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.

10.48308/jfmp.2024.104664

Abstract

Purpose: Most economic and financial theories are based on the assumption that investors act rationally when making decisions, which is consistent with the theory of rational economic man. Investors typically consider all aspects before making decisions, aiming to choose the most sensible option. However, factors can sometimes lead to irrational behavior and impact decision-making, often due to inefficiencies in financial markets. One of the key roles of capital market supervisory bodies is to control fluctuations, using various tools and laws to do so. The stock exchange organization oversees companies through supervisory mechanisms. The purpose of this research is to examine the mechanisms of holding news conferences, issuing clarification announcements regarding stock price fluctuations, addressing rumors, and suspending trading symbols.
Method: The statistical population for this research includes all firms listed on the Tehran Stock Exchange from 2015 to 2022. Data necessary for this study was gathered from the information bank of the Tehran Stock Exchange and Securities Organization (Codal) and Rahvard Novin software. Excel software was utilized for data collection and organization, while SPSS and Eviews were used to test hypotheses and analyze findings. This research follows an event study design, with the t-test being the most commonly used statistical test for such studies. The study focuses on evaluating legal requirements in the capital market by examining transaction volumes, announcements for news conferences, clarification of stock price fluctuations, dispelling of rumors, and trading symbol suspensions.
Findings: The results of the research hypotheses test showed that holding a news conference and a clarification announcement about the rumor does not affect investors' decision-making. In addition, the analysis of the research data indicates that the clarification announcement regarding the stock price fluctuation and the clarification announcement regarding the rumor and stoppage of the trading symbol affects the investors' decision-making.
Conclusion: Conclusion: One of the most significant factors contributing to the lack of influence of news conferences and clarification notices on investors' decisions is the deficiencies in the information system and the low efficiency of the Tehran Stock Exchange market. Additionally, investors' lack of specialized knowledge plays a role in this phenomenon. Investors in the stock market tend to prioritize information related to the price, yield, and performance of companies' shares over news published by media outlets. To promote investment in stock markets, countries must provide better information to investors. This can be achieved by enhancing the requirements set by stock market monitoring organizations and developing a framework for evaluating policies and procedures with the support of governments. Based on the research findings, it is recommended that the Stock Exchange and Securities Organization, as the regulatory body, and the Stock Exchange and Securities Company, as the executive entity of the capital market, review and revise the rules and regulations governing the market.

Keywords

References

Atta Abadi, & Hamidi; M. (2017). Overreaction to profit adjustment announcements based on event research approach: Evidence from Tehran Stock Exchange. Financial Management Perspective, 7(17), 31-48. (In Persian)
Badri, A., & Asilzadeh, M. (2011). Frequency and amplitude of price fluctuations: Evidence from Tehran Stock Exchange. Accounting and Auditing Research, 3(9), 56-73. (In Persian)
Barberis, N., Shleifer, A., & Vishny, R. (1998). A model of investor sentiment. Journal of Financial Economics, 49(3), 307-343.‏
Barzegari Khangah; J, Hijazi, R; & Rezazadeh, F. (2016). The effect of media coverage on investors' decisions in the stock market. Financial accounting and auditing research, 9(33), 107-124. (In Persian)
Brown, S., Hillegeist, S. A., & Lo, K. (2004). Conference calls and information asymmetry. Journal of Accounting and Economics, 37(3), 343-366.‏
Bushee, B. J., Matsumoto, D. A., & Miller, G. S. (2003). Open versus closed conference calls: the determinants and effects of broadening access to disclosure. Journal of Accounting and Economics, 34(1-3), 149-180.‏
Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of Accounting and Economics, 32(1-3), 237-333.‏
Campbell, J. Y. (2016). Restoring rational choice: The challenge of consumer financial regulation. American Economic Review, 106(5), 1-30.‏
Damoori, D., & Khoshnud, H. (2019). The Study of the Impact of Price Limits and Trading Halts on Trading Activities, Liquidity and Price Volatility in the Tehran Stock Exchange. Financial Research Journal, 21(2), 213-236.
Dianati dalami, Z., & Heshmati, A. (2021). The relationship between banks’ financial corruptions news and banks’ stock price and subsidiaries firms. Journal of Investment Knowledge, 10(38), 81-103. (In Persian)
Fama, E. F. (1998). Market efficiency, long-term returns, and behavioral finance. Journal of financial economics, 49(3), 283-306.
Floros, C. (2011). Dynamic relationships between Middle East stock markets. International Journal of Islamic and Middle Eastern Finance and Management, 4(3), 227-236.‏
Frino, A., Jones, S., Lepone, A., & Wong, J. B. (2014). Market behavior of institutional investors around bankruptcy announcements. Journal of Business Finance & Accounting, 41(1-2), 270-295.‏
Frino, A., Lecce, S., & Segara, R. (2011). The impact of trading halts on liquidity and price volatility: Evidence from the Australian Stock Exchange. Pacific-Basin Finance Journal, 19(3), 298-307.‏
Frydman, C., & Camerer, C. F. (2016). The psychology and neuroscience of financial decision making. Trends in cognitive sciences, 20(9), 661-675.‏
Ghaemi, M; and Masoumi, Javad. (2017). Research event in accounting and finance. Tehran, Semat Publications. (In Persian)
GhaziAskari, S., Neshat, N., & Jafari Nodoushan, A. (2022). Sustainable policy-making of financial systems in crisis situations with modelling based on artificial neural networks. Financial Management Perspective, 12(38), 103-129.
Goonatilake, R., & Herath, S. (2007). The volatility of the stock market and news. International Research Journal of Finance and Economics, 3(11), 53-65.‏
Haddad Beygi, S; Javad Sai, M; & Iqbal, M. (2021). The effect of clarifying news conferences on reducing information asymmetry. Master's thesis. (In Persian)
Hong, H., Lim, T., & Stein, J. C. (2000). Bad news travels slowly: Size, analyst coverage, and the profitability of momentum strategies. The Journal of finance, 55(1), 265-295.
Hu, C., & Chi, Y. (2012). Investor Sentiment: Rational or Irrational—Evidence from China. Available at SSRN 2191281.‏
Hussain, S. M., & Alaya, A. (2024). Investor response to financial news in the digital transformation era: the impact of accounting disclosures and herding behavior as indirect effect. Journal of Financial Reporting and Accounting, 22(2), 254-273.‏
Jain, J., Walia, N., Kaur, M., & Singh, S. (2021). Behavioural biases affecting investors’ decision-making process: a scale development approach. Management Research Review, 45(8), 1079-1098.‏
Kau, A. K., & Wan‐Yiun Loh, E. (2006). The effects of service recovery on consumer satisfaction: a comparison between complainants and non‐complainants. Journal of services marketing, 20(2), 101-111.
Kim, Y. H., & Yang, J. J. (2004). What makes circuit breakers attractive to financial markets? A survey. Financial Markets, Institutions and Instruments, 13(3), 109−146.
Kimbrough, M. D. (2005). The effect of conference calls on analyst and market underreaction to earnings announcements. The Accounting Review, 80(1), 189-219.‏
Ladrón de Guevara Cortés, R., Tolosa, L. E., & Rojo, M. P. (2023). Prospect theory in the financial decision-making process: an empirical study of two Argentine universities. Journal of Economics, Finance and Administrative Science, 28(55), 116-133.‏
Larcker, D. F., & Zakolyukina, A. A. (2012). Detecting deceptive discussions in conference calls. Journal of Accounting Research, 50(2), 495-540.‏
Lei, Z., Yang, M. G., Tian, S., & Zhang, A. Q. (2016). Rumors in the stock market and stock price volatility: Evidence from a behavioral experiment. Economic Research Journal, 9, 118-131.‏
Lotfi, M., & Abdolbaghi ataabadi, A. (2021). Behavioral Analysis of Stock Returns Based on Assets Pricing Models in the Framework of Prospect Theory: Evidence from Companies Listed on the Tehran Stock Exchange. Financial Management Perspective, 11(36), 91-118. (In Persian)
Madura, J., Richie, N., & Tucker, A. L. (2006). Trading halts and price discovery. Journal of Financial Services Research, 30(3), 311-328.
Madurapperuma, W. (2022). The dynamic relationship between economic crisis, macroeconomic variables and stock prices in Sri Lanka. Journal of Money and Business, 3(1), 25-42.‏
Miller, D. C., & Byrnes, J. P. (2001). Adolescents' decision making in social situations: A self-regulation perspective. Journal of Applied Developmental Psychology, 22(3), 237-256.‏
O'Mara-Shimek, M. (2015). A communicative efficiency and effectiveness model for using metaphor and metonymy in financial news reporting. On the Horizon, 23(3), 216-230.‏
Parveen, S., Satti, Z. W., Subhan, Q. A., & Jamil, S. (2020). Exploring market overreaction, investors’ sentiments and investment decisions in an emerging stock market. Borsa Istanbul Review, 20(3), 224-235.‏
Rajabi, E. (2021). The influence of investors' decisions on unreal news in the Tehran Stock Exchange. Quarterly Journal of Fiscal and Economic Policies. 9(34) 103-127. (In Persian)
Rostami Noroozabad, M., Arian Asl, H., & Abbasi Museloo, K. (2023). Investigating the Reactivity of Investors' Decisions on Selling Shares Based on Fundamental Analysts' Recommendations: Evidence from Stock Exchange Investors in Iran’s Fars Province. Financial Research Journal, 25(2), 228-254.‏ (In Persian)
Shirazian, Zahra. (2017). The role of the duration of herding behavior on the volatility of the Tehran Stock Exchange index using Heston's model. Financial knowledge of stock analysis. 11(40), 13-23. (In Persian)
Sinaei, H., & Davodi, A. (2009). Financial Information Transparency and Investor Behavior in Tehran Stock Exchange. Financial Research Journal, 11(27). (In Persian)
Strauss, N., & Smith, C. H. (2019). Buying on rumors: How financial news flows affect the share price of Tesla. Corporate Communications: An International Journal, 24(4), 593-607.‏
Taheri, M., & Hadadi, N. (2022). The Effect of Free Cash Flows on Stock Crash Risk with Focused on the Role of Earnings Smoothing. Financial Management Perspective, 12(40), 29-48.
Tehrani, R; Talibnia, Q; Jalili; S. (2006). Evaluation of Tehran Stock Exchange traders' reliance on accounting and non-accounting information in investment decisions.  Financial Research Journal . 8(21). (In Persian)
Teplova, T., & Tomtosov, A. (2021). Can high trading volume and volatility switch boost momentum to show greater inefficiency and avoid crashes in emerging markets? The economic relationship in factor investing in emerging markets. The Quarterly Review of Economics and Finance, 80, 210-223.‏
Vadiei, M. H., & Shokouhi Zadeh, M. (2012). Effective Criteria on Investor's Decision Making in Tehran Stock Exchange. Journal of Accounting Knowledge, 3(8), 151-171. (In Persian)
Vakili fard, H. R., Seifoddini, J., Abjadpour, A., & Maghsoud, H. (2012). Price Limit Effects on Stock Prices Behavior: A Contrarian Investment Strategy Approach. Journal of Investment Knowledge, 1(4), 61-86. (In Persian)
Vishwanath, T., & Kaufmann, D. (2001). Toward transparency: new approaches and their application to financial markets. The World Bank Research Observer, 16(1), 41-57.‏
Vuković, M., & Pivac, S. (2024). The impact of behavioral factors on investment decisions and investment performance in Croatian stock market. Managerial Finance, 50(2), 349-366.‏
Zarei, M., & Damoori, D. (2014). The Study of the Impact of Relative Performance of Trading halts on Market Quality (The Study of Tehran Stock Exchange). Journal of Asset Management and Financing, 2(3), 49-62. (In Persian)
Zia-ur-Rehman, M., Latif, K., Mohsin, M., Hussain, Z., Baig, S. A., & Imtiaz, I. (2021). How perceived information transparency and psychological attitude impact on the financial well-being: mediating role of financial self-efficacy. Business Process Management Journal, 27(6), 1836-1853.‏
Financial Management Perspective
Volume 14, Issue 45
2024
Pages 9-36

Files

Share

How to cite

Statistics