Interactions of Financial Risk Tolerance, Internal Fit, External Fit and Personality Traits on Corporate Investment Behaviour

Year 2023, Volume: 23 Issue: 2, 375 - 398, 04.07.2023

Cem Ünlüakın , Hakkı Aktaş

https://doi.org/10.18037/ausbd.1221129

Cited By: 2

Abstract

Explaining corporate investment behaviour (CIB) is crucial for companies, investors and policy makers. The relationship between financial risk taking and investment decision has been studied in detail on an individual level. However, an attempt to assess financial risk taking behaviour on an organizational level is not encountered in literature. This study fills the gap by attempting to measure corporate financial risk tolerance (CFRT) with data from 307 production companies and employs hypothesis testing as a confirmatory analysis in a theoretical framework from literature. The dynamics of Big 5 personality traits of owners/top management, such as openness, conscientiousness, extroversion, agreeableness, neuroticism, which is another area of interest in investment theory, is also included in the study. The models to test the hypotheses are proposed by using CFRT and Big 5 as independent variables to explain corporate investment behaviour (CIB). The results of this study indicate that Big 5 traits of top management are not significantly related with CIB, yet CFRT is. Subsequently items impacting CIB and financial risk tolerance identified from literature are classified as internal (IFFI) and external fit for investment (EFFI) and are incorporated as two composite moderating variables. As a result, the model fit improves with both IFFI and EFFI for CFRT, however for Big 5, only conscientiousness trait becomes significant in the moderation of EFFI.

Keywords

Corporate Investment Behavior, Corporate Financial Risk Tolerance, External Fit For Investment, Internal Fit For Investment, Personality Traits of Top Management

Kurumsal Yatırım Sürecinde Finansal Risk Toleransı, Dahili ve Harici Uygunluk ile Kişilik Etkileşimi

Abstract

Kurumsal yatırım davranışını (KYD) açıklamak şirketler, yatırımcılar ve politika yapıcılar için çok önemlidir. Finansal risk alma ve yatırım kararı arasındaki ilişki, bireysel düzeyde ayrıntılı olarak incelenmiştir. Ancak finansal risk alma davranışını örgütsel düzeyde değerlendirme girişimine literatürde rastlanmamıştır. Bu çalışma, kurumsal finansal risk toleransını (KFRT), 307 üretim şirketinden alınan verilerle ölçmeye çalışarak boşluğu doldurmayı hedeflemektedir. Yatırım teorisinin bir diğer ilgi alanı olan beş faktör kişilik modeli dinamikleri de şirket sahiplerinin/üst yönetiminin açıklık, sorumluluk, dışadönüklük, uyumluluk, duygusal denge özellikleri şeklinde çalışmaya dahil edilmiştir. Hipotezleri test edecek modeller, kurumsal yatırım davranışını (KYD) bağımlı, KFRT ve beş faktör kişilik modeli özelliklerini bağımsız değişkenler olarak kullanarak önerilmiştir. Sonuçlarımız, üst yönetimin beş faktör kişilik modeli özelliklerinin KYD ile anlamlı bir ilişki içinde olmadığını, ancak KFRT'nin anlamlı bir şekilde KYD’yi açıkladığını göstermektedir. Takiben, şirketler için KYD'yi ve finansal risk tutumunu etkileyen öğeler dahili ve harici yatırıma uygunluk (YİDU, YİHU) olarak literatür üzerinden sınıflandırılmış ve iki kompozit düzenleyici değişken olarak modele eklenmiştir. Neticede, KFRT için hem YİDU hem de YİHU’nun eklenmesiyle model uyumluluğu artarken, beş faktör kişilik özellikleri için, YİHU'nun moderasyonunda sadece sorumluluk özelliği anlamlı hale gelmiştir.

Keywords

Kurumsal Yatırım Davranışı, Kurumsal Finansal Risk Toleransı, Yatırım İçin Dahili Uygunluk, Yatırım İçin Harici Uygunluk, Üst Yönetimin Kişilik Özellikleri

References

• Aggarwal, R., Kearney, C. and Lucey, B. (2012). Gravity and culture in foreign portfolio investment. Journal of Banking & Finance, 36(2), 525-538. https://doi.org/10.1016/j.jbankfin.2011.08.007
• Ayadi, M., Kusy, M. I., Pyo, M. and Trabelsi, S. (2015). Corporate social responsibility, corporate governance, and managerial risk-taking. Corporate Governance, and Managerial Risk-Taking (January 9, 2015). http://dx.doi.org/10.2139/ssrn.2547576
• Bartlett, M. S. (1954). Significance test for sphericity of a normal n-variate distribution. Journal of the Royal Statistical Society, 16, 296-298. https://doi.org/10.1111/j.2517-6161.1954.tb00174.x
• Bernanke, B. S. (1983). Irreversibility, uncertainty, and cyclical investment. The quarterly journal of economics, 98(1), 85-106. https://doi.org/10.2307/1885568
• Bikhchandani, S., Hirshleifer, D. and Welch, I. (1992). A theory of fads, fashion, custom, and cultural change as informational cascades. Journal of political Economy, 100(5), 992-1026. Retrieved from https://www.jstor.org/stable/2138632
• Bikhchandani, S. and Sharma, S. (2000). Herd behavior in financial markets. IMF Staff papers, 47(3), 279-310. Retrieved from https://www.imf.org/external/pubs/ft/wp/2000/wp0048.pdf
• Bhardwaj, A., Dietz, J. and Beamish, P. W. (2007). Host country cultural influences on foreign direct investment. Management International Review, 47(1), 29-50. doi:10.1007/s11575-007-0003-7.
• Camerer, C. F. and Loewenstein, G. (2004). Behavioral economics: Past, present, future. Advances in behavioral economics, 1, 3-51. https://doi.org/10.1515/9781400829118-004
• Catell, R. B. (1978). The scientific use of factor analysis. Behavioral and Life Sciences. New York and London: Plenum Press. doi: 10.1007/978-1-4684-2262-7.
• Chenery, H. B. (1952). Overcapacity and the acceleration principle. Econometrica: Journal of the Econometric Society, 1-28. https://doi.org/10.2307/1907804
• Chitra, K. and Sreedevi, V. R. (2011). Does personality traits influence the choice of investment?. IUP Journal of Behavioral Finance, 8(2), 47. Retrieved from https://ssrn.com/abstract=2031414
• Clark, J. M. (1917). Business acceleration and the law of demand: A technical factor in economic cycles. Journal of political economy, 25(3), 217-235. https://doi.org/10.1086/252958
• Cohen, R. J. and Swerklik, M. E. (1999). Psychological testing and assessment: An introduction to tests and measurement (4th ed.). Mayfield Publishing Co. Retrieved from https://psycnet.apa.org/record/1996-97180-000
• Cohen, J., Cohen, P., West, S. G. and Aiken, L. S. (2003). Applied multiple regression/correlation analysis for the behavioral sciences (3rd ed.). Mahwah, NJ: Erlbaum. https://doi.org/10.4324/9781410606266
• Comrey, A. L. and Lee, H. B. (1992). Interpretation and application of factor analytic results. Comrey AL, Lee HB. A first course in factor analysis, 2, 1992. https://doi.org/10.4324/9781315827506
• Cordell, D. M. (2001). RiskPACK: How to evaluate risk tolerance. Journal of financial planning, 14(6), 36. Retrieved from https://www.proquest.com/docview/217566941?pq-origsite=gscholar&fromopenview=true
• Devenow, A. and Welch, I. (1996). Rational herding in financial economics. European Economic Review, 40(3-5), 603-615. https://doi.org/10.1016/0014-2921(95)00073-9
• Dixit, R. K. and Pindyck, R. S. (1994). Investment under uncertainty. Princeton university press. Retrieved from https://msuweb.montclair.edu/~lebelp/DixitPindyck1994.pdf
• Duesenbery, J.S. (1959) Business Cycles and Economic Growth, Review by: M. L. Burste, Journal of Business, 32, 389-390. https://doi.org/10.1177/000271626032800158
• Fabrigar, L. R. and Wegener, D. T. (2012). Structural equation modeling. In Applied multivariate statistics for the social sciences ( pp. 549-594). Routledge. https://doi.org/10.4324/9780203843130
• Farrell, J. and Saloner, G. (1985). Standardization, compatibility, and innovation. the RAND Journal of Economics, 70-83. https://doi.org/10.2307/2555589
• Field, A. (2009). Discopering statistics using SPSS, (3rd ed.). https://doi.org/10.1002/bjs.7040
• Gaganis, C., Hasan, I., Papadimitri, P. and Tasiou, M. (2019). National culture and risk-taking: Evidence from the insurance industry. Journal of Business Research, 97, 104-116. https://doi.org/10.1016/j.jbusres.2018.12.037
• Gambetti, E. and Giusberti, F. (2019). Personality, decision-making styles and investments. Journal of Behavioral and Experimental Economics, 80, 14-24. https://doi.org/10.1016/j.socec.2019.03.002
• Garber, P. M. (2001). Famous first bubbles: The fundamentals of early manias. MIT Press. Retrieved from https://www.uv.mx/personal/clelanda/files/2013/02/Garber-2000-Famous-first-bubbles.pdf
• Gençöz, T. and Öncül, Ö. (2012). Examination of personality characteristics in a Turkish sample: Development of basic personality traits inventory. The Journal of general psychology, 139(3), 194-216. doi: 10.1080/00221309.2012.686932
• Ghosal, V. and Loungani, P. (1996). Product market competition and the impact of price uncertainty on investment: Some evidence from US manufacturing industries. The Journal of Industrial Economics, 217-228. https://doi.org/10.2307/2950647
• Ghosal, V. and Loungani, P. (2000). The differential impact of uncertainty on investment in small and large businesses. Review of Economics and Statistics, 82(2), 338-343. https://doi.org/10.1162/003465300558722
• Gilchrist, S., Sim, J. W. and Zakrajšek, E. (2014). Uncertainty, financial frictions, and investment dynamics (No. w20038). National Bureau of Economic Research. doi: 10.3386/w20038
• Goodwin, R. M. (1982). The non-linear accelerator and the persistence of business cycles. In Essays in Economic Dynamics (pp. 80-98). Palgrave Macmillan, London. doi: 10.1007/978-1-349-05504-3_6.
• Grable, J. E. (2000). Financial risk tolerance and additional factors that affect risk taking in everyday money matters. Journal of business and psychology, 14(4), 625-630. https://doi.org/10.1023/A:1022994314982
• Graham, J. R., Harvey, C. R. and Puri, M. (2013). Managerial attitudes and corporate actions. Journal of Financial Economics, 109(1), 103-121. https://doi.org/10.1016/j.jfineco.2013.01.010
• Guiso, L. and Parigi, G. (1999). Investment and Demand Uncertainty, Quarterly Journal of Economics, 114(1), 185-227. Retrieved from https://www.jstor.org/stable/2586951
• Hartman, R. (1972). The effects of price and cost uncertainty on investment. Journal of Economic Theory, 5(2), 258-266. https://doi.org/10.1016/0022-0531(72)90105-6
• Hirshleifer, D. (1993). Managerial reputation and corporate investment decisions. Financial Management, 22(2), 145-160. https://doi.org/10.2307/3665866
• Hoshi, T., Kashyap, A. and Scharfstein, D. (1990). The role of banks in reducing the costs of financial distress in Japan. Journal of Financial Economics, 27(1), 67-88. https://doi.org/10.1016/0304-405X(90)90021-Q
• Hubbard, R. G. (1997). Capital-Market Imperfections and Investment. Journal of Economic Literature, 36(1), 193-225. doi: 10.1007/978-3-642-56601-1_13
• John, K., Litov, L. and Yeung, B. (2008). Corporate governance and risk‐taking. The Journal of Finance, 63(4), 1679-1728. https://doi.org/10.1111/j.1540-6261.2008.01372.x
• Jones, B. F. and Olken, B. A. (2008). National leadership and economic growth. New Palgrave Dictionary of Economics, 1-5. Retrieved from https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=7e41f4ef6ddb0bc11351cb07dda00260fed9a24c
• Jorgenson, D. W. (1963). Capital Theory and Investment Behavior, American Economic Review, 53(2), 247-259. Retrieved from https://www.aeaweb.org/aer/top20/53.2.247-259.pdf
• Jorgenson, D. W. and Siebert, C. D. (1968). A comparison of alternative theories of corporate investment behavior. The American Economic Review, 58(4), 681-712. Retrieved from https://www.jstor.org/stable/1815529
• Jorgenson, D. W. and Stephenson, J. A. (1969). Issues in the development of the neoclassical theory of investment behavior. The Review of Economics and Statistics, 346-353. https://doi.org/10.2307/1926569
• Junankar, P. N. (1970). The relationship between investment and spare capacity in the United Kingdom, 1957-66. Economica, 37(147), 277-292. https://doi.org/10.2307/2551974
• Hubley, A. M. and Zumbo, B. D. (1996). A dialectic on validity: Where we have been and where we are going. The Journal of General Psychology, 123(3), 207–215. https://doi.org/10.1080/00221309.1996.9921273
• Kaiser, H. F. (1958). The varimax criterion for analytic rotation in factor analysis. Psychometrika, 23(3), 187-200. https://doi.org/10.1007/BF02289233
• Katona, G. (1951). Psychological analysis of economic behavior, McGraw-Hill, New York. Retrieved from http://seyhan.library.boun.edu.tr/record=b1181681~S5
• Katona, G. (1953). Rational behavior and economic behavior. Psychological Review, 60(5), 307. https://doi.org/10.1037/h0060640
• Koyck, L. M. (1954). Distributed lags and investment analysis (Vol. 4). North-Holland Publishing Company. https://doi.org/10.2307/2227337
• Kuzmicheva, E. (2014). The Influence of Financial Constraints and Attitude Towards Risk in Corporate Investment Decisions. Higher School of Economics Research Paper No. WP BRP, 36. http://dx.doi.org/10.2139/ssrn.2499493
• Laksmana, I. and Yang, Y. W. (2015). Product market competition and corporate investment decisions. Review of Accounting and Finance, 14(2), 128-148. https://doi.org/10.1108/RAF-11-2013-0123
• Mandelbrot, B. (1959). A note on a class of skew distribution functions: Analysis and critique of a paper by HA Simon. Information and Control, 2(1), 90-99. https://doi.org/10.1016/S0019-9958(59)90098-1
• March, J. G. (1978). Bounded rationality, ambiguity, and the engineering of choice. The bell journal of economics, 587-608. https://doi.org/10.2307/3003600
• Mayfield, C., Perdue, G. and Wooten, K. (2008). Investment management and personality type. Financial services review, 17(3), 219-236. Retrieved from http://csinvesting.org/wp-content/uploads/2014/06/Investing-and-Personality-Type.pdf
• Modigliani, F. and Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American economic review, 48(3), 261-297. Retrieved from https://www.jstor.org/stable/1809766
• Modigliani, F. and Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American economic review, 53(3), 433-443. Retrieved from https://www.jstor.org/stable/1809167
• Mundfrom, D. J., Shaw, D. G. and Ke, T. L. (2005). Minimum sample size recommendations for conducting factor analyses. International Journal of Testing, 5(2), 159-168. https://doi.org/10.1207/s15327574ijt0502_4
• Nakamura, T. (1999). Risk-aversion and the uncertainty–investment relationship: a note. Journal of Economic Behavior & Organization, 38(3), 357-363. https://doi.org/10.1016/S0167-2681(99)00015-3
• Nakamura, T. (2002). Finite durability of capital and the investment-uncertainty relationship. Journal of Economic Behavior & Organization, 48(1), 51-56. https://doi.org/10.1016/S0167-2681(01)00224-4
• Norris, M. and Lecavalier, L. (2010). Evaluating the use of exploratory factor analysis in developmental disability psychological research. Journal of Autism and Developmental Disorders, 40(1), 8-20. https://doi.org/10.1007/s10803-009-0816-2
• Nunnally J. and Bernstein (1994). Psychometric theory. McGraw Hill, New York. Retrieved from http://seyhan.library.boun.edu.tr/record=b1214633~S5
• Oehler, A., Wendt, S., Wedlich, F. and Horn, M. (2018). Investors' personality influences investment decisions: Experimental evidence on extraversion and neuroticism. Journal of Behavioral Finance, 19(1), 30-48. https://doi.org/10.1080/15427560.2017.1366495
• Pan, Y. (2003). The inflow of foreign direct investment to China: the impact of country-specific factors. Journal of Business research, 56(10), 829-833. https://doi.org/10.1016/S0148-2963(02)00470-8
• Scharfstein, D. S. and Stein, J. C. (1990). Herd behavior and investment. The American Economic Review, 80(3), 465-479. Retrieved from https://www.jstor.org/stable/2006678
• Shao, L., Kwok, C. C. and Zhang, R. (2013). National culture and corporate investment. Journal of International Business Studies, 44(7), 745-763. https://doi.org/10.1057/jibs.2013.26
• Shapiro, M. D., Blanchard, O. J. and Lovell, M. C. (1986). Investment, output, and the cost of capital. Brookings Papers on Economic Activity, 1986(1), 111-164. https://doi.org/10.2307/2534415
• Sharma, S. and Tarp, F. (2018). Does managerial personality matter? Evidence from firms in Vietnam. Journal of Economic Behavior & Organization, 150, 432-445. https://doi.org/10.1016/j.jebo.2018.02.003
• Simon, H.A. (1944). Decision-Making and Administrative Organization. Public Administration Review, 4(1), 16-30. https://doi.org/10.2307/972435
• Simon, H.A. (1955). A Behavioral Model of Rational Choice. Quarterly Journal of Economics, 69(1), 99-118. https://doi.org/10.2307/1884852
• Simon, H.A. (1972). Theories of Bounded Rationality. Decision and Organization, 1(1), 161-176. Retrieved fromhttp://innovbfa.viabloga.com/files/Herbert_Simon___theories_of_bounded_rationality___1972.pdf
• Stein, J. C. (2003). Agency, information and corporate investment. Handbook of the Economics of Finance, 1, 111-165. doi: 10.3386/w8342
• Stevens J. P. (1992). Applied Multivariate Statistics for the Social Sciences (2nd Edition), Hillsdale, NJ: Erlbaum. Retrieved from https://digilibadmin.unismuh.ac.id/upload/26551-Full_Text.pdf
• Tinbergen, J. (1938). Statistical evidence on the acceleration principle. Economica, 5(18), 164-176. https://doi.org/10.2307/2549019
• Tobin, J. (1969). A general equilibrium approach to monetary theory. Journal of Money, Credit and banking, 1(1), 15-29. https://doi.org/10.2307/1991374
• Tomer, J. F. (2007). What is behavioral economics?. The Journal of Socio-Economics, 36(3), 463-479. https://doi.org/10.1016/j.socec.2006.12.007
• Tosun, M. U., Guran, M. C. and Ulucan, A. (2008). The political instability, investment profile and the macroeconomic performance of the Middle East & North Africa (MENA) region. Problems and Perspectives in Management, 6(2), 31-38. Retrieved from https://www.researchgate.net/publication/287300593_The_political_instability_investment_profile_and_the_macroeconomic_performance_of_the_Middle_East_North_Africa_MENA_region
• Wahl, I. and Kirchler, E. (2020). Risk Screening on the Financial Market (RISC-FM): A tool to assess investors’ financial risk tolerance. Cogent Psychology, 7(1), 1714108. https://doi.org/10.1080/23311908.2020.1714108
• West, S. G., Aiken, L. S. and Krull, J. L. (1996). Experimental personality designs: Analyzing categorical by continuous variable interactions. Journal of Personality, 64, 1–49. https://doi.org/10.1111/j.1467-6494.1996.tb00813.x
• Xu, L., Wang, J. and Xin, Y. (2010). Government control, uncertainty, and investment decisions in China's listed companies. China Journal of Accounting Research, 3, 131-157. https://doi.org/10.1016/S1755-3091(13)60022-2
• Yao, R. and Curl, A. L. (2011). Do market returns influence risk tolerance? Evidence from panel data. Journal of Family and Economic Issues, 32(3), 532-544. https://doi.org/10.1007/s10834-010-9223-2
• Zhang, M., Zhang, W. and Zhang, S. (2016). National culture and firm investment efficiency: International evidence. Asia-Pacific Journal of Accounting & Economics, 23(1), 1-21. https://doi.org/10.1080/16081625.2015.1027714