Investors' Behavioral Biases in Tehran Stock Exchange by emphasizing the Role of Significant Weaknesses in Internal Control
محورهای موضوعی : Financial Economics
Mariyeh Hasani
1
(Department of Accounting, Gorgan Branch, Islamic Azad university, Gorgan, Iran)
Mansour Gharkaz
2
(Department of Accounting, Gorgan Branch, Islamic Azad University, Gorgan, Iran)
Alireza Maetoofi
3
(Department of Managemant, Gorgan Branch, Islamic Azad University, Gorgan, Iran)
Hosein Didehkhani
4
(Department of Managemant And Accounting, Ali Abad-katoul Branch, Islamic Azad University, Aliabad Katool, Iran)
کلید واژه: Collective behavior, behavioral bias, Mental Anchor, Internal control,
چکیده مقاله :
Many behavioral biases affect investors when making decisions.Behavioral distortions divert the investor from rational decisions, and as a result, resources are not diverted to appropriate investments.Behavioral biases can be evaluated in different types including the two phenomena of mental anchor and collective behavior of investors. In the present study, the phenomenon of collective behavior and mental anchor of investors with emphasis on significant weaknesses in internal control has been investigated. For this purpose, the data of 125 companies listed on the Tehran Stock Exchange during the period 2012 to 2018 were used.Data analysis was performed in eviews software version 10 and in order to fit the regression models,the generalized least squares method of panel data was used. The results using univariate analysis showed that there is no significant difference between the amount of behavioral biases in each of the two groups of companies with weakness and lack of weakness in internal control.While multivariate analysis of data in the form of regression models showed that the auditor's report on significant weaknesses in internal control,(which Weakness indicates high agency costs and high information asymmetry between managers and shareholders) strengthens It is the collective behavior of investors but it has no effect on their mental anchor.According to the results, it seems that the behavioral biases of investors are conditioned by the priority and importance of good and bad news in the market.As long as there is bad news in the stock market towards the company, good news can’t cause behavioral bias in investors.
[1] Alipoura, S., Pakmaram, A., Abdi, R., Internal Control Quality Assessment based on the Characteristics of the Entity and Auditor and their Expected Goals in the Firm's Listed in Tehran Stock Exchange, Journal of Advances in Mathematical Finance and Applications, 2020, 5(4), P. 507-520. Doi: 10.22034/AMFA.2020.674949.
[2] Bashiret., Impact of Behavioral Biases On Investor Decision Making: Male Vs Female. IOSR Journal of Business and Management, 2013, 10(3), P.60-68. Doi: 10.9790/487X-1036068.
[3] Bashiri Manesh, N., Oradi, J., Emotional Behavior of Investors and Accounting Profit Management, Journal of Empirical Research in Accounting, 2018, 9(3), Serial Number 33, P.77-99. Doi: 10.22051/ JERA.2018.18787.1911, (in Persian).
[4] Bazerman, M. H., Moore, D. A., Judgment in managerial decision making. Wiley Global Education, 2012.
[5] Bedard, J.C., Hoitash, R., Hoitash, U., Westermann, K., Material weakness remediation and earnings quality: A detailed examination by type of control deficiency, Journal of Practice & Theory, 2012, 31, P.57–78. Doi: 10.2308/ajpt-10190.
[6] Beneish, M.D., Billings, M.B., Hodder, L.D., Internal control weaknesses and information uncer-tainty, The Accounting Review, 2009, 83, P. 665–703. Doi: 10.2308/accr.2008.83.3.665.
[7] Bikhchandani, S., Sharma S., Herd Behavior in Financial Markets: A Review, Working paper. IMF Institut, 2000, . Doi: 10.2139/ssrn.228343.
[8] Bozorgasl, M., Adibi, A., Investigating the Relationship between the Information Content of Quarterly Profit Statements and Negative News During the Season, Journal of Empirical Studies in Financial Accounting, 2016, 13(51) , P. 27-46. Doi: 10.22054/qjma.2016.7099, (in Persian).
[9] Bushman, Robert M., Smith, Abbie J., Financial Accounting Information and Corporate Governance, Journal of Accounting and Economics, 2001, 32(1–3), P. 237-333. Doi:10.1016/S0165-4101(01)00027-1.
[10] Cen, L., Hilary, G., Wei, K. J., The role of anchoring bias in the equity market: Evidence from analysts’ earnings forecasts and stock returns, Journal of Financial and Quantitative Analysis, 2013, 48(1), P.47-76. Doi: 10.1017/S0022109012000609.
[11] Dastgir, M., Saedi, R., The effect of weak internal controls and the gap of controlling investors on the investment efficiency of companies listed on the Tehran Stock Exchange, Journal of Financial Accounting Research, 2017, Year 9, 4(34), P. 38-17. Doi:10.22108 / FAR.2018.106912.1147, (in Persian).
[12] Devi, S., Karthikeyan, G.B, A birds eye view on behavioral finance towards investment decisions in share market, 2016, International Journal of Management Research and Business Strategy, 5(3), P.1-9, ISSN 2319-345X.
[13] Doloo, M,. Payaei, Seyed S., Collective Behavior of Investors at Micro and Macro Levels and Its Impact on Market Fluctuations, 2017, Journal of Asset Management and Financing, 5(2), P.166-149. Doi:10.22108 / AMF.2017.21578, (in Persian).
[14] Ebrahimi Kordler, A., Hassanbeigi, V., GHavvasi kenari, M., Investigating the Impact of Internal Control Weaknesses on Company Performance and Value, 2018, Journal of Financial Accounting Knowledge, 5( 3), P.45-68. Doi:10.30479 / JFAK.2018.1511, (in Persian).
[15] Espinosa, M., Trombetta, M., Disclosure Interactions and the Cost of Equity Capital: Evidence from the Spanish Continuous Market, Journal of Business Finance and Accounting, 2007, 34 (10), P.1371-1392. Doi: 10.1111/j.1468-5957.2007.02064.x .
[16] Fakhari, H., Kabiri, Mohammad T., Investigating the moderating effect of audit report on the relationship between disclosure of internal control weakness and information asymmetry, 2018, Journal of Empirical Research in Accounting, 2017, 7( 27), P. 171-147. Doi:10.22051 / JERA.2017.15988.1704 , (in Persian).
[17] Files, R., Sharp, N.Y., Thompson, A.M., Empirical evidence on repeat restatements, Accounting Horizons, 2014, 28, P. 93–123. Doi:10.2139/ssrn.1748822.
[18] Foroughi, D., Mehrdad Aisak, Seyed S., Investigating the market reaction to the time of the announcement of earnings per share, 2015, Journal of Empirical Research in Accounting, 5(17), P. 162-139. Doi:10.22051 / JERA.2015.647, (in Persian).
[19] Foroughi, D., Sakiani, A., The Impact of Dividends Payed on the Risk of Future Stock Price Falls Considering the Effect of Free Cash Flow and Information Asymmetry, Journal of Applied Research in Financial Reporting, 2017, 6(11), P. 158-131, (in Persian).
[20] Gao, X., and Jia, Y., Internal Control over Financial Reporting and the Safeguarding of Corporate Resources: Evidence from the Value of Cash Holdings, Journal of Contemp Account Res, 2016, 33, P.783-814. Doi:10.1111/1911-3846.12164.
[21] Gavriilidis, K., Kallinterakis, V., and Ferreira, L., Institutional industry herding: I e o al o spu ous? Journal of International Financial Markets, Institutions and Money, 2013, 26, P.192-214.
[22] Gol Arzi, Gholam H., and Ziachi, Ali A., Investigating the Collective Behavior of Investors in Tehran Stock Exchange with an Approach Based on Trading Volume, Journal of Financial Research, 2014., 16(2), P. 371-359. Doi:10.22059 / JFR.2014.50709 , (in Persian).
[23] Hajiha, Z., Business Strategy, Significant Weaknesses in Internal Controls, and Delays in Audit Report Publication, Journal of Empirical Research in Accounting, 2020, 9(1), P.180-154. Doi:10.22051/ JERA.2017.16498.1731, (in Persian).
[24] Hammersley, J. S., Myers, L. A., and Shakespeare, C., Market reactions to the disclosure of internal control weaknesses and to the characteristics of those weaknesses under Section 302 of the Sarbanes Oxley Act of, Journal of Review of Accounting Studies, 2007, 13(1), P.141-165. Doi:10.2139/ssrn.951085.
[25] Han, X., Empirical Research on the Herd Behavior in Chinese Stock Market, 2020 3rd International Conference on Financial Management, 2020, Education and Social Science (FMESS 2020). China.
[26] Hematfar, M., Soheili, S., An Investigation of Financing Costs Factors on the Auditor's Qualified Report in the Companies Listed in Tehran Stock Exchange, Journal of Advances in Mathematical Finance and Applications 2017, 2(2), P. 19-28. Doi:10.22034/AMFA.2017.531314.
[27] Hirshleifer, D., and Hong Teoh, S., Herd Behaviour and Cascading in Capital Markets: a Review and y hes s, Journal of European Financial Management, 2003, 9(1), P: 25–66. Doi:10.1111/1468-036X.00207.
[28] Hutton, A.P., Marcus, A.J., Tehranian, H., Opaque Financial Reports, R2, and Crash Risk, Journal of Financial Economics, 2009, 94, P.67-86. Doi:10.1016/j.jfineco.2008.10.003.
[29] Hwang and Salmon., Market stress and herding, Journal of Empirical Finance, 2004, 11(4), P, 585–616. Doi:10.1016/j.jempfin.2004.04.003.
[30] Jacoby, G., Li, Y., Li, T., Zheng, S., Internal Control Weakness, Investment and Firm Valuation, Journal of Finance Research Letters, 2018, 25, P. 171-165, 2018, Doi:10.1016/j.frl.2017.10.018.
[31] Jafari, A., Investigating the severity and weakness of mass behavior with a new method based on stock market value in Tehran Stock Exchange, Journal of Financial Management Quarterly, 2019, 7(3), P.107-83. Doi:10.22051 / JFM.2019.22428.1803, (in Persian).
[32] Ji, X. D., Lu, W., Qu, W., Voluntary Disclosure of Internal Control Weakness and Earnings Quality: Evidence From China, The International Journal of Accounting, 2017, 52(1), P. 27-44.
[33] Jlassi, M., Naoui, K., He d g behaviour and market dynamic volatility: evidece from the Us stock markets, American Journal of Finance and Accounting, 2015, 4(1), P.70-91. Doi:10.1504/AJFA.2015.067844.
[34] Jokar, H., Shamsaddini, K., Daneshi, V., Investigating the Effect of Investors' Behavior and Management on the Stock Returns : Evidence from Iran , Journal of Advances in Mathematical Finance and Applications, 2018, 3(3), P. 41-52. . Doi 10.22034/AMFA.2018.544948.
[35] Korniotis, G.M., and Kumar, A., Do portfolio distortions reflect superior information or psychological biases? Journal of Financial and Quantitative Analysis, 2013, 48(1), P. 1-45. Doi:10.1017/S0022109012000610.
[36] Kothari, S. P., and Warner, J. B., Econometrics of event studies. In B. E. Eckbo (Ed.), Handbook of Corporate Finance: Empirical Corporate Finance. North Holland: Elsevier. 2007.
[37] Lashgari, Z, Gawradar, A., bakhshayesh, E., Internal Control Weakness and Accruals Quality in Companies Listed on Tehran Stock Exchange, Procedia - Social and Behavioral Sciences, 2015, 207, P. 454 – 461. Doi:10.1016/j.sbspro.2015.10.115.
[38] Lin, Anchor Y, Lin, Yueh-Neng., Herding of Institutional Investors and Margin Traders on Extreme Market Movement, .International Review of Economics and Finance, 2014, 33, P.186–198. Doi:10.1016/j.iref.2014.05.001.
[39] Mala, R., Chand, P., Confidence of accountants in applying international financial reporting standards. Journal of Corporate Ownership & Control, 2015, 13(1), P. 56-65. Doi:10.22495/cocv13i1p6.
[40] Mehrara, M, Sayah Melli, S., Behavioral factors in investment; Behavioral Finance, 14th International Conference on New Ideas in Management, Economics and Accounting, 2016, Barcelona, Spain, October 2016, (in Persian).
[41] Munsif, V., Raghunandan, K., Rama, D. V., Internal control reporting and audit report lags: Further evidence. Auditing, A Journal of Practice & Theory, 2012, 31(3), P. 203–218. Doi: 10.2308/ajpt-50190
[42] Ohaness G. P., Kevin J., Stephen B., Robert K., Financial Literacy and Behavioral Biases among Traditional Age College Students, Journal of Financial Education, 2015, 45, P. 163-181. Doi:10.5430/afr.v8n1p30.
[43] Pakdel, A,. Izadinia, N,. Dastgir, M., Identifying the effective factors of subjective accounting in portfolio formation by inexperienced investors with the help of confirmatory factor analysis, Journal of Accounting and Auditing Research, 2018, 40, P. 127-146, (in Persian).
[44] Peterson Amanda N., Differences in internal control weaknesses among varying municipal election policies, Journal of Accounting and Public Policy, 2018, 37(3), P. 206-191. Doi:10.1016/j.jaccpubpol.2018.04.001.
[45] Raposo Inês Gonçalves, Lehmann Alexander., Equity finance and capital market integration in Europe, 2019, Policy Contribution Issue 3.
[46] Ritter, J.R., Behavioral Finance. Pacific-Basin Finance Journal, 2003, 11, P. 429-437. Doi:10.1016/S0927-538X(03)00048-9.
[47] Saedi, R, Rezaian, V., Investigating the effect of CEO's overconfidence on return and unsystematic stock risk due to the dual role of CEO's role: Evidence from Tehran Stock Exchange, Journal of Financial Research, 2019, 2(1), P.100- 79. Doi:10.22059 / FRJ .2019.271595.1006782, (in Persian).
[48] Tahir F., The Development of Auditor Independence Dimensions: Nigerian Stakeholders, 2015, Doctor of Philosophy University Utra Malaysia.
[49] Talebnia, Q., Barari, S., Vakilifard, H., Izadi, H., Modeling Investor Behavior Using Psychological Variables with an Interpretive Structural Modeling Approach to Recognize Decision Making Errors in Investment, Journal of Financial Engineering and Securities Management, 2019, 44, P. 153-133, (in Persian).
[50] Thomas, J.K., Discussion of Post-Earnings Announcement Drift and Market Participants Information Processing Biases, Review of Accounting Studies, 2003, 8(2), P.347-353. Doi:10.1023/A:1024429915810.
[51] Vares, H., Arian, H., Arianaika, B., Banazadeh, Mohammad J., A Study of Mass Behavior in Tehran Stock Exchange with Chiang and Zheng Model, Journal of Financial Research Quarterly, 2019, 22(3), P. 407-388. Doi:10.22059 / FRJ.2020.292714.1006951 ,(in Persian).
[52] Venezia, I., Nashikkar, A., Shapira, Z., Firm Specific and Macro Herding byProfessional andAmateur Investors and TheirEffects on Market Volatility, Journal of Banking & Finance, 2011, 35, P.1599-1609. Doi:10.1016/j.jbankfin.2010.11.015.
[53] Weik, A., Eierle, B., Ojala, H., What drives voluntary audit adoption in small German companies? Journal of Int J Audit, 2018, 22, P. 503– 521. Doi:10.1111/ijau.12134.
[54] Wong, C.H., Chuah, C.Y., Kui, S.B., Soo, L.H., Ang, S.Z., The effect of personality traits and demographic characteristics towards risk tolerance and investment decision making, Doctoral dissertation, UTAR, 2015.
[55] Xu, Chaohui, Zhou, Zongfang., The Study of Internal Control and over-investment on Corporate Credit Risk, Journal of Procedia Computer Science, 2016, 91. P. 109-113,. Doi:10.1016/j.procs.2016.07.047.
[56] Zare Bahnemiri, M., Kashiri, L., Synchronization of stock prices and the risk of stock price falls: with emphasis on the mediating role of the mediator of the mass behavior of legal shareholders, Quarterly, Journal of the Stock Exchange, 2017, 12(45), P. 45-25. Doi:10.22034 / JSE.2019.11147, (in Persian).
[57] Zhang, Yu., Zheng, X., A Study of Herd Behavior Based on the Chinese Stock Market, Journal of Applied Managementand Investments, 2016, 5(2), P. 131-135.