Does financial literacy affect investor's planned behavior as a moderator?

Abstract

PurposeIn an emerging economy like India, the contribution of Indians in the stock market is very low, despite having the highest percentage of savings. The research tries to look for the variables which influence the investor's intentions to invest in the Indian stock market, by considering the theory of planned behavior (TPB). Moreover, the study incorporates financial literacy (FL) in the model to examine its influence on investors’ investment intention and also examine the moderation effect of financial literacy.Design/methodology/approachData were collected using a structured questionnaire from a sample of 393 respondents by using the convenience sampling method which is followed by the snowball sampling technique. For testing the research hypotheses, SEM and PROCESS macro v3.0 for SPSS were taken into consideration.FindingsThe results explain that factors of TPB i.e. attitude (AT), subjective norms (SNs) and perceived behavioral control (PBC) are significantly associated with investment intentions (IIs). Furthermore, along with the original components of the TPB model, Financial Literacy (FL) was also incorporated in the model, which predicted the investors' intention better. The results also stated that FL has a positive impact on AT, PBC and II. Moreover, results reveal that FL moderates the association between AT, PBC and II.Research limitations/implicationsThe study describes that financial literacy can help in increasing the participation of investors in the stock market. Therefore, in this situation, the current research permits the Security Exchange Board of India (SEBI), governments and financial institutions (FIs) to plan and design seminars or courses, programs, to enhance FL among individuals and promote individuals in making well-organized and efficient investment decisions in stock markets that will in turn upsurge individual investors participation. The study contributes to the existing literature of investment behavior by incorporating FL as a moderator. Research avoids considering actual investment behavior. The study also neglects demographic and socio-psychological factors which are the major factor that affects an investment decision. Furthermore, the research has only considered the objective dimension of FL.Originality/valueThe current research tries to incorporate FL in TPB model. Moreover, tries to examine the moderation effect of FL. The research is one of its kind as the past research neglect to examine the moderation effect of FL in relationship between AT, PBC and investment intension to investment in stock market. The research helps to understand how FL encourages investors to invest in the Indian stock market.