INSTITUTIONAL INVESTORS’ ATTITUDES TOWARDS RISK AND FACTORS INFLUENCING FINANCIAL DECISION-MAKING

Abstract

The stock markets grow constantly, and trade has become more international and mobile. The interest in understanding the investors' and managers' attitudes towards risk and financial decision-making is stronger than ever before. The purpose of this study is to increase understanding of institutional investors' attitudes towards risk as well as some of the factors influencing value creation in financial decision-making. It compares the theoretical concept of risk in investing with the reality of the finance world of today, as viewing risk in a way that differs from the assumptions of financial theory has implications for the actual financial decision-making. The results of this study show that investors' perception of risk diverges from what is stated in the financial theory. However, managers and investors do not differ much in their view of risk, or their attitudes towards financial decision-making. This study fails to support the theory of a rational decision maker, since the results show that managers can influence investors through such factors as personal characteristics, problem framing, and financial measures. The results also reveal myopic loss aversion among institutional investors.