EFFECT OF MANAGERIAL REGRET AVERSION ON RANKING OF FINANCING DECISIONS BY FINANCIAL MANAGERS OF FIRMS LISTED IN NSE
DOI:
https://doi.org/10.47672/ajf.297Keywords:
Managerial regret aversion, ranking of financing decisions and financial managersAbstract
Purpose: The purpose of this study was to determine the effect of regret aversion on ranking of financing decisions by financial managers of firms listed in NSE.
Methodology: The study employed a positivism philosophy and a descriptive correlational design. A two tier sampling was applied where; a census at the firm level and purposive sampling at financial manager level resulting with a selection of the top 3 senior and middle financial managers from each firm. The target population was the top three financial managers in each of the firms listed in the NSE resulting in a target population of 192 financial managers from a population of 64 firms. A questionnaire was utilised to collect primary data from the target population. Descriptive statistics, Analysis of Variance (ANOVA) and multinomial logit regression were employed in data analysis.
Results: There was a statistically significant relationship between regret aversion and ranking of financing decisions. Based on the study findings, it was concluded that regret aversion affected financial decisions ranking as regret averse managers would chose internal financing over debt and equity. This is because a regret adverse manager seeks to reduce its firms' total risk by using low of external funding including debt.
Unique Contribution to Theory Practice and policy: Financial managers are advised to consider referring to decision makers who have experience in money matters especially if the financial matter is complicated. To avoid being adversely affected by regret aversion, financial managers could pay attention to budgeting and long term financial planning.
Downloads
References
Aduda, J. (2012). The Behaviour and Financial Performance of Individual Investors in The Trading Shares of Companies Listed At the Nairobi Stock Exchange, Kenya. Journal of Finance and Investment Analysis, 1 (3), 33-60.
Agrawal, K. (2012). A Conceptual Framework of Behavioural Biases in Finance. The IUP
Journal of Behavioural Finance, IX (1), 7-18.
Babajide, A. A., & Adetiloye, K. A. (2012). Investors' behavioral biases and the security market: An empirical study of the Nigerian security market. Accounting and Finance Research, 1(1), 219-229.
Banerjee, A. (2011). Application of Behavioural Finance in Investment Decisions: An Overview. The Management Accountant, 46 (10), 20-35.
Barberis, N., Mukherjee, A., & Wang, B. (2016). Prospect theory and stock returns: an empirical test. Review of Financial Studies, hhw049. Oxford University Press.
Billett, M. T., & Qian, Y. (2008). Are overconfident CEOs born or made? Evidence of self-attribution bias from frequent acquirers. Management Science, 54(6), 1037-1051.
Camerer, C. F. (2000). Prospect theory in the wild: Evidence from the field. Journal of Economic Studies, 110(110), 2013-2043.
Connolly, T., & Reb, J. (2005). Regret in cancer-related decisions. Health Psychology, 24(13), 29- 34.
Odean (2012). Modern Financial Economics. (University of California, Berkeley - Haas).
Ert, E., and Erev, I. (2010). On the descriptive value of loss aversion in decisions under risk (No. 10-056). Harvard Business School.
Fairchild, R. (2007). Managerial overconfidence, agency problems, financing decisions and firm performance. University of Bath School of Management Working Paper Series. (Unpublished).
Fama, E. F., & French, K. R. (2002). Testing trade-off and pecking order predictions about dividends and debt. Review of financial studies, 15(1), 1-33.
Faulkner, P. (2002). "The human agent in behavioral finance: A Searlean perspective." Journal of Economic Methodology, 9(1), 31-52.
Grinblatt, M., & Han, B. (2005). Prospect theory, mental accounting, and momentum. Journal of financial economics, 78(2), 311-339.
Guay, W., and Verrecchia, R. (2006). Discussion of an economic framework for conservative accounting and Bushman and Piotroski (2006). Journal of Accounting and Economics, 42(1), 149-165.
Heukelom, F. (2009). Kahnemann and Tversky and the making of behavioral economics (No. 455). Rozenberg Publishers.
Hey, J. D., & Pace, N. (2014). The explanatory and predictive power of non-two-stage-probability theories of decision making under ambiguity. Journal of Risk and Uncertainty, 49(1), 1-29.
Hilary, G., & Hsu, C. (2011). Endogenous overconfidence in managerial forecasts. Journal of Accounting and Economics, 51(3), 300-313.
Janis, I. L., and Mann, L. (1977). Decision making: A psychological analysis of conflict, choice, and commitment. free press.
Joo, B. A., & Durri, K. (2015). Comprehensive Review of Literature on Behavioural Finance. Indian Journal of Commerce and Management Studies, 6(2), 11.
Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica: Journal of the Econometric Society, 6(7), 263-291.
Kumar, S., & Goyal, N. (2015). Behavioural biases in investment decision making-a systematic literature review. Qualitative Research in financial markets, 7(1), 88-108.
Lam, K., Liu, T., & Wong, W. K. (2010). A pseudo-Bayesian model in financial decision making with implications to market volatility, under-and overreaction. European Journal of Operational Research, 203(1), 166-175.
Lin, T. C. (2010). Behavioral Framework for Securities Risk, A. Seattle UL Rev., 34, 325.
Ljungqvist, A. W.J. and W. JR, (2005). Does Prospect Theory Explain IPO Market Behaviour? The Journal of Finance, 60(4), 1759-1790.
Marchand, M. (2012). Behavioral biases in financial decision making. (Unpublished).
Mbaluka, P., Muthama, C., & Kalunda, E. (2012). Prospect theory: Test of framing and loss aversion effects on investors' decision-making process at Nairobi Securities Exchange, Kenya. Research Journal of Finance & Accounting, 3(9), 31-40.
Munda C. (2015).CMA to ease delisting at securities exchange. Unpublished article.
Mwikya, N. K. (2013). Relational Factors Influencing On-time Service Delivery At Kenya Airways (Doctoral dissertation, University of Nairobi).
Parikh .S. (2011). Fundamentals of Corporate Finance, 9th Edition, McGraw-Hill
Pat, C. (2006). The research student's guide to success. Open University Press: Philadelphia. (Unplished).
Razek, Y. H. A. (2011). An Overview of Behavioral Finance and Revisiting the Behavioral Life Cycle Hypothesis. IUP Journal of Behavioral Finance, 8(3), 7.
Reb, J. (2008). Regret aversion and decision process quality: Effects of regret salience on decision process carefulness. Organizational Behavior and Human Decision Processes, 105(2), 169-182.
Schinckus, C. (2011). Archeology of Behavioral finance. IUP Journal of Behavioral Finance, 8(2), 7.
Schmidt, L., and Sevak, P. (2006). Gender, marriage, and asset accumulation in the United States. Feminist Economics, 12(1-2), 139-166.
Thaler, R. H. (1999). Mental accounting matters. Journal of behaviour decision making, 12(256) 183-205
Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185(4157), 1124-1131.
Tversky, A., & Kahneman, D. (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and uncertainty, 5(4), 297-323.
Wang, X., Yang, F., Li, D., & Zhang, F. (2016). Group Decision-Making Method for Dynamic Cloud Model Based on Cumulative Prospect Theory. International Journal of Grid and Distributed Computing, 9(10), 283-290.
Wera A. O., (2006). "A survey of the influence of Behavioural Factors on Investor Activities at the Nairobi Stock Exchange". Unpublished MBA research proposal, University of Nairobi. (Unpublished).
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2017 Judith Nyakundi, Prof. Amos Njuguna, Dr. Bernard Omboi
This work is licensed under a Creative Commons Attribution 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this journal.
