The effectiveness of investors' decision-making from legal requirements in the capital market

Document Type : Original Article

Authors

1 Ph.D Candidate of Accounting, Shahid Bahonar University of Kerman, Kerman, Iran.

2 Professor, Department of Accounting, Shahid Bahonar University of Kerman, Kerman, Iran

3 Professor, Department of Accounting, Shahid Bahonar University of Kerman, Kerman, Iran.

Abstract

Purpose: Most economic and financial theories rest on the premise that investors act rationally when making decisions, adhering to the rational economic man theory. Investors are expected to thoroughly assess all aspects of their investments and select the most logical and beneficial course of action. However, inefficiencies in financial markets can sometimes trigger irrational behavior, which negatively influences investors’ decision-making processes. Supervisory bodies in the capital market play a crucial role in mitigating such inefficiencies and controlling market fluctuations by implementing various tools and regulatory measures. The Tehran Stock Exchange and Securities Organization, as the supervisory authority, oversees companies through structured mechanisms. This study seeks to evaluate the effectiveness of specific mechanisms, including holding news conferences, issuing clarification announcements regarding stock price fluctuations, addressing rumors, and suspending trading symbols, on the decision-making behaviors of investors.
Method: The statistical population of this research encompasses all companies listed on the Tehran Stock Exchange during a seven-year period from 2015 to 2022. The required data were obtained from the information repository of the Tehran Stock Exchange and Securities Organization (Codal) and Rahvard Novin software. Data were initially collected and organized using Excel, and subsequently analyzed using SPSS and EViews software. Employing an event study methodology, this research applies t-tests, which are widely regarded as the standard statistical method for such studies. The study focuses on evaluating the legal requirements and their effects on the capital market by examining transaction volumes around the release of announcements for news conferences, clarification notices addressing stock price fluctuations, clarification notices dispelling rumors, and trading symbol suspensions.
Findings: The results of hypothesis testing revealed that neither the holding of news conferences nor the issuance of clarification announcements to address rumors significantly influenced investors’ decision-making behaviors. Conversely, clarification announcements concerning stock price fluctuations and trading symbol suspensions were found to have a notable impact on investor decisions. This indicates that some regulatory mechanisms, while well-intentioned, may not effectively guide investor behavior, particularly in a market environment characterized by structural inefficiencies and information gaps.
Conclusion: A key factor contributing to the limited influence of news conferences and certain clarification announcements on investor decisions is the inefficiency of the information dissemination system within the Tehran Stock Exchange. The market's overall low operational efficiency further compounds the issue. Another critical factor is the lack of specialized knowledge among many investors, which inhibits their ability to process and act on publicly available information. Stock market investors often prioritize direct financial data, such as stock prices, returns, and company performance, over broader information disseminated through media or regulatory announcements. To enhance investment levels in the capital market, it is essential for countries to provide higher-quality and more accessible information to investors. This can be achieved by enhancing the regulatory frameworks established by supervisory bodies and instituting robust mechanisms for evaluating market policies and procedures, supported by governmental oversight. Based on the findings of this study, it is recommended that the Tehran Stock Exchange and Securities Organization, as the regulatory authority, and the Tehran Stock Exchange Company, as the market operator, undertake a comprehensive review and revision of existing rules and regulations to better align them with the needs of investors and the broader market.

Keywords

References

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Financial Management Perspective
Volume 14, Issue 45
2024
Pages 9-36

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