Research On Impacts Of Financial And Non-financial Information On The Behavior Of Individual Investors In Stock Market

It has been found out that the share price often varies a lot both severely and irrationally and that the variation often does not come from the arrival of news. Large amount of abnormal phenomenon have been discussed in behavioral finance and new theories and explanations have been raised based on psychology and behavioral studies. Traditional empirical accounting studies have put great effort on proving the decision usefulness of accounting information, which means that accounting information can affect investors’decision-making. Then what are the factors influencing individual’s stock-purchasing decision? This study has generated two main sources for that by reviewing previous literature: financial information and non-financial information.How do financial information and non-financial information affect individual’s investment decision in stock market? On one hand, earnings have been the most important accounting information for long. And the significance of the study on earnings quality and evaluation has been increasing in recent decades, and the comprehensive evaluating system is one of the evaluation methods for earnings quality. However, few studies have been made to verify the decision-usefulness of this method. Thus this study decides to make the comprehensive evaluation of earnings quality as the representative of financial information. On the other hand, behavioral finance theory has discussed a lot about the cognitive bias of people, which will lead to biased behavior. This study then takes another way of thinking by taking a new concept of Reference Group into account as the representative of non-financial information. Besides, the susceptibility of reference groups has also been applied as a mediate variable for reference group and investment decision. The basic model for this study has then been set up based on those four concepts so that studies can be made about that how do comprehensive evaluation of earnings quality and reference group affect individual’s stock-purchasing decision with susceptibility considered. Groups of hypothesizes have been set up to help clarify the question above. Pre-studies and surveys have been made to get ready for the empirical studies. For the comprehensive evaluation of earnings quality, the listed Chinese real-estate corporations have been chosen as samples to reach for the results of each of their earnings quality results based on a current comprehensive evaluation model. For the reference group, interviews and investigations have been made to help decide the three main reference groups. For the susceptibility to reference groups, the measurement scale modified by Schroeder J. E.(1996) has been chosen and then tested for its validity by software SPSS15.0and Amos7.0.Experimental method has been applied in this study and a2×2×2design has been used to verify all the hypothesizes raised. Two different scenarios have been set up in two different questionnaires with50each and each subject is only allowed to finish one questionnaire out of one hundred. Stata11.0has been mainly used to deal with the data analysis. All hypothesizes have been verified. In the simple scenario with higher certainty, financial information such as comprehensive evaluation of earnings quality has great effect on individual’s stock-purchasing decision and thus is useful for decision-making; In the more complicated scenario, non-financial information such as information provided by reference group may have greater influence compared with financial information; Personal traits will impact the susceptibility to reference group and thus impact the choice between financial and non-financial information; Irrationality may exist when people try to choose between financial information and non-financial information to help with decision making.This study has been innovative in following ways:First, comprehensive evaluation of earnings quality and reference group have been brought into this paper as the financial and non-financial factors that would affect individual’s investment decision in stock market. Second, the decision usefulness of the comprehensive evaluation system of earnings quality has been verified by experimental studies, and the persistence of earnings has been found the most important perspective for investors based on the data analysis, which would help with the future study of related fields. Third, susceptibility has been brought into this study to help consider the choosing of reference group as well as the financial and non-financial information.