Management

ISSN: 2091-0460 Dynamics 183

Vol. 23, No. 1: 183-198, 2020
Shanker Dev Campus
Doi: https://doi.org/10.3126/md.v23i1.35578

Factors influencing investment decisions

of individual investors at Nepal stock
exchange
Prem Lal Adhikari*
Abstract
The behavior of individual investors is concerned with choices regarding purchasing small quantities
of securities for their own account. Investment options are also supported by decision-making
instruments. It Is assumed that information structure and the market related factors systematically
affect the investment decisions of individuals as well as market outcomes. The main purpose of
the analysis was to identify the factors affecting individual investors’ investment decisions on the
Nepal Stock Exchange. The study was conducted on the 214 responses received from the individual
investors based on the random sampling method Data for the research were collected using a structured
questionnaire distributed to the respondents. The questionnaire constituted 35 items. The respondents
were individual investors. In this study, data were analyzed using frequencies, mean scores, standard
deviations, percentages, and factor analysis techniques. The study confirmed that there appears to be a
certain degree of correlation between the factors defined for the average equity investor by behavioral
finance theory and prior empirical evidence. The researcher explored that the most significant factors
shaping individual investment decisions were: statement of the government officials, expected capital
increase, firm’s status in industry, diversification purpose, the attractiveness of non-stock investment,
ease of obtaining borrowed funds, opinions of the firm’s majority stockholders, family member opinions,
recent price movement in a firm’s stock, fluctuations in the stock index, rumors, expected corporate
eating, stock marketability, the results of technical analysis, the dividend paid, perceived ethics of firm,
the reputation of the firm’s shareholders, and feeling for a firm’s product and services. The results
of this research will provide an understanding of the different decisions to be taken by investors on
the basis of the prevailing factors and the possible consequences of each decision. The analysis would
also help to recognize the most significant factors in the behavior of the company’s investors as their
potential policies and plans will be impacted as the investment decisions of investors will determine the
strategy to be used by the company.

Keywords: Nepal Stock Exchange, Investment Decision, Individual investor, investment behavior.

* Lecturer, Padma Kanya Multiple Campus, PhD Scholar, Faculty of Management, TU, Nepal.
Email Id: [email protected]
184 Management Dynamics, Vol.23, No.1, 2020 ISSN: 2091-0460

Introduction
Investors’ investment decisions are normally based on fundamental analysis, technical
analysis, and judgment. Investment refers to the current commitment of rupees for a period
of time in order to derive potential payments that will compensate the investor for the time the
funds are committed, the rate of inflation anticipated during that period, and the uncertainty
of future payments (Reilly & Brown, 2011)

Diversification of the stock market encourages institutional and individual investors to

invest in a larger variety of financial products. It also helps investors to decide and select
among various investment options. In order to decide among various investment choices,
the investor’s preference is based on both economic and behavioral variables (Ali & Tariq,
2013). Investor market behavior stems from psychological principles of decision making that
describe why individuals purchase or sell stocks. These variables would concentrate on how
investors view and use data to make investment decisions (Mutswenje, 2009). As described
by Shefrin (1999), behavioral finance is a rapidly growing field that studies the impact of
psychology on the actions of financial practitioners. No matter how well informed an investor
is and how extensively he has researched and studied the stock before investing, he also acts
irrationally with the fear of loss in the future. This different behavior in individual investors
is caused by various factors that influence investor rationality. An individual investor is one
who purchases a generally small number of securities for his or her own account.

According to traditional financial theory, investors want to maximize their wealth according
to basic financial principles and rely solely on risk-return consideration for their investment
strategies. In fact, however, the degree of risk that they are willing to take is not the same for
all investors. This relies primarily on their personal attitudes towards risk. In recent years,
behavioral finance research has progressed rapidly and provides evidence that the financial
decisions of investors are often influenced by internal and external behavioral factors (Shefrin,
1999).

Statement of problem
Investment decisions are commonly assumed to be a result of many variables, such as market
features and individual risk profiles. The disposition error suggests that investors are impacted
by sunk cost factors and asymmetrical risk preferences for gain/loss situations, regardless
of accounting information. Nagy and Obenberger (1994) analyzed variables influencing
investor behavior and concluded that for investors, classical wealth-maximization criteria are
key, while investors use different criteria when selecting stocks. Only cursory consideration
appears to be given to contemporary issues such as local or foreign activities, environmental
track record, and the ethical stance of the company. The suggestions of brokerage houses,
individual stockbrokers, family members, and coworkers go largely overlooked. Many
individual investors ignored the benefits of valuation models when evaluating stocks.

Riley and Chow (1992) viewed that risk aversion decreases not only as wealth rises, but also
as age, income, and education rise. Baker and Haslem (1973) found that the key investment
ISSN: 2091-0460 Factors Influencing Investment Decisions 185

considerations for individual investors are dividends, projected returns, and the financial
stability of the company. Baker, Haargrove, and Haslem (1977) studied further considering the
risk/return tradeoff of the investment and recommended that investors behave rationally.

Investment decisions need to undergo a detailed review of the prevailing circumstances based
on a variety of factors, but investors are keen to avoid uncertainties associated with the final
decisions they make regardless of the varied knowledge available that justifies rationality and
irrationality. It is against this context that this research attempted to fill the gap by defining
the variables that tend to affect individual investment decisions, and included not only the
variables examined by previous studies and derived from prevailing theories of behavioral
finance, but also added additional variables that have been found to influence the investment
decisions of stockholders in the emerging local market, NEPSE. The study deals with the
following issues:

1. To what extent accounting information like financial statement condition and stock
marketability effects individual investor decision-making?
2. To what extent self-image/ firm image factors affect the individual investor decision-
making of retails equity investors in Nepal?
3. To what extent neutral information factors affect individual investor decision making?
4. To what extent advocate recommendation factors like opinions of the firm’s majority
stockholder and Broker’s recommendation effects individual investor decision making?
5. To what extent personal financial needs factors like diversification needs and attractiveness
of non-stock investment effects individual investor decision making in Nepal?

Objectives of study
The main objective of the study is to determine the most influencing factors on individual
investment decisions of investors in the Nepalese stock market. Some specific objectives of
this study are:

1. To examine whether the factors related to self-image/firm image coincidence have an

effect on the behavior of the individual investors in NEPSE
2. To assess whether the factors related to accounting information have an effect on the
behavior of the individual investor in NEPSE.
3. To analyze whether the factors related to neutral information have an effect on the
behavior of the individual investor in NEPSE.
4. To examine whether the factors related to advocate recommendation have an effect on
the behavior of the individual investor in NEPSE.
5. To evaluate whether the factors related to personal financial needs have an effect on the
behavior of the individual investor in NEPSE.
186 Management Dynamics, Vol.23, No.1, 2020 ISSN: 2091-0460

Review of literature
In describing the behavioral aspects of investment decisions, behavioral finance has made
remarkable strides. Under uncertainty, behavioral finance explores preference. Three major
theories frame behavioral finance: Regret-theory, the theory of mental accounting, prospect/
loss-aversion-theory, over/under-reacting theory, and theory of overconfidence. Each theory
captures the behavioral attributes of individual investors.

Using the investor survey method taking the sample size of 185 investors, Kadariya (2012)
analyzed the factors affecting investor decision-making on the Nepalese capital market
and found that the capital Structure and average pricing strategies are one-factor shaping
investment decisions, the next is political and media interest, trust in luck and financial
education is the third factor, and trend analysis is finally the fourth aspect of the stock
market movement. It is, therefore, concluded that both tangible and intangible information is
important to get success in the Nepalese capital market.

Another study conducted by Pokharel (2018) also analyzed the factors affecting investment
decision of individual investors in the Nepalese stock market employing investor’s opinion
survey method of data collection and revealed that the advice of brokers and movements in
NEPSE Index are the most influencing factors and news in the daily newspaper and market
sentiments are viewed as the least influencing factors.

The overconfidence of investors in the accuracy of private information and biased self-
attribution brought asymmetric changes in investor confidence as a function of their
investment performance (Subrahmanyam, Hirshleifer, & Daniel, 1998).

The neutral-information
Kadiyala and Rau (2004) examined investor reaction to corporate event announcements.
They concluded that investors seem to be under-reacting to prior information as well as
to the information conveyed by the event, leading to different patterns. Behavioral finance
literature has presented two contradictory models of irrational investor behavior. In the
first model, investors appear to overreact to information, leading to a pattern of long-term
return reversals when companies announce corporate events such as new issues of stock. In
the second model, when businesses announce corporate events such as open market share
repurchases or repurchases via tender offers, investors underreact to information, resulting in
the long-term continuation of return. Behavioral models have been viewed with uncertainty
partly because they do not reconcile why investors tend to overreact to a corporate event
such as a further public offering while appearing to underreact to an event such as a share
repurchase.

The accounting-information
Baker and Haslem (1974) concluded that, based on historical evidence, investors were mainly
concerned with prospective earnings expectations. On the other hand, research conducted
by Lee and Tweedie (1975, 1976, 1977 & 1981) found that financial reporting in the corporate
ISSN: 2091-0460 Factors Influencing Investment Decisions 187

sector is difficult for the general public to grasp. Blume and Friend (1978) found proof that
the key risk measures employed by individuals are both price and earnings uncertainty. In
addition, Lewellen et al. (1977) disclosed that the key source of information for investors
is through fundamental or technical analysis. Nagy and Obenberger (1994) examined the
degree to which the perception of shareholders was influenced by a list of 34 variables and
presented proof of a role for a combination of financial and non-financial variables.

The self-image/firm-image coincidence

Epstein & Freedman (1994) studied the demand for social information by individual investors.
The findings demonstrate the importance of annual reports to corporate shareholders.
In addition, a majority of the shareholders surveyed also want the company to report on
corporate ethics, employee relations, and community engagement.

The advocate-recommendation
The investor already holding stock may respond to the recommendation of the analyst in one
of four ways: the investor may hold stock on a recommendation to sell, the investor may sell
a stock on a recommendation to hold, the investor may hold stock on a recommendation to
hold, or the investor may sell a stock on a recommendation to sell. Krishnan and Booker (2002)
studied the variables affecting investor decisions that use recommendations from analysts to
arrive at a short-term decision to hold or sell a stock. The findings revealed that a strong
form of the recommendation summary report of the analyst, i.e., one with additional details
further supporting the position of the analysts, reduces both disposition errors for-profits and
disposition errors for losses.

The personal-financial-needs
Prospect theory proposes that certain outcomes are overweighted relative to uncertain
outcomes and that the value functions are different for gains and losses Rational logic implies
that individuals should sell the stock regardless of their current benefit or loss status when
dealing with a stock of unfavorable potential expectations. Previous research on sunken costs
and increased participation, however, shows that individuals may become trapped in losing
courses of action even to the point of throwing good money after bad money (Arkes & Blumer
1985; Brockner 1992; Staw & Hoang 1995). Thus, rather than selling and taking a certain loss,
people may choose to hold a losing stock and bet on the future and may even become more
committed to holding the stock.

Despite a large number of studies on understanding factors influencing investment decisions

of individual investor’s behavior carried out in developed economies, there have been very
few empirical studies available in under-developed countries like Nepal.
188 Management Dynamics, Vol.23, No.1, 2020 ISSN: 2091-0460

Conceptual framework for the study

Independent variable
Dependent variable
Accounting information

Self-image/firm image coincidence

Advocate recommendation Investment Decision

Personal financial needs

Neutral information

Figure I: Individual Equity Investor Decision Making Model

Methodology
Method of data collection
The research design of this study has been based on a structured questionnaire. This style
of research design does not have influence over the variables from which respondents’
opinions are generated. It enables hypotheses to be tested empirically and local conclusions
can be generalized from the entire sample used for the study. For the purpose of this study,
secondary data will also be used to some extent. Secondary data will be obtained from several
sources, such as journal articles, newspapers, websites, textbooks, annual reports, and other
related publications.

Population and sample

All the individual investors participating in NEPSE, which are approximately 3 lakhs, are the
target population of this study (Source: Nepal Stock Exchange market report published on
Aug. 13, 2020). The stock investors have been randomly selected from 50 brokerage firms and
a total of 250 questionnaires have been distributed for their responses. Out of them only 214
responses have been received.

Techniques of data analysis

The collected data have been entered into the SPSS sheet for onward analysis. First, the
reliability and validity of the data have been tested using Cronbach’s Alpha and then the
ISSN: 2091-0460 Factors Influencing Investment Decisions 189

data have been analyzed using descriptive statistics and factor analysis techniques with the
help of the SPSS package.

Result and discussions

It deals with data analysis and interpretation of the research findings. The data were analyzed
using Factor analysis techniques with the help of the SPSS package which enabled data
interpretation and the making of statistical inferences. The study documents the factors that
influence individual investment decisions in NEPSE. Out of the two hundred fifty investors
targeted, only thirty-six investors were not reached to provide a response. Therefore, the
response rate is 85.6 percent. The results of the analysis presented in table 1.1 show that
91.1 percent of respondents are male and only 8.1 percent are female. Regarding the level
of education of the respondents, table 1.2 shows that the majority number of respondents
(36%) have bachelor level followed by 26 % master and above, 18.7 percent primary level, 9.3
percent intermediate level, and 9.3 percent primary level education. The result of table 1.3
shows that 100 percent of respondents are married. Moreover, the results presented in Table
1.4 show that the vast majority number of respondents (81.8%) are service holders in different
sectors and a small number of respondents (18.2%) are self-employed. From the results shown
in table 1.5, it is known that a majority number of respondents (36.9%) were earning monthly
income in the range of Rs. 15,000-30,0000, followed by 35.5 percent responding investors were
earning in the range of above 30,000-45,000 and 27.6 percent of respondents were earning
more than Rs. 45,000. Regarding the working area of responding investors, table 1.6 shows
that 91.1 percent of respondents are associated with non-financial institutions, and only 8.9
percent are associated with financial institutions. Finally, results presented in Table 1.7 shows
that a huge majority number of respondents (72.9%) have more than 5 years of investment
experience, while 17.8% of respondents have more than 2 years to 3 years’ experience and
9.3% of respondents have more than 3 years to 4 years’ experience.

Test validity and reliability

With the use of Cronbach’s alpha, the reliability of the measurements was judged. The alpha
of Cronbach helps one to calculate the reliability of the distinct groups. It requires estimates of
how much variance is due to chance or random errors in scores of different variables (Selltzm,
et al, 1976). A coefficient greater than or equal to 0.5 is generally considered a good indicator
of the construct reliability (Nunnally, 1978). For the five groups, the overall Cronbach alpha
is 0.750. Cronbach’s Alpha is 0.626, 0.889, 0.615, 0.680, and 0.760 for the five groups, namely,
self-image/firm-image, accounting information, neutral information, advocate advice, and
personal financial needs.

Factor analysis: Factors summaries and component grouping

Factor analysis was performed on the results of the importance attached to each of the factors
influencing individual investment decisions in NEPSE. Correlation analysis was initially
carried out to search for interdependence between the variables after which Principal
Component Analysis (PCA) was run. The purpose of performing PCA was to transform a set of
interrelated variables into a set of unrelated linear combinations of these variables into a set of
190 Management Dynamics, Vol.23, No.1, 2020 ISSN: 2091-0460

uncorrelated linear combinations. In order to define and reduce the variables to interpretable
components, Varimax rotation along with Kaiser Criterion was used. Communality is the
square multiple coefficients of correlation for variables that use the variables as predictors.
The communality calculates the percentage of variance in a given variable, which can be
interpreted as the reliability of the predictor and is explained collectively by all the variables.
It is the proportion of variance that each entity or variable has in common with other objects.
For instance, 97.8% communality is the highest variability in the factor “Statements from
government officials”, while the lowest variability was captured for the factor “Reputation
of the firm” with a communality of 0.549 %. A total of 5 components were extracted from the
factors. Component 1 describes the greatest variation found, followed by component 2 and
so on. From the table, component 1 accounts for 23.041% of the total observed variability
while component 2 explains 20.715%, component three 14.189%, component four 11.929 %,
and component five 10.017 %. The five extracted components explain 79.890 % of the total
variability for all the 35 variables.

Factor selection
Based on table 1.10 and 1.11, accounting information is the most influencing factor that
influences Nepalese investors’ investment decisions. Component 1 (Accounting Information)
consists of Stock Marketability, affordable share price, insiders’ information, the results of
technical analysis, condition of financial statements, information obtained from the internet,
expected capital increase, expected corporate earnings, the dividend paid, and rumors.
Component 2(Self-Image/ Firm Image Coincidence) consists of getting rich quickly, feeling
on the economy, the reputation of the firm, feelings for a firm’s products and services, the
reputation of the firm’s shareholders, perceived ethics of firm, firm status in industry and
Firm’s involvement in solving community problems. Components 3 (Advocate Information)
consists of family member opinions, opinions of the firm’s majority stockholders, friend
and co-worker recommendations, broker recommendation, and Financial advisors and
analysts’ recommendation. Component 4 (Neutral Information) consists of Current economic
indicators, Statements from government officials, Recent price movement in a firm’s stock,
Coverage in the press, Past performance of the firm’s stock, Fluctuation/developments in
the stock index, and Government holdings. Component 5 (Personal Financing Need) consists
of the expected dividends, diversification purpose, minimizing risk, and ease of obtaining
borrowed funds.

Conclusions and Implications

Results of factor analysis revealed that accounting information is the most influencing factor
while taking buy and sell decisions by individual investors in Nepalese stock market. Self-
image/Firm image, advocate information, Neutral information, and personal financing needs
are the second, third, fourth, and the last factor respectively that influence individual investors
investment decisions. The researcher explored that the most significant factors shaping
individual investment decisions were: statement of the government officials, expected capital
increase, firm’s status in industry, diversification purpose, the attractiveness of non-stock
investment, ease of obtaining borrowed funds, opinions of the firm’s majority stockholders,
ISSN: 2091-0460 Factors Influencing Investment Decisions 191

family member opinions, recent price movement in a firm’s stock, fluctuations in the stock
index, rumors, expected corporate eating, stock marketability, the results of technical analysis,
the dividend paid, perceived ethics of firm, the reputation of the firm’s shareholders, and
feeling for a firm’s product and services.

The results of this research will provide an understanding of the different decisions to be
taken by investors on the basis of the prevailing factors and the possible consequences of each
decision. The analysis would also help to recognize the most significant factors in the behavior
of the company’s investors as their potential policies and plans will be impacted as the
investment decisions of investors will determine the strategy to be used by the company.

References
Ali, I., & Tariq, A. (2013). Factors affecting individual equity investor’s decision making in
Pakistan. Journal of International Education in Business, 1(1), 18-31.
Baker, H. K., Hargrove, M. B., & Haslem, J. A. (1977). An empirical analysis of the risk-return
preferences of individual investors. Journal of Financial and Quantitative Analysis, 12
(3), 377-389.
Baker, H.K & Haslem, J.A. (1973). Information needs of individual investors. Journal of
Accountancy, 136,.64-9.
Blume, M. E., & Friend, I. (1978). The changing role of the individual investor: A twentieth century
fund report. Wiley.
Brockner, J. (1992). The escalation of commitment to a failing course of action: Toward
theoretical progress. The Academy of Management Review, 17(1), 39–61.
Epstein, M. J., & Freedman, M. (1994). Social disclosure and the individual investor. Accounting,
Auditing & Accountability Journal, 7(4), 94-109.
Kadariya, S. (2012). Factors affecting investor decision making: A case of Nepalese capital
market. Journal of Research in Economics and International Finance, 1(1), 16-30.
Kadiyala, P., & Rau, P. R. (2004). Investor reaction to corporate event announcements:
underreaction or overreaction? The Journal of Business, 77(2), 357-386.
Krishnan, R., & Booker, D. M. (2002). Investors’ use of analysts’ recommendations. Behavioral
Research in Accounting, 14(1), 129-156.
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shareholder understanding. Accounting and Business Research, 6(21), 3-17.
Lee, T. A., & Tweedie, D. P. (1976). The private shareholder: his sources of financial information
and his understanding of reporting practices. Accounting and business research, 6(24),
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Lee, T. A., & Tweedie, D. P (1977). The private shareholder and the corporate report: A report to the
Research Committee of the Institute of Chartered Accountants in England and Wales. Inst.
of Chartered Accountants in England and Wales.
Mutswenje, V. S. (2009).  A survey of the factors influencing investment decisions: the case of
individual investors at the NSE, (Unpublished : Doctoral dissertation). University of
Nairobi.
Nagy, R.A., & Obenberger, R.W. (1994). Factors influencing individual investor
behavior. Financial Analysts Journal, 50(4), 63-68.
Pokharel, P. R. (2018). A Survey of investors preference on stock market: A case of Nepal
stock exchange. Saptagandaki Journal, 9, 53-61.
Reilly, F. K., & Brown, K. C. (2011). Investment analysis and portfolio management. New Delhi:
Cengage Learning India Private Limited
Riley, W. B. & Chow, K. V. (1992). Asset allocation and individual risk aversion. Financial
Analysts Journal, 48(6), 32-37.
Shefrin, H. (1999). Beyond Greed and Fear. Boston: Harvard Business School Press.
Staw, B. M., & Hoang, H. (1995). Sunk costs in the NBA: Why draft order affects playing time
and survival in professional basketball.  Administrative Science Quarterly, 40(3), 474-
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market under and overreactions. The Journal of Finance, 53 (6), 1842-1855.
ISSN: 2091-0460 Factors Influencing Investment Decisions 193

Appendices
Table 1.1: Descriptive statistics for Gender

  Frequency Percent
Male 195 91.1

Female 19 8.9

Total 214 100.0

Table 1.2: Descriptive statistics for education

Primary level 40 18.7

High school or equivalent 20 9.3

Intermediate 20 9.3

Bachelor 77 36.0

Master and above 57 26.6

Total 214 100.0

Table 1.3: Descriptive statistics for marital status
Married 214 100%
Unmarried 0 0
Total 214 100%
Table 1.4: Descriptive Statistics for Employment Status

Business person/self employed 39 18.2

service holder 175 81.8
Total 214 100.0
Table 1.5: Descriptive Statistics for Monthly Income
Rs 15,000-30,000 79 36.9
Above Rs 30,000-45,000 76 35.5
More than Rs 45,000 59 27.6
Total 214 100.0
194 Management Dynamics, Vol.23, No.1, 2020 ISSN: 2091-0460

Table 1.6: Descriptive Statistics for Working Area

Financial institutions 19 8.9

others 195 91.1

Total 214 100.0

Table 1.7: Descriptive Statistics for Number of Years of Investment Experience

More than 2 yr.-3 yr. 38 17.8

More than 3 yr.- 4 yr. 20 9.3

More than 5 years 156 72.9

Table 1.7: Correlations

    SI AI NI AD PFN
SI Pearson Correlation 1 .535** .420** .452** .399**
  Sig. (2-tailed)   0.000 0.000 0.000 0.000
AI Pearson Correlation   1 .941** .529** .365**
  Sig. (2-tailed)     0.000 0.000 0.000
NI Pearson Correlation     1 .452** .426**
  Sig. (2-tailed)       0.000 0.000
AD Pearson Correlation       1 .794**
  Sig. (2-tailed)         0.000
PFN Pearson Correlation         1
  Sig. (2-tailed)          
**. Correlation is significant at          
  the 0.01 level (2-tailed).

Table 1.8: Communalities

  Initial Extraction
Feelings for a firm’s products and services 1.000 0.827

Reputation of the firm’s shareholders 1.000 0.868

To get rich quickly 1.000 0.710

ISSN: 2091-0460 Factors Influencing Investment Decisions 195

Firm status in industry 1.000 0.931

Perceived ethics of firm 1.000 0.825

Reputation of the firm 1.000 0.549

Firm’s involvement in solving community 1.000 0.753

problems
Feeling on the economy 1.000 0.785

Past performance of the firm’s stock 1.000 0.645

Dividend paid 1.000 0.820

The results of technical analysis 1.000 0.878

Stock Marketability 1.000 0.821

Expected corporate earnings 1.000 0.886

Condition of financial statements 1.000 0.561

Affordable share price 1.000 0.688

Information obtained from the internet 1.000 0.697

Insiders’ information 1.000 0.788

Expected capital increase 1.000 0.942

Rumors 1.000 0.887

Government holdings 1.000 0.591

Fluctuation/developments in the stock 1.000 0.859

index
Coverage in the press 1.000 0.754

Statements from government officials 1.000 0.978

Current economic indicators 1.000 0.881

Recent price movement in a firm’s stock 1.000 0.894

Financial advisors and analysts’ 1.000 0.533

recommendation
Broker recommendation 1.000 0.841
196 Management Dynamics, Vol.23, No.1, 2020 ISSN: 2091-0460

Family member opinions 1.000 0.893

Friend and co-worker recommendations 1.000 0.758

Opinions of the firm’s majority stockholders 1.000 0.893

Diversification purpose 1.000 0.932

Expected Dividends 1.000 0.788

Ease of obtaining borrowed funds 1.000 0.851

Minimizing risk 1.000 0.689

Attractiveness of non-stock investment 1.000 0.963

Extraction Method: Principal Component

Analysis.

Table 1.9 Total Variance Explained

Com- Extraction Sums of Rotation Sums of Squared

po- Squared Loadings Loadings
nent Initial Eigenvalues
% of Cumulative % of Cumulative % of Cumulative
  Total Variance % Total Variance % Total Variance %
1 11.1965809 31.990 31.990 11.197 31.990 31.990 8.064 23.041 23.041

2 6.3876433 18.250 50.241 6.388 18.250 50.241 7.250 20.715 43.756

3 4.2259115 12.074 62.315 4.226 12.074 62.315 4.966 14.189 57.944
4 3.3846596 9.670 71.985 3.385 9.670 71.985 4.175 11.929 69.873
5 2.7668452 7.905 79.890 2.767 7.905 79.890 3.506 10.017 79.890
6 2.3282386 6.652 86.543            
7 1.9808841 5.660 92.202            
8 1.4743867 4.213 96.415            
9 1.2548500 3.585 100.000            

Extraction Method: Principal Component Analysis.

ISSN: 2091-0460 Factors Influencing Investment Decisions 197

Table 1.10: Rotated Component Matrix

  Components
  1 2 3 4 5
Factor 1: Accounting Information      
Stock Marketability 0.793
Affordable share price 0.774
Insiders’ information 0.752
The results of technical analysis 0.710
Condition of financial statements 0.698
Information obtained from the internet 0.648
Expected capital increase 0.836
Expected corporate earnings 0.661
Dividend paid 0.814
Rumors 0.761
 
Factor 2: Self-Image/ Firm Image Coincidence        
To get rich quickly 0.580  
 
Feeling on the economy 0.613  
 
Reputation of the firm 0.570  
 
Feelings for a firm’s products and services 0.708  
 
Reputation of the firm’s shareholders 0.846  
 
Perceived ethics of firm 0.899  
 
Firm status in industry 0.870  
 
Firm’s involvement in solving community    
problems   0.784 
Factor 3: Advocate Information          
Family member opinions   0.878
 
Opinions of the firm’s majority stockholders   0.878
 
Friend and co-worker recommendations   0.849
 
Broker recommendation     0.849
 
Financial advisors and analysts’     0.718
recommendation  
4. Neutral Information    
Current economic indicators 0.847
 
198 Management Dynamics, Vol.23, No.1, 2020 ISSN: 2091-0460

Statements from government officials 0.770

 
Recent price movement in a firm’s stock 0.744
 
Coverage in the press 0.666
 
Past performance of the firm’s stock 0.566
 
Fluctuation/developments in the stock index   0.826
Government holdings   0.565
5. Personal Financing Need  
Expected Dividends 0.881
Diversification purpose 0.826
Minimizing risk 0.694
Ease of obtaining borrowed funds   0.604
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser
Normalization.a
a. Rotation converged in 5 iterations.          

Table 1.11: Descriptive Statistics

  Mean Std. Deviation

AI 3.8031 0.44047

SI 3.7812 0.46303

ADI 3.7277 0.50777

NI 3.4241 0.32081

PFN 3.4196 0.39881