Role of behavioral biases in the investment decisions of Pakistan Stock Exchange investors: Moderating role of investment experience

In 2011, Korea required all firms to report all value added tax (VAT) invoices electronically to tax authorities. This unique law provided a natural experiment to examine the effects of this disclosure on income taxes and firms’ related responses. The authors find that this additional required disclosure caused firms to become less aggressive on their income taxes, and that they were unable to pass increased tax burdens forward to consumers or backward to suppliers and labor. To maintain, profitability firms cut research and development (R&D) costs, and this cost cutting was larger for tax aggressive firms. Policy implications of this unintended result are discussed.

The study explores the underpinning interlinkages in the spot and futures markets across nine Asian advanced and emerging economies, and examines whether development status has any impact on the nature and speed of adjustments in the information transmission. By applying Panel VECM to the data set from the very day futures trading was initiated on the respective exchange till February 2020, the results highlight that in the long run, over the entire period, the futures market adjusts 69.7% more than the spot market and there is a bidirectional causality in the short run. Even in the sub-periods, the same phenomena were observed, and in the short run, there was a unidirectional causality from futures to spot during the crisis period. An identical trend was observed for country groups in three sub-periods. However, in the short run, during the crisis period, a unidirectional causality from futures to spot was found in advanced economies, while the opposite pattern was found in emerging economies. The paper establishes that the spot market dominates the information dissemination process. The results also demonstrate that traders prefer liquidity over leverage as their trading venue, the existence of potential index arbitrage opportunities, and validate that development status has no impact on the information transmission pattern amongst the markets, except during turbulent times. The study offers insights to market participants to develop their specific trading strategies in these markets at various economic stages, thereby increasing their expected returns.

Bank financing decisions by small and medium-sized enterprises (SMEs) are crucial to their growth and survival, particularly in emerging economies such as Morocco. This study aims to assess the impact of behavioral biases on these decisions, an area little explored in the existing financial literature. The main objective is to analyze how behavioral biases such as overconfidence, risk aversion, confirmation bias, anchoring, and managerial myopia biases influence bank financing decisions of Moroccan SMEs. The approach adopted is quantitative and uses robust least squares regression to analyze data collected from 167 Moroccan SMEs. The results reveal that overconfidence and anchoring have a significant positive impact on the propensity to take out bank loans, while risk aversion and confirmation bias have a negative effect. Managerial myopia had no significant influence. Control variables such as past financial performance, the length of the banking relationship, and lower risk also positively influence the financing decision.