THE ROLE OF BEHAVIORAL FINANCE IN INVESTMENT DECISION-MAKING

ABSTRACT

Over the years, the decision making of firms has been reported to be influenced by many factors which inturn affect the productivity and performance of the firm. However, much is unknown even about the investor irrational behaviour factors that influence their decision-making process.This present studyexamined the role of behavioral finance in investment decision-making with specific reference to Dangote firm in Nigeria. The survey research was used in this study to sample the opinion of respondents. This method involved random selection of respondents who were administered with questionnaires. Relevant conceptual, theoretical and empirical literature was reviewed. The target population of the study comprised employees of Dangote firms in Lagos State, Nigeria. The questionnaire administered was one hundred and ten (110) copies and one hundred copies (100) retrieved which constitute the sample size. The descriptive and analytical approach was adopted using Chi-square to test and analyze the hypotheses earlier stated. The result revealed that there is a significant the impact behavioral finance on investment decision-making in Dangote firms in Nigeria. The finding of the study also reveals that there is a significant effect of income of the firm on investment decision-making in Dangote firms in Nigeria. The findings of the study also reveal that the type of investment allows the firm invest in low return, guaranteed investment over investments that carry a higher risk. The finding of the study also reveals that behavior finance gives one the ability to choose investments when their performance is better than market performance. It was therefore concluded that behavioral finance significantly affects investment decision making among employees. It was recommended that investors should be enlightened on the fact that there are many behavioural factors which can affect their investment decision-making process and they should be made aware of these factors.

1. Introduction

Stock market difficulties and market abnormalities have led to the establishment of a new discipline of financial study named “behavioral finance” (Kandpal& Mehrotra, 2020). Financial market inconsistencies are cross-sectional and time series patterns in returns from investing in securities that cannot be anticipated by a core paradigm or theory(Sashikala&Chitramani2018; Tavakoli, Tanha & Halid, 2011). The study of psychological influences on an individual's investing conduct is known as behavioural finance (Kandpal& Mehrotra, 2020). This innovative style of financial study suggests that investing choice is impacted by psychological and emotional elements.

This new method implies that investors are impacted by psychological elements such as fear, hope, optimism and pessimism. The importance of these variables in trading and investing has altered the course of behavioural finance research. Kahneman and Tversky (1979), Shefrin and Statman (1994) and Shleifer (2000) are the scholars that have sought to study the efficiency of financial markets and tried to explore the swings in stock markets. With increased obstacles in market environment, investors can gain and potentially beat the market if they carefully assess the many investment possibilities and securities. For the previous fifty years, conventional financial theory has presumed that investors have few challenges when it comes to selecting investment choices (Sundarasen, Rahman, Othman&Danaraj, 2016). The investors are well-informed, diligent and consistent. According to conventional wisdom, investors are not influenced by their feelings or perplexed by the information that is presented to them. However, it is obvious that reality does not follow these presumptions, which is why finance theory has adopted a new methodology. Behavioral finance has acquired relevance over the last two decades as new topic of Research due to the belief that investors rarely behave as per the assumptions stated in classic theory of finance(Bikas, Jurevičienė, Dubinskas&Novickytė, 2013). According to behavioural researchers, finance theory ought to take human behaviour observations into account. To understand how investors make decisions and to establish the field of behavioural finance, they employ psychological research. The investor is genuinely guided in choosing an investment by a variety of intrinsic considerations. These elements have the potential to influence the investment even if they are not taken into account. It is based on this background that the present study seeks to examine the role of behavioral finance in investment decision-making with specific reference to Dangote firm in Nigeria.

1. Objectives of the Study

The main objective of this study is to examinethe role of behavioral finance in investment decision-making with specific reference to Dangote firm in Nigeria. Other objectives of the study include;

1. To determine the impactbehavioral finance on investment decision-making in Dangote firms in Nigeria
2. To examine the effect of income of the firmon investment decision-making in Dangote firms in Nigeria
3. To ascertain the role of the type of investment-on-investment decision-making in Dangote firms in Nigeria

2.0 Literature Review

2.1 Conceptual Review

2.1.1 The Concept of Investment Decisions

            investing is the use of several money or other resources with the goal of gaining many future advantages that are associated with investing. There are many risks and uncertainties associated with investing. The amount of profit made from these operations can serve as a benchmark for how well investments perform in both upstream and downstream activities. Investment, according to Tandelilin (2001), is a financial commitment made now with the purpose of using other resources in the future in order to reap a variety of rewards. In general, investors may be divided into two categories: individual investors and institutional investors. While institutional investors often include insurance organisations, depository institutions (banks and savings and loan associations), pension fund institutions, and investment businesses, individual investors are just people who make investments. Generally speaking, investors want the maximum rate of return on their capital.When making an investment, however, investors take a number of factors into account, including risk. Investors expect a higher rate of return from these investing activities in proportion to the degree of risk they assume. When an investor's projected rate of return differs from the actual rate of return, there is risk involved.