, Volume 28, Issue 1, pp 139-155
Date: 27 Aug 2010

Effects of governance on investment decisions and perceptions of reporting credibility: Investment experience of Taiwanese individual investors

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Abstract

This paper examines the effects of governance strength on individual investors’ investment decisions and their perceptions of the credibility of financial reporting by Taiwanese companies. It also examines whether the investment experience of individual investors influences their perceptions and decisions. Our experimental results show that governance strength enhances the price that individual investors are willing to pay for stocks, along with the perceived credibility of firm reporting. Furthermore, the associations are moderated by the investment experience of individual investors, suggesting that more-experienced individual investors are better able to incorporate governance strength into their judgment than less-experienced individual investors. Additionally, investment experience is positively related to the emphasis that individual investors give to corporate governance information in making investment decisions.

The authors would like to thank the three editors of this Special Issue (Mike Peng, Steve Globerman, and Daniel Shapiro), the anonymous reviewers, and Professor P. H. Phan, Professor Y. Jiang, and V. Z. Chen for their valuable comments on the earlier versions. Also, we thank Taiwan National Science Council for financial support on attending the Asia Pacific Journal of Management Conference on Managing Corporate Governance Globally: An Asia Pacific Perspective in Vancouver, Canada, October 2009 (NSC-98-2922-I-110-055). We are also grateful to Professor D. S. Sharma for his help in article writing and Professor H. W. Chang for his help in the recruitment for the experimental subjects.