Linking Personal Values to Investment Decisions Among Individual Shareholders in a Developing Economy

Introduction

In this chapter, we respond to recent calls and discussions within broader social and economic perspectives to make a new contribution to the extant literature on behavioural finance and decisions sciences by examining how investment decisions of individual shareholders are influenced by their personal values. There is a clear distinction between ordinary shareholders and socially or ethically responsible shareholders in the sense that ordinary shareholders are always considered to be essentially interested in the financial gains of companies (Carroll & Buchholtz, 2003) or with the sole purpose of maximizing wealth or income (Lewis, 2002). Wärneryd (2001) professes that marketing financial services situates on the belief that all capital providers are keen and always ready to maximise their wealth or income. The rationale for such notions of ordinary shareholders is that based on the neoclassical hypothesis of Homo Economicus, investors are self-centered human beings whose ultimate goal is to maximise wealth, which demands the maximisation of share price (Rivoli, 1995). However, this shallow hypothesis that investors are primarily self-interested and do not care about the well-being of other stakeholders (or non-shareholders) is flawed by the findings of Nair and Ladha (2014), Pasewark and Riley (2010), Chiu (2009), Hanson and Tranter (2006), Muller (2001) and Epstein (1992).

As contended by neoclassical economists, Homo Economicus is a rational man and yet perceived by others (for instance, Tomer, 2001; Kuran, 1995; Elster, 1985) as manipulative, self-centred, pitiless and making the very effort to gain personal pleasure or satisfaction. However, the belief that shareholders are shortsighted and are not supportive of their firms’ socially responsible dealings appears to be in contradiction with the actual demeanor of ordinary individual shareholders. Studies reveal that small shareholders always take into consideration long-term view in periods of investments (Lease et al., 1974; Muller, 2001; Ryan & Gist, 1995; Wärneryd, 2001) and their mind-sets are not entirely self-centered- that is increasing firm performance or profit to the detriment of other stakeholders (Muller, 2001; Epstein, 1992). In other words, individual shareholders seek both ‘Utilitarian’ (maximizing wealth) and ‘expressive’ gains (investment as a means of expressing their personal values) from their investment decisions (Nair & Ladha, 2014). Therefore, the traditional wealth maximization hypothesis that does not take into account personal values overlook a relevant factor that influences investment decisions (Pasewark and Riley, 2010).