Risk Tolerance and Investment Decisions among Credit Beneficiaries

Abstract

Risk attitude and risk perceptions are two crucial factors that could influence an individual's investment decisions. In developing countries like Pakistan, the whole society experiences different risks; however, financial risk is an essential factor affecting investors' decisions. This study used a dataset of 120 respondents collected through face-to-face interviews from two districts of Punjab province. A logit model is used to assess the impact of various socio-economic and behavioral factors on respondents' decisions to invest the borrowed money in enterprises. The findings revealed that investment in low-risk enterprises and diversification of income were the two main strategies adopted by the survey respondents. The results further revealed that health risk perception has positive while risk tolerance has a negative influence on the decision to invest in low-risk enterprises to mitigate the adverse consequences of risks. The findings also revealed that education and the adoption of diversification of income sources are positively correlated, while the perception of non-repayment and coefficient of location are negatively correlated with the adoption of diversification of income sources. Additionally, the study recommends that the Government should make sustainable and investor-friendly credit policies and educate the general public on how to use credit efficiently.