Market discipline in the behavioral finance perspective: a case of Sharia mutual funds in Indonesia

Abstract

Purpose This study aims to determine antecedents of market discipline. A model was constructed by extending the theory of planned behavior (TPB) to explore the cognitive, psychological and social factors that influence the market discipline in the form of withdrawal behavior. Design/methodology/approach This study applied a quantitative approach by surveying 181 Indonesian retail investors in Sharia mutual funds, which were represented by civil servants. The samples were collected using the purposive sampling technique. This study used the partial least square–structural equation model to analyze the data. Findings The results revealed that the Islamic financial literacy, the attitudes toward withdrawal, the subjective norms and the perceived behavioral control had a positive significant effect on the withdrawal intention, whereas financial risk tolerance had an insignificant impact. Then, all the exogenous variables and intention to withdraw had a significant contribution in explaining market discipline. Contrary to the proposed hypothesis, the attitude toward withdrawal had a negative impact on market discipline. The structural model indicated that the TPB could be extended by adding some exogenous variables (i.e. Islamic financial literacy and financial risk tolerance) in determining the intention to withdraw and withdrawal behavior, which indicated the market discipline in Sharia mutual funds. Research limitations/implications This study was limited to individual investors who work as civil servants. This study did not accommodate different demographic factors such as age and gender, which influence fund withdrawal behavior. Practical implications The government must focus on the inclusion of market discipline in Sharia mutual funds’ regulation to encourage the risk management disclosure, specifically that related to Sharia compliance. Originality/value Previous studies applied a traditional finance theory to predict market discipline, but this study contributes to filling the theoretical gap by explaining the market discipline from a behavioral finance perspective that was found in Sharia mutual funds.

The nexus of financial literacy and depositor discipline in commercial banks

“…The regression weight of FB of 0.452 indicates that the direct contribution of FB on MD is about 45.2%. The result is consistent with Soma et al (2016) and Widyastuti et al (2022), who also find the positive effect of financial literacy on market discipline.…”

“…As a result, in this study, market discipline emphasized depositor withdrawal behavior, which reflects a lack of information disclosure that market participants could use to supervise banks' risk and capital profiles. Market discipline by depositors has been extensively studied from the finance behavioral perspective in the non-bank sector by Soma et al (2016) and Widyastuti et al (2022). The current study contributes to filling the theoretical gap by exploring market discipline as it applies in banking.…”

“…Only a few empirical investigations of market discipline have been conducted using the behavioral approach (i.e. Soma et al, 2016;Widyastuti et al, 2022). The current study contributes to the market discipline literature from an often overlooked perspective, providing empirical evidence on how financial literacy, measured by financial knowledge, financial skills, and financial behavior, enables depositors to exercise market discipline on banks.…”

“…Recent investigations reveal the effects of financial literacy on market discipline. As revealed by Widyastuti et al (2022), financial literacy influences withdrawal intentions and withdrawal behavior in Sharia mutual funds, indicating market discipline. Soma et al (2016) examine the presence of market discipline in non-banking financial institutions, finding that market discipline performance is affected by financial literacy.…”

Contemporary Research on Management and Business

“…The impact of perceived financial risk toward tourist satisfaction and visit intention Widyastuti et al (2021) underlined the significant and negative impact that perceived financial risk had toward individual's intention in purchasing certain products. Similarly, Dash (2020) also found that consumers' intention to visit certain places will increase when they perceive that there won't be any kinds of risks which might cause them financial loss from the transactions.…”