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98 | The Spectrum Vol. 1 No. 1 April 2023 ISSN 2990-7691
Suresh Khadka1 , Bal Ram Chapagain2, PhD
1MBM graduate from Central Department of Management, Tribhuvan University
2Central Department of Management, Tribhuvan University
Article History: Submitted: 1 February 2023; Reviewed: 25 February 2023;
Revised: 6 March 2023 Corresponding Author: Bal Ram Chapagain, Email:
balram.chapagain@cdm.tu.edu.np; ORCID: https://orcid.org/0000-0002-
9834-085X
Copyright 2023 © The Author(s). The publisher may reuse published articles
with prior permission of the concerned author(s). The work is licensed under a
Creative Commons Attribution Non-Commercial 4.0 International License
(CC BY-NC 4.0).
-----------------------------------------------------------------------------------------------
Abstract
The growing pervasiveness and influence of social media in different
spheres of life cannot be denied at all. In this light, this study aims to examine
the relationship between different aspects of social media and investment
decisions in the context of the Nepali stock market. The study sample included
384 retail investors, and the data was collected through structured
questionnaires. Descriptive statistics, Pearson correlation, and standard
multiple regression analyses were used to analyze the data. Although
significantly positive relationships were found between all aspects of social
media and investment decisions, content on social media has a stronger
relationship with investment decisions relative to the online community
behavior on social media and corporate image on social media. This is among
the limited studies of its kind in the distinct socio-economic context of Nepal.
Corporate managers may regularly update relevant information on their social
media platforms for attracting potential investors and increase their firm
value. Likewise, regulators may run investor education programs in order to
protect investors, particularly immature retail investors, from the risk
associated with potentially less reliable information on social media platforms.
Future researchers may employ a mixed-method research design to uncover
the comprehensive set of factors influencing investment decisions in the context
of the Nepali stock market.
Keywords: Investment decisions, Retail Investors, Social Media, Stock
market, Nepal
Relationship between Social Media and Investment Decisions in the Nepali
Stock Market
Relationship between Social Media and Investment Decisions: Khadka and Chapagain | 99
Introduction
Social media sites and microblogs—Facebook, LinkedIn, Twitter,
Tumbler, Instagram, WhatsApp, snap chat, as technological means generating,
distributing, and communicating the information in virtual communities and
networks has become an integral part of human existence (Linos, 2018). As a
composite of sociology and technology, it has influenced almost all aspects of
human life (Nair, 2011). Social media as an opinion mining and computational
system (Bukovina (2016), in last 12 months, the number of social media users
worldwide has increased by an extra 5%, bringing the most current global total
to 59 percent of the world's population. In this context, social media has
drastically transformed the way individuals live and exchange information. In
Nepal's context, Digital Nepal (2022), reported 13.70 million social media
users in Nepal in January 2022. Among the common factors influencing stock
investments, such as are earnings and image factors, corporate governance and
positioning factors, goodwill and market share factors, industry competition
and size factors, fundamental market factors, and decision-making factors, as
identified by According to Rana (2019), this study treats social media as
factors influencing decision making.
Given the escalation and attachment of social media to daily life, social
media-based investment decision analytics has itself established as a
researchable issue. Consumers are leaning less toward professional advice and
more toward customer recommendations when making purchases, which has
been made simpler by the growth of social media (Chen et al., 2014). Most
investors in the stock market dominated by retail investors lack financial
market knowledge, and they are always looking for a sign that can provide
additional information about listed firms (Huang, 2021). Especially, when
selling anything, social media has a large user base that will significantly
influence the product advertising process. People have access to different
social media platforms, including YouTube, Snapchat, Instagram, and TikTok
(Maurencia et al., 2021). In 2018, Nepal Stock Exchange (NEPSE)
incorporated a new online trading management system that gives the access of
investment in the stock market. Social media is playing an influential role in
100 | The Spectrum Vol. 1 No. 1 April 2023 ISSN 2990-7691
the decision-making process of individual investors, including those that can be
considered high-net-worth investors (Mudholkar & Uttarwar, 2015).
The efficient market hypothesis claims that the stock market is efficient
and that the share price reflects all of the available information (Zahera
&Bansal, 2018). Specifically, social media platforms play a vital role in
informing a variety of individuals, notably retail investors (Li et al., 2020).
Rudin (2019) assessed that the prominence of internet sites would continue and
the information and communication channels on social media platforms play a
vital role in the investor’s decision-making. A study by Agrawal et al. (2015)
has provided a deeper consideration of the abilities and boundaries of online
markets to make easy transactions and convey information between buyers and
sellers with shifting degrees of communal connectedness. In the similar vein,
Siikanen et al. (2018) have found that the choices of purchase versus sell were
linked with Facebook data, particularly for unreceptive households and non-
profit. However, Wu et al. (2017) revealed that the impact of different factors,
where increased consideration of a stock's unpredictability, is more important
than public opinion.
A study in a Malaysian context found that the factors including content
on social media, behavior of online community, and image of firm on social
media had a significant effect on investment decisions (Ismail et al., 2018). In
the same way, Lo & Chau, (2019) examined the connection between social
networking sites and penny stocks. The study concluded that the control impact
of penny stocks was significant in short term, and revealed a tougher
association between social media and stock performance at cheap cost and
market capitalization levels with simple strategies utilizing social media.
Likewise, Yogesh & Yesha (2014) in the Indian context discovered that social
media was widely used as a knowledge source for its alleged usefulness,
veracity, and perceived reliability. Investor emotions were found to have
positively influenced the decision-making and herding as well as the media
component (Ph & Uchil, 2020). Furthermore, Mehta et al. (2021) found that the
optimistic news effect was perhaps to replicate that the share market values are
overpriced, and if it was pessimistic, then the effects of the tendency were low.
Psychological factors, social interaction, regulatory policies, and a firm’s
image have significant effects on investors’ decision-making behavior, and for
Relationship between Social Media and Investment Decisions: Khadka and Chapagain | 101
experienced investors only social interaction has a significant effect on
investors’ decision-making behavior (Gnawali, 2021). In the same way, a most
recent study done on the Swedish stock market by Abu-Taleb & Nilsson (2021)
found that there is a positive significant relationship between social media and
investment decisions. However, immature adults utilize social media
habitually. They make investment decisions with the assistance of social media
(Suman & Rishabh, 2022).
Though multiple researches have emphasized the importance, role,
effect, and impact of social media on investment decisions all over the world,
most of the existing literature is attributed to the relatively small sample size
and focused on developed country contexts. Nepali context has received no
research or very limited research work that scrutinizes the relationship between
social media and investment decisions. Against this backdrop, this study seeks
to answer the questions on the kind of relationships between different aspects
of social media and investment decisions among retail investors in the context
of Nepali stock market.
Review of Literature and Development of Hypotheses
Several Studies In The Past Have Explored The Relationship Between
Different Aspects Of Social Media And Investment Decisions. But, This Study
Mainly Reviews The Studies Exploring The Relationships Of Online
Community Behavior On Social Media, Corporate Image On Social Media,
And Content On Social Media With Investment Decisions, Which Form A
Base For Hypotheses Development In Line With The Research Questions
Raised.
Relationship between Online Community Behavior on Social Media and
Investment Decisions
Rakibul et al. (2019) revealed that social networking groups, trademark
fan pages, and paid promotions have significant positive relationships with
purchase decisions. Similarly, Ridings and Gefen (2004) found that online
community behavior had a significant impact on particularly retail investors in
the capital market. Furthermore, online community has the advantage of
educating each other and mining opinions that are related to investment in the
102 | The Spectrum Vol. 1 No. 1 April 2023 ISSN 2990-7691
stock market (Bukovina, 2016). In the same way, Tan and Tan (2012)
investigated that social media user behavior has a substantial positive influence
on social development and the decision-making process. Hence, it may be
hypothesized that:
H1: There is a positive relationship between online community behavior
on social media and investment decisions in the Nepali stock market.
Corporate Image on Social Media and Investment
Gray and Balmer (1998) found that in today’s insightful trade milieu, a
firm’s decisive endurance might well depend on budding and keeping a
decipherable representation and favorable status. Scholars have argued that the
more a company engages in internal and external CSR practices, the greater
will be the corporate image and profitability that help to attract potential
investors (Chapagain, 2022). Likewise, Jones et al. (2000) found that corporate
image on social media attracted more investors and increased its stock price.
Moreover, Pérez et al., (2020) found that corporate image has significant
effects on the stock market value of firms. Similarly, Lusiana et al. (2021)
found that clear disclosure and corporate social responsibility (CSR)
significantly affect financial performance, impacting firm value. The concept
of corporate image is multifaceted and depends on the real company image, its
drivers, and customer evaluation (Spector, 1961). To put it differently, Kumari,
(2019) explored that pessimistic disclosure in online social media can speedily
affect investment decisions. Luo et al. (2018) also recommended that firm’s
criticisms on social networking platforms have significantly lowered its market
value. Hence, the next hypothesis of the study can be stated as:
H2: there is positive relationship between corporate image on social
media and investment decisions in the Nepali stock market.
Content on Social Media and Investment Decisions
According to Jiao et al. (2020), there is a significant positive correlation
between social media reporting, return instability, and trade motion. Similarly,
in a study in Amman financial market, it was found that investors'
rationalization and investment decision-making were influenced by unique
media applications and forms represented by particular media (Ali et al., 2021).
Relationship between Social Media and Investment Decisions: Khadka and Chapagain | 103
Furthermore, Andrej Cwynar et al. (2019) revealed the authentic worth of
social media content in terms of its capability to update financial market
professionals but the professionals are detached from the information content
of social media as they do not regard it as credible or easily convertible into
money. Online social media has an important role in exchanging information
with a wide-ranging people, especially individual or retail investors Li et al.
(2020). According to Shantha Gowri (2019), the decision-making capability of
investors is determined by the degree of information dissemination,
information content, and information power, as well as by specific interior
elements and common external influences on investors that are present at that
particular situation.. Considering the conceptual underpinnings and observable
evidence outlined above, thus, it is hypothesized that:
H3: There is a positive relationship between content on social media and
investment decisions in the Nepali stock market.
Overall Aspects of Social Media and Investment Decisions
The popularity of social media platforms would spread information and
social media platforms would serve as essential communication channels for
investors when making decisions (Rudin, 2019). In this connection, a study by
Haque et al. (2022) has revealed that a person's intent to utilize online social
networking sites has a significant impact on the stock market investment
decisions. Platforms like social media assist both individual and institutional
investors for better understanding of market sentiment (Baker, 2017). Hence, it
is hypothesized that:
H4: There is a positive relationship between overall aspects of social
media and investment decisions in the Nepali stock market.
Based on the proposed hypotheses, a conceptual model can be developed for
examining the relationships between different aspects of social media and
investment decisions as shown in Figure 1.
104 | The Spectrum Vol. 1 No. 1 April 2023 ISSN 2990-7691
Figure 1
Conceptual framework for examining the relationships between different
aspects of social media and investment decisions
(Source: Ismail et al., 2018; Abu-Taleb & Nilsson, 2021)
Research Methodology
Population and Sample of the Study
The population of this study comprises the retail investors in the Nepali
stock market. The convenience sampling method was used to select the
respondents for the study. Because of too large population, the Z-score method
was used to calculate the appropriate sample size as suggested by Naing
(2003). Accordingly, 384 retail investors (individual investors) were chosen as
a sample of the study.
Data Collection Instrument and Procedure
The structured questionnaires were designed corresponding to the
essence of the research questions raised with all questions in closed-ended
format. Items in the questionnaire were adapted from previous studies (Abu-
Taleb & Nilsson, 2021; Luong & Ha, 2011; Rani & Prerana, 2021). First, a
draft version of the questionnaire was distributed to some experts and industry
professionals to for feedback and suggestions if it needs further improvement
and correction. After the questionnaire was updated with necessary corrections,
finally the questionnaires were personally administered to the respondents
Online community behavior on
social media
Corporate image on social
media
Content on social media
Overall aspects of social media
Investment decisions
H1
H2
H3
H4
Relationship between Social Media and Investment Decisions: Khadka and Chapagain | 105
along with a cover letter that outlined the study objectives and promised the
confidentiality of respondents' information.
Study Variables
The study has two sets of variables: dependent variable: the investment
decisions; and, independent variables: the online community behavior on social
media, the corporate image on social media, content on social media, and
overall aspects of social. The study adapted the variables like online
community behavior on social media, the corporate image on social media, and
investment decisions from Abu-Taleb and Nilsson (2021) as well as Luong &
Ha (2011), and content on social media was taken from Rani and Prerana
(2021). The overall aspect of social media is the aggregation of above-
mentioned three different variables vis-à-vis social media.
Data Analysis Tools and Techniques
This study deploys descriptive statistics, such as mean, standard
deviation, and correlation, to portray the status and characteristics of online
community behavior, corporate image, content on social media, overall aspects
of social media, and investment decisions. Moreover, it employs standard
multiple regression analysis to examine the relationships between different
aspects of social media and investment decisions.
Validity and Reliability
According to (Neuman, 2006), validity suggests truthfulness whereas reliability
indicates consistency. Various measures have been taken to ensure the validity
of this study. The scale items were provided to experts to classify them into
different categories. Only the items with a minimum eighty percent agreement
were selected. Thus, content validity was established. Similarly, the items
were taken from the articles with tested scales that were published in reputed
journals. Similarly, the inter-item consistency reliabilities of constructs or
variables were confirmed through Cronbach’s Alpha coefficients as shown in
Table 1.
106 | The Spectrum Vol. 1 No. 1 April 2023 ISSN 2990-7691
Table 1
Reliability Statistics of Variables
Variables
Cronbach's Alpha
Online community behavior on social media
0.850
Corporate image on social media
0.862
Content on social media
Overall aspects of social media
0.850
0.892
Investment decisions
0.830
Table 1 shows that each construct's Cronbach's Alpha value ranged
from 0.830 to 0.892. Since the values of Cronbach’s Alpha are higher than 0.7,
the inter-item consistency reliability is adequate (Nunnally 1978; Jum, 1967)
and less than 0.9, there is no problem of redundancy (Tavakol & Dennick,
2011).
Results
Table 2 mainly demonstrates the correlations among study variables, which
reveal the strength (weak or strong) and direction (positive or negative) of the
linear relationship (Pallant, 2005). Likewise, the table also portrays the means
and standard deviations of the study variables that describe the basic features of
data in the study.
Table 2
Correlation Coefficients, Means, and Standard Deviations of Study Variables
Variables
1
2
3
4
5
1. SM- Online community behavior
1
2. SM- Corporate image
.609**
1
3. SM- Content
.632**
.646**
1
4. SM- Overall
.855**
.877**
.870**
1
5. Investment decisions
.674**
.680**
.720**
.796**
1
Mean
3.572
3.328
3.658
3.2244
3.381
Standard deviation
1.0768
1.1376
1.0756
1.2244
1.1247
As shown in Table 2, significant positive correlations were found among all
study variables. However, the association of variables measured by correlation
Relationship between Social Media and Investment Decisions: Khadka and Chapagain | 107
coefficients does not indicate the effect of a particular variable on the other
(Mishra & Suar, 2010). Therefore, to examine the effects of online community
behavior on social media, the corporate image on social media, content on
social media, and overall aspects of social media on investment decisions,
standard multiple regression analyses were used.
Table 3
Standard Multiple Regression Analysis Examining the Relationship between
Social Media and Investment Decisions
DV
IV
B
SEB
ß
R2
F
p-
value
Investment
decisions
SM- Online
community
behaviour
.239
.044
.245
.455
318.811
.000
SM- Corporate
image
.221
.039
.253
.462
327.811
.000
SM-Content
.340
.045
.346
.518
411.315
.000
SM-Overall
.864
.36
.796
.634
168.049
.000
Where, DV stands for dependent variable, IV for independent variable, ß for
standardized beta, R2 for coefficient of determination, and F for F-test
statistic. N= 384; *p < 0.05; **p < 0.01; ***p < 0.001
Table 3 shows that online community behavior on social media, corporate
image on social media, content on social media, and overall aspects of social
media have positive relationships with investment decisions in the Nepali stock
market. Therefore, the results support all four hypotheses identified for the
study. It is inferred that the different aspects of social media influence
investment decisions of retail investors in the Nepali stock market. However,
the results revealed that the online community behavior, corporate image,
content, and overall aspects of social media bring variations in investment
decisions by only 45.5%, 46.2%, 51.8%, and 63.4% respectively.
Discussion
Though a lot of studies on social media and investment decisions tend
to points out a positive relationship, this connection has not been fully
108 | The Spectrum Vol. 1 No. 1 April 2023 ISSN 2990-7691
established. This study found that all the aspects of social media have positive
relationships with investment decisions in the context of the Nepali stock
market. This finding conceded with a number of past researches (Jain &
Mirman, 1999; Java et al., 2007; Fang & Peress, 2009; Bollen et al., 2011; Lee
et al., 2015). For instance, studies conducted among 200 Swedish investors
(Abu-Taleb & Nilsson, 2021), 120 Indian retail investors (Rani & Prerana,
2021), and 100 Malaysian investors (Ismail et al., 2018) showed significant
positive relationships between social media and investment decisions. Lee et al.
(2015) observed that there is a positive relationship between online community
behavior on social media and investment decisions. Likewise, Devi and
Bhaskaran (2015) discovered a strong association between the online
community's behavior on Twitter and investment decisions. Similarly, Forbes
and Forbes (2013) investigated that online community behavior has the
strongest impact among three variables. However, Ngai et al. (2015) argue that
it is critical for a recognition of the communal element to encourage user
involvement in cooperative behavior on online social media platforms.
Similarly, Luo et al. (2010) found a significantly positive relationship
between corporate image on social media and investment decisions. In a
similar vein, Schniederjans et al. (2013) reveal that optimistic online social
media posts affect the investor’s confidence and positive investment decision.
Abu-Taleb and Nilsson (2021) discovered a significant positive correlation
between company social media presence and portfolio allocation. Similarly,
Wu et al. (2017) found social media data has a large but fading impact on the
volatility on the next day. It may be attributed to the fact that capital market
experts are also affected by social media (Andrzej Cwynar et al., 2017).
According to the studies by Java et al. (2007) and Bollen et al. (2011), social
media greatly aid in the spread of information about capital market and
companies’ future prospects. Investors are thus urged to use online social
media to look for information in order to take advantage of these opportunities
and make better investment decisions (Jain & Mirman, 1999).
However, this study defies some other studies (Tetlock, 2015; Ma &
McGroarty, 2017; Kumari, 2019; Rani & Prerana, 2021; Wu et al., 2017). For
example, studies conducted in the USA (Tetlock, 2015), India (Kumari, 2019),
and China (Wu et al., 2017) found negative relationship between social media
Relationship between Social Media and Investment Decisions: Khadka and Chapagain | 109
and investment decisions. However, the variation in the result must have been
caused due to the differences in the nature of the study, differences in the rate
of financial literacy among investors, differences in methodologies and
statistical techniques used, development of stock market, and the differences in
socio-cultural and political-economic environment of the countries. Likewise,
some scholars argue that social media are not reliable as they may manipulate
or conceal important information and may deceive particularly immature retail
investors (Kumari, 2019). In a similar vein, a study by Tetlock (2015) found
that despite having a vast amount of information and knowledge, the
investment decisions based on social media did not yield adequate returns on
investors’ investments. It is also noteworthy to state that some other variables
such as quality of information, CSR news, corporate disclosure, and corporate
post on social media as well as control variables such as age, gender,
education, income-level of investors, and socio-economic situation of the
country may also exert influence on investment decisions.
Conclusion
The analysis of findings demonstrates that online community behavior,
corporate image on social media, content on social media, and overall aspects
of social media have significant positive relationships with investment
decisions. Thus, it can be inferred that investors in the Nepali stock market,
along with technical or fundamental analysis, should also consider different
aspects of social media while making investment decisions. However, it is the
responsibility of investors to recognize the truthfulness of information obtained
through social media platforms before making investment decisions. Besides,
investors can limit risks using proven risk management techniques such as
portfolio diversification, devising entry & exit criteria, and adhering to the past
successful investment or trading strategies (Murphy, 2022).
This study few significant implications for specific groups of people.
First, the findings of this study may facilitate the investment decisions of
particularly the retail investors. Second, corporate managers may also consider
floating their corporate social responsibility, financial performance and other
important information on social media platforms and increase the firm’s value
by attracting potential investors. Third, policymakers and regulators may
110 | The Spectrum Vol. 1 No. 1 April 2023 ISSN 2990-7691
develop a web portal for investor education since heavy reliance on social
media can be misleading for investors, particularly the immature retail
investors. Since this study has used a close-ended questionnaire for data
collection, future studies can use a mixed method by collecting data from both
structured questionnaires and semi-structured interviews.
Disclosure Statement
The author of this article has no conflict of interest to declare.
Funding
I have received no funding for this article.
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