FACTOR INFLUENCING INVESTMENT DECISION MAKING: A

STUDY OF INVESTORS AT NEPSE

BY
Pradeep Phuyal
TU Regd. No:7-2-0271-0410-2013

A Summer Project Report Submitted to

Faculty of Management, Tribhuvan University
in partial fulfillment of the requirements for the degree of
Bachelor of Business Administration

at the
People‘s Campus
Tribhuvan University

Kathmandu
March, 2017
 STUDENT’S DECLARATION

This is to certify that I have completed the Summer Project entitled ‖Factor
Influencing Investment decision making : A study of Investors at NEPSE‖ under the
guidance of Prof Gopal Krishna Shrestha‖ 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: Signature:

Name: Pradeep Phuyal

ii
 Certificate from the supervisor

CERTIFICATE FROM THE SUPERVISOR

This is to certify that the summer project entitled ―Factor Influencing Investment
decision making: A study of Investors in NEPSE‖ is an academic work done by
―Pradeep Phuyal‖ submitted in the partial fulfillment of the requirements for the
degree of Bachelor of Business Administration at Faculty of Management,
Tribhuvan University under my guidance and supervision. To the best of my
knowledge, the information presented by him/her in the summer project report has not
been submitted earlier.

____________________
Signature of the Supervisor
Name: Prof Dr. Gopal Krishna Shrestha
Designation: Supervisor
Date:

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 ACKNOWLEDGEMENTS

This study entitled ‘Factor Influencing Investment decision: A study of Investors

in NEPSE’ has been prepared for partial fulfillment of Bachelor of Business
Administration. It is directed towards investigating the investment decision making
determinant factors in Nepalese stock market NEPSE.

Individuals and Organizations did contribute immensely towards the success of this
thesis. My limitless thanks go to my supervisor, Mr. Bikash Shrestha and Dr. Gopal
Krishna Shrestha , , for painstakingly seeing me through the arduous task of summer
project, and also for his unflinching support and relentless advice to ensure the
completion of my studies. Besides, their understanding, encouraging and personal
guidance has provided the good basis for this present form of project report.
Therefore, I would like to convey my special thanks to respected sir for their valuable
inputs

I would like to express my profound gratitude to co-coordinator Rameshwor

Karmacharya sir and Mr. Rameshwor Achrya sir for their guidance and
encouragement throughout the completion of this project work. Similarly I would like
to express special thanks to Mr Rajendra Rayamajhi sir and Shanker Dhodary sir for
providing the guidance while developing the questionnaire for the study.

Furthermore, I am equally indebted towards Sujita shrestha mam, my beloved batch

mates for their continuous support and help. Also, would like to thanks all
respondents, who spent their valuable time in filling out the questionnaire. With the
help and support by respondents, we have successfully completed the part of
questionnaire.

Pradeep Phuyal
March, 2017

iv
 Table of Contents

STUDENT’S DECLARATION ......................................................................................................... ii

Certificate from the supervisor ................................................................................................. iii
ACKNOWLEDGEMENTS ............................................................................................................. iv
Table of Contents ....................................................................................................................... v
LIST OF TABLES ......................................................................................................................... vii
Acronyms ................................................................................................................................ viii
Executive Summary................................................................................................................... ix
CHAPTER 1 ................................................................................................................................. 1
INTRODUCTION .......................................................................................................................... 1
1.1 Context information............................................................................................................. 1
1.2 Purpose of the study ........................................................................................................ 3
1.3 Significance of the study .................................................................................................. 4
1.4 Literature survey .............................................................................................................. 4
1.4.1 Literature theories .................................................................................................... 5
1.4.2 Empirical literature ................................................................................................... 9
1.5 Research method used for data collection and analysis ............................................... 16
1.5.1 Research design ...................................................................................................... 16
1.5.2 Population and sample of the study ....................................................................... 17
1.5.3 Nature and sources of data..................................................................................... 17
1.5.4 Definition of the variables....................................................................................... 18
1.5.5 Method of analysis.................................................................................................. 19
CHAPTER II ............................................................................................................................... 24
PRESENTATION AND DATA ANALYSIS ...................................................................................... 24
2.1 Respondents’ profile ...................................................................................................... 24
2.2 Opinion on the determinants of the investment decision ............................................ 25
2.3 Opinion for highest rank among the determinants of the investment decision. .......... 26
2.4 Opinions on the knowledge of investment.................................................................... 27
2.5 Opinions on the priority of investment ......................................................................... 28
2.6 Descriptive statistics ...................................................................................................... 29
2.7 Opinion on accounting information as determinant of investment decision ............... 31
2.8 Opinion on advocate recommendation as determinant of investment decision.......... 32

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 2.9 Opinion on firm image/ self image coincidence as determinant of investment decision.
............................................................................................................................................. 33
2.10 Opinion on investment decision as determinant of investment decision. .................. 33
2.11 Co-relation analysis ...................................................................................................... 34
2.12 Regression analysis ...................................................................................................... 36
2.13 Independent sample t-test .......................................................................................... 38
2.14 Finding and discussion ................................................................................................. 39
CHAPTER III .............................................................................................................................. 42
CONCLUSION AND ACTION IMPLEMENTATION....................................................................... 42
3.1 Conclusion ...................................................................................................................... 42
3.2 Action implications ........................................................................................................ 42
3.2.1 Implication for the investors ................................................................................... 42
3.2.2 Implications for future research ............................................................................. 43
References
Appendix I

vi
 LIST OF TABLES

Table No. Name of Table Pages

1.1 Review of literature.....................................................................................................................10

2.1 Respondents profile ....................................................................................................................25
2.2 Opinions on the determinants of the investment decision ..........................................................26
2.3 Opinions for highest rank among determinants of the investment decision ...............................27
2.4 Opinions on the knowledge of the investment ............................................................................28
2.5 Opinions on the priority of investment .......................................................................................29
2.6 Descriptive statistics for whole sample.......................................................................................30
2.7 Descriptive statistics for different age group ..............................................................................31
2.8 Opinion on the accounting information as determinant of investment decision .........................32
2.9 Opinion on the advocate recommendation as determinant of investment decision ....................32
2.10 Opinion on firm image/ self image coincidence as determinant of investment decision ..........33
2.11 Opinion on investment decision as determinant of investment decision ..................................34
2.12 Co-relational analysis of whole sample ...................................................................................35
2.13 Co-relationship on the basis of age group .................................................................................36
2.14 Regression analysis ...................................................................................................................37
2.15 Independant sample t-test .........................................................................................................38

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 Acronyms
AI: Accounting Information

AR: Advocate Recommendation

FI/SI: Firm Image/ Self Image Coincidence

ID: Investment Decision

SD: Standard Deviation

NEPSE: Nepal Stock Exchange

KTM: Kathmandu

viii
 Executive Summary
Investment is the present sacrifice amount with a view to earn future return. Present
investment is certain but future investment is uncertain thus investment involves the
some degree of risk; hence investment decisions are made by the investors and
investment managers to mitigate the uncertainty of risk. This study examined the
factors that appear to exercise the greatest influence on the individual stock investor,
and included not only the factors investigated by previous studies and derived from
prevailing behavioral finance theories. The accounting information advocate
recommendation and firm image /self image are the independent variable to
investment decision. A total of 80 structure questionnaire were distributed using
judgmental sampling of which 69 were used for data analysis. The main purpose of
the study was to understand the investment decision pattern of investors at NEPSE
along with impact and relationship of variables over decision making. The sample
was collected from the capital and brokers houses and random investors of below 40
and above 40 age group.

The major findings of the study were the firm image / self image coincidence has the
highest relationship and impact over the investment decision followed by the
accounting information and advocate recommendation. There is the positive
relationship of these independent variable over investment decision. Further it was
found that there was positive impact of the variables over the investment decision but
since the investment decision is affected by several factors, these variables only have
explaining power of 5.8%. Similarly it was also concluded that investors ranked the
accounting information as the most important variable affecting the investment
decision. However, as most of the respondents had the limited knowledge of financial
literacy latter concluded that firm image/ self image coincidence has the highest
importance at NEPSE. Most of the investors concluded the commercial bank stock as
there priority sectors of investment which concluded most of them are the risk averse
investor s and always what to be at the safer side while making the portfolio decision.
However there was no significant mean difference across male and female on the
investment decision. The findings of the study has the implication for investors to
evaluate their investment decision, to the marketer to know the investors investment
activity and to the future researcher as the basis for conducting similar research, that
several factors need to be studied to know investment decision at NEPSE

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 CHAPTER 1

INTRODUCTION

1.1 Context information

Investment is the present sacrifice amount with a view to earn future return. Present
investment is certain but future investment is uncertain thus investment involves the
some degree of risk; hence investment decisions are made by the investors and
investment managers to mitigate the uncertainty of risk. The investors perform the
investment analysis commonly by the 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 as well as market outcomes, Mutswenje,
(2014). The investment analysis consist the set of procedures to buy the securities.
The investment process involves the steps like setting investment objectives,
performing security analysis, portfolio construction, portfolio revision and the
evaluation of the portfolio. This investment decision not only involves the detailed
knowledge of the market to the investors but also the psychological and cognitive
aspects that the investors have for the securities.

The investment decision of the investors depends upon fundamental analysis i.e.
Security Analysis by Graham and Dodd (1934) is used to decide intrinsic value of
stocks based on studying factors of economy situations, industry trend and sales
revenues of those companies and technical analysis i.e. examine the price behavior of
the securities the past behavior shows the present trend. Investor market behavior
derives from psychological principles of decision making to explain why people buy
or sell stocks. These factors will focus upon how investors interpret and act on
information to make investment decisions. Behavioral finance is defined by Shefrin,
(2000) as a rapidly growing area that deals with the influence of psychology on the
behavior of financial practitioners. Individual investments behavior is concerned with
choices about purchases of small amounts of securities for his or her own account
(Nofsinger and Richard, 2002). 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. This different behavior in the individual

1
investors is caused by various factors which compromise the investor rationality. An
individual investor is one who purchases generally small amounts of securities for his
or her own account.

Conventional theorists assumed that the most of the investors are the risk averse and
try to minimize the risk at the maximum return but the nature of investors depends
upon the risk attitude of investors towards the security. Research in behavioral finance
has developed rapidly in recent years and provides evidence that investors' financial
decisions are also affected by internal and external behavioral factors (Shefrin, 2000;
Shleifer, 2000; Warneryd, 2001). Behavioral finance is focused on the individual‘s
psychological factors which contribute towards effective decision making (Ritter,
2003). Investors habitually invest with the help of social interactions, friends and
family. Subjective norms influence investor decision making. Social influence leads
to investor behave irrationally. Investors do herding some time and it leads to wrong
decision making and investor suffer from losses. Media also influences decision
making of investor (Shiller, 2000). Now internet trading also increases individual
investors usually do trading with the help of internet (Barber & Odean, 2000).

Mostly investors invest in the stock market due to long term growth they want to
become owner of the firm and get capital gain when share prices increases
(Croushore, 2006). Investors who hold major portion of shares of any company can
participate in strategic decision making. In recent era, stock market trading is
increased rapidly; rapid trading can give benefits to brokerage firms. It is reported that
twenty percent active investors who treaded more and regularly can get average return
of 7.2 percent which is less than return of passive investors (Barber & Odean, 2000).
The behavior of individual investor has been discussed in theory of planned behavior
and reasoned action. The primary focus of this study is to judge factors affect the
investor trading behavior, its attitude.

Stock market provides platform of human interaction (Hirschey & Nofsinger, 2008)
and plays a vital role in development of economy. It pools fund from the individuals
and institutions and channelize towards business and industries. The main role in the
market is that of individual investor, whose behavior is studied for academic as well
as professional reasons. Coming to the specific Nepali context Individual investors
might acquire information from friends, family, colleagues, print media, and

2
electronic media and then invest accordingly in the stock market. In addition to this an
individual might also obtain information from bankers, brokers and financial planners.

Nepal Stock Exchange, in short NEPSE, is established under the company act,
operating under Securities Exchange Act, 1983. The basic objective of NEPSE is to
impart free marketability and liquidity to the government and corporate securities by
facilitating transactions in its trading floor through member, market intermediaries,
such as broker, market makers etc. NEPSE opened its trading floor on 13th January
1994.

Specifically in the Nepalese context such studies are limited to few thus study is
designed . Nepalese stock market doesn‘t have the big history and is growing
primarily the investors has the commercial banks, insurance companies , microfinance
company ,development bank, manufacturing industry , hydropower company ,mutual
fund to invest and trade in the capital market. Thus how the investors make their
portfolio is debatable either they perform market research or are affected by the
signaling effects.

Individual investors are different from each other and might take different investment
decision, and yet there always seem to be a pool of investors who have similar
investment pattern. Number of Investors is increasing rapidly so there is need to
understand the behavior of investor in multiple ways like how investors invest? This
study examined the factors that appear to exercise the greatest influence on the
individual stock investor, and included not only the factors investigated by previous
studies and derived from prevailing behavioral finance theories.

1.2 Purpose of the study

The main purpose of study is to explore the investment decision behavior of the
investors and how the rational investors differ from the irrational one. The study aims
to identify the factors affecting the investment decision along with its degree of
influence to the investment decision in the Nepalese stock market. The main specific
purposes of the study are:

1) To identify the relationship of accounting information, advocate

recommendation and firm image / self image coincidence on the investment
decision in Nepalese stock market.

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 2) To analyse the impact of accounting information, advocate recommendation
and firm image / self image coincidence on the investment decision in
Nepalese stock market.
3) To examine the significant differences of accounting information, advocate
recommendation and firm image / self image coincidence on the investment
decision in Nepalese stock market across the age group below 40 and above
40.

1.3 Significance of the study

The study is conducted to understand the factors affecting the investment decision in
Nepalese stock. Most of the investment theories describe the role financial knowledge
and information as the basis for the investment decision but beside these the
behaviour factors also plays the role in the investment decision. Traditional theories
assume that people are rational agents who make decisions objectively to take
advantage of the opportunities available to them. Investors think of themselves as
rational and logical. But when it comes to investing, their emotional inclinations,
ingrained thought patterns and psychological biases, colour how they perceive the
world and how they make decisions. So the main importance of the study is to
understand the role of behavioural factors while making the investment decision. This
research will be helpful to understand the qualitative factors which affect the
investor‘s decision making. The major significances of the study are:
1. The study helps to explain the investment decision behaviour and pattern in
Nepalese stock market
2. The study can be helpful to identify the Nepalese investor‘s rationality while
making investment decision.
3. The findings can be useful for the similar research works in future.

1.4 Literature survey

Literature Survey presents the theoretical concepts related to this study. This will
enable me to develop ideas, which will later serve as a ground for comparing findings
and finally concluding the aim of this study. Without the literature survey, the
complete research will not be possible. So that conducting of the literature survey
helps to know the theoretical aspects of the research topic. Behavioral finance
explains why individual do not always make the decisions they are expected to make

4
and why markets do not reliably behave as they are expected to behave. Behavioral
finance seeks to find how investor‘s emotions and psychology affect investment
decisions. It is the study of how people in general and investors in particular make
common errors in their financial decision due to their emotions. It is nothing but the
study of why otherwise rational people take some really thumbs investment decisions.

1.4.1 Literature theories

How do investors make their investment decisions? What are the factors that
influence investors‘ decision making processes? Are the investors rational or do they
let behavioral factors influence their decisions? What sort of, if any, tools they make
use of for aiding their investment decisions? Although, the investors are aware of the
financial knowledge when making the investment decision they use psychological,
cognitive knowledge while making a portfolio. The average investors make decisions
based on emotion, not logic; most investor‘s buy high on speculations and sale low on
panic mood. Psychological studies reveal that the pain of losing money from
investment is really three times greater than the joy of earning money. Emotions such
as fear and greed often play a pivotal role in investor‘s decision; there are also other
causes of irrational behavior. It is observed that stock price moves up and down on a
daily basis without any change in fundamental of economies. It is also observed that
people in the stock market move in herds and this influence stock price. Thus the
behavioral factors like accounting information, advocate recommendation, neutral
information, firm image and psychology of the investors affects investment decision
making. The answers to these questions differ according to the school of financial
thoughts.

1.4.1.1 Prospect theory

Investors evaluate the risk according to expected utility framework. It is also found
that people violate the framework systematically while choosing among risk gambles.
Kahnemanand Tversky (1979), advocate a new theory known as prospect theory.
According to this theory, people emaciated outcomes that are purely feasible in
comparison with certain outcomes. The value is assigned rather than losses and gains
than to final assets. This theory also envisages a distinct pattern of risk aversion, risk
attitude, losses of low probability and gains of moderate to high probability and losses
of moderate to high probability and risk seeking for gains of low probability.

5
According to researchers, the disadvantages and losses have larger impact on
preference than advantages and gains (Kahneman & Tversky, 1991). Households and
individuals use set of cognitive operations to evaluate, organize and keep track of
financial activities (Thaler, 1985).

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". Under the prospect theory people generally show the
certainty effect i.e. they underestimate the probable outcome in comparison to the
outcome which is certain. Certainty effect contributes to risk aversion in the scenario
of sure profits and risk tolerance in the scenario of sure losses.

1.4.1.2 Theory of mental accounting

Mental accounting refers to the tendency for people to separate their money into
separate accounts based on a variety of subjective criteria, like the source of the
money and intent for each account. According to the theory, individuals assign
different functions to each asset group, which has an often irrational and detrimental
effect on their consumption decisions and other behaviors. The importance of this
theory is illustrated in its application towards the economic behavior of individuals,
and thus entire populations and markets. Rather than rationally viewing every dollar
as identical, mental accounting helps explain why many investors designate some of
their dollars as "safety" capital which they invest in low-risk investments while at the
same time treating their "risk capital" quite differently.

A core idea of mental accounting is that people treat money differently, depending on
factors such as the money‘s origin and intended use, rather than thinking of it in terms
of formal accounting. An important term underlying the theory is fungibility, the fact
that all money is the same and has no labels. In mental accounting, people treat assets
as less fungible than they really are; they frame assets as belonging to current wealth,

6
current income, or future income 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).

1.4.1.3 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)

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1.4.1.4. Over/under reacting theory
Barberis, Shleifer and Vishny (1998) present a model of investor sentiment that
displays under reaction of stock prices to news such as earnings announcements and
overreaction of stock prices to a series of good or bad news. A market hypothesis
stating that investors and traders react disproportionately to new information about a
security, this will cause the security's price to change dramatically, So that the price
will not fully reflect the security's true value immediately following the event.
Typically, the price swing from overreaction is not long lasting, as the stock price will
tend to return back to its true value over time. 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). Extreme cases of over- or
under-reaction to market events may lead to market panics and crashes. "One of the
accusations leveled at behavioral finance is that it predicts over-reaction, and at other
times it predicts under-reaction. (Monitor, 2002) claims that under-reaction and over-
reaction cancel each other out (Fama, 1998).

1.4.1.5 Theory of overconfidence

It says that people generally rate themselves as being above average in their abilities.
They also overestimate the precision of their knowledge and their knowledge relative
to others. Many investors believe they can consistently time the market. But in reality
there's an overwhelming amount of evidence that proves otherwise. Overconfidence
results in excess trades, with trading costs denting profits, (Tapia and Yermo, 2007).
The capital market is the macroeconomic market thus the several factors plays the
role for the operation of the market. The investor‘s things that they can change the
market or have the confidence that they can handle the market such overconfidence is
prevailed on the investors. A big range of issues have been attributed to
overconfidence, including the high rates of entrepreneurs who enter a market despite
the low chances of success (Moore & Healy, 2008). The planning fallacy is another
example of overconfidence, where people underestimate the length of time it will take
them to complete a task, often ignoring past experience (Buehler, Griffin, & Ross,

8
1994). In terms of investing, overconfidence can be detrimental to your stock-picking
ability in the long run. Overconfident investors generally conduct more trades than
their less-confident counter parts (Odean, 1998).Odean found that overconfident
investors/traders tend to believe they are better than others at choosing the best stocks
and best times to enter/exit a position. They ignore the fact the market may change in
the second that the financial position be reversed in a couple of blinks.
Unfortunately, traders that conducted the most trades tended, on average, to receive
significantly lower yields than the market.

1.4.2 Empirical literature

Investment in the capital market can be undertaking by an investor for three basic
objectives :(i) wealth maximization; (ii) liquidity maintenance; and (iii) risk
minimization. This implies that a rational investor is influenced by these objectives
when making investment decisions. Among the others, the qualitative studies
concerning the investors‘ reaction to market prices shows that overreaction of prices
to news, price bubbles and expectations; the most recent evidence shows investors are
overly sensitive to intangible information when they need to make more subjective
judgments. These empirical evidences suggested that the investment decisions are
more than models and numbers but based on theories and behavior of the decision
makers. Despite the absence of finite measurement tools for the behavioral aspects of
the investors, these are treated as intangibles. It has been greater influences on stock
prices and on investment decisions. Thus, these factors are the interest of the study.
Apart from the voluminous studies in the developed and western economy, limited
studies has been conducted in Nepalese context. Some of the major studies indicates:
the positive relation between stock returns and size where as inverse relation between
returns and market-to-book value; the positive relation of stock returns with earning
yield and size whereas negative relation with book-to-market ratio and cash flow yield
and book-to-market value is found to be more informative; book-to-market equity is
the most significant determinant of stock returns and in other study, the evidence
shows that Nepalese stock market is inefficient. The studies on the behavioral aspects
of the investment decision making is still lagging behind in Nepalese stock market the
stock market is still growing and the several literature are there in this regards. Well,
various studies had been done in this regard for the empirical study of the literature
reviews.

9
 Table 1.1

Review of major literature

Study Major Findings

Contemporary concerns such as local or international operations,

environmental track record and the firm‘s ethical posture appear to
Nagy and Obenberger (1994)
be given only cursory consideration. The recommendations of
brokerage houses, individual stockbrokers, family members and
co-workers go largely unheeded.

Identifies influencing factors affect the behavior of individual

investor. The factors in order of importance were: expected
corporate earnings, get rich quick, stock marketability, past

Al-Tamimi (2005) performance of the firm‘s stock, government holdings and the
creation of the organized financial markets.

They have found that that when beginning-of-period sentiment are

low, subsequent re-turns are relatively high for small stocks,
Baker et al. (2006)
young stocks, high volatility stocks and reverse if sentiments are
high.

Found that individual investors are net buyers of attention

grabbing stocks, e.g., stocks in the news, stocks experiencing high
Barber et al. (2008)
abnormal trading volume, and stocks with extreme one-day
returns.

Investors‘ tolerance for risk, strength of the Indian economy,

media focus on the stock market, political stability and finally
Bennet et al. (2011)
government policy towards business affects the investment
decision.

Stock trading depends on individual traders‘ judgments. The

investor‘s age, his/her use of the internet and his/her formal level
Fares et al. (2011)
of education were statistically significant (at 1percent or 5percent
level) with positive signs. The interaction between the investor
and his/her broker, on the other hand, had a highly significant and
negative effect.

10
 Factors such as expected corporate earnings, firm status in
industry, condition of financial statements, protection of the
Merikas et al. (2008)
investor, recent price movements, get rich quick, ethics of the firm
significantly influence investor decisions.

The study concluded that herding attitude, representativeness,

anchoring, loss aversion, and mental accounting all influence the
Rekik et al. (2013)
Tunisian investors‘ perception of their decision making processes
but there is an absence of over confidence bias in the Tunisian
Stock Market.

J The 28 item questionnaire to 42 investors concluded that that there

seems to be a certain degree of correlation between the factors that
agongo and Mutswenje (2014)
behavioral finance theory and previous empirical evidence identify
as the for the average equity investor.

Nagy and Obenberger (1994) examined factors influencing investor behavior. They
developed a questionnaire that included 34 questions. Their findings suggested that
classical wealth –maximization criteria are important to investors, even though
investors employ diverse criteria when choosing stocks. Contemporary concerns such
as local or international operations, environmental track record and the firm‘s ethical
posture appear to be given only cursory consideration. The recommendations of
brokerage houses, individual stockbrokers, family members and co-workers go
largely unheeded. Many individual investors discount the benefits of valuation models
when evaluating stocks. Thus, concluded that the firm image / self image coincidence
plays the cursory role for investment decision and advocate recommendation doesn‘t
affect much.

Al-Tamimi (2005) develops a modified questionnaire. The questionnaire included

thirty four items that belongs to five categories, namely self-image/ firm-image
coincidence; accounting information; neutral information; advocate recommendation;
and personal financial needs. Six factors were found the most influencing factors,
where more than 50percent of total respondents consider these factors as the most
affecting factors on their behavior. The most influencing factor was by order of
importance: expected corporate earnings, get rich quick, stock marketability, past
performance of the firm‘s stock, government holdings, the creation of the organized
financial market i.e. Dubai Financial Market& Abu Dhabi Securities Markets. Five

11
factors were found the least influencing factors, where less than 10percent of total
respondents consider these factors as the least affecting factors on their behavior. The
least influencing factor was by order of importance: expected losses in other local
investments, minimizing risk, expected losses in international financial markets,
family member opinions and gut feeling on the economy. The most influencing group
was by order of importance accounting information, self-image/ firm-image
coincidence, neutral information, advocate recommendation, and personal financial
needs. Two factors had unexpectedly least influence on the behavior of the UAE
investor behavior, namely the religious reasons and the factor of family member
opinions.

Baker et al. (2006) conducted a study on ‗Investor Sentiment and the Cross-Section of
Stock Returns‘ to identify how investor sentiment affects the cross-section of stock
returns and they have found that that when beginning-of-period sentiment are low,
subsequent re-turns are relatively high for small stocks, young stocks, high volatility
stocks, un-profitable stocks, non-dividend-paying stocks, extreme growth stocks, and
distressed stocks. When sentiment is high, on the other hand, these categories of stock
earn relatively low subsequent returns. The results suggest several avenues for future
work. In corporate finance, a better understanding of sentiment may shed light on
patterns in security issuance and the supply of firm characteristics that seem to be
conditionally relevant to share price. In asset pricing, the results suggest that
descriptively accurate models of prices and expected returns need to incorporate a
prominent role for investor sentiment.

Barber et al. (2008) conducted a study on ‗All That Glitters: The Effect of Attention
and News on the Buying Behavior of Individual and Institutional Investors‘ and
confirm the hypothesis that individual investors are net buyers of attention grabbing
stocks, e.g., stocks in the news, stocks experiencing high abnormal trading volume,
and stocks with extreme one-day returns. Attention-driven buying results from the
difficulty that investors have searching the thousands of stocks they can potentially
buy. Individual investors do not face the same search problem when selling because
they tend to sell only stocks they already own. We hypothesize that many investors
consider purchasing only stocks that have first caught their attention. Thus,
preferences determine choices after attention has determined the choice set. In making
a decision, we first select which options to consider and then decide which of those

12
options to choose. Attention is a scarce resource. When there are many alternatives,
options that attract attention are more likely to be considered, hence more likely to be
chosen, while options that do not attract attention are often ignored. If the salient
attributes of an option are critical to our utility, attention may serve us well. If not,
attention may lead to suboptimal choices. In this paper, we test the proposition that
individual investors are more likely to buy rather than sell those stocks that catch their
attention. We posit that this is so because attention affects buying—where investors
search across thousands of stocks—more than selling—where investors generally
choose only from the few stocks that they own. While each investor does not buy
every single stock that grabs his attention, individual investors are more likely to buy
attention-grabbing stocks than to sell them. Hence concluded that investors decision is
based upon the rumours and change in scenario in market like an overnight change in
the valuation of the stock in capital market.

Bennet et al. (2011) conducted a study on ‗Factors Influencing Retail Investors‘

Attitude towards Investing in Equity Stocks: A Study in Tamil Nadu‘ and it is found
out that five factors had very high influence over the retail investor‘s attitude towards
investing inequity stocks. Research in behavioral finance is comparatively less in
India, when compared to other foreign countries. Globalization of financial markets
has been increasing the retail investors‘ community over the past two decades by
providing a wide variety of market and investment options. However, it makes much
more complex in their investment decisions process. The average value of the five top
highly influential factors according to the sample retail investors‘ were Investors‘
tolerance for risk, strength of the Indian economy, media focus on the stock market,
political stability and finally government policy towards business. Four factors were
given lowest priority or which had low influence on the attitude of the retail investors
investing in equity stocks. Stories of successful investors was considered to be the
lowest influencing factors among the four, get rich quick philosophy, information
available on internet, cost cutting by companies. This study is concluded that the
factors had very high influence over the retail investor‘s attitude towards investing has
the effect on the investment decision , the factor can collectively called as self image/
firm image coincidence along with the economic stability and political stability in the
Indian capital market.

13
Fares et al. (2011) conducted a study on ‗Individual Investors‘ Stock Trading
Behavior at Amman Stock Exchange‘ using the multiple regression technique and
identified four behavioral factors that influenced investors‘ trading decisions. The
Amman Stock Exchange being a small exchange does not use stock trading programs
that require advanced mathematical models. Most stock trading is executed the
traditional face-to-face way. Therefore, stock trading depends on individual traders‘
judgments. Investors‘ trading behavior is influenced by several behavioral factors.
Four explanatory variables were identified. The investor‘s age, his/her use of the
internet and his/her formal level of education were statistically significant (at 1percent
or 5percent level) with positive signs. The interaction between the investor and his/her
broker, on the other hand, had a highly significant and negative effect. Brokers did not
employ professionally trained analysts therefore they lost their clients‘ trust.
Thereupon, investors should educate themselves in the complexities of financial
markets including ways and means of combating market manipulations. They should
understand the brokers‘ job in order to make the most of their services. Brokers to
have good working relationships with their clients, they should seek qualified analysts
and be keen to provide timely, accurate, and transparent information in order to win
investors trust. This also helps the efficiency of the market. Authorities should take
every possible action to stop illegal practices, prevent, and pursue market
manipulators. Authorities should help make modern technology affordable and
accessible. Finally, the adoption of previous recommendations helps boost confidence
in the economy and encourage domestic investments and attract foreign capital..

Merikas et.al.,(2003) conducted a study on ‗Economic factors and Individual Investor

Behavior The Case of The Greek stock exchange‘ the results indicate that individuals‘
base their stock purchase decisions on economic criteria combined with other diverse
variables. They do not rely on a single integrated approach, but rather on many
categories of factors. The results also revealed that there is a certain degree of
correlation between the factors that behavioral finance theory and previous empirical
evidence identify as the influencing factors for the average equity investor, and the
individual behavior of active investors in the Athens Stock Exchange (ASE)
influencing by the overall trends prevailing at the time of the survey in the ASE. This
study tested the tenets of the behavioral finance theory on the factors that influence
investment choices under conditions of uncertainty. The analysis performed on the

14
data collected appears to give a fairly accurate view of the average equity investor in
the Athens Stock Exchange (ASE). Experienced and knowledgeable investors would
readily admit that the structure and relative weights of the chosen categories reflect on
the average, a still unsophisticated and immature investor profile. The results revealed
by our sample of 150 respondents confirm that there seems to be a certain degree of
correlation between the factors that behavioral finance theory and previous empirical
evidence identify as the influencing factors for the average equity investor, and the
individual behavior of active investors in the Athens Stock Exchange (ASE)
influenced by the overall trends prevailing at the time of the survey in the ASE. Thus
they conclude that the individual investment decision has the correlation with the
behavioral finance variables as well as the different previously identified others
evidences while making an investment decision at ASE.

Rekik et al.,(2013) reveals that Tunisian investors do not always act rationally while
making investment decisions i.e. beside the rational factors like accounting
information of the company other behavioral factors also affects the individual
decision making. The study concluded that herding attitude, representativeness,
anchoring, loss aversion, and mental accounting all influence the Tunisian investors‘
perception of their decision making processes but there is an absence of over
confidence bias in the Tunisian Stock Market. In fact, Tunisian investors seem to be
under confident, hesitant and very sensitive to others‘ reactions and opinions. The
other finding related to the interaction between demographic variables and financial
behavioral factors particularly provided that the variables like gender, age, socio-
professional category, and experience all seem to have an influence on the behavior of
investors operating on the Tunisian Market. This study provides that people at certain
age, are less subject to psychological biases as they become more experienced while
as elder investors who are relatively less knowledgeable and have lower incomes are
subject to behavioral biases. Thus concluded that behavioral factors like mental
accounting, herding, anchoring plays the significant role in decision making, besides
demographic variable age plays role while making investment decision via
psychological biases.

Jagongo and Mutswenje (2014) individual investments behavior is concerned with

choices about purchases of small amounts of securities for his or her own account.
Investment decisions are often supported by decision tools. It is assumed that

15
information structure and the factors in the market systematically influence
individuals‘ investment decisions as well as market outcomes. The objective of the
study was to establish 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 this 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. The
findings from this research would provide an understanding of the various decisions
to be made by investors based on the prevailing factors and the eventual outcomes for
each decision and would identify the most influencing factors on the company‘s
investors‘ behavior on how their future policies and strategies will be affected since
investment decisions by the investors will determine the company‘s strategy to be
applied.

1.5 Research method used for data collection and analysis

1.5.1 Research design

The research design adopted in this study consists of descriptive and causal
comparative 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 variables of interest. The descriptive research design is selected
for the study to learn the profile of the respondents, presentation and description of
the data collection, and to describe the characteristics of the investors behavior in the
Nepalese capital market.

16
The causal comparative research design is selected for the study to examine the
relationship between the dependent variable and the independent variables under this
study. The causal-comparative research investigates the possible causes affecting a
particular situation by observing existing consequences and searching for the possible
factors leading to the results. This research is also known as ―ex post facto‖ or ―after
the fact‖ research (i.e. data are collected after all the events of interest occurred). This
is because both the effect and alleged causes have already occurred. In other words,
causal-comparative research is that research in which the independent variable or
variables have already occurred and in which researcher starts with the observation of
the dependent variable or variables. Then, analyze the independent variables in
retrospect for their possible relations to, and effect on the dependent variable or
variables. This research design is selected for the study to examine the relationship
between the dependent variable and the independent variables.

1.5.2 Population and sample of the study

The investors in the Nepalese capital market are taken as the population for the study.
The population includes all the investors in the capital market NEPSE. However, the
samples selected were from the different securities, NEPSE, and other individual
investors, financial analysts. The judgmental sampling was used for this purpose.
However, the sample doesn‘t include the other investors who invest in other
investment sectors like real estate, bond etc.

The judgmental sampling along with the convenience sampling (non probability
sampling) was used while selecting the investors who invest in NEPSE. The sample
tends to generalize the entire population. Questionnaires were distributed to the 80
respondents out of which 69 questionnaire were used for the data analysis. The
sample were collected from the brokers office and investment bankers like Sani
securities , Global IME capital, Shakti securities and the random investors .

1.5.3 Nature and sources of data

This research is based upon the primary data. The primary source of the data has been
used to determine the factors influencing the investment decision in the Nepalese
capital market, NEPSE. The questionnaire was developed based on the findings from
previous literature. The respondents were encouraged to make the comments on
unambiguous and unclear questions.

17
1.5.3.1 Primary data
This study is based on primary sources of data. The survey questionnaire is designed
to generate the primary data. A structured questionnaire was administered to 160
participants including several investors of the different age groups, financial analyst
who invests in the stock, which the study believes possesses the relevant for this study
and those participants were only included for the questionnaire survey who have
sufficient time and are willing to participate (Morse, 1998). The survey has been
basically designed to understand the opinions of respondent to explore the factors
influencing the investment decision making.

The questionnaire was developed based on the findings from the literature review. A
pre-test of a survey questionnaire is necessary to assess its reliability and validity
(Cooper & Schindler (2006). A pre-test was conducted from a random sample of
twelve respondents from different sampled firms. 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 1 of this study.

1.5.4 Definition of the variables

Accounting information: Accounting information covers information used to
prepare financial statements which report the results and financial position of a
business to the decision makers. Accounting information involves the information
about the firms retained earnings, corporate profit, paid up capital which helps to
know the true financial position of the organization. The information about Stock
Merchantability, Expected Corporate Earnings, Financial Position, Dividend Paid,
Expected Dividend and the Past Performance etc helps the investors to make the or
decision while purchasing any stock of the company in the capital market.

Advocate recommendation: The individual investors investment decision is affected

buy the various suggestions and recommendation of the share brokers, family and
friends, the portfolio managing companies. The investor who already holds a stock
may respond to an analyst recommendation in one of four ways: the investor may
hold stock on a sell recommendation, the investor may sell stock on a hold
recommendation, the investor may hold stock on a hold recommendation, or the
investor may sell stock on a sell recommendation. Large investors generate abnormal
volumes of buyer-initiated trades after a positive recommendation only if the analyst

18
is unaffiliated. Small traders exert abnormal buy pressure after all positive
recommendations, including those of affiliated analysts Malmendier and
Shanthikumar, (2003).

Firm image/ self image coincidence: The information regarding the Product and
Service, reputation of the firm in the Industry, expectation of getting rich quickly,
firm status effects the investors decision making about the company. Investors tries to
make there decision based upon the need fulfillment of him/her by the company the
decision variable may be the firm brand, social responsibility , ethical posture and
product or services. A majority of the shareholders surveyed also want the company
to report on corporate ethics, employee relations and community involvement Epstein,
(1994).

Investment decision: Although, the investors have the knowledge of the market
while making the decision more or less use the psychological and behavioral approach
to make the decision. It is assumed that information structure and the factors in the
market systematically influence individuals‘ investment decisions as well as market
outcomes. Investor market behaviour derives from psychological principles of
decision making to explain why people buy or sell stocks. These factors will focus
upon how investors interpret and act on information to make investment decisions.
Individual investments behavior is concerned with choices about purchases of small
amounts of securities for his or her own account (Nofsinger and Richard, 2002). 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.

1.5.5 Method of analysis

The primary and secondary data collected from various sources leads to the logical
conclusion, only if the appropriate tools and techniques are adapted for analysis of
such data. The collected data has no meaning if such data are not analyzed. Various
statistical and financial tools have been used to analyze the data in this study; the
different tools used in the study are as follows:

1.5.5.1 Mean
Mean is the value, which represents the group of values and gives an idea about the
concentration of values in the central part of the distribution. An average gives us a
19
point, which is most representative of the data. It depicts the characteristics of the
whole group. The value of arithmetic mean lies in between the two extreme
observations of the entire data. It is an envoy of the mass homogeneous data. The
value of the AM is obtained by adding together all the items and by dividing this total
by the number of items. The mean is calculated for the descriptive statistics in the
report to study the average value of the variable.

Mathematically,

∑𝑓𝑥
𝑥=
𝑁

Where,

∑fx= sum of all numerical values x

N=no of observations

1.5.5.2 Mode:
The mode is the value that appears most often in a set of data. The mode is found by
collecting and organising the data in order to count the frequency of each result. The
result with the highest occurring number is the mode of the set. The mode of a
discrete probability distribution is the value x at which its probability mass function
takes its maximum value. The mode is then the value where the histogram reaches its
peak.

Mode =most frequent value in data set.

1.5.5.3 Median:
Median is the middle value in a series of values arranged from smallest to largest. A
median is a series arranged from smallest to largest below and above which there are
an equal number of values or which is the average of two middle values if there is no
one middle value.In statistics and probability theory a median is the number
separating the higher half of a data sample, a population, or a probability distribution,
from the lower half. The median is the 2nd quartile, 5th decile, and 50th percentile.
The median is calculated for the mid value of the variable in the report in descriptive
statistics.

20
MEDIAN = {(n + 1)/2}th item

Where,

n = number of values

1.5.5.4 Standard Deviation:

The standard Deviation (σ) measures the absolute dispersion. The greater the standard
deviation, greater will be magnitude of the deviations of the values from their mean.
A small standard deviation means a high degree of uniformity of the observations as
well as homogeneity of a series and vice versa. The standard deviation is calculated to
study the variability of the variable across the moderating variable.

∑(𝑥−𝑥 )2
Mathematically, 𝑠 = 𝑛

Where,

s = standard deviation

2
∑ 𝑥−x = Sum of square of difference of data and mean

n = no. of data

1.5.5.5 Minimum and Maximum

The sample maximum and sample minimum, also called the largest
observation, and smallest observation, are the values of the greatest and least elements
of a sample. These are calculated in the statistics to describe the outliers of the
sample. The difference between maximum and minimum is called range.

Minimum: Lowest value of the sample.

Maximum: Highest value of the sample.

1.5.5.6 Correlation
When the relationship is of quantitative nature, the appropriate statistical tool for
discovering and measuring the relationship and expressing it, in a brief formula is
known as correlation. If the values of the variables are directly proportional, the
correlation is said to be positive. On the other hand, if the values of the variables are
inversely proportional, the correlation is said to be negative, but the correlation

21
coefficient always remains within the limit of +1 to -1. When ‗r‘ = +1, there is perfect
positive correlation.

When, ‗r‘ = -1, there is perfect negative correlation.

When ‗r‘ = 0, there is no correlation.

When ‗r‘ lies between 0.7 to 0.999 (or -0.7 to -0.999) there is high degree of positive
or negative correlation.

When ‗r‘ lies between 0.5 and 0.699, there is a moderate degree of correlation.

When ‗r‘ is less than 0.5, there is low degree of correlation.

by Karl Pearson, the simple correlation coefficient (between two variables, say X and
Y) is given by,

𝑁 ∑ 𝑥𝑦 −∑ 𝑥 ∑ 𝑦
𝑟𝑥𝑦 =
𝑁 ∑ 𝑥 2 −(∑ 𝑥)2 𝑁 ∑ 𝑦 2 −(∑ 𝑦)2

Where, rxy is the correlation between two variables X and Y,

1.5.5.7 Least square regression analysis:

Regression is the statistical tool, with the help of which we can predict the unknown
value of one variable from known value of any other variable. Assuming that the two
variables are closely related, we can estimate the value of one variable from the value
of another. The variable, whose value is given, is called independent variable and the
variable whose value is to be predicted is called ―dependent variable‖. Hence,
regression determines the average probable change in one variable based on a certain
amount of change in another. It is a statistical tool for determining relationship
between the variable by the establishment of an approximate functional relationship
between them. It is used to determine that whether the dependent variable is
influenced by the given independent variable or not.

Regression analysis is a branch of statistical theory that is widely used in almost all
the scientific disciplines. One of the most frequently used techniques in economics
and business research, to find a relation between two or more variables that are related
casually is regression analysis.

Y= a+b1X1 +b2X2 +b3X3+e

22
Where,

Y= investment decision

a = y-intercept

X1= accounting information

X2=advocate recommendation

X3= firm image/ self image coincidence

b1 = coefficient of 1st variable

b2 = coefficient of 2nd variable

b3 = coefficient of 3rd variable

23
 CHAPTER II

PRESENTATION AND DATA ANALYSIS

This study aims to explain factor influencing the investment decision of the investors
in the NEPSE, the organized capital market of Nepal. It employs the various statistical
tools and techniques like descriptive statistics as well as inferential statistics to
analyze the data. For this purpose, required primary data was collected and analyzed
in systematic way so as to derive the empirical findings and evidences on the
investment decision criteria in NEPSE. This chapter includes the presentation and
analysis of these data. To make this study more systematic, this chapter has been
divided into several sections for the analysis of the primary data and to respond the
findings the concluded.

The empirical investigation which was conducted in the form of field Survey of
respondents through structured questionnaire distributed to the samples selected by
using non probabilistic procedures. Questionnaire was developed and distributed to
sample 80 respondents to get their opinions on the investment decision criteria.
However, due to the busy schedule and error only 69 participants actively participated
in the survey with the response rate of 86.25 per cent. The responses received from
these respondents have been arranged, tabulated and analyzed in order to facilitate the
descriptive analysis of the study. This chapter is all about the empirical investigation
during the study. In the survey questionnaire, the respondents were requested to
response in three ways: Yes or No option, ranking option, and likert scale option. In
order to collect the perceived importance of determinants, 5-point Likert scale has
been used, where five being the most important (strongly agree) and one being the
least important (strongly disagree).

2.1 Respondents’ profile

The Table- 2.1 displays the respondents profile from those participated in the
questionnaire survey on the strata of gender and the age group. The age group has
been re-coded into ordinal scale as age group below 40 and above 40. Questionnaire
was developed and distributed to 69 sample respondents to get their opinions with
respect to investment decision at NEPSE. Respondents were inquired in advance
about their interest in participating in the survey at the time of collecting data from

24
them. Out of 80 questionnaires distributed to selected samples, only 69 responses
were received representing 86.25 per cent in total. Individually, majority of these
respondents (65.2 per cent) were male and 34.8 percent were female respondents.

Table 2.1
Respondent’s profile

Panel A : Gender of the Respondents

Gender Frequency Percent Cumulative Percent
Male 45 65.2 65.2
Female 24 34.8 100
Total 69 100
Panel B: Age_group of the Respondents
Age_group Frequency Percent Cumulative Percent
Below 40 32 46.4 46.4
Above 40 37 53.6 100
Total 69 100

The table 2.1 depicts that the total sample of the study were 69. Out 69 people there
were 45 males and 24 female respondents, with a percentage 65.2 and 34.8
respectively. Similarly there were 32 respondents below 40 age group and 37 of age
group above 40.Since our moderating variable is age group the each class as the
percentage of 46.4percent and 53.6 percent respectively.

2.2 Opinion on the determinants of the investment decision

The accounting information, advocate recommendation and firm image / self image
coincidence were the independent variables to study the influence in the investor‘s
decision making in the NEPSE. These variables were supposed to be influencing
variables for the investor‘s decision making to purchase the stocks in the NEPSE. The
respondents were asked whether they consider these variables to affect in their
investment decision making. The Yes- No questions were asked to the respondents for
this purpose. It was asked to respondents in order to find there interest on the and
there views on the different questions whether they agrees or not. Respondents select
either Yes/No or do not know while giving opinion about these various factors, the
yes means they think the variable affects the dependant variable else remain
unaffected by the independent variable.

25
 Table 2.2

Opinions on the determinants of the investment decision.

Frequenc Percen
Questions
y t
Do you think accounting information effect on investment decision?
Yes 66 95.7
No 2 2.9
Do not know 1 1.4
Do you think advocate recomendation effect on investment decision?
Yes 52 75.4
No 15 21.7
Do not know 2 2.9
Do you think firm image / self image coincidence effect on investment
decision?
Yes 60 87
No 8 11.6
Do not know 1 1.4
Total 69 100

With reference to the table 2.2 we found that the investors most of the investors thinks
that accounting information , advocate recommendation and firm image / self image
coincidence all effects on the investment decision . Out of total 69 respondents 66
respondents think that accounting information affect on the investment decision,
while two were not in favor of the question and one was clueless. Similarly 52
respondents thinks advocate recommendation affects on investment decision , while
15 of the samples didn‘t agree to question and two of the do not know whether it
affect or not. While 60 respondents thinks firm image / self image affect on the
investment decision and eight do not think it affects on investment decision while the
rest was clueless.

2.3 Opinion for highest rank among the determinants of the investment decision.
The investment in securities is affected by number of factors. For purpose we
considered only accounting information, advocate recommendation and firm image /
self image coincidence as the factors affecting investment decision. The respondents
were asked to rank as most important, important, and least important from among
these three independent variables. Table 2.3 represents the opinions of the investors
among three variables on the order of its importance as rank 1 for most important and
2 and for important and least important respectively.

26
 Table 2.3

Opinion for highest rank among the determinants of the investment decision.

Rank 1 Rank 2 Rank 3

Options / Rank
No Percent No Percent No Percent
Accounting Information 46 66.7 16 23.2 7 10.1
Advocate Recommendation 7 10.1 20 29 43 62.3
Firm image / Self image Coincidence 16 23.2 33 47.8 19 27.5
Total 69 100 69 100 69 100

The survey questionnaire tried to capture the preferences and views of respondents
whether they consider these three decisions to prefer one more important over others.
The respondents were asked to rank three different determinants on the scale of first
second and third respectively. Majority of the respondents rated the accounting
information as the most important determinants of the investment decision, ranking it
by 66.7percent as first, followed by 23.2percent as firm image / self image
coincidence and 10.1 percent as advocate recommendation. Similarly 47.8percent
ranked firm image /self image coincidence as the second most important factor,
followed by advocate recommendation 29 percent and accounting information
23.2percent. Respondents ranked advocate recommendation with 62.3percent as third
important variable followed by firm image / self image coincidence 27.5percent and
accounting information 10.1 percent respectively.

2.4 Opinions on the knowledge of investment

The structure questionnaire was asked to the investors in order to know the level of
financial literacy of Nepalese investors in the investment decision. Here financial
literacy refers to the level of financial knowledge the individual possess. The financial
literacy is the knowledge to invest in the stock market in our context. The knowledge
of the investors across NEPSE differs from person to person i.e. different person has
the different knowledge on the investment activity. The investors were asked to rate
their investment knowledge of how they explain themselves about their knowledge in
terms of the their excellence, good , limited and none to examine how they rate
themselves their investment knowledge. In the table 2.4 the frequency calculates the
number of response in each criteria and percent calculate its weights on the total
percent. The investment knowledge is central for investment but it may not have same
effect to all the respondents because of their different view points.

27
 Table 2.4

Opinions on the knowledge of the investment

Opinion on the knowledge of investment.
Investment knowledge Frequency Percent Cumulative Percent
None 6 8.7 8.7
Limited 48 69.6 78.3
Good 15 21.7 100
Excellent 0 0 100
Total 69 100

The table 2.4 depicts the information about the level of investment knowledge posses
in the investment decision. With reference to the table 2.4, it is found that most of the
investors think of possessing the limited knowledge of the investment with
69.6percent followed by the good knowledge of with 21.7percent in a average, about
8.7 percent of the investors things that they do not possess the knowledge of the
investment though are the investors in market. Out of 69 respondents none has
opinions of the excellent knowledge of the investment. Thus from the table it can be
concluded that most of the investors in NEPSE possess the little knowledge of the
investment. The investors have small financial literacy so there investment decision
may be depends not only to the accounting information but to the others people trends
in market although the limited knowledge is not quantified as to what extend the
financial knowledge will be limited one.

2.5 Opinions on the priority of investment

The structured questionnaire was asked to the respondents in order to find the priority
sector of the investors in the NEPSE which is based upon their views on different
options available at NEPSE. Different sectors of the economy are there to invest in
the stock market but there are secondary and tertiary sectors of economy in the
Nepalese stock market/ capital market NEPSE The investors were asked to choose
the sectors that were listed in the NEPSE the sectors were commercial bank,
development bank, finance companies, microfinance, hydropower project, insurance
companies and the rest were categorized as others which h may include the
manufacturing companies, hotel industry , airlines company multinational companies
and other group of industries. The question was asked to find the people key interest
in the NEPSE while making the portfolio and investing in the various securities. The
opinion on priority of investment is illustrated in table 2.5.

28
 Table 2.5
Opinions on the priority of investment

Sector of investment in Nepse Frequency Percent Cumulative Percent

Commercial bank 51 73.9 73.9
Development bank 3 4.3 78.3
Finance companies 1 1.4 79.7
Hydropwer project 2 2.9 82.6
Microfinance 1 1.4 84.1
Insurance companies 11 15.9 100
Others 0 0 100
Total 69 100

The table 2.5 depicts that the investors prefers to invest in the stock of the commercial
bank which has the highest market capitalization in the NEPSE . Out of 100percent ,
73.9 percent give the first priority to the commercial bank followed by the insurance
company with 15.9percent and development bank , hydropower project , fiancé
companies and micro fiancé respectively with the percentage of 15.9, 4.3, 2.9, 1.4,
1.4(percent) respectively. The investors prefer to invest in the commercial bank more
then any others sectors because they tends to be in the much safer side than the
sudden fluctuations in the others sectors like insurance , development bank.

2.6 Descriptive statistics

The descriptive statistics was calculated to study the basic nature of the data. It
describes the data from the use of central tendency i.e. mean, median, mode and
dispersion standard deviation, range and variance. The descriptive statistics describes
the characteristics of the data. The descriptive statistics is prepared to describe the
individual view about the likert scale questions. The likert scale questions are used to
calculate the descriptive statistics. The mean, median, minimum, maximum and
standard deviation was calculated which describes the sample; the mean is used to
describe the data while standard deviation is used to calculate the variability of the
data. The descriptive statistics is calculated for the whole sample to describe the
whole sample characteristics as well as for the age group below 40 and above 40 to
explain the differences along the moderating factor age along with its characteristics
to explain the investment decision pattern in NEPSE. The table 2.6 represents the
descriptive statistics for whole samples and table 2.7 for the descriptive statistics for
the age group below 40 and above 40.

29
 Table 2.6

Descriptive statistics for whole sample

Descriptive statistics for whole respondents
Descriptive statistics AI AR FISI ID
N 69 69 69 69
Mean 4.30 4.15 4.35 4.30
Median 4.4 4.25 4.5 4.25
Std. Deviation 0.43 0.52 0.35 0.35
Minimum 2.6 2.25 3.5 3.5
Maximum 4.8 5 5 5

The table 2.6 depicts that a total of 69 responses for each questions was collected. The
mean of the accounting information is 4.30 and median is 4.4 which indicate at
average the investors nearly strongly agreed to the structure questionnaire asked. The
min and max were 2.6 and 4.8 out of total 5. The standard deviation indicates the
variability of the data which shows the difference among the decision among the
investors thus the variability of the information is 0.43 though the average accounts to
4.30. The advocate recommendation has the mean of 4.15 and median of 4.25, with
the min of 2.25 and max of 5. It has the standard deviation of 0.52 i.e. more
fluctuation in the data. Similarly the firm image / self image coincidence has the
average of 4.35 and median of 4.5 , with the min of 3.5 and max of 5 . The variability
of the data was 0.35 which is comparatively small then other. Similarly the
investment decision average the 4.30 and has median of 4.25 with min of 3.5 and max
of 5 with SD of 0.35.Thus it can be concluded that there is less variability of data in
the firm image / self image coincidence and investment decision i.e. all the sample
respondents more or less agree in the same way about the likert scale questions
affecting the investment decision also firm image / self image coincidence has the
highest average which close to strongly agree i.e. most of the respondents things the
same about the firm image/ self image coincidence as the important variable to
investment decision. It is followed by the investment decision, accounting information
and the advocate recommendation with the lowest mean in the advocate
recommendation. Hence the firm image/ self image coincidence has the highest
degree of consistency among all the other independent variables. It also concludes
that most of the investors at Nepal stock exchange concludes that they use firm image/
self image coincidence as the most important variable affecting the investment
decision.

30
 Table 2.7
Descriptive Statistics for different age group

Panel A: Descriptive Statistics for age group below 40

Descriptive statistics AI AR FISI ID
N 32 32 32 32
Mean 4.35 4.13 4.30 4.32
Median 4.4 4.25 4.5 4.25
Std. Deviation 0.42 0.46 0.38 0.35
Minimum 2.6 3 3.5 3.5
Maximum 4.8 5 5 5
Panel B: Descriptive Statistics for age group above 40
Descriptive statistics AI AR FISI ID
N 37 37 37 37
Mean 4.26 4.18 4.39 4.28
Median 4.4 4.25 4.5 4.25
Std. Deviation 0.45 0.56 0.31 0.36
Minimum 3.2 2.25 3.5 3.5
Maximum 4.8 4.75 4.75 4.75

The mean of age group below 40 is 4.35 and that of above 40 is 4.26 while the
standard deviation is 0.42 and 0.45 respectively for the accounting information.
Similarly the mean of advocate recommendation on below 40 is 4.13 and 4.18 on
above 40 with SD od 0.46 and 0.56 respectively. The mean of firm image/ self image
coincidence is 4.30 on below 40 and 4.39 above 40 with the standard deviation of
0.38 and 0.31 respectively. The mean of investment decision is 4.32 for age group
below 40 and 4.28 for age group above 40 with the standard deviation of 0.5 and 0.36
respectively.

2.7 Opinion on accounting information as determinant of investment decision

The accounting information consists the information relating the expected corporate
earnings of the company, the financial statements of the company and its study. The
expected dividend policy of the company and the past performance the company,
through study of company history consist in accounting information. The technical
analysis and fundamental analysis are required to identify true position of the
company. The accounting information also informs about the investment knowledge
the investors possess while making any investment decision. The table 2.8 describes
the opinions about the investment knowledge.

31
 Table 2.8
Opinion on accounting information as determinant of investment decision
Strongly Disag Satisfact Agr Strongly
Disgree ree ory ee Agree Tot Wt Wt
Statements
al value mean
1 2 3 4 5
I study the financial statements of the company to
1 3 8 29 28 69 287 4.16
make investment.
The expected corporate earnings of firm attract me
0 1 6 31 31 69 299 4.33
for investment
The company policy of dividend payment attracts
0 0 7 35 27 69 296 4.29
me.
I am attracted to the affordable market price in the
0 1 4 29 35 69 305 4.42
secondary market.
I study the past performance of stock for
0 1 5 35 28 69 297 4.30
investment decision.
Grand Mean 4.30

The tabulated responses of the respondent depicts that the grand mean of the
accounting information affecting the investment decision is 4.30. The grand mean
4.30means more than agreed i.e. the respondent are nearly strongly agrees. So, it is
concluded that the accounting information has effect on the investment decision.

2.8 Opinion on advocate recommendation as determinant of investment decision

The advocate recommendation includes the several suggestion and recommendations

of the family, friends, co- workers, stock brokers and firm majority stock holders on
the investment decision of individuals. The investment decisions are influenced by
the suggestions and recommendations of the experts and family members. We
considered the peer groups, existing share holders of a company, brokers and family
as the advocate to make recommendation on the investment decision. The advocate
recommends based on his her knowledge of the investment so for the developing
economy the advocates may even be learning ones. The advocate recommends what
to do and not to do to make the profitable investment in the NEPSE.

Table 2.9
Opinion on advocate recommendation as determinant of investment decision
Strongly Disag Satisfact Agr Strongly
Disgree ree ory ee Agree Tot Wt Wt
Statements
al value mean
1 2 3 4 5
I ask family member opinions in investment
2 5 8 41 13 69 265 3.84
decision.
My friend or coworker recommendations help me
1 0 7 30 31 69 297 4.30
in investment.
The opinions of the firm's majority stockholders
0 1 11 35 22 69 285 4.13
about the company.
The suggestion from the stock brokers for
1 1 3 32 32 69 300 4.35
investment.
Grand Mean 3.32

32
The tabulated responses of the respondent depicts that the grand mean of the advocate
recommendation affecting the investment decision is 3.32. The grand mean 3.33
means more than satisfactory i.e. the respondent are nearly agrees. So, it is concluded
that the advocate recommendation has effect on the investment decision.

2.9 Opinion on firm image/ self image coincidence as determinant of investment

decision.
The firm image / self image coincidence represents how the individual perceive to be
the stock holders of the company. Does the image of company reflect their identity? It
includes the firm image, growth and service in market. It includes condition of
company in the economy and legal and ethical dimension of a company.
Table 2.10
Opinion on FI/SI coincidence as determinant of investment decision.
Strongly Disag Satisfac Agr Strongly
Disgree ree tory ee Agree Tot Wt Wt
Statements
al value mean
1 2 3 4 5
The service and growth of company affects me for
0 3 7 42 17 69 280 4.06
investment.
The legal and ethical component of company affects
0 1 3 33 32 69 303 4.39
me for investment.
The feeling about the condition of economy affects
0 0 2 28 39 69 313 4.54
me for investment.
The firm status and position in the industry help me
0 1 4 30 34 69 304 4.41
for investment decision.
Grand Mean 3.48

The tabulated responses of the respondent depicts that the grand mean of the firm
image / self image coincidence affecting the investment decision is 3.48. The grand
mean 3.48 means more than satisfactory i.e. the respondent are nearly agrees. So, it is
concluded that the firm image / self image coincidence has effect on the investment
decision. The investors have the opinion that the firm image/ self image coincidence
has determining affect on the investment decision at NEPSE.

2.10 Opinion on investment decision as determinant of investment decision.

The investment decision of the individual is based upon his her preference to create
the portfolio. The investment decisions of the investors are the macro variables
because there pattern of investing affect the entire economy. Several factors any affect
the investment decision of the investors in the stock market like easy earning money,
speculating the assets or due to interest. The accounting information, advocate
recommendation and firm image / self image coincidence are considered whether they
have the effect on the investment decision. To know about the view of investors
decision making questionnaire prepared in likert scale and following are the result.

33
 Table 2.11
Opinion on investment decision as determinant of investment decision.
Strongly Disag Satisfact Agr Strongly
Disgree ree ory ee Agree Tot Wt Wt
Statements
al value mean
1 2 3 4 5
I consider accounting information for investment
0 0 11 34 24 69 289 4.19
decision.
I make investment after detailed analysis. 0 1 12 38 18 69 280 4.06
The advocate recommendations help me for
0 0 2 27 40 69 314 4.55
investment decision.
I consider firm image/ self image coincidence for
0 1 2 34 32 69 304 4.41
investment decision.
Grand Mean 3.44

The tabulated response of the respondents towards investment decision gives the
result that the grand mean was 3.44 which indicate all the three concepts investment
decision has positive affect. The respondents strongly agree on this accord.

2.11 Co-relation analysis

The table 2.11 depicts the co-relation table which studies the relationship of the
variables for the investment decision. The unidirectional one tailed correlation study
is carried on in order to study whether the variables has the positive or negative
relationship with the dependant variable investment decision. The co relational
analysis study the relation among accounting information, advocate recommendation
and firm image/ self image coincidence on the investment decision. Our research
consist only one co-relational providing relationship among the dependant and
independent variables based on investment factors in NEPSE. The confidence interval
at 95percent and 99percent depicts the level of significance for how closely the
variables are related with each other. However we considered the co relational
analysis of age group by splitting the respondents on the basis of age as below 40 and
above 40 and helps to study the pattern of such relationship among the age group.
Although the co relational analysis also studies the relationship between the
independent variable but here we only describes the relationship of independent
variables to the dependant variables. The table 2.12 represents the correlation based
upon the age group in our study. The table 2.12 studies how the moderating variable
age group has differences in terms of the relationship among the independent and
dependant variables. The correlation analysis shows the degree of relationship of the
two variables.It may be positive or negative higher the relationship between variable
more positive will be the result, lower the relationship between the variable negative
will be the result.

34
 Table 2.11

Co-relational analysis of whole sample

The sample includes 69 students from the different investors of ktm, at several banks, Broker Company
and capital. All variables are defined as described in chapter I. The table presents correlation analysis
of the whole respondents. The accounting information is defined as firm financial statements and price
advocate recommendation as the suggestion and views of professional and firm image/ self image
coincidence as the firm position and growth.
The values in parentheses are p-value.

Variables AI AR FISI ID

AI 1
.243* 1
AR
(0.022)
.496** .391** 1
FISI
(0.001) (0.001)
.234* .209* .311** 1
ID
(0.026) (0.043) (0.005)
*. Correlation is significant at the 0.05 level (1-tailed). **. Correlation is significant at the 0.01 level (1-tailed).

It is observed from the table that there is positive relationship of investment decision
with accounting information the relationship is significant at the 95percent confidence
interval with positive relation of 0.234 which means that the investors uses the
accounting information for their investment decision in the NEPSE. The relationship
between advocate recommendation and investment decision is significant at 95percent
confidence interval with 0.209 positive relationship which means advocate
recommendation is the also the factor to contribute to the investment decision.
Similarly there is positive relationship of firm image / self image coincidence with the
investment decision at 99 percent confidence interval with 0.311 positive
relationships which means that the firm image and self image coincidence drives the
investors to the investment in NEPSE. Out of the three independent the firm image/
self image has the highest degree of positive relationship to the investment decision
followed by the accounting information and advocate recommendation since
accounting information has the highest positive coefficient than advocate
recommendation. Thus all the study variables have the positive relationship with the
investment decision while making any investing activities in the Nepalese stock
market NEPSE. It may be positive or negative higher the relationship between
variable more positive will be the result, lower the relationship between the variable
negative will be the result. It will be helpful for investor from the past relationship of
dependent and independent variable.

35
 Table 2.12
Co-relationship on the basis of age group
The sample includes 69 students from the different investors of ktm, at several banks, Broker Company
and capital. All variables are defined as described in chapter I. The table presents correlation analysis
on basis of age group. The accounting information is defined as firm financial statements and price
advocate recommendation as the suggestion and views of professional and firm image/ self image
coincidence as the firm position and growth.
The values in parentheses are p-value.
Panel A : Co-relation analysis for the age group below 40

Variables AI AR FISI ID

1
AI

0.207 1
AR
(0.128)

.575** .421** 1
FISI
(0.001) (0.008)

0.292 0.025 .417** 1

ID
(0.053) (0.446) (0.009)

Panel B : Co-relation analysis for the age group above 40

Variables AI AR FISI ID

1
AI

.294* 1
AR
(0.039)

.479** .351* 1
FISI
(0.001) (0.017)

0.216 .381* 0.225 1

ID
(0.1) (0.01) (0.091)

*. Correlation is significant at the 0.05 level (1-tailed). **. Correlation is significant at the 0.01 level (1-tailed)

From the table it is found that the there is significant relationship with level of
significance of 99 per cent on the independent variable firm image/ self image
coincidence in the age group below 40 but insignificant and positive relationship at
age group above 40. Similarly there is positive and significant relationship at
confidence interval 95% on advocate recommendation at the age group above 40 but
only positive insignificant at below 40. The accounting information has the positive
and insignificant relationship across age group below 40 and above 40.

2.12 Regression analysis

The regression analysis represents the cause and effect of the variables, the regression
analysis studies the impact of independent variable over the dependent variables. It

36
will be helpful for taking decision looking the past data for investor if we analyse
cause and effect trend about the variables.

Table 2.13

Regression analysis
The sample includes 69 students from the different investors of ktm, at several banks, Broker Company
and capital. All variables are defined as described in chapter I. The table presents regression analysis
of the whole respondents. The accounting information is defined as firm financial statements and price
advocate recommendation as the suggestion and views of professional and firm image/ self image
coincidence as the firm position and growth.
The values in parentheses are p-value.

Model A b1 b2 b3 R2 F

3.415** 0.206**
Model 1 0.05 3.615
(0.001) (0.035)

3.8939** 0.111
Model 2 0.012 1.828
(0.001) (0.181)

3.003** 0.298
Model 3 0.044 3.405
(0.001) (0.014)

2.837** 0.101 0.025 0.213

Model 4 0.058 4.403
(0.001) (0.385) (0.777) (0.163)

*. Regression is significant at the 0.05 level (1-tailed). **. Regression is significant at the 0.01 level (1-tailed

In model 1 while introducing accounting information as independent variable, by

controlling other two variables the impact is observed to be positive with coefficient
of 0.206 and is significant with 99percent confidence interval and has the explaining
power of 5percent,since F is less than 5 so the model is not fit. Similarly model 2,
introducing advocate recommendation as independent variable and controlling other
two variables, the impact is observed to be positive with coefficient 0.111 and
explaining power of 1.2percent but the result is insignificant. In model 3, impact of
firm image/ self image coincidence controlling other is positive on probability .298
and explaining power of 4.4percent but the result is insignificant. In model 4 while
introducing the entire variable together the impact of accounting information on
investment decision is of coefficient 0.101 and observed to be insignificant. Similarly
the advocate recommendation and firm image / self image coincidence has the
probability of 0.025 and 0.213 respectively and observed to be insignificant. The
model 4 has the explaining power of 5.8 and model is not fit for regression.

37
2.13 Independent sample t-test
The analysis of independent sample t-test has been carried out to compare the mean
differences of the variables under study, among the moderating variable age group i.e.
below 40 and above 40. The p-value approach is used for mean difference, where p-
value greater than 0.05 and 0.01 the level of significance will be high. The mean
difference analysis is done to consider whether the variable result is similar or
dissimilar.

Table 2.14

Independent sample t- test

The sample includes 69 students from the different investors of ktm, at several banks, Broker Company
and capital. All variables are defined as described in chapter I. The table presents independent sample
t-test of the respondents across moderating variable. The accounting information is defined as firm
financial statements and price advocate recommendation as the suggestion and views of professional
and firm image/ self image coincidence as the firm position and growth.
The values in parentheses are p-value

Variabl Age_gro Mea Std. Std. Error Mean P-

N
es up n Deviation Mean difference value
AI below 40 32 4.350 0.416 0.074
0.905 0.389
Above 40 37 4.260 0.452 0.074
AR below 40 32 4.133 0.462 0.082
0.429 0.730
Above 40 37 4.176 0.565 0.093
FISI below 40 32 4.297 0.383 0.068
0.950 0.262
Above 40 37 4.392 0.315 0.052
ID below 40 32 4.320 0.349 0.062
0.365 0.670
Above 40 37 4.284 0.359 0.059

The table depicts that the mean values of accounting information are 4.350 and 4.260
for age group below 40 and above 40 respectively with the standard deviation of
0.416 and 0.452. The mean difference is thus 0.905 but is insignificant, thus there is
no significant difference across the age group across the variable. Similarly the mean
values of advocate recommendation are 4.133 and 4.176 respectively with SD of
0.462 on age group below 40 and 0.565 on above 40. The mean difference is 0.905
with p value of 0.730 i.e. insignificant thus there is no significant difference across the
age group across the variable. Similarly the mean values are 4.287 and 4.392 across
male and female in firm image self image coincidence with the mean difference of
0.950 and the result is insignificant, thus there is no significant difference across the
age group across the variable. In the same way the mean values are 4.320 and 4.284
between age group below 40 and above 40 at investment decision and the result is

38
insignificant with mean difference of 0.365 thus the result no significant differences
across the age group in the variable.

2.14 Finding and discussion

Individual investments behavior is concerned with choices about purchases of small

amounts of securities for his or her own account (Nofsinger and Richard, 2002). 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. This different behavior in the individual investors is caused by various
factors which compromise the investor rationality. I was concerned much about how
the investors decision making is influenced from the change in independent variable
like accounting information, advocate recommendation and firm image/ self image
coincidence. The empirical evidences suggested that the investment decisions are
more than models and numbers but based on theories and behavior of the decision
makers. Despite the absence of finite measurement tools for the behavioral aspects of
the investors, these are treated as intangibles. It has been greater influences on stock
prices and on investment decisions. Thus, these factors are the interest of the study.
Hence the work is concerned about how such intangible factors can affect the
investment decision making and influence the market at NEPSE. Thus from the
presentation and analysis of the data, a conclusion can be drawn that the variables
accounting information, advocate recommendation and firm image / self image
coincidence has the effect to the investors decision at NEPSE. The investors in the
NEPSE are aware of these variables but among them they have higher emphasis on
accounting information. Furthermore, though they emphasis on accounting
information they themselves perceive one as the investor with limited knowledge.
There is a bit difference between the age group in term of investment decision though
the result is not significant. Similarly there is relationship , and impact of the variable
on dependant variable investment decision following findings can be drawn.

The major findings are summarized below:

i) There is positive relationship between accounting information and
investment decision and the relationship is significant at 95percent
confidence interval , thus the accounting information play the significant
role for the investors decision making at Nepse.

39
 ii) There is positive relationship between advocate recommendation and
investment decision and the relationship is significant at 99percent
confidence interval , thus the advocate recommendation play the
significant role for the investors decision making at Nepse.

iii) There is positive relationship between a firm image/ self image

coincidence and investment decision and the relationship is significant at
99percent confidence interval, thus the firm image / self image
coincidence play the significant role for the investors decision making at
Nepse. The investors try to balance their standard and level with the firm
they want to purchase stock since firm image reflects their identity.

iv) There is positive but insignificant impact of accounting information to the

investment decision thus, the accounting information has effect to
investment decision but the investor shadow this portion due to other
several factors affecting the investment decision.

v) There is positive but insignificant impact of advocate recommendation to

the investment decision thus, the advocate recommendation has effect to
investment decision but the investor shadow this portion due to other
several factors affecting the investment decision.

vi) There is positive but insignificant impact of firm image/ self image
coincidence to the investment decision thus, the firm image/ self image
coincidence has effect to investment decision but the investor shadow this
portion due to other several factors affecting the investment decision.

vii) The study shows that there is no significant difference on the age group
below 40 and above 40, since the P-value is greater than 0.05 in each
independent variable and dependant variable.
In the review of literature of this study, there were discussed about the findings of the
various authors. The result of this study is also connected with the findings of
different authors. The significance of findings of our study with the previous findings
of different authors is described below.

40
i) The study concludes that the accounting information say corporate
earnings and firm market price has more importance on the investment
decision making than other variables like firm image of getting rich quick
followed by advocate and professional recommendations. Al Tamimi
(2005)
ii) The study concludes that the age group of the respondents has the
difference on the investment decision, although Fares et.al concludes for
negative effect of advocate recommendation this study found the positive
but insignificant effect.
iii) The study concludes that there is a certain degree of co-relation of the
independent variable to the investment decision and the relation is of
highly significant as concluded by Jagongo and Mutswenje(2014).

41
 CHAPTER III

CONCLUSION AND ACTION IMPLEMENTATION

3.1 Conclusion
The purpose the study was to clear the picture and understand the behavioral aspects
of investment decision in Nepalese stock market NEPSE. It was believed that the
investors although they are rational investors when were supposed to make
investment decision are irrational one. The findings suggested that the investors take
the behavioral finance outcomes for their decision making. Behavioral finance is
defined by Shefrin, (2000) as a rapidly growing area that deals with the influence of
psychology on the behavior of financial practitioners finance applications on their
decision making like the theory of mental accounting. The findings suggested that the
investors firstly want to make the investment on the basis of accounting information
by the through study of the firm financial statements, followed by firm image / self
image coincidence and advocate recommendation. The investors always want to
invest in securities where most of other investors have confidence. The research
concludes that the most of the investors have the confidence on commercial banks to
purchase the stock since has the highest capitalization in the market. The investment
decision is the functions of the many independent variables thus only the three
variables couldn‘t give the clear picture about the investment decision making
patterns. The tangible and intangible all the factors need to be studied for this purpose.

3.2 Action implications

In this part of the study, implications for manager are presented which is followed by
some recommendation for further research. These implications and recommendation
are based upon the conclusion drawn on above section.

3.2.1 Implication for the investors

The conclusions drawn from this study indicate that there are a several decision
criteria the investors in to understand before speculating the large amount in the
NEPSE/ stock market.

investors need to understand before speculating the large amount in the NEPSE/ stock
market.

42
 i. Investors can understand their general buying habits and there investment
pattern in the NEPSE such that they can understand there loopholes.
ii. A individual investors can use the report to know where the most of
investors are heading and what attracts them.

Implication for the marketers

The conclusion from the report is useful for the marketers like companies, brokers,
dealers etc.

i. The report can be used by the marketers to know in which sector the most of
investors are attracted and develop the strategy to have maximum gain.
ii. The report is the valuable source of information about investors decision
criteria in the stock market.

3.2.2 Implications for future research

Through the process of preparing this report, the attention has been made on what are
the major factors that affect the investment decision in the Nepalese stock market.
While working on similar research topic, a few areas that will be beneficial for the
future researchers are;

i. This study was small, as the sizes of the respondents were small. When
conducting research on similar topic a large sample should be taken into
considerations so that more reliable result can be attended.
ii. Apart from accounting information, advocate recommendation and firm
image/ self image coincidence other factors also have impact on the
investment decision making. Hence, study should be make proper choice
of independent variable.
iii. The study was conducted within a certain time-frame; a broader study
conducted under a longer period of time would give more realistic results.

43
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Appendix I
A questionnaire on
“Factors Influencing Investment Decision Making: A Study of
Investor’s at NEPSE.”

Dear Sir/Madam
I am a student of BBA at People’s Campus, Paknajol. You are kindly requested to cooperate by filling
up the questionnaire. Your cooperation is expected to add academic value. The information provided
will be kept quite confidential and used at aggregate level only. Looking forward for your kind and
generous cooperation.
Regards,
Pradeep Phuyal
Seventh semester student
People’s Campus
PART A :GENERAL BACKGROUND
1. Gender Male Female
2. Age Group Below 40 Above 40
Part B : Basic information
Directions: (Tick any one)
4. Do you think accounting information effect on the investment decision?
a) Yes b) No c) Do not know
5. Do you think advocate recommendation effect on the investment
decision?
a) Yes b) No c) Do not know
6. Do you think firm image/ self image coincidence effect on the investment
decision?
a) Yes b) No c) Do not know
7. How would you describe your knowledge of investments?
a) None b) Limited c) Good d) Excellent
8. Which of the following factors are most important for the investment
decision? (Please rank 1 for the most important, 2 for the 2nd most important
and so on.)
a) Accounting information
b) Advocate recommendation
c) Firm image/ self image coincidence
9. Which is your priority sector for investment in NEPSE?
a)Commercial bank b) Development bank c) Finance Companies
d) Hydropower project e Micro finance e) InsuranceCompanies
f) Others
PART C:
Directions: Please indicate your level of agreement or disagreement with end of each of
these statements. (Tick any one)

1=strongly disagree, 2=disagree, 3=satisfactory, 4=agree, 5= strongly agree

S.No
. Items 1 2 3 4 5
10 Accounting information

I study the financial statements of the company to make investment.

10.1
10.2 The expected corporate earnings of firm attract me for investment
The company policy of dividend payment attracts me.
10.3
I am attracted to the affordable market price in the secondary market.
10.4
I study the past performance of stock for investment decision.
10.5
11 Advocate recommendation
I ask family member opinions in investment decision.
11.1
My friend or coworker recommendations help me in investment.
11.2
The opinions of the firm’s majority stockholders about the company.
11.3
11.4 The suggestion from the stock brokers for investment.
12 Firm image/ Self image coincidence
The service and growth of company affects me for investment.
12.1
The legal and ethical component of company affects me for investment.
12.2
The feeling about the condition of economy affects me for investment.
12.3
 The firm status and position in the industry help me for investment
12.4 decision.
13 Investment decision
12.1 I consider accounting information for investment decision.
12.2 I make investment after detailed analysis.
12.3 The advocate recommendations help me for investment decision.
12.4 I consider firm image/ self image coincidence for investment decision.