Factors influencing investment decisions in stock market: evidence from individual investors in the northern province of Sri Lanka

Abstract

The study aims to identify factors that influence investment decisions of individual investors and to explore how these factors are connected to the investors’ socio-economic characteristics in the Sri Lankan Stock Market. The study covers individual investors from all five districts belonging to the Northern Province of Sri Lanka and data were marshalled from 272 individual investors with a self-administrated questionnaire using a convenient sampling technique. The collected data were then analysed with a number of statistical techniques including Independent t- test, Analysis of variance (ANOVA) and relevant post hoc tests. The study identified eight most influencing factors on investment decisions: past performance of the company’s stock, company stability, firm's goodwill, firm's reputation in the industry, dividend paid, expected corporate earnings and expected dividend. Further results highlighted seven least influencing factors on investment decisions: opinions of firm's majority stockholders, easy to obtaining borrowing funds, diversification needs, friends/co-workers' opinions, forms governing body and social status. The study disclosed that the socio-economic characteristics of investors (age, gender, marital status, educational qualifications and monthly income) have a statistically significant impact on the investment decisions of individual investors. The study has made a theoretical contribution and proffers many useful practical implications to the investors, practitioners and policy makers.