Influence of Environmental, Governance and Reputational Factors on the Performance of Delegated Investments: Exploring the Mediating Role of Overconfidence Bias and Investment Decisions in Pakistan

This study is envisioned to test the conditional impact of soft factors on the performance of investment professionals in Pakistan. Hence, we proposed a theoretical framework, contending that soft factors namely; corporate culture, corporate governance, potential of company's management, environment, reputation, trust, and social factors, create behavioral biases in investment decisions. These biases including investor sentiment, over confidence, over/under reaction, and herd behavior in turn affect decision-making, which as a result affects the performance of investment professionals. A sample size of 300 is applied for selecting individual professionals in Pakistan by judgmental sampling technique in order to record responses through a closed ended questionnaire based on a five degree Likert scale. However, 248 responses are short-listed out of the 265 responses collected based on their relevance to the study. These responses are analyzed through the use of multivariate techniques, by the use of SmartPLS4. The study discovered the significant mediating effects of investor biases and investment decisions on the performance of investment professionals in Pakistan. Full mediation (Baron & Kenny , 1986) of investor biases and investment decisions between the relationship of soft factors and the performance of investment professionals has been witnessed from the results of study, as per latent variable scores (LVS) of soft factors. The further analysis shows that if soft factors are combined with overconfidence bias then result in the positive influence over the long-term investment decisions and performance of the investment professionals in Pakistan. The results of the study contribute to the body of literature related to behavioral finance and provide valuable insights for long term investors while deciding to delegate their investments to investment professionals for maximizing returns. This might involve conducting thorough due diligence on professionals' track records, communication styles, and ability to manage behavioral biases.