Investor Preferences Research Articles

Does the financial investment preference of renewable energy firms promote their advance towards sustainable development goals?

Does the financial investment preference of renewable energy firms promote their advance towards sustainable development goals?

The Influence of Financial Literacy, Age, and Gender on Sustainable Investment Preferences Among Millennial Students

This research investigates the relationship between financial literacy, gender, and age on sustainable investment preferences among millennial students. The variables examined include financial education (X1), age (X2), gender (X3), and sustainable investment preferences (Y1), which constitute a literature review in the field of financial management. The aim of this article is to provide an understanding of how financial literacy, age, and gender influence sustainable investment preferences in the millennial generation. The research method employs a quantitative method to analyze survey data collected from millennial students. The study's findings are anticipated to offer an insight into the factors influencing sustainable financial decisions and social responsibility among millennial students. The findings of this article are as follows: 1) Financial education influences Sustainable Investment Preferences; 2) age affects Sustainable Investment Preferences; 3) gender has an impact on Sustainable Investment Preferences.

To the question of the need to improve the financial planning mechanism when making investment decisions

The article focuses on the key problems of improving the financial planning mechanism when making investment decisions by organizations Based on the proposed methodology of financial planning as a systematized set of basic principles and methods of financial planning, applied indicators, impact measures necessary for the implementation of the financial plan, its monitoring, etc., the structure of this mechanism aimed at making investment decisions is substantiated, as well as the functions and tasks of the financial planning process of investment activity are defined. The authors substantiate that financial planning of investment activity is one of the most complex areas of financial planning, which is largely due to the complexity of making investment decisions, during which the state of the macroeconomic environment, objective limitations of investment activity, alternative investment opportunities, the state of the internal environment of the organization, its subjective investment preferences and other external and internal factors should be taken into account. To solve these problems, it is proposed to use such tools of the financial planning mechanism as budgeting of investment activities.

Does informal governance matter to institutional investors? Evidence from social capital

AbstractWe find a positive association between institutional ownership and social capital. The social norms in a region, while not imposed by businesses or laws, play a monitoring role that disciplines managers from self‐serving behaviors. The resulting trustworthiness, through its mitigation of agency problems, drives the investment preferences of institutions. Our subsample analyses based on information asymmetry and financial performance support this inference. Further, the positive association is evident for transient investors and quasi‐indexers but not for dedicated institutional investors. Overall, our study underscores the impact of informal governance on institutions' investment decisions.

The spatial public goods game on hypergraphs with heterogeneous investment

The emergence of cooperation in the multi-person social dilemma has been extensive investigated under the pairwise interactions-based spatial public goods game (PGG). However, higher-order interactions are more suitable to describe the group relationships in real society and have attracted intensive interests. In this work, we propose an extension of the spatial PGG on hypergraphs, where cooperators are allowed to allocate their investments unevenly. A tunable parameter, α, is introduced to characterize the investment preference. α>0 means that cooperators will allocate more investment to the PGG group from which they obtain higher payoff, while for α<0, cooperators will allocate more investment to the group from which they gain lower payoff. Results from numerical simulations indicate that compared with the results of homogeneous case, allocating more resources to profitable groups can effectively promote cooperation. Additionally, for a relative high synergy factor r, there exists a moderate negative value of α that will induce the lowest cooperation level, larger or smaller values of α can enable a higher cooperation level relative to the worst result. Moreover, the nontrivial results are robust against hypergraphs with different orders.

Executive compensation: investor preferences during say-on-pay votes and the role of proxy voting advisers

AbstractShareholder say-on-pay voting allows institutional investors to influence the incentives of managers and, consequently, corporate behaviour. Surprisingly, the preferences of investors on executive compensation have been largely overlooked in the ongoing debates on the role of say-on-pay in corporate governance and the impact of shareholder stewardship on sustainable corporate behaviour. The analysis of investor disclosed explanations of say-on-pay votes in the FTSE 100 companies during 2013–2021 shows that institutional investors rely repeatedly on several dominant themes aimed at improving the incentives of corporate managers and controlling managerial rent extraction. But shareholder interests remain the core focus of say-on-pay votes, with only few investors demanding that companies reward executive directors for protecting the interests of a broader range of affected stakeholders. Additionally, most investors can be grouped into several clusters formed around the voting recommendations of proxy advisers. A group of UK-based institutional investors stands out by taking a more individualistic and diverse approach to the stewardship of executive compensation. These findings highlight the role of local investors in the oversight of executive pay, the growing influence of proxy advisers along with the increasing share of foreign institutional investors, and the influence of best practice governance codes in driving investor stewardship preferences.

A Decomposition of Conditional Risk Premia and Implications for Representative Agent Models

We develop a methodology to decompose the conditional market risk premium and risk premia on higher-order moments of excess market returns into risk premia related to contingent claims on down, up, and moderate market returns. The decomposition exploits information about the risk-neutral market return distribution embedded in option prices, but does not depend on assumptions about the functional form of investor preferences or about the market return distribution. The total market risk premium is highly time-varying, as are the contributions from downside, upside, and central risk. Time-series variation in risk premia associated with each region is primarily driven by variation in risk prices associated with the probability of entering each region at short horizons, but it is primarily driven by variation in risk quantities at longer horizons. Analogous decompositions implied by prominent representative agent models generally fail to match the dynamic risk premium behavior implied by the data. Our results provide a set of new empirical facts regarding the drivers of conditional risk premia and identify new challenges for representative agent models. This paper was accepted by Lukas Schmid, finance. Supplemental Material: The internet appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01663 .

Comparing the performance of Qatari banks: Islamic versus conventional, amidst major shocks

This paper analyzes the performance of Islamic banks (IBs) in Qatar compared to their conventional counterparts (CBs), considering the effects of four major events: The subprime crisis, economic blockade, Covid pandemic, and the Russian–Ukrainian conflict. We collected quarterly data from seven listed Qatari banks (4 CBs and 3 IBs). We examine and compare their performance and financial ratios evolution from January 2008 to December 2022 in terms of profitability, asset growth, solvency, liquidity risk, management investment preference, and operating efficiency. We use the t-test to evaluate the effects of the four major shocks on IBs and CBs performance.

How does institutional investor preference influence corporate green innovation in China?

In this study, we examine the green innovation effect of investor preference on Chinese listed companies from 2008 to 2020. We observe that investors with environmental protection preferences can significantly increase enterprise green innovation. The baseline conclusions remain robust after we conduct multiple sensitivity tests, such as establishing a shift-share instrumental variable (Bartik IV), using the Heckman’s two-step method, changing the regression methods, substituting the core variables, adopting the DID method, and considering investors’ ownership. Our analysis shows that the green innovation effect of environmental investors is highly pronounced in companies with a high level of indebtedness and low managerial ability. We verify that environmental investors can improve the green innovation level of enterprises through two potential mechanisms, namely, easing corporate financing constraints and incentivising managers. In addition, political and public attention can strengthen the positive relationship between environmental investors and green innovation.

Blockchain adoption strategy of two-sided shipping platforms connecting forwarder and liner company

Blockchain technology has already been explored and used in many industries, while the shutdown of shipping blockchain platform TradeLens poses a substantial challenge to the blockchain adoption in the shipping supply chain. Motivated by this practical issue, we develop a Hotelling model to study two competitive shipping platforms’ pricing strategies and blockchain technology investment preferences in three scenarios including both shipping platforms invest nothing, only one shipping platform invests, as well as both shipping platforms invest. The liner companies and forwarders in the two-sided markets may join only one shipping platform (i.e., singlehoming) or join two shipping platforms simultaneously (i.e., multihoming). Our results suggest that whether the blockchain technology is introduced or not, the shipping platforms in each scenario provide the pricing strategies via subsidizing and charging the entry fees for the liner companies and forwarders when singlehoming occurs, whereas the only pricing strategy is to demand the entry fees when multihoming occurs. Moreover, we find that the shipping platforms’ investment preferences over blockchain technology would not be affected by the liner companies’ and forwarders’ singlehoming or multihoming behavior. The shipping platform without blockchain technology investment can achieve profit improvement by free riding via the other shipping platform’s blockchain investment decision given certain investment cost, while the shipping platform with blockchain technology investment instead suffers a loss of profitability due to its investment decision. In particular, compared to singlehoming, the shipping platforms may obtain higher equilibrium profits when multihoming occurs among three scenarios.

Using investor utility to determine portfolio choice with REITs

This article examines the decision of individual investors to allocate a portion of their existing investment portfolios to REITs. It first derives the risk preferences of investors represented by their benchmark portfolios of stocks and bonds. Such risk preferences are then used for portfolio decisions regarding REITs. The analysis shows that investors with lower risk aversion tend to have a more substantial stock component in their benchmark portfolio and will obtain higher risk-return benefits from adding REITs. In addition to the theoretical analysis, the article provides a practical solution to evaluate the benefit of investing in REITs.

Analysis of the Game Behavior of Real Estate Mortgage Securities Issuers Based on Reciprocal Preferences

In recent years, the Chinese government has gradually begun to pay attention to the development of real estate investment trusts (REITs) and hopes to use REITs to increase the securitization of assets in the real estate market, making it possible to accelerate the circulation of funds in the real estate market. In order to enable issuers to price REITs effectively to form a mutually beneficial transaction model with investors, to increase the willingness and success rate of both parties and to ultimately create a harmonious and efficient REITs market, it is important to study the pricing decisions of issuers when issuing REITs. This study analyzes and investigates the issue of pricing decisions of REITs based on reciprocal preferences and evolutionary game theory. It is found that when the proportion of REITs issuers choosing to construct a reciprocal initial pricing decision is greater than the equilibrium probability of REITs issuers choosing a reciprocal pricing strategy, and when the initial proportion of investors choosing a reciprocal investment decision is greater than the equilibrium probability of investors choosing a reciprocal investment strategy, the overall REITs transaction market tends to be a reciprocal and harmonious transaction market at this time, the overall happiness of the REITs trading market is the highest, and the success rate of trading increases and the capital circulation of the real estate market is accelerated. Therefore, it is recommended that issuers choose reciprocal competitive decisions when pricing REITs in order to increase the success rate of their own REIT holdings; and it is recommended that the government, when regulating the pricing of REITs, pays attention to the psychological factors of reciprocal preferences of issuers and investors and that the government penalizes REIT issuers and investors when they choose self-serving decisions and rewards them when they choose reciprocal decisions.

Risk and Investment Value Analysis in the U.S. Airline Sector of the Stock Market

Amid the evolving global economic landscape, the U.S. airline industry has undergone significant transformations, thus raising the need for comprehensive analyses of its investment value and inherent risks. Financial health, risk management strategies, and investment potential of key players in the U.S. airline sector were assessed, namely, Southwest Airlines, American Airlines, and Singapore Airlines. The research methodology involves a thorough evaluation of the financial ratios of these airlines, their strategic initiatives such as hedging, as well as their environmental, social, and governance (ESG) risk ratings. Key metrics such as Return on Invested Capital (ROIC), the Piotroski F-Score, Altman Z-Score, and debt ratios among others form the foundation of the analysis, providing insights into their operational efficiency, financial strength, and risk profiles. The study concludes that each airline exhibits a distinct financial profile with varying levels of investment potential. The choice between investing in these airlines hinges on individual investor preferences, risk tolerance, and investment horizons. The results reveal that Southwest Airlines and Singapore Airlines present lower risk profiles, potentially appealing to conservative investors, while American Airlines could appeal to more aggressive investors due to its high potential returns, albeit at a higher risk. Meanwhile, Singapore Airlines offers a balanced profile attractive to growth-focused investors. The importance of aligning investment decisions with personal investment objectives and risk tolerance was underscored, thereby providing valuable insights for potential investors in the U.S. airline sector.

Family business origin and investment preference: An empirical study of imprinting theory

Family businesses in China differ acutely with respect to their historical origins. The initial institutional differences based on their origins affect investment behavior, which then impacts on the real economy. This paper investigates how the origins of family businesses affect their investment preferences. Using data on Chinese family firms for the period 2009–2021, we find that family businesses restructured by state-owned enterprises (SOEs) make more financial investments than those established through entrepreneurial activities. The period during which the business is under the control of the founding family and intergenerational succession moderates the differences in investment preferences between restructured and entrepreneurial family businesses, while the time of being as an SOE can strengthen the differences. Mechanism tests demonstrate that restructured family firms (RFFs) participate in less risky activities than entrepreneurial family firms (EFFs), suggesting that preference imprinting contributes to divergent investments. Such a divergence is unlikely to be driven by differences in entrepreneurship, agency costs, or resource endowments. Following robustness tests and after overcoming endogeneity problems, our results remain conclusive. Overall, this study demonstrates that a business’s risk propensity during its founding phase has a long-term impact on future preferences.

Reaching for Yield and the Cross Section of Bond Returns

Reaching for yield, which we define as an investor preference for higher-yield bonds at a given rating or for higher-rated bonds at given yields, is associated with inflated valuation and thus negatively predicts risk-adjusted returns. Controlling for ratings, alphas are lower for higher-yield bonds, whereas, controlling for yields, alphas are lower for safer-looking, higher-rated bonds. Future bond returns are particularly low when current interest rates are low and demand from yield-reaching investors increases. These bonds experience more frequent downgrades and defaults, suggesting that they are riskier despite their high valuation. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The e-companion and data are available at https://doi.org/10.1287/mnsc.2023.4920 .

Proportional warm-glow theory and asset pricing

Dreyer, Sharma and Smith (2023) conjecture that investors may feel good about themselves from making socially responsible investments; they may get a “warm glow” from going green. They estimate a model of “warm glow” investment where investors derive utility from the total amount invested in green assets. In this paper we quasi-replicate their paper to estimate an alternative form of warm-glow preferences where people get utility from the share of their wealth invested in green assets. We show that the green preference of investors has become significantly larger since the financial crisis of 2007.

Investors' preferences for sustainable investments: Evidence from the U.S. using an experimental approach

In addition to the classical risk-return approach in investment, there is an increasing awareness of integrating sustainable development goals (SDGs) as a new dimension to value creation. However, limited research has been conducted, offering mixed results. Therefore, we examined investor preferences for investment funds that contribute to achieving the SDGs of clean water and sanitation. We used a choice experiment to analyze the funds' value for U.S. investors, adopting a survey approach based on 581 actual observations from October to December 2022. The findings reveal that investors show stronger preferences for portfolios that contribute to the development goals; they are willing to forgo returns when investments contain SDGs or are provided by sustainable banks. These findings have implications for investors and fund managers.

Fisher's Separation Theorem and its Limitations

When businesses make investment decisions, they often evaluate the Net Present Value (NPV) of investment projects. For investors, a project is deemed worthwhile if its NPV is greater than zero. This phenomenon can be attributed to the Fisher Separation Theorem, which asserts that in perfectly efficient capital markets without transaction costs, a single interest rate prevails. In this context, investors' production choices adhere strictly to objective market regulations aimed at maximizing attainable wealth, entirely detached from individual subjective preferences. This, in turn, enables both borrowers and lenders to base their consumption and investment decisions on the prevailing market interest rate, thereby encouraging a clear distinction between investment and financing choices. Therefore, a company's investment decisions can be discussed separately from its financing decisions. So, the enterprise's investment decision and financing decision can be discussed separately. When enterprises invest, enterprises do not have to consider the subjective consumption preferences of different investors, because investors' consumption preferences can be satisfied accordingly through perfect capital market operation. Because of Fisher's Separation Theorem, which requires the market to be transaction cost-free, it also has some limitations.

Public preferences for social investment versus compensation policies in Social Europe

The recent enactment of the European Pillar of Social Rights (EPSR) has significantly strengthened the social dimension of the European Union (EU), including the social investment (SI) elements of that social dimension. What is not known, however, to what extent the priorization of SI is supported by the broader public. To address this research gap, we investigate public opinion on 15 different policy areas from the EPSR using Eurobarometer data from 2020 across all EU countries, asking whether the public rather prefers these policies to be delivered at EU or national level. A principal finding is that the public indeed supports more SI than CP policies with respect to EU-level social policy, and more CP than SI policies with respect to national-level social policy. We also investigate whether socioeconomic status (SES) and welfare state effort can explain this phenomenon. We find that higher socio-economic status and more generous welfare states are associated with more support for SI policies on both EU and national levels and vice versa. The findings emphasize the importance of what policies are provided versus who provides them but also pose a puzzle for trade-offs in multilevel governance settings. Hence, the article has important implications for future research on public opinion and Social Europe.

The role of ESG performance in firms' resilience during the COVID-19 pandemic: Evidence from Nordic firms

Firms' corporate social responsibility and environmental sustainability issues have been documented to provide a competitive advantage that enhances financial performance, especially in tightened economic situations. Similarly, studies on countries' economic performance during the COVID-19 pandemic show a significant effect of movement restriction (lockdown) as a spread-containment strategy. This paper analyses the exogenous effect of lockdown on firm performance during the COVID-19 pandemic and the role of firms' sustainability in resilience to the pandemic. This study uses a difference-in-differences analysis on data of publicly listed Nordic firms, showing a positive and significant difference in revenue and profitability for firms listed in lockdown countries compared with those in the country without a lockdown. Further analysis shows that sustainability provides resilience for firms during the COVID-19 pandemic, as firms' environmental and social performances are positively related to revenue, profitability, and valuation. This finding supports the conclusion that customer and investor preferences enhance sustainable firms' performance.