FACTORS INFLUENCING THE INVESTORS’ DECISION MAKING IN

STOCK MARKET

Submitted By:
Uttam Koirala
Exam Roll No: 14733/14
TU Registration No: 7-2-39-1777-2014

A Summer project Report

Submitted To:
Office of the Dean
Faculty of Management
Tribhuvan University

In the partial fulfillment of the requirement for the degree of

Bachelor of Business Administration (BBA)

Putalisadak, Kathmandu
April, 2018
 DECLARATION
This is to certify that I have completed the Summer Project entitled “Factors Influencing the
Investors’ Decision Making in Stock Market” under the guidance of “Mr. Achyut Raj
Bhattarai and Mr. Jhabindra Pokharel” in partial fulfillment of the requirements for the degree
of Bachelor of Business Administration at Faculty of Management, Tribhuvan University.
This is my original work and I have not submitted it earlier elsewhere.

Date: 10-04-2018 Signature:

Name: Uttam Koirala

 ACKNOWLEDGEMENTS
This study entitled ‘Factors Influencing the Investors’ Decision Making in Stock Market’
has been prepared for partial fulfillment of Bachelor of Business Administration. It is directed
towards investigating the factors that influence the investment decision of the investors in the
context of Nepalese Stock Market.

It is a genuine pleasure to express my deep sense of thanks and gratitude to my teacher,

mentor and guide Mr. Achyut Raj Bhattarai and Mr. Jhabindra Pokharel for his guidance,
valuable advice, continuous encouragement, and motivational support that made this project
possible.

I owe a deep sense of gratitude to the Faculty of Shanker Dev Campus, Putalisadak,
Kathmandu for extending their support and lecturers who have taught and transferred their
valuable knowledge and experience during the period of Bachelors of Business
Administration.
th
Special thanks, to all of my friends in BBA 7 semester, who gave me useful material,
response and experience to conduct this study.

I am also thankful to our college’s Library Staff and Administrative Staff who directly or
indirectly have been helpful in some of the other way.

I would like to express my grateful thanks to the respondents and all the securities markets
and investment banks who participated in filling the questionnaires and provided the valuable
information for this study.

I greatly thank my dearest Parents, who encouraged me to extend my reach. With this help
and support, I have been able to complete this works.

Uttam Koirala

April, 2018
 TABLE OF CONTENTS

DECLARATION.......................................................................................................................ii

ACKNOWLEDGEMENTS.....................................................................................................iii

TABLE OF CONTENTS.........................................................................................................iv

LIST OF TABLES....................................................................................................................vi

ABBREVIATION....................................................................................................................vii

EXECUTIVE SUMMARY....................................................................................................viii

CHAPTER I: INTRODUCTION.............................................................................................1

1.1 Context Information...........................................................................................................1

1.2 Purpose of the Study..........................................................................................................5

1.3 Significance of the Study...................................................................................................6

1.4 Literature Review...............................................................................................................6

1.4.1 Theoretical Reviews.......................................................................................................7

1.4.2 Empirical Review.........................................................................................................10

1.5 Research methods used for data collection and analysis.................................................14

1.5.1 Research Design...........................................................................................................14

1.5.2 Population and Sample of the Study............................................................................14

1.5.3 Nature and Sources of Data..........................................................................................15

1.5.4 Definition of Variables.................................................................................................16

1.5.5 Methods of Data Analysis............................................................................................17

1.6 Conceptual Framework....................................................................................................19

1.7 Organization of the Study................................................................................................19

1.8 Limitations of the Study...................................................................................................20

CHAPTER II: DATA PRESENTATION AND ANALYSIS..............................................21

2.1 Analysis of primary data..................................................................................................21

2.2 Respondents’ profile........................................................................................................22

2.3 Opinion on investment decision among investors of Nepalese stock market..................23

2.4 Opinion on priority of most important factor influencing investment decision..............25

2.5 Survey on accounting information...................................................................................26

2.6 Survey on firm’s image....................................................................................................27

2.7 Survey on advocate recommendation..............................................................................28

2.8 Survey on investment decision........................................................................................29

2.9 Descriptive statistics........................................................................................................30

2.10 Independent sample t-test..............................................................................................33

2.11 Findings and discussion.................................................................................................34

CHAPTER III: CONCLUSION AND ACTION IMPLICATIONS...................................36

3.1 Conclusion.......................................................................................................................36

3.2 Action implications..........................................................................................................37

REFERENCES

APPENDIX
 LIST OF TABLES

Table 1. 1: Summary of Empirical Review..............................................................................12

Y
Table 2. 1: Respondents’ profile................................................................................................22

Table 2. 2: Opinion on investment decision among Nepalese Investors...................................23

Table 2. 3: Opinion on priority of most important factor influencing Investment decision......25

Table 2. 4: Survey on Accounting information.........................................................................26

Table 2. 5: Survey on Firm’s image..........................................................................................27

Table 2. 6: Survey on Advocate recommendation.....................................................................28

Table 2. 7: Survey on Investment decision................................................................................29

Table 2. 8: Descriptive Statistics for the whole sample.............................................................30

Table 2. 9: Descriptive Statistics for male sample....................................................................31

Table 2. 10: Descriptive Statistics for female sample...............................................................32

Table 2. 11: Independent Sample t-test.....................................................................................33

 ABBREVIATION

Ltd. : Limited
MPT : Modern Portfolio Theory
NRB : Nepal Rastra Bank
SEBON : Securities Board of Nepal
SLC : School Leaving Certificate
Std. : Standard
+2 : Higher Secondary
 EXECUTIVE SUMMARY
Investors and investment managers commonly perform investment analysis by making use of
fundamental analysis, technical analysis and judgment. In the study, three variables are taken
as independent variables: accounting information, firms’ image, advocate recommendation
and investment decision is taken as the dependent variable. It is generally believed that
investment decisions are a function of several factors such as market characteristics and
individual risk profiles. The main purpose of investors engaged in investment is to both
maximize their income and minimize their expenses. Individuals are considered to behave
rationally when pursuing their own benefits.

The main purpose of the study was to examine the impact and evaluate the difference among
independent variables and dependent variable. Data collection is made with the help of
structured questionnaires. The study was conducted on the 53 investors out of 60 investors that
constituted the sample size. The research design adopted in the study consists of descriptive
research designs. Various tools used for data analysis were mean, standard deviation,
independent sample t-test, etc.

The result of ranking question and likert scale question accounting information was
considered as the first important factor, firm’s image as second important factor and advocate
recommendations as least important factor influencing the investment decision for the
Nepalese investors. On the basis of result obtained from the independent sample t-test no
difference was found in accounting information, firm’s image, advocate recommendations,
and investment decision across male investors and female investors of the Nepalese stock
market. The descriptive statistics states that among the three independent variables, accounting
information plays a significant role while determining the investment decision in stock market.
 CHAPTER I: INTRODUCTION

1.1 Context Information

Investment is the flow of capital which is used for productive purposes. There is a great
emphasis on investment for being the primary instrument of economic growth and
development for a country. Investment decisions are made by investors and investment
managers. Investors commonly perform investment analysis by making use of fundamental
analysis, technical analysis and judgment. Investment decisions are often supported by
decision tools. It is assumed that information structure and the factors in the market
systematically influence individuals’ investment decisions. Investor market behavior derives
from psychological principles of decision making to explain why people buy or sell stocks
(Jagongo & Mutswenje, 2014). These factors will focus upon how investors interpret and act
on information to make investment decisions. No matter how much an investor is well
informed, has done research, studied deeply about the stock before investing, he also
behaves irrationally with the fear of loss in the future.

The stock market is one of the most key bases for companies to raise money. Stock market is a
place where the securities can be sold and purchased at a decided price. Financial regulators,
such as Securities Board of Nepal (SEBON) / Nepal Rastra Bank (NRB) have an eye on the
activities of the stock markets in their selected jurisdictions so as to ensure that investors are
protected against fraudulent activities. Stock markets may be classified into primary markets
and secondary markets. In primary markets, new stocks or bond issues are sold to investors
through public offer. On the other side, in secondary markets, liquidity to securities allotted in
primary market are provided which means existing securities can be traded and subscribed
among investors or traders through a recognized stock exchange (Kishori & Kumar, 2016).

Stock market is a place where stocks are subscribed and traded. A share of company believed
by an individual or group, companies raise capital by distributing stocks and enable the stock
owners to partial ownership of the corporation. A Security is any financial instrument that has
a core value including equity, bonds, debentures. The investment choices are generally based
upon the following factors, Liquidity, Return on investment, Safety, Management active
involvement. The main purpose is to find the factors influencing the investment decision
making in stock market (Kishori & Kumar, 2016). Stock market allows investors to utilize
various instruments to operate their liquidity to forecast reasonable associated risk. On the
other hand, stock market serves two critical functions. First, it provides a link between the
firms that need funds to start their new businesses and investors who spend money to invest in
new firms. The second function is to provide a regulated place for buying and selling
securities at prices determined by supply and demand, notwithstanding other macroeconomic
fundamentals such as interest rates and inflation (Farj et. al., 2016).

Encouraging investors to invest their savings and providing corporations with opportunities to
invest in equity finance lead to an increase in the level of investment in the stock market.
These developments in turn enhance the economic growth in the country (Sunde & Sanderson,
2009). No specific criteria are being used by various stakeholders who perform the financial
and investment decisions. Financial statement provides important information for a wide
variety of decision, investors draw information from the statement of the firm in whose
security they contemplate investing. Decision makers who contemplate acquiring total or
partial ownership of an enterprise expect to secure returns on their investment such as
dividends and increase in the value of their investment.

It is generally believed that investment decisions are a function of several factors such as
market characteristics and individual risk profiles, in addition to accounting information. The
disposition error shows that regardless of accounting information, investors are influenced by
sunk cost considerations and asymmetrical risk preferences for gain/loss situations. Hussein
(2007) found that expected corporate earnings, get rich quickly, stock marketability, past
performance of the firm’s stock, government holdings, and the creation of the organized
financial markets are the investors considerations. Market participants are exposed to a
constant flow of information, ranging from quantitative financial data to financial news in the
media, and socially exchanged opinions and recommendations. Processing all this information
is a difficult task. Variables that are loaded heavily on this factor include coverage in the
financial and general press, recent stock index returns, information obtained from internet,
current economic indicators and recommendations by investment advisory services (Francis &
Soffer, 1997).

The main purpose of investors engaged in investment is to both maximize their income and
minimize their expenses. In the literature of finance, individuals are considered to behave
rationally when pursuing their own benefits. In this context, individuals spare some of their
income for expenditure and some for saving. Within this framework, individuals route their
savings into investment. Probability of profit and loss in the investment process makes
decision making difficult for individuals. In this scope, the rational use of savings is
determined by how quickly and efficiently information about investment reaches the investor,
the income of the individual will get the level of risk. Likewise, proper pricing cannot be
realized on the occasions that the information accuracy in the markets is not reflected to the
investors completely and transparently (Islamoglu et. al., 2015).

Within behavioral finance it is assumed that characteristics of market individuals and

information structure influence investment decisions of individuals and market outcomes as
well. Behavioral finance says market behavior of investor for explaining the reason why
people sell and buy stocks derives from the psychological principals of the decision making.
The main focus of behavioral finance is upon the ways people do interpret and act upon
information for making investment decisions. Individuals maximize their utility based on
classic wealth criteria making a choice between consumption and investment through time
(Merikas et.al., 2004). Every individual or group relies on its own way of dealing with the
situations to make a right choice and rational decision.

The decision making process is a cognitive process which results in the selection of a course
of action among several alternatives. In this process, the emphasis is on thinking things
through and also on weighing the outcomes and alternatives before arriving at a final decision.
Every decision-making process produces a final choice. The output can be an action or an
opinion of choice. Investment decisions made today often are critical for financial security in
later life, due to the potential for large financial loss and the high costs of revising or
recovering from a wrongful investment decision. Most of the equity investors do not have the
sufficient knowledge of basic economic concepts required to make investment decisions.
Baker et. al. (1977) proposed, investors behave rationally and take into account investment’s
risk and return trade-off. Thus, there is a need to conduct research on factors, other than
knowledge, that could influence investment decisions.

For the stock market to operate efficiently and effectively, it should satisfy the capital
provider’s needs. In this sense, capital providers seek good opportunities to add capital value,
while market operators hope to raise further capital through attracting investors for operation
to make profit (Keyur, 2012). Thus, without accounting information, the market could not
operate effectively and the potential investors may be reluctant to trade because they lack
sufficient information to assess the value of investment (Kothari, 2001). Adequate financial
information is essential to maintain an efficient market system. Disclosure and transparency of
the corporation protect the investors, and thereby enhance the investors’ confidence in the
market.

From the past decades, the financial market has been suffering from the unforeseen and
sudden economic turbulences that have been directly or indirectly contributing for the stock
returns. Identifying the factors affecting stock returns are not became an easy task for the
financial economists, academicians and practitioners. The demographic characteristics and
behavioral differences became the focus of the study in the later period after the contribution
of psychology in finance (Kadariya, 2012). Today, corporate financial reports play a
significant role in national economic growth and are considered as an effective tool providing
useful information required by various users. The broad area of financial reporting offers a
number of fundamental measures of company performance for accounting periods which in
turn assists its users to make rational decisions.

Specifically, in Nepalese context, the study is primarily designed to fill the absence of similar
studies. The evidence of efficiency of stock market is controversial and inclusive, some
evidence suggest that Nepalese stock market is inefficient whereas others find it is inefficient
in short-run and efficient in long-run. The central idea is that it is not efficient and there is
possibility of outperformance in the market. The educated and well aware investors could
score better than others. The market without clear reasons experience the bearish trend and it
has gradually deteriorates the investors’ sentiments towards the market reversal in near future.
The so-called market crash, because most of the listed stock became overpriced, has sharply
decline holding capacities of most of the investors and forced them to supply regardless of
minimum trading prices in the market. The financial information or the signal provides the
ideas of the effects and a range of market in different periods, as well as it helps to segregate
the information into facts and rumors in particular (Kadariya, 2012).

Though there are above mentioned empirical evidences in the context of other countries
including Nepal, no such evidences using more recent data exist in Nepalese context. This
study therefore deals with the following issues in the context of Nepalese investor's decision
making:

 Is the accounting information influences investment decision at Nepalese Stock Market?

 What is the effect of firm's image on investment decision at Nepalese Stock Market?

 Does the advocate recommendation play the role in investment decision?

1.2 Purpose of the Study

Number of research is conducted to find out the factors that influence the investors’ decision
making in stock market, but there are still anonymous factors need to be further studied even
in developed countries. Factors influencing investment decision are not always similar in each
country. There is a very less research on the particular area in context of Nepal. And there is
still lack of unanimous finding regarding to the specific factors that influence the decision of
the investors’ in share market of Nepal.

The basic purpose of this study is to investigate the factors influencing investors’ decision
making in Nepalese stock market. The specific purposes of this study are as follows:

 To determine whether the factors related to accounting information influences

investment decision at Nepalese Stock Market.

 To measure whether the factors related to firm’s image influences investment decision
 at Nepalese Stock Market.

 To examine whether the factors related advocate recommendation influences

investment decision at Nepalese Stock Market.

1.3 Significance of the Study

This study has significance for the individual investors, financial advisors, companies listed in
Nepal stock exchanges and Government. The research also can help to guide portfolio
allocation decisions, both by helping us to understand the kinds of errors that investors tend to
make in managing their portfolios, and also by allowing us to understand better how to locate
profit opportunities for investment managers. Beyond this, understanding the psychological
foundation of human behavior in financial markets facilitate the formulation of
macroeconomic policy and the devising of new financial institutions.

The major significance of the study regarding to the factors influencing investors’ decision
making in Nepalese stock market are as follows:

 For the investors, the factors that influence their decision making are crucial as this will
influence their financial plans of future.

 For the companies, identification of the most influencing factors that influence the
decision of their investor will affect their future strategies and plans.

 For financial advisors, identification of these factors will help them to suggest investments
that best fits them.

 For the government, identification of the most influencing factors will help it to modify
required legislation and other procedures.

1.4 Literature Review

The literature survey has been further discussed in two sub-sections. First sub-section presents
a brief discussion on the review of theories. In second sub-section major empirical works
related to the interaction between various factors and investment decision is reviewed and
presented on chronological order.

1.4.1 Theoretical Reviews

Modern Portfolio Theory (MPT)

Markowitz (1952), an American economist developed a theory of "portfolio choice," which

allows investors to analyze risk relative to their expected profit. For this work Markowitz, a
professor at Baruch College at the City University of New York, shared the 1990 Nobel
Memorial Prize in Economic Sciences with William Sharpe and Merton Miller.

Markowitz’s theory is today known as the Modern Portfolio Theory, (MPT). The MPT is a
theory of investment which attempts to maximize portfolio expected profit for a given amount
of portfolio risk, or equivalently minimize risk for a given level of expected profit, by
carefully choosing the proportions of various assets. Although the MPT is widely used in
practice in the financial industry, in recent years, the basic assumptions of the MPT have been
widely challenged.

The Modern Portfolio Theory, an improvement upon traditional investment models, is an

important advance in the mathematical modeling of finance. The theory encourages asset
diversification to hedge against market risk as well as risk that is unique to a specific
company. The theory (MPT) is a sophisticated investment decision approach that aids an
investor to classify, estimate, and control both the kind and the amount of expected risk and
profit; also called Portfolio Management Theory. Essential to the portfolio theory are its
quantification of the relationship between risk and profit and the assumption that investors
must be compensated for assuming risk. Portfolio theory departs from traditional security
analysis in shifting emphasis from analyzing the characteristics of individual investments to
determining the statistical relationships among the individual securities that comprise the
overall portfolio (Edwin and Martins 1997).

The fundamental concept behind the MPT is that assets in an investment portfolio should not
be selected individually, each on their own merits. Rather, it is important to consider the
profitability of the company. William (2011), the best measure of a company is its
profitability, for without it, it cannot grow, and if it does not grow, then its stock will trend
downward. Increasing profits are the best indication that a company can pay dividends and
that the share price will trend upward. Investors will put their money at a cheaper rate to a
profitable company than to an unprofitable one; consequently, profitable companies can use
leverage to increase stockholders’ equity even more.

The common profitability measures compare profits with sales, assets, equity and liabilities:
net profit margin, return on assets, and return on equity. Although most financial services
publish these ratios for most companies, they can be calculated independently by using net
profit and total revenue from the Income Statement of a company’s financial report, and total
assets and stockholders’ equity from the Balance Sheet.

Regret-Theory

It deals with the emotional reaction people experience after realizing they've made an error in
judgment. Faced with the prospect of selling a stock, investors become emotionally affected
by the price at which they purchased the stock. So, they avoid selling it as a way to avoid the
regret of having made a bad investment, as well as the embarrassment of reporting a loss.
Regret theory can also hold true for investors who find a stock they had considered buying but
did not went up in value. Some investors avoid the possibility of feeling this regret by
following the conventional wisdom and buying only stocks that everyone else is buying,
rationalizing their decision with "everyone else is doing it" (Pareto, 1997).

Over/Under Reacting Theory

It says that investors get optimistic when the market goes up, assuming it will continue to do
so. Conversely, investors become extremely pessimistic amid downturns. A consequence of
anchoring, placing too much importance on recent events while ignoring historical data, is an
over- or under-reaction to market events which results in prices falling too much on bad news
and rise too much on good news. At the peak of optimism, investor greed moves stocks
beyond their intrinsic value (Hong and Stein, 1999).

Prospect/Loss-Aversion-Theory

It suggests that people express a different degree of emotion towards gains than towards
losses. Individuals are more stressed by prospective losses than they are happy from equal
gains. An investment advisor won't necessarily get flooded with calls from her client when
she's reported, say, a $500,000 gain in the client's portfolio. But, you can bet that phone will
ring when it posts a $500,000 loss! A loss always appears larger than a gain of equal size -
when it goes deep into our pockets, the value of money changes. Prospect theory also explains
why investors hold onto losing stocks: people often take more risks to avoid losses than to
realize gains. For this reason, investors willingly remain in a risky stock position, hoping the
price will bounce back. Gamblers on a losing streak will behave in a similar fashion, doubling
up bets in a bid to recoup what's already been lost. So, despite our rational desire to get a
return for the risks we take, we tend to value something we own higher than the price we'd
normally be prepared to pay for it. The loss-aversion theory points to another reason why
investors might choose to hold their losers and sell their winners: they may believe that today's
losers may soon outperform today's winners. Investors often make the mistake of chasing
market action by investing in stocks or funds which garner the most attention. Research shows
that money flows into high-performance mutual funds more rapidly than money flows out
from funds that are underperforming (Kahneman and Tversky, 1979).

Theory of Mental Accounting

It states that humans have a tendency to place particular events into mental compartments, and
the difference between these compartments sometimes impacts our behavior more than the
events themselves. An investing example of mental accounting is best illustrated by the
hesitation to sell an investment that once had monstrous gains and now has a modest gain.
During an economic boom and bull market, people get accustomed to healthy, albeit paper,
gains. When the market correction deflates investor's net worth, they're more hesitant to sell at
the smaller profit margin. They create mental compartments for the gains they once had,
causing them to wait for the return of that gainful period (Thaler, 2001).

1.4.2 Empirical Review

Merikas, A. A ., Merikas, A. G., Vozikas, G. S., and Prasad, D. (2004) undertook an

empirical survey of the factors, which mostly influence individual investor behavior in the
Greek stock exchange. The study was conducted on the 150 respondents. The variables used
in the research were accounting information, subjective/personal, neutral information,
advocate recommendation and personal financial needs. The study indicated the factors that
have significant influence and the factors that have least influence on the Greek Stock
Exchange investors. The research result showed the accounting information has significant
and personal financial needs have least influence in Greek.

Iqbal and Usmani (2009) evaluated the factors influencing individual investor behavior in the
Case of the Karachi Stock Exchange. The study of the investment decision process consists
of economic perspectives derived from the relationship between the lifestyle, demographic
variable and behavioral. Through the examination it was analyzed that the behavioral
variables and utility maximization are taken together for a complete study. The study
incorporated the concept by taking 30 variables from diverse decision criteria including
contemporary concerns. The findings suggest that an individual considers on the wealth
maximization criteria on making their stock purchase. Investors take family and friends
recommendations as well as use accounting information but most of the investor’s decision is
based upon their own will and are not influenced by any one. Individual investor lacks skills
due to which the decision making of investors suffers.

Sultana and Pardhasaradhi (2012) considered the factors influencing individual equity
investors’ decision making and their behavior in Hyderabad, India. Investment decision
process was considered as critical decision for every investor, especially when investing in
equities as it involves high risk and the returns are not certain. While choosing a particular
stock to make an investment, 40 attributes have been identified that influence the investor
buying decision process. The most influencing attributes were identified and ranked based on
the frequency of highly important rating given by the investor. The most influencing attributes
were identified and ranked based on the frequency of not at all important rating given by the
investor. To identify factors influencing the behavior of Indian individual equity investors the
current study has applied factor analysis. The most influencing factors found was stock
marketability, past performance of the stock, recent price fluctuation, risk minimization,
wealth maximization, social responsibility and expert recommendation.

Kadariya (2012) investigated the factors affecting investor’s decision making in the context of
Nepalese Capital Market. The independent variables that are considered include capital
structure, political and media coverage, luck and financial education and trend analyses in the
Nepalese capital market. Findings of the study showed that majority of the investors were
youngsters and they take decision considering the media coverage and friends
recommendations as good source of information. Dividend, earning, equity contribution and
government control were considered the most important factors while taking the decision.
Investors when bears the loss blame to the market and when earns profit take whole credit to
their own abilities.

Jagongo & Mutswenje (2014) examined the factors influencing investment decisions at the
Nairobi Stock Exchange. The study was conducted on the 42 investors out of 50 investors that
constituted the sample size. To collect data the researcher used a structured questionnaire that
was personally administered to the respondents. The questionnaire constituted 28 items. The
respondents were the individual investors. In the study, data was analyzed using frequencies,
mean scores, standard deviations, percentages, Friedman’s test and Factor analysis techniques.
The researcher confirmed that there seems to be a certain degree of correlation between the
factors that behavioral finance theory and previous empirical evidence identify as the for the
average equity investor. The researcher found out that the most important factors that
influence individual investment decisions were: reputation of the firm, firm’s status in
industry, expected corporate earnings, profit and condition of statement, past performance
firms stock, price per share, feeling on the economy and expected divided by investors.
Table 1. : Summary of Empirical Review
Source Major objectives
Merikas, A. A .,  To examined the factors
Merikas, A. G., that appear to exercise
Vozikas, G. S., the greatest influence on
and Prasad, D. the individual stock
(2004) investor
Iqbal and Usmani  To analyze the impact
(2009) of Pakistani's investor's
behavior on stock
investment decision
Sultana and  To analyze and
Pardhasaradhi
identify the factors
(2012) influencing the Indian
Methodology Findings
 Questionnaires were  Carried out the
mailed to the individual research among
investors and 150 full the individual
responses were investors of
received, for a 37.5 Greeks Stock
percent response rate. Exchange and find
 Factor analysis was out that accounting
used to identify the information has
similarities among the significant
variables and moreover, influence and
group them into personal financial
identifiable categories needs have least
influence in
investors' decision.
 In order to test the  It was found that
reliability of the investors take
family and friends
instrument used, recommendations
Cronbach Alpha was as well as use of
accounting
applied. information but
most of the
investor's decision
 The sample size chosen is based upon
for the reliability test their own will and
are not influenced
was 40 by anyone.
 Questionnaire was sent  Considered the
factors
to 1500 individual
influencing
equity investors, out of individual equity
investors'
 individual equity which 891 investors decision making
and their behavior
investors while have responded and
in India and the
choosing a stock for response rate was 59.4 most influencing
investment. percent. factors found was
stock
 Factor analysis is marketability,
primarily used for data past performance
of the stock,
reduction and recent price
summarization fluctuation, risk
minimization,
wealth
maximization,
social
responsibility and
expert
recommendation.
Kadariya (2012)  To analyze the  Descriptive and  Investigated the
factor's impact on
market reactions to correlational research
the investors
tangible information design is used decision in the
context of
and intangible  The factor analysis
Nepalese Capital
information in has been employed Market and the
findings of the
Nepalese stock for the data analysis
study showed that
market along with majority of the
investors are
 To examine the descriptive statistics
youngsters and
investors’ opinions and correlation they take decision
considering
in Nepalese stock analysis.
media coverage
market. and friends
recommendations
as good source of
information.
Jagongo and  To determine  The survey research  Evaluated the
factors influencing
Mutswenje (2014) whether the factors design was used for
investment
related to self- this study decisions at the
Nairobi Stock
image/firm image  The target population
Exchange and find
coin-incidence have of this study was all out these factors:
accounting
an effect on the the investors drawn
information, self-
behavior of the from NSE which are image/firm image
coincidence,
individual investor approximately 1.8
advocate
 To determine million recommendation,
personal financial
whether the factors  A simple random needs, and neutral
related to accounting sample of one information as
 information has an brokerage firm was important factors.
effect on the behavior selected from which
of the individual individual investors
investor. from it were randomly
selected targeting one
questionnaire each.

1.5 Research methods used for data collection and analysis

This section deals with research methodology that aims at answering the research questions
raised and accomplishing the research objectives set in the introductory part of the study. This
section has been further divided into five sections. First sub-section deals with the brief
description of research design, while second sub-section describes about the population and
samples. Sub-section three explains about the nature and sources of data. Subsequently, fourth
sub-section has been devoted to the definition of the variables and finally fifth sub-section
deals with the methods of data analysis.

1.5.1 Research Design

The research design adopted in this study consists of descriptive research designs to deal with
the various issues raised in this study. Descriptive research includes surveys and fact-finding
enquiries of different kinds. The major purpose of descriptive research is description of the
state of affairs as it exists at present. It is undertaken in order to ascertain and be able to
describe the characteristics of the different variables used in the study. The descriptive
research design has been adopted to undertake fact-finding operation searching for adequate
information in the context of Nepalese Stock Market and to assess the opinions of respondents
of the survey. Different descriptive statistical measures have been used to analyze the data
collected from different sources.

1.5.2 Population and Sample of the Study

All the investors of the Nepalese Stock Market are taken as the population of the study. But
the study does not cover all sector of the stock market and it is one of the limitations of this
study. Non-probability sampling method has been used to select the sample. The sample
selected for the study is on the basis of judgmental and convenience sampling.

The method of judgmental sampling has been employed in choosing the samples from
investors of Nepalese Stock Market for primary data collection. Those units or individuals are
selected as sample who are the investors of the Nepalese stock Market or who invest in stock
market of Nepal. And furthermore, convenience sampling method was used while selecting
the samples. Those individuals were selected as samples, who are interested to participate,
nearby, free, have relationship with researcher etc. Samples of the study were not
predetermined and pre- informed. Data are collected from the samples by visiting different
securities firms and investment banks, which are convenient and ask the investors there to give
their responses.

1.5.3 Nature and Sources of Data

This study is based on only primary data. The primary sources of data have been used to
explore the perception on investment decision among the investors of Nepalese Stock Market.

Primary Data

This study is based only on primary sources of data. The survey questionnaire is designed to
generate the primary data. It has been collected through the structured questionnaire from the
stock investors in Nepalese stock market. The stock investors were randomly selected. A
structured questionnaire was developed and distributed to 60 sample respondents who are the
investors of the Nepalese Stock Market, those participants were only included for the
questionnaire survey who have sufficient time and are willing to participate. The survey has
been basically designed to understand the opinions of respondent to explore the perception on
investor’s decision making in the stock market and major factors influencing investment
decision among the investors of the Nepalese stock market.

The questionnaire was developed based on the findings from the literature review and on the
basis of the independent and dependent variables used in the study. Questionnaire consists
three parts they are cover letter, demographic information, and variables related information.
Yes/No question, ranking question, Likert scale questions were asked on questionnaire. The
respondents were encouraged to make comments on any questions that they thought were
ambiguous or unclear. A final version of the questionnaire is in Appendix of this study.

1.5.4 Definition of Variables

Various independent variables and dependent variable used in this study are discussed briefly
in the following subsections:

Accounting information: Accounting information is a detailed report of the financial state or

transactions of a person or entity. Accounting information can be classified into two
categories: financial or public information and managerial or private information. Financial
accounting includes information disseminated to parties that are not part of the enterprise
proper- stockholders, creditors, customers, suppliers, regulatory commission, financial
analysts, and trade associations. Such information relates to the financial position, liquidity
and profitability of an enterprise. Without accounting information, the market could not
operate effectively and the potential investors may be reluctant to trade because they lack
sufficient information to assess the value of investment (Kothari, 2001). Adequate financial
information is essential to maintain an efficient market system. Disclosure and transparency of
the corporation protect the investors, and thereby enhance the investors’ confidence in the
market.

Firm’s image: Firm’s image is the mental picture that springs up at the mention of a firm’s
name. It is a composite of psychological impression that continually changes with the firm’s
circumstances, media coverage, performance, pronouncements etc. Similar to a firm’s
reputation or goodwill, it is the public perception of the firm rather than a reflection of its
actual state or position. Epstein (1996) examined the demand for social information by
individual investors. The results indicate the usefulness of annual reports to corporate
shareholders. Furthermore, a majority of the shareholders surveyed also want the company to
report on corporate ethics, employee relations and community involvement. Unlike corporate
identity, it is fluid and can change overnight from positive to negative to neutral. Large firms
use various techniques to enhance their image in order to improve their desirability as a
supplier, employer, customer, borrower etc.

Advocate recommendations: In the case of investment decision advocate recommendation

refers to the recommendations of broker, family member, friend or co-workers, opinions of
the firm's majority stockholder etc. Investors weight other information in the analyst report
more heavily when they observe a buy rather than a sell recommendation. This factor includes
purchase recommendations from brokerage houses and individual stock brokers.
Recommendations from friends or co-workers marginally loaded on this factor as well.
Krishnan and Booker (2002) analyzed the factors influencing the decisions of investor who
use analysts’ recommendations to arrive at a short-term decision to hold or sell a stock. The
results indicate that a strong form of the analyst summary recommendation report, i.e., one
with additional information supporting the analysts’ position further, reduces the disposition
error for gains and also reduces the disposition error for losses.

Investment decision: Investment decision relates to the decision made by the investors with
respect to the amount of funds to be deployed in the investment opportunities. Simply,
selecting the type of the assets in which the funds will be invested by the firm is termed as
investment decision. Investing in shares is like investing into ownership of a company, which
no other investment instrument can give. Kothari (2001) unlike any other investment
instrument that either gives fixed income or returns and no ownership in the same, equity
investment gives an opportunity to become a part of the company ownership and also gives
regular returns on investment as dividend income or through appreciation in share price.
Investing in equity also allows investor to enjoy the flexibility of staying invested as long as
he/she wish to, take advantage of the price movements and thus utilize the liquidity.

1.5.5 Methods of Data Analysis

The statistical tools used in this study to analyze the data findings are mentioned in the
following subsections:
Mean
Mean is the arithmetic average of a range of values or quantities computed by dividing the
total of all values by the number of values. In other word, the mean is the average that adds up
all the numbers and then divide by the number of numbers. In this study, mean is calculated to
find out the average of the responses given by the respondents regarding to the different
variables in likert scale question. Mean value of the responses given by the respondents in
likert scale question is calculated on all samples as well as across male and female. It can be
obtained by using formula mentioned below:
∑x
Mean =
N
Where,
∑x= Sum of observation
N= Number of observation

Standard Deviation
Standard deviation is the measure of dispersion, that is used to quantify the amount of
variation or dispersion of a set of data values. It can be defined as the positive square root of
variance. A low standard deviation indicates that the data tends to be close to the mean of the
set, while a high standard deviation indicates that the data points are spread out over a wider
range of values. In this study, standard deviation is calculated for the responses provided in
likert scale for all samples and for male and female as well. Standard deviation can be
calculated by using the formula mentioned below:

Σ( X− X́ )2
σ=
√ N

Where,

σ = Standard Deviation

Σ( X − X̅ )2 = Sum of square of difference of data and mean

N= no. of data

Independent Sample t-test

The independent samples t-test compares the means of two independent groups in order to
determine whether there is statistical evidence that the associated population means are
significantly different. Independent sample t test is a parametric test. In this study independent
sample t test is carried out to compare the mean difference across sex: male and female.

1.6 Conceptual Framework