THE MEDIATING ROLE OF ATTITUDES IN TRADING COMPANIES' SHARES: INTRODUCTIONIndividual investors are increasingly being regarded as vital to companies in the management of share values. Relative to institutional and professional investors, these investors can easily and quickly participate in, or withdraw from, the market depending on their confidence in the prevailing market conditions. For example, total household ownership in the Australian share market has shown a declining trend, from a high of 55% in 2004, to 46% in 2006, and a low of 41% in 2008. Such losses of investors in a short period of time – corresponding to a bear market – can cost companies’ shares dearly. Similarly, failing to attract them when the economy recovers can restrict a company’s shares from reaching their highest possible value.
Research on behaviours of individual investors has shown that their trading decisions are often psychologically biased. Despite having evaluated the financial position of a company, many individual investors are still subject to certain emotional elements such as attitudes and brand familiarity. This study thus concerns itself with how companies can appreciate from having strong brand equity in their efforts to encourage individual investors’ trading in their shares. Therefore, this study is interested in examining the relationships between individual investors’ perceived financial performance of companies and their trading decisions, and the mediating effect of companies’ images on the relationships.
The main idea behind this study is that even though standard finance theory always suggests that investors’ trading decisions are based on their objective evaluation of companies’ risks and returns, perceived financial performance along with investors’ attitudes towards companies’ images may play vital role in individual investors’ trading decisions. After all, many individual investors are not well competent in analyzing companies’ financial performance. Therefore, individual investors’ intention to trade shares of a particular company’s shares can be predicted by these behavioural factors.
Generally there are three reasons for individuals to engage in investment: 1) overcoming the decreasing nature of purchasing power; 2) saving for retirement and 3) achieving a certain financial goal such as buying a property or providing for future financial security. In achieving these objectives, individuals may choose various forms of investment vehicles, ranging from low risk investments including saving accounts and treasury bonds, to highly volatile direct ownership in public equity. Although investing in real assets such as estate properties and vehicles is regarded as more important for an individual than equity ownership, the relatively high returns expected from equity have tended to attract many people in most economies to participate in share markets in recent years. This is because shares represent a good choice for a risky, high-return asset suited to long-term investing. As has been documented in related literature, investment in public equity can vary according to several factors including age, gender, health, wealth and home ownership status. Moreover, at the aggregate level, investment in equity moves very much in accordance with levels of market confidence in the prevailing economic conditions. Therefore, it is important to understand that despite equity ownerships promising high returns, there are various factors associated with fluctuations over time and the moderate levels of share ownership observed across the globe.