Issue #3 (Volume 21 2024)

Cognitive biases often influence investor behavior in developing capital markets, leading to market anomalies and affecting overall market efficiency. With the increasing integration of global financial markets and the growing participation of retail investors, understanding these biases is more critical than ever. While market anomalies have been extensively studied in developed markets, their influence in developing economies remains under-explored. This study aims to examine the impact of heuristic biases on investment decisions, focusing on Nepal’s stock market. Structural Equation Modeling is used to assess how perceived market efficiency mediates the relationship between heuristic biases and investor behavior. Data were collected from purposively selected 403 active individual investors in Nepal Stock Exchange (NEPSE). The findings reveal that representative and overconfidence biases significantly and positively influence investment decisions and market efficiency. Specifically, investors exhibiting these biases are more likely to make confident and bold investment choices, believing in their ability to predict market movements accurately. Furthermore, the study finds that perceived market efficiency mediates the relationship between anchoring and adjustment bias and investment decisions, suggesting that investors who rely heavily on initial information (anchors) adjust their decisions based on their perceptions of market efficiency. The results highlight the critical role of heuristic biases in shaping investor behavior and stress the importance of market efficiency in this process. The study emphasizes the need to enhance investor awareness of these biases and implement policies to improve market transparency and efficiency. Such measures are vital for mitigating risks and fostering a more robust and resilient financial market in developing economies like Nepal.

The components of free cash flow and a firm’s capital structure affect the value of the firm. A firm with efficient cash management and optimum capital structure tends to have a better firm value. The current study examines the effect of capital structure and free cash flow on energy firms’ efficiency in Saudi Arabia. The data required for analysis were collected from a sample of seven energy companies from 2014 through 2022. The study used Data Envelopment Analysis to measure the efficiency of energy firms. Further, the simple regression and Generalized Linear Model were used to estimate the results. The study reports an average efficiency score of 1.13 for the energy companies, showing an efficiency increase. The results of simple regression are consistent with the results of the Generalized Linear Model. The study findings demonstrate that the association of firms’ capital structure is positive and significant (with a coefficient of 41.60, significant at a p-value of 0.01) to the efficiency of Saudi Arabian energy firms. Further, current research results indicate that firms’ free cash flows negatively affect the efficiency (with a coefficient of –0.79 and insignificant) of Saudi Arabian energy firms with no evidence. Therefore, the study accepts the association of free cash flow and firms’ efficiency as positive and rejects the alternative hypothesis that there is a negative association between free cash flow and efficiency in Saudi Arabian energy firms.

Acknowledgment
The researcher extends appreciation to Prince Sattam Bin Abdulaziz University for funding this research through the project number 2023/02/25856.