,977 matches) has been considered. It includes football results in the National Championship, National Cup and Continental Cups, in the period between the 2003/2004 and the 2014/2015 season. The analysis shows the economic and significant statistical effects on stock prices irrespective of the final results of the matches. This conclusion is valid for all analysed countries and competition type. We also show that stock market reaction is larger in some local markets than in others. Moreover, we examine the relationship between the number of goals scored and league stages effects, finding meaningful evidence of behavioural finance on investment decision-making processes.

How Much Is A Goal in the Football Championship Worth? Match Results and Stock Price Reaction

Abstract: In this paper, we show the relationship between the outcome of football events and stock returns, based on the thesis that sport results affect investor sentiment . We analyzed stock price performance indicators and football results by taking 25 publicly listed soccer companies into account. The most extensive database ever used (11,977 matches) was considered. It includes football results in the National Championship, National Cup, and Continental Cups in the period between the 2003–2004 and the 2014–2015 seasons. The analysis revealed the economic and significant statistical effects on stock prices irrespective of the results of the matches. This conclusion is valid for all analyzed countries and competition types. We also showed that stock market reactions are larger in some local markets than in others. Moreover, we examined the relationship between the number of goals scored and league stages effects, finding meaningful evidence of behavioral finance on investment decision-making processes.

Exploring citizens' decision to crowdfund renewable energy projects: Quantitative evidence from France

Abstract Over the past few years, benefiting from broad citizen and political support, renewable energy (RE) crowdfunding has experienced a strong growth in France. RE crowdfunding is a relevant instrument to support the transition from fossil to RE sources by simultaneously diversifying funding possibilities, committing retail investors to the energy transition, and stimulating local acceptance. Thus, it is crucial to better understand the RE crowdfunding investment decision-making process to ease the design and assessment of related policies. However, the existing literature on RE crowdfunding is relatively scarce and has not focused on this issue so far. Relying on a novel survey dataset, this article specifically aims at filling this gap using a probit regression analysis. Our findings suggest that, among the French population, the main predictors of the decision to invest in RE crowdfunding (sign in parentheses) are: (i) the general opinion about the RE sector (positive), (ii) opinions about the RE sector durability (i.e., business continuity over time) and investment opportunities transparency (positive), and (iii) risk perception (negative). Besides this, positive and strong spillovers arise from existing RE investments in other investment vehicles. However, opinions about the RE sector profitability and regulation do not play a significant role. These results are unchanged by the introduction of various controls. Additionally, they suggest that the policy framework recently implemented in France – such as the GREENFIN France Finance Verte label (2015), RE development targets explicitly introduced in the Programmation Pluriannuelle de l'Energie (2015), or the recent PACTE law (2019) that provides support to various green investment possibilities – is relevant to foster the development of RE crowdfunding. Such policies indeed contribute to anchor investors' expectations, foster coordination and transparency, and provide spillovers' opportunities, which are key levers identified in this paper.

Stock Market Prediction Framework Based on the Fruit Fly Optimization Method

Stock market prediction helps investors in decision-making process of investment to achieve profit. Recently, the deep learning method shows the significant performance in the stock market prediction. These deep learning models have the drawback of overfitting problems when it processing number of features. In this research, the fruit fly optimization method has been proposed for the feature reduction process in the stock market prediction. The fruit fly method has the advantages of simple computation processes and less number of parameter for tuning. The fruit fly method selects more relevant features to reduce the overfitting problem in the Long Short Term Memory (LSTM) classifiers. The Nifty 50 and S&P 500 data were applied to test the efficiency of the proposed model. The obtained result shows that the fruit fly method based framework achieved more efficiency than other techniques. The fruit fly based framework has 0.426 of Mean Square Error (MSE) and the existing firefly method has 0.621 MSE.

Measuring the effect of investor sentiment on liquidity

PurposeThe purpose of this paper is to examine the effect of firm-level investor sentiment on a firm's share liquidity.Design/methodology/approachThe authors use Bloomberg's firm-level, daily investor sentiment scores derived from firm-level news and Twitter content in a regression model to explain the variability in a firm's share liquidity.FindingsThe results indicate that improvements (deterioration) in investor sentiment derived solely from Twitter content lead to a decrease (increase) in the average firm's share liquidity. Results, although not as strong, are opposite for investor sentiment derived solely from news articles: improvements (deterioration) in news sentiment leads to an increase (decrease) in the average firm's share liquidity.Research limitations/implicationsThe proxy for share liquidity is the bid-ask spread, which may be an imperfect measure of liquidity. The Amihud illiquidity measure was used as an alternative proxy and yield similar results. The results have important implications for investors in assessing the determinants of share liquidity.Practical implicationsThe sample period covers four years (2015–2018), which is determined by the availability of the Bloomberg sentiment data.Social implicationsInvestors increasing use of social media to express views on particular stocks and seek information that might be used in the investment decision-making process. The study links investor sentiment derived from social media (Twitter) to share liquidity.Originality/valueBy examining the relationship between a firm's sentiment and the firm's share liquidity, this paper advances the authors' understanding of the factors that drive a firm's share liquidity. To the authors' knowledge, this is the first study to link investor sentiment derived from firm-level news and Twitter content to a firm's share liquidity.

The ESG Disclosure Regulation – New Duties for Financial Market Participants & Financial Advisers

On 27 November 2019 Regulation (EU) 2019/2088 (ESG Disclosures Regulation) on sustainability-related disclosures in the financial services sector came into force and the regulation will apply 15 months later. The regulation forms part of a number of initiatives adopted by the European Commission as part of its Action Plan on sustainable financial adopted in March 2018. Apart from the ESG Disclosures Regulation, these include: • a regulation amending the benchmark regulation in relation to low carbon benchmarks and positive carbon impact benchmarks; • a regulation on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation); and • delegated regulations amending MiFID II Delegated Regulation 2017/565 (LVL 2 MiFID II) and Commission Delegated Regulation (EU) 231/2013 (LVL 2 AIFMD) to integrate ESG considerations and preferences into investment advice and portfolio management; and to incorporate sustainability risks. The ESG Disclosures Regulation seeks to harmonize existing provisions on disclosures to investors in relation to sustainability-related disclosures by imposing requirements to a wide range of cross-sectoral financial market participants (e.g. UCITS management companies and investment firms) and financial advisers (e.g. MiFID II investment firms and credit institutions) in relation to financial products (e.g. alternative investment funds (AIF) and undertakings for collective investment undertakings (UCITS)). Due to the cross-sectoral approach of the ESG Disclosures Regulation, the regulation ensures a level playing field. Ultimately, the regulation seeks to contribute in eliminating green-washing, i.e. a form of marketing in which green values are deceptively used to persuade investors that the financial products of a financial market participant or financial adviser are environmentally friendly and therefore better. To that end, the ESG Disclosures Regulation requires the integration of sustainability risk in financial market participants' investment decision-making processes or financial adviser' advisory processes and transparency as regard financial products, which target sustainable investments. Specific requirements include pre-contractual disclosures, disclosures on websites and disclosures in periodic reports in relation to financial products. The Taxonomy Regulation supplements the disclosure rules enshrined in the ESG Disclosures Regulation. These will be subsequently discussed in this contribution on an integrated basis.

Past behaviour, financial literacy and investment decision-making process of individual investors

PurposeThis study aims to explore the importance of past behaviour and financial literacy in the investment decision-making of individual investors and examines the validity of the theory of planned behaviour in this context.Design/methodology/approachThe study used a self-administered questionnaire and adopted the convenience sampling technique followed by a snowball sampling method for the survey to collect data from the individual investors covering the four distinct states of India. Collected data were analysed on AMOS 20.0 using two-step structural equation modelling (SEM).FindingsResults indicated a significant effect of all the predictive variables. Past behaviour showed no significant direct impact on investor's intention; however, it had an indirect significant relationship while mediated by the attitude of investors. The multiple squared correlation (R2) showed that the final model could explain 36% of the variance in investors' intention towards stock investment which signified a successful implementation of the TPB model along with external variables added to it. Moreover, Indian investors were found to be highly influenced, primarily, by social pressure which could be curbed through financial literacy.Practical implicationsA significant importance of subjective norms was found on stock market participation which could be a strategic theme for the government and the policymakers to educate investors through their opinion leaders for increasing their participation. Moreover, by doing so investors could control their behaviour and take rational decisions.Originality/valueThis study extended the understandings of investor's decision-making behaviour using TPB by incorporating the two external variables viz., Financial literacy and past behaviour. The addition of past behaviour is perhaps the novelty of this article since such examination has not been conducted empirically especially in the case of developing countries like India.

The European Union’s Screening Framework for Foreign Direct Investment: Consequences for External Relations

The Lisbon Treaty gives the European Union (EU) institutions new external competences, including foreign direct investment (FDI) in the common trade policy. Using these competences the European Commission formulated a proposal for a regulation establishing the screening framework for FDI, which entered into force in April 2019. The aim of this paper is to discuss the issue of FDI screening as an element of policies towards FDI applied by developed countries, to assess the justifications for its introduction, as well as the potential consequences of the screening framework for inflowing FDI into the EU. A need to protect the EU’s strategic economic interests in relations with third countries was the reason for the introduction of the new tool at the EU level. The new system of screening FDI inflows into the EU is not centralized. The right to screen remains the sole responsibility of the Member States. The co-ordination mechanism at the level of the EU which has been constructed seems to give guarantees that common interests will be protected. The economic and political consequences of the EU’s screening framework for FDI should be foreseen. Apart from administrative and compliance costs, as well as uncertainty and delays related to investment decision processes, two categories of potential consequences seem to be important. These are the expected reduced access to capital by some Member States, especially the ‘new’ ones, and the worsening of relations with external partners, especially China.

A qualitative research on selected performance indicators for investment decision process: a framework for fintech startups in Turkey

Purpose- The purpose of this study is to help investors in their decision-making process in funding Financial Technology (FinTech) Startups by developing a framework of key performance indicators for effective financial resource allocation. A better understanding of investors’ point of view for FinTech Startups is also targeted. Methodology- The study is conducted as structured face-to-face interviews with a sample of four angel investors and four venture capitals. In the interviews, selected indicators from the literature and finance industry experts’ declarations were presented in four groups: Firm, Owner/Founder, Financial or Marketing/Procurement Characteristics. It was asked whether these indicators were used in the decision-making process or were there extra indicators not listed here. Findings- The widely accepted indicators were found shareholder structure, experience of major decision makers, increase in net sales, existence and amount of VC or other funding, number of clients, serving to consumers or businesses and expected developments in the startup’s sector. Conclusion- Results of this study may help investors in their decision-making process in funding FinTech Startups FinTech startups are also targeted to have a better understanding of investors’ point of view. This study contributes to the common understanding on investment dynamics in Turkish FinTech ecosystem, which is expected to have a major role in FinTech industry.

Impact of Cashflow Reporting on Individual Investors’ Investment Decision Making in Nepal: with Reference of Kirtipur Kathmandu

The research is an attempt to study the impact of cash flow reporting on the individual investors’ investment decision as well as to study the individual investors’ investment sectors and to study the transparency and trustworthiness sector for investment. The research is full based on primary data so data were collected through questionnaire and distributed to 180 respondents in Kirtipur, Kathmandu. SPSS and Excel are used to analysis, interpret and result data are present in different table. The study reveals that the investors are not confident about the impact of the cash flow reporting on their investment decision process. Individual investors’ are highly motivated to invest in hydro-power sector and beliefs it has transparency and trustworthiness sector for investment. Individual investors should consider cash flow statement and different factor like government policies, economic stability and capital structure during their investment process.

Impact of External Assistance Programs on Supply Chain Energy Efficiency: A Behavioral Investigation

Problem Definition: We take a behavioral perspective to examine the two-stage energy efficiency (EE) investment decision process that many small-and-medium-sized manufacturers (SMMs) face and the potential benefit that external assistance programs provide in both increasing the propensity to take on an assessment and choosing an appropriate EE investment level. Academic/Practical Relevance: A significant portion of energy efficiency improvement opportunities remain dormant at SMMs. External assistance programs are designed to help encourage SMMs to overcome the initial assessment hurdle. However, it is unclear if the source of such programs, whether offered by a downstream buyer or a third-party organization, results in different behavioral outcomes. This study provides insights for policymakers looking to design more effective external assistance programs. Methodology: We use analytical models and behavioral theory to develop a set of hypotheses concerning the impact of two types of external assistance programs. These hypotheses are further informed and tested through three sets of human experiments using participants from MTurk. Results: We confirm the anecdotal observation that, without any external intervention, a significant portion of profitable assessments remains dormant. Although third-party or buyer-offer assessment assistance programs perform equally well in increasing the propensity to conduct a profitable assessment, a buyer-offer program appears to be more efficient as it results in a higher portion of self-financed assessment, i.e., less free-riding. In the investment stage, we observed that investments are not influenced by the assessment cost. However, SMMs who self-finances or uses third-party assistance are prone to apply the representative heuristic and so, tend to under-invest (over-invest) when the assessment reveals highly (less) profitable EE opportunities. A buyer-offered assistance program could, interestingly, alleviate this behavioral bias, leading to investments that align better with the expected profit maximizing levels. Managerial Implications: Our results suggest that it can be more cost-efficient and effective for third-party organizations to collaborate with buyers in providing assistance and managing information instead of providing free assessments directly to SMMs, which is often the case in practice. This is because a buyer-offered assistance program could achieve the same supply chain EE results without having to inject extra cash to cover the assessment cost.

A Mixed-Methods Approach to Understanding Funder Trust and Due Diligence Processes in Online Crowdfunding Investment

We report on two studies undertaken to establish the factors that affect funders’ trust and likelihood to invest in crowdfunding campaigns online. Findings from an initial small-scale qualitative study are reported and subsequently triangulated in a larger quantitative survey. Across these studies, we demonstrate the importance of social information within the peer economy, with a strong reliance on other users across the course of the investment decision-making process. Decision making on whether to invest is informed not only by the content of the crowdfunding campaign page but also by social influence factors that are present (e.g., liking of the campaigner, reciprocity). It is further shaped by due diligence checks focused on the progression of the prototype for which funding is sought, and by assurances from outside the campaign page—namely on social media. Such assurances center around the importance of social proof, garnered through opinions of previous customers or other funders. The risk here is that much of this information is content that can be faked, and as such a reliance on this may leave potential funders vulnerable. Meanwhile, a genuine lack of prior experience and customer base means that some legitimate campaigners struggle to gain trust from potential investors who are reliant on such social information. Our findings present an empirical grounding to develop future security solutions that (1) protect existing funders and (2) increase potential funders’ level of trust, to encourage their engagement with legitimate crowdfunding campaigns.

Awareness Level of Retail Investors on Stock Market in Chennai City

The globalization of monetary markets has been increasing the dimensions of retail investor community over the past three decades by providing a good sort of market and investment options. Hence, it makes their investment decisions process more complex. The present study aims to study the awareness of investors on stock market. The data were collected from 100 retail stock market investors of Chennai using structured questionnaire. The analysis is made using percentage and mean value. The study proves that post graduate, professional, high income level investors are aware of investment patterns through friends, neighbors and they yield a good income. The study also reveals that the retail investors are even aware of the fundamental and technical analysis of investment, which helps them for a better and wise investment.

Determinants of Governance Parameters Towards Investor’s Performance in Perspective of Regulatory and Legal Framework

The study aims to extract the main determinants of governance index in relation to regulatory and legal framework, which influence the performance of investors in larger way. The driver of governance factors has been studied and tested empirically by using factor analysis method (Exploratory Factor Analysis). To achieve this, Quantitative data have been collected by distributing questionnaire to a suitable sample size of 317 respondents who have at least 3 years of investment experience in Indian stock market and data collection period was over last 6 month of 2017. For preparing the questionnaire, the study considers the corporate governance index scale by Standard & Poor’s agency which was worldwide accepted. The study provides a useful direction to retail investors, investment professionals/planners and companies regarding the knowledge about governance-related factors that are specific to the causal effect between mentioned governance construct and market returns. Further it implies that good governance system helps investors during their investment decision-making process particularly in emerging markets for getting higher return, money protection and deterrence from fraudulent market activities.

PENGARUH PROFITABILITAS, LIKUIDITAS, DAN UKURAN PERUSAHAAN TERHADAP KETEPATAN WAKTU PENYAMPAIAN LAPORAN KEUANGAN (STUDI EMPIRIS PADA PERUSAHAAN MANUFAKTUR SEKTOR INDUSTRI BARANG KONSUMSI YANG TERDAFTAR DI BURSA EFEK INDONESIA PERIODE 2010-2014)

Timeliness of the submission of Go's financial statements public is important for disclosing accounting information used by market participants in the investment decision-making process. This study aims to find empirical evidence about the factors that are affect the timeliness of financial reporting of manufacturing sector companies the consumer goods industry which is listed on the Indonesia Stock Exchange. Factors tested in this study are return on assets, current ratio, and total assets. The population in this study is the Industrial Sector Manufacturing Company Consumer goods a total of 40 companies are then taken as many samples 28 companies use purposive sampling techniques. Analytical techniques used logistic regression with a confidence level of 5%. The results of the study shows that profitability has a significant effect on accuracy financial reporting time, whereas liquidity and company size are not significantly influence the timeliness of financial reporting.

The Sky is the Limit: Assessing Aircraft Market Diffusion with Agent-Based Modeling

This paper presents an adapted agent-based model for the diffusion of new aircraft model series. Expanding on the classical economic decision framework, where investment decision-making is entirely based on profitability, our holistic modeling approach takes into account profitability, flexibility, as well as the environmental impact of new aircraft model series in the adoption decision process. Technical parameters such as the range and maximum take-off weight of an aircraft model series, various emissions of the aircraft engine, as well as daily operational data, are used to calibrate the model. In validation, our model produces results that are comparable to data on the market diffusion of an existing aircraft model series, the Boeing 737-500. This result shows the applicability of our model, which can also subsequently be used on aircraft with new generations of technologies. Our simulation shows that a price reduction or a decrease in emissions could lead to more adoption and faster diffusion. Furthermore, our modeling approach demonstrates that a holistic framework to include not only profitability but also flexibility and environmental impact can be helpful when modeling the investment decision-making process.

Herds on green meadows: the decarbonization of institutional portfolios

We analyze an emerging sustainable trend in asset management: the decarbonization of institutional portfolios. By using broad institutional ownership data, we show that investors exhibit herding behavior in the sense of decarbonization. They are inclined to follow their own or other investors’ buys in green stocks and sales in brown stocks over adjacent quarters. Beyond that, we find that Hedge Funds as well as Investment Advisors lead the herd by executing trades in the sense of decarbonization. This is in line with expectations that sophisticated investors, who integrate environmental aspects into their investment decision process, are able to attract imitators. For the aspired achievement of market-wide decarbonization, investors leading the herd should be encouraged to further decarbonize their portfolios in order to trigger follow-up trades.

How Should Responsible Investors Behave? Keynes’s Distinction Between Entrepreneurship and Speculation Revisited

This paper deals with Keynes’s distinction between entrepreneurship and speculation, regarding business people in general and especially investors’ behaviour. Based on Keynes’s thoughts about financial markets, it analyses how different motivations influence the decision-making process of investors and its consequences for stock markets and the real economy and clarifies that Keynes’s considerations are still useful for understanding contemporary developments and risks in the financial system. Furthermore, it points out that Keynes’s theories and policy recommendations should be understood in the context of his moral considerations, especially relating to individual responsibility of investors. Finally, Keynes’s moral thoughts can be taken as a foundation for a contemporary approach to investors’ responsibility.