Doctoral Dissertations

Date of Award

8-1990

Degree Type

Dissertation

Degree Name

Doctor of Philosophy

Major

Business Administration

Major Professor

Alex Miller

Committee Members

Dudley Dewhirst, Pat Postma, Ernie Cadotte

Abstract

Data from 473 respondents were compiled; 214 of the respondents were informal investors. The purpose of the study was three-fold: (1) to link informal investment research to theory through testing a central assumption of finance - that of a wealth-maximizing investor; (2) to develop a theory-based typology of informal investors; and (3) to search for differentiating characteristics of the investor types which might suggest strategies for entrepreneurs seeking capital. The hypothesis of the study - that informal investors were not solely wealth maximizing, but were willing to give up financial return for various nonfinancial benefits - was strongly supported. In each of nine different hypothetical scenarios, investors in the aggregate were willing to give up some financial return. Factor analysis revealed two distinct nonfinancial factors, one normative and other-oriented, and a second which was affective and related to personal satisfaction. From a marketing perspective which suggested segmentation based on desired benefits, a K-means cluster analysis was used to construct a benefit-based typology. Three distinct types of investors emerged: one which was interested in primarily in financial benefits, one which was interested primarily in nonfinancial benefits, and a third which was interested in both. Post hoc tests for other distinguishing characteristics suggested labels for the investor types: Rational Economic, Risk-managing, and Responsive. The Rational Economic Investor sought the highest return, had the highest perceived risk and had the shortest holding period of the investor segments. This investor tended to specialize in an industry and to make larger investments. The Risk-managing Investor had the lowest level of risk, tended to diversify among industries, and was more likely to invest with a group. The Responsive Investor was more likely to be between 45-54, to invest in firms nearby, to have a longer holding period, and to be self-reliant in the investment process. Rational Economic Investors comprised 47% of the sample. Risk-managing were 31%, and Responsive Investors, 22%.

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