Factors influencing the post-adoption consequences of online securities trading in Singapore s retail investors

Transcription

1 Southern Cross University Theses 2009 Factors influencing the post-adoption consequences of online securities trading in Singapore s retail investors Anthony Yeong Southern Cross University Publication details Yeong, A 2009, 'Factors influencing the post-adoption consequences of online securities trading in Singapore s retail investors', DBA thesis, Southern Cross University, Lismore, NSW. Copyright A Yeong 2009 epublications@scu is an electronic repository administered by Southern Cross University Library. Its goal is to capture and preserve the intellectual output of Southern Cross University authors and researchers, and to increase visibility and impact through open access to researchers around the world. For further information please contact epubs@scu.edu.au.

2 GRADUATE COLLEGE OF MANAGEMENT Factors Influencing the Post-Adoption Consequences of Online Securities Trading in Singapore s Retail Investors Anthony Yeong Higher Diploma (Staffordshire University, UK, 1991) MBA (Southern Cross University, Australia, 1998) THESIS Submitted to The Graduate College of Management, Southern Cross University Australia In partial fulfilment of the requirement for the degree of DOCTOR OF BUSINESS ADMINISTRATION August 2009

3 STATEMENT OF ORIGINAL AUTHORSHIP I certify that the substance of the research thesis has not been submitted for any degree and is not currently being submitted to any other degree. I also certify that to the best of my knowledge any help received in preparing this thesis, and all sources used have been acknowledged in this thesis. Signed: (Anthony Yeong) Date: August i -

4 ACKNOWLEDGEMENTS The completion of this Doctor of Business Administration dissertation would not have been possible without the support, advice and encouragement from a number of people. First and foremost, I would like to express my deepest appreciation to my supervisor, Dr Chris McDowell, the Graduate College of Management, Southern Cross University. His prompt advice and assistance has encouraged me to carry through to the completion of this research study. He has always shown a keen interest and patience in my research study. Secondly, my heartfelt thanks also go to Dr Margo Poole who provided me with excellent guidance and advice in SPSS and data analysis. Thirdly, I am thankful to Adjunct Professor Dr. C.S. Teo who has introduced me to this doctoral program. He has been a great mentor for the past many years and has provided much advice and support especially during the early stage of this research study. In addition, I am especially grateful to Sue White and Susan Riordan for their administrative support. Their genuine support and patience were greatly appreciated. Last, but not least, I would like to offer a special thanks to my beloved wife, Jacqueline and daughter, Amanda. They have been supportive and understanding during my long journey in completion of this program. Anthony Yeong - ii -

5 ABSTRACT This research aims to establish the important dimension of pre-adoption factors influence on the consequences, or post-adoption usage behaviour, of online securities trading by the retail investors in Singapore. While several studies have been conducted by researchers on the factors that lead people to adopt new innovations, few have actually explored the consequences of the innovations or post-adoption usage behaviour. Therefore, this research fills the gap in the diffusion and adoption studies. The researcher aimed to address the following three research issues in this study: RI1) What pre-adoption variables in the Diffusion of Innovations model affect the post-adoption usage behaviour of retail investors using online securities trading? RI2) Does Perceived usefulness affect the post-adoption usage behaviour of the retail investors using online securities trading? RI3) Will Consumer loyalty affect the post-adoption usage behaviour of retail investors using online securities trading? The parent discipline of this research is Consumer Behaviour which has been elaborated on in the literature review chapter. The immediate disciplines are Consequences of innovations from the Diffusion model; Perceived usefulness from the Technology Acceptance Model and Consumer loyalty. They have been discussed in the literature review chapter as well. Seven propositions have been derived from - iii -

6 the literature review and have subsequently formed the hypotheses of the research study. A positive paradigm has been selected for this research, and the data analysis undertaken used a quantitative method and an online survey questionnaire to gather research data from the retail investors using online securities trading in Singapore. There were 232 data elements collected from the online survey. The data were then further analysed by: using factor analysis by the Varimax rotation extraction method, conducting reliability testing using Cronbach Alpha testing, and testing of the theoretical model and hypotheses using multiple linear regression analysis. The findings concluded that not all of the variables in the pre-adoption factors of Roger s Diffusion model are influencing the post-adoption usage behaviour of the retail investors trading stock online. The pre-adoption variables tested to have significant influence on the post-adoption usage behaviour are: Compatibility, Complexity, Trailability and Observability. The Optional decision variable was found to have an influence on the post-adoption usage behaviour but not the variables Authority decision and Collective decision. Nature of social system and Change agent s promotion efforts are shown to have significant influence on post-adoption usage behaviour of the retail investors. Perceived usefulness and Consumer loyalty variables have also been tested and concluded to have an influence on post-adoption usage behaviour of the retail investors trading stock online. Finally, contributions to the knowledge, research limitations and areas for further research, especially in the Consequences of Innovations discipline, were discussed. - iv -

7 From the findings of this research study, a framework has been set for future researchers to investigate further the pre-adoption factors influence on the postadoption usage behaviour or consequences of innovations in other products and services. In addition, this study provides some useful findings and implications for the retail users, researchers, practitioners and brokerage firms in the area of online securities trading usage. - v -

8 TABLE OF CONTENTS Page Statement of Original Authorship Acknowledgements Abstract Table of Contents List of Figures List of Tables List of Charts i ii iii vi xii xiv xvi Contents Chapter 1 Introduction Introduction to Chapter One Background to the research Research problem, research issues and contributions Research problem Research issues Research contributions Justification for the research Limited research in consequences of innovations Importance of online securities trading Online survey method Potential usage of research findings vi -

9 1.5 Methodology Definitions Delimitations of scope and key assumptions Outline of the thesis Summary of the chapter...37 Chapter 2 Literature Review Introduction to Chapter Two Stock Exchange and Online Securities Trading Retail Stock Investors Consumer Behaviour History of Consumer Behaviour Process of Consumer Behaviour Consumer Behaviour and Decision Making Consumer Behaviour and Adoption Review of Diffusion Model Literature History of the Diffusion Model Adoption Theory Diffusion Theory Acceptance and Consequences of Innovations Consumer loyalty and Consequences of Innovations Theoretical Model The Variables Proposed Independent Variables Dependent Variable Linkages amongst the Variables vii -

10 2.5.5 Research Model Research Propositions Formulation Summary of the chapter Chapter 3 Methodology Introduction to Chapter Three Research Paradigms Positivism Critical Theory Constructivism Realism Justification of the selected research paradigm Research Methods Qualitative Research Quantitative Research Justification of the selected research method Limitation of the selected research method Survey Objects Theoretical Population Accessible Population Sampling Sampling Design Sampling Size Validity and Reliability Questionnaire Design Questionnaire Objective viii -

11 3.6.2 Questionnaire Types Independent Variables Dependent Variable and Components Mode of Survey Web Survey / Data Processing Procedures Descriptive statistics - Cross Tabulation Factor Analysis Regression Analysis Multiple Regression Data Processing Tools Ethical Considerations Summary of the chapter Chapter 4 Data Analysis Introduction to Chapter Four Data Profile Examination Data Summary Demographic Profiles Development of Constructs Reliability Analysis Factor Analysis Factor Analysis of Independent Variables Reliability Testing of Factors (Independent Variables) Factor Analysis for Dependent Variables Reliability Testing of Factor (Dependent Variable) ix -

12 4.5 Multiple Regression Analysis Multiple Regression Model Model Summary R Square ANOVA Table Model Parameters Hypotheses Testing Test of Hypothesis 1a Test of Hypothesis 1b Test of Hypothesis 2a Test of Hypothesis 2b Test of Hypothesis Three Test of Hypothesis Four Test of Hypothesis Five Test of Hypothesis Six Test of Hypothesis Seven Summary of Hypotheses Testing Summary of the chapter Chapter 5 Conclusions and implications Introduction to Chapter Five Restatement of the research problem and hypotheses Conclusion about the hypotheses and research problem Conclusion for hypothesis one Conclusion for hypothesis two Conclusion for hypothesis three Conclusion for hypothesis four x -

13 5.3.5 Conclusion for hypothesis five Conclusion for hypothesis six Conclusion for hypothesis seven Contributions to the body of knowledge Consequences of Innovations Technology Acceptance Model Consumer loyalty Managerial Implications Limitations of the research Scope limitation Geographical limitation Online questionnaire Recommendations for future research Other products Other geographical regions Other factors affecting post-adoption consequences Other post-adoption consequences Research conclusion Bibliography and References Appendix A Letter of ethic approval form Appendix B Letter of Introduction Appendix C Questionnaire Appendix D SPSS Outputs xi -

14 LIST OF FIGURES Figure 1-1 Overview of Chapter One...18 Figure 1-2 Online securities trading process...33 Figure 1-3 Outline of this thesis...36 Figure 2-1 Overview of Chapter Two...39 Figure 2-2 Traditional trading process flowchart...42 Figure 2-3 Online securities trading process flowchart...43 Figure 2-4 Bass's Model...57 Figure 2-5 AIDA Model...59 Figure 2-6 Hierarchy-of-Effects Model...61 Figure 2-7 Innovation-Decision Model...63 Figure 2-8 The diffusion process...66 Figure 2-9 POEMS demo...69 Figure 2-10 Variables determining the rate of adoption...71 Figure 2-11 Adopter categorisation on the basis of innovativeness...73 Figure 2-12 Technology Acceptance Model (TAM)...79 Figure 2-13 Framework of online consumer behaviour...83 Figure 2-14 Customer's intention to use and usage of electronic...85 Figure 2-15 Consumer loyalty and purchase behaviour...87 Figure 2-16 Independent variables and post-adoption usage behaviour...96 Figure 2-17 Conceptual theoretical model of post-adoption usage behaviour of online securities trading xii -

15 Figure 3-1 Overview of Chapter Three Figure 3-2 Theoretical model developed for this research Figure 4-1 Overview of Chapter Four Figure 4-2 Revised theoretical model Figure 5-1 Overview of Chapter Five xiii -

16 LIST OF TABLES Table 1-1 Number of trades online...20 Table 1-2 The seven research propositions...24 Table 2-1 Online stock trading in Asia...44 Table 2-2 Proposed independent variables for the research...90 Table 2-3 Seven research propositions...99 Table 3-1 Basic systems of alternative enquiry paradigms Table 3-2 Characteristics of quantitative and qualitative paradigms Table 3-3 Internet penetration rate and percentage of online trade Table 3-4 Securities trading members in Singapore Table 3-5 Securities trading members with online trading service Table 3-6 Literature based constructs, hypotheses and survey questions Table 3-7 Demographic factors and related questions Table 3-8 Post-adoption behaviour and related questions Table 3-9 Internet survey versus mail survey Table 3-10 Cross tabulation of age versus occupation Table 4-1 Correlation matrix for independent variables Table 4-2 KMO and Bartlett s Test for dependent variables Table 4-3 Communalities for independent variables Table 4-4 Total variance explained for independent variables Table 4-5 Rotated component matrix for independent variables Table 4-6 Reliability test of FS1-H xiv -

17 Table 4-7 Reliability test of FS2-H Table 4-8 Reliability test of FS3-H Table 4-9 Reliability test of FS4-H1a Table 4-10 Reliability test of FS5-H Table 4-11 Reliability test of FS6-H1b Table 4-12 Reliability test of FS7-H Table 4-13 Reliability test of FS8-H2a Table 4-14 Reliability test of FS9-H2b Table 4-15 Summary of extracted components Table 4-16 Correlation matrix for dependent variables Table 4-17 KMO and Bartlett s Test for dependent variables Table 4-18 Communalities for dependent variables Table 4-19 Total variance explained based on Eigenvalues Table 4-20 Initial component matrix Table 4-21 Reliability statistics Table 4-22 Model summary Table 4-23 ANOVA table Table 4-24 Coefficients table Table 4-25 Coefficients table (without constant) Table 4-26 Summary of the results of hypotheses testing Table 5-1 Summary of results from testing of hypotheses xv -

18 LIST OF CHARTS Chart 4-1 Age profiles of respondents Chart 4-2 Education profiles of respondents Chart 4-3 Occupation profiles of respondents Chart 4-4 Income profiles of respondents Chart 4-5 Martial status of respondents Chart 4-6 Gender profiles of respondents Chart 4-7 Scree Plot for independent variables Chart 4-8 Scree Plot for dependent variables xvi -

19 Chapter One Introduction Chapter 1 Introduction 1.1 Introduction to Chapter One The focus of this thesis is on exploring what underlying factors influence the postadoption usage behaviour of retail investors in Singapore after adopting online securities trading. The aim of the research is to contribute to the research and understanding of the consequences of innovations. The research is based on Rogers model of Diffusion of Innovations. There seems to be a lack of previous research conducted in the consequences of innovations or post-adoption usage behaviour specifically in the context of online securities trading usage. As illustrated in Figure 1.1, this first section of Chapter One provides an overview of the structure of the chapter. Section 2 covers the background to the research. Section 3 discusses the research problem and research issues in the consequences of innovations and online securities trading. Section 4 justifies this research study with the underlying potential contributions, and Section 5 summarises the research methodology. Section 6 contains a definition of terms. Section 7 covers the limitations and assumptions in this research. A summary of the overall structure of the thesis is to be found in Section 8, followed by a summary of the chapter in the final section

20 Chapter One Introduction Figure 1-1 Overview of Chapter One Source: developed for this research

21 Chapter One Introduction 1.2 Background to the research Grounded in Rogers Diffusion of Innovation Theory (Rogers 2003), and Davis Technology Acceptance Model (Davis, F. D. 1989) together with a consumer loyalty framework, this research develops an integrative model to study the pre-adoption influences on post-adoption usage behaviour of retail investors using online securities trading in Singapore. Electronic commerce and online technologies are considered to be the breakthrough innovations here, not only in information technology but also in the business world. Stockbroking firms have openly adopted information and communication technology, especially in online securities trading, to improve their competiveness and responsiveness to market conditions (Gharavi, Love & Cheng 2004). This competition and consequent challenges for the financial sector are a feature of the last decade. High-speed communication networks and Internet technology have created an opportunity for a new online trading platform that transforms the century-old brokerage industry. This new platform could be considered as one of the most successful innovative tools in the financial industry (Gharavi, Love & Cheng 2004) (DeForge 2001). Online securities trading has the highest usage in terms of online tools in comparison to other online products like online banking. In the simplest terms, online securities trading is the buying and selling of financial products like equities or mutual funds via the Internet. Online brokerage is provided by the security firm who provides the trading services using the Internet and web browser

22 Chapter One Introduction technologies as the transaction tools (DeForge 2001). According to a survey done by the Thailand Securities Institute, the percentage of online trading value by the retail investors is significant in most Asian countries (see Table 1.1). Table 1-1 Number of trades online % Online Trading Value of Retail Trading % Online Trading Korea Taiwan Singapore Hong Kong Thailand (2005) (2006) (2004) (2005) (2006) 60.9% N/A N/A 11.5% 11.97% 47.3% 31.7% 10% 3.7% 6.56% Value of Total Market % Online Investors N/A 26.27% N/A 31.8% 23.96% # Total Investors 3,537,000 38,079,336 2,500,000 1,631, ,585 Source: Adapted from Thailand Securities Institute (TSI 2006b) According to Parthasarathy and Bhattacherjee (1998), it is important to investigate the post-adoption behaviour of the users, especially in the context of online services (Parthasarathy & Bhattacherjee 1998). The factors influencing the post-adoption usage behaviours of the adopters will determine whether they continue to use the product or service (Parthasarathy & Bhattacherjee 1998). According to an investigation done by Glaser, retail investors tend to trade frequently using online securities trading as compared to retail investors who have not adopted the new innovations (Glaser 2003a). The above literature triggered the interest of this research, that is, to explore the preadoption factors influencing the post-adoption usage behaviour of online securities trading by the retail investors in Singapore. The theoretical foundation of the research is based on the Diffusion of Innovations model pioneered by Everett M Rogers

23 Chapter One Introduction (Rogers 2003) and the Technology Acceptance Model established by Davis (Davis, F. D. 1989). Consumer loyalty factors have also been introduced in the theoretical model in this research. Singapore Stock Exchange and Online Securities Trading This section describes the mechanism of the stock exchange and online securities trading that are the objects of study for this research. This is to facilitate understanding of the financial terminologies described in this research. Stock Exchange is defined as an organised financial market for buying and selling financial instruments, including stocks, options, and futures (MAS 2001). Most stock exchanges have specific locations where commissioned, or paid, intermediaries called brokers conduct trading - that is, buying and selling. Stocks are not always traded on a stock exchange. Some are traded over the counter, without a specific central trading location. Stocks are shares of ownership in companies. People who buy a company s stock are entitled to dividends, or shares of any profits. A company can list its stock on a stock exchange for trading. Stock brokers are the persons or firms that are registered with the stock exchange in which they are allowed to trade. Stock brokers earn commission from the customers who utilise their services to trade stock. Singapore Exchange is Asia-Pacific's first de-mutualised and integrated securities and derivatives exchange and was inaugurated on 1 December 1999, following the merger of two established and well-respected financial institutions - the Stock Exchange of Singapore (SES) and the Singapore International Monetary Exchange

24 Chapter One Introduction (SIMEX). On 23 November 2000, SGX became the first exchange in the Asia-Pacific to be listed via a public offer and a private placement. The Straits Times Index is a component of benchmark indices of Singapore stock listed in the exchange. There are about thirty securities trading brokerage firms in Singapore and their primary role is to provide a mechanism for stock investors to purchase or sell stocks at the stock exchange. The brokers will charge a certain commission to the investors for the transaction service (Teo, Tan & Peck 2004). However, with advances in Internet technology, securities firms have gradually adopted online securities trading to cut down manpower resources and operation costs. Almost all the securities firms are now equipped with online securities trading capability. The traditional brokers have shifted their job function as purely a middleman to new roles like financial planner or financial advisor (Smart-Investor 2000). 1.3 Research problem, research issues and contributions Research problem The main objective of this research entitled Factors influencing the post-adoption consequences of online securities trading in Singapore s retail investors, is to study the underlying pre-adoption factors, perceived usefulness and consumer loyalty affecting the post-adoption usage behaviours of the online retail investors. This research will, therefore, explore the individual variables in the model and identify how a clear understanding of the interactions among these variables can contribute towards the knowledge of diffusion research, especially in the area of

25 Chapter One Introduction consequences of innovations. In this research context, the consequences of innovations are the post-adoption usage behaviours of the retail investors in Singapore. The research focuses on the study of factors influencing the post-adoption usage behaviours of the retails investors after adopting online securities trading. The theoretical model will be tested to answer the following research problem: Research issues To address the research problem, three groups of research issues are developed based on the literature review of past research studies. RI1) What pre-adoption variables in the Diffusion of Innovations model affect the post-adoption usage behaviour of retail investors using online securities trading? RI2) Does Perceived usefulness affect the post-adoption usage behaviour of retail investors using online securities trading? RI3) Will Consumer loyalty affect the post-adoption usage behaviour of retail investors using online securities trading? The research issues can be further elaborated in the form of seven research propositions as represented in Table 1.2. These were developed to identify the relationship of Rogers Diffusion attributes; Davis Perceived usefulness, and Consumer loyalty with the dependent variable; the post-adoption usage behaviour of the retail investors using online securities trading. Research propositions one to five cover the components of the Diffusion Model proposed by Rogers while proposition six addresses the relationship between

26 Chapter One Introduction Perceived usefulness and post-adoption usage behaviour. In addition, research proposition seven, based on Consumer loyalty, has been included in the research model. Table 1-2 The seven research propositions RP RP1 Research Propositions A relationship exists between the perceived attributes of innovations and post-adoption usage behaviour. RP2 A relationship exists between the type of innovation decision and post-adoption usage behaviour. RP3 A relationship exists between the communication channels and post-adoption usage behaviour. RP4 A relationship exists between the nature of the social system and post-adoption usage behaviour. RP5 A relationship exists between the change agent s promotion efforts and post-adoption usage behaviour. RP6 A relationship exists between perceived usefulness and postadoption usage behaviour. RP7 A relationship exists between consumer loyalty and post-adoption usage behaviour. Source: developed for this research These research propositions will be further justified and elaborated in Chapter Two, the literature review of this research study

27 Chapter One Introduction Research contributions There are four potential research contributions identified in this research study. Firstly, the research adds to the literature on consequences of innovations. As stated by Rogers, there is limited study by researchers in this area (Rogers 2003). Secondly, the research strengthens confirmation of the correlation between Perceived usefulness and post-adoption usage. Several researchers have conducted research exploring the influence of Perceived usefulness, a factor of the Technology Acceptance Model (Davis, F. D. 1989), on post-adoption usage behaviour (Naidoo & Leonard 2007) (Parthasarathy & Bhattacherjee 1998) (Kurnia & Chien 2003). Thirdly, the research examines the influence of Consumer loyalty factors (loyalty and confidence) and aims to confirm whether these affect the post-adoption usage behaviour and thus contribute knowledge to the Consumer loyalty study. A fourth contribution the research provides is a better understanding of the postadoption usage behaviour of retail investors who use online trading technology. This understanding is potentially useful to service providers and may have implications for other similar technology innovations. 1.4 Justification for the research Limited research in consequences of innovations This research will contribute to the body of knowledge in the area of Diffusion of Innovations and online securities trading. A diffusion model is the theoretical framework, and the study aims to identify the interrelationships between the pre

28 Chapter One Introduction adoption factors, or the diffusion attributes of innovations, and post-adoption usage behaviour of those who take up the innovation. From the literature review, it seems that there are limited diffusion researches in the field of online securities trading especially the consequences or post-adoption usage behaviours of the retail investors trading stock online. There are very few academic studies of online securities trading Importance of online securities trading It is important to investigate the post-adoption usage behaviour of online securities trading used by retail investors as it will contribute to an understanding by the financial industry as they introduce more advanced technologies in the future. The securities firms might make use of this framework to predict the post-adoption usage behaviour of retail investors. Thus, the brokerage firm would be able to formulate new a product development strategy and provide a chance to enhance the usage of online securities trading Online survey method This research makes use of an online questionnaire to collect information from the retail investors in Singapore. This approach of survey using an online questionnaire is limited in post-graduate research. The more common survey methods are mail questionnaire, face-to-face interview and case study. This research may be a reference to other researchers who would like to adopt an online survey method as an alternative survey method

29 Chapter One Introduction Potential usage of research findings The research findings describe the pre-adoption factors affecting the post-adoption usage behaviour of online securities trading by the retail investors. These are of practical use to the financial industry, especially the brokerage firms, in understanding the usage of online securities trading. In addition, the research findings can be a basis for other researchers who are keen to investigate the pre-adoption factors influence on post-adoption usage behaviour in other products and services. 1.5 Methodology A questionnaire was developed based on a theoretical model. This questionnaire was created and posted on a web server of a third party web hosting vendor. Retail investors trading stock online from the selected securities firms were invited to respond to the online survey. Participants were requested to fill in their answers online and the data was stored on the hosting server of the online questionnaire. The data was subsequently downloaded for further investigation and analysis. The online survey method was selected based on the assumption that this group of retail investors should be using Internet surfing frequently and would be comfortable in responding to the questions online since they are already trading stock online. Cross tabulation is used to examine and describe the profiles of the data collected. Data is further investigated and analysed using factor analysis and to filter out the valid and reliable construct variables. These are described in further detail in Chapter Four. Finally, the research used multiple linear regression analysis to examine the

30 Chapter One Introduction data against the hypotheses proposed by the theoretical model. All statistical analysis and output presentation is conducted using SPSS statistical package. 1.6 Definitions Key words and terminologies used in this research are defined below. Diffusion of Innovations Diffusion research focuses upon how new technologies and concepts spread throughout social systems (Rogers 2003). From its beginnings in sociology research in the early 1900s, Diffusion of Innovation studies have been conducted in disciplines as diverse as anthropology, education, and geography. Communication has become the second largest area of investigation (Rogers 2003). The Diffusion of Innovation Model has most recently become an important and frequency used analytical framework for studies that focus on information technologies, especially on computer and communication impacts on the society. Relative Advantage This attribute is the degree to which an innovation is perceived as better than the idea it supersedes. The relative advantage of an innovation, as perceived by members of a social system, is positively related to its rate of adoption (Rogers 2003). Compatibility This attribute is the degree to which an innovation is perceived as consistent with the existing values, past experiences, and needs of potential adopters. The perceived

31 Chapter One Introduction compatibility of an innovation is positively related to its rate of adoption (Rogers 2003). Complexity Complexity is the degree to which an innovation is perceived as relatively difficult to understand and to use. The perceived complexity of an innovation is negatively related to its rate of adoption. One of the obstacles of promoting online trading is the complexity in terms of technical implementation of the E-Commerce platform. It involves bandwidth issues, security issues, and software design issues etc. that hinder the adoption of this innovation. Trialability This is the degree to which an innovation may be experimented with on a limited basis. The perceived trialability of an innovation is positively related to its rate of adoption (Rogers 2003). Observability This attribute is the degree to which the results of an innovation are visible to others. The perceived observability of an innovation is positively related to its rate of adoption (Rogers 2003). Type of Innovation-Decisions Rogers (2003) stated that the innovation-decision process is the process through which an individual passes from gaining initial knowledge of an innovation, to

32 Chapter One Introduction forming an attitude toward the innovation, to making a decision to adopt or reject, to implementation of the new idea, and to confirmation of this decision (Rogers 2003, p.168). Rogers (2003) classifies three main types of innovation-decisions. These represent the various ways decisions are accepted by the individual to adopt an innovation (Rogers 2003). Optional innovation decisions, the choices made by individuals are independent of others; Collective innovation decisions, the choices are decided by consensus and then adopted by all in that consensus; Authority innovation decisions, the choices are made by a few with power and are then adopted by the whole (usually by some form of directive). Communication Channels Rogers (2003) defined communication as a process in which participants create and share information with one another in order to reach a mutual understanding (Rogers 2003, p.5). This communication occurs through channels between sources. Rogers (2003) states that a source is an individual or an institution that originates a message. A channel is the means by which a message gets from the source to the receiver (Rogers 2003, p.204). Rogers (2003) states that diffusion is a specific kind of

33 Chapter One Introduction communication and includes these communication elements: an innovation, two individuals or other units of adoption, and a communication channel. Mass media and interpersonal communication are two communication channels. Nature of Social Systems Rogers (2003) defined the social system as a set of interrelated units engaged in joint problem solving to accomplish a common goal (Rogers 2003, p.23). Rogers (2003) claimed that since diffusion of innovations takes place in the social system, it is influenced by the social structure of the social system. Change Agent s Promotion Effects As stated by Rogers (2003), a change agent is an individual who influences clients innovation-decisions in a direction deemed desirable by a change agency. The rate of adoption of innovations is influenced by the extent of change agents efforts in diffusing the innovation (Rogers 2003, p.400). Perceived Usefulness According to Davis (1989), perceived usefulness is defined as the probability of the user s belief that the adoption of the technology will enhance his performance in the organisational context (Davis, F. D. 1989). Consumer Loyalty Oliver (1999) defined consumer loyalty as a deeply held commitment to rebuy or repatronise a preferred product or service consistently in the future, causing

34 Chapter One Introduction repetitive same brand of same brand-set purchasing, despite situational influences and marketing efforts (Oliver 1999, p.34). Consequences of Innovations Rogers (2003) defined consequences of innovations as the changes that occur to an individual or to a social system as a result of the adoption or rejection of an innovation (Rogers 2003,p.470). In this research context, it is referring to the postadoption usage behaviour of the retail investors trading stock online. Online Securities Trading DeForge (2001) defined online securities trading as the technology of buying and selling stocks or securities over the Internet (DeForge 2001). It is also known as Internet trading, web trading or electronic trading. Online securities trading has significantly changed the financial service industry as the business operating model and commission of transactions have all been modified. Online securities trading has more than changed the mode of trading from personal communication with a broker to Internet based transactions. It has changed the behaviour of the retail investors in trading stocks and their decision processes relating to investment. The process of online securities trading is summarised in Figure 1.2 below

35 Chapter One Introduction Figure 1-2 Online securities trading process Retail Investor Online Securities Trading Platform Brokerage firm Stock Exchange Source: adapted from (DeForge 2001) 1.7 Delimitations of scope and key assumptions The scope of the research study is restricted to online securities trading and will not cover other online financial services like online banking or securities trading via mobile phone. The geographical scope is limited to Singapore. The environment does not cover online securities trading in other countries. The sampling population is the retail investors in Singapore and not other investors from different countries. The methodology limitation is that the survey was conducted online and there is difficulty to prove the validity of the participants. The validity of the responses was controlled by distributing the online questionnaire website via selected securities firms in Singapore and a selected newsgroup related to financial investment in Singapore. The major assumption of the research is that the participants who responded to the online questionnaire were willing to provide insight into their opinion of online

36 Chapter One Introduction securities trading. It was assumed that there would be sufficient participants for valid data analysis from the online questionnaire. It was assumed the retail investors have the requisite knowledge to go online to the survey website to participate in answering the questionnaire. 1.8 Outline of the thesis The outline of this thesis is based on Perry s structured approach to presenting theses (Perry 2002). It is structured into five chapters (see Figure 1.3). The study consists of five chapters and is completed with appendices and references. A brief summary of the chapters contents follows: Chapter One: Introduction This chapter is an introduction and overview of the research, covering the research problem, issues, contributions and justification. It briefly outlines the methodology, and states delimitations of scope and key assumptions of the study. Chapter Two: Literature Review Here the researcher provides an in-depth study of the background to the Diffusion of Innovations Model and online securities trading which are related to this study. It explores the research studies conducted within the domain of study. Hypotheses are justified and derived based on the research problem and issues identified in Chapter One and further explained in Chapter Two

37 Chapter One Introduction Chapter Three: Methodology Chapter Three explains the research methodology adopted. It includes the research approach, and the methods of data collection based on the research issues and hypotheses identified. The method to test the data validity and reliability is discussed. Finally, this chapter explains the processes used to test hypotheses. Chapter Four: Data Analysis In this chapter, details of data analysis are provided with results of statistical analysis. The statistical processes are explained and the statistical output is interpreted. The chapter concludes with a summary of findings and a revised theoretical model of the variables studied in the research. Chapter Five: Conclusion and Implications The last chapter summarises the research and its findings and provides a direction for future research. The limitation and implications of the research are presented. Appendices and References The ethics approval form, survey questionnaire, introduction letter to the securities brokerage firms and selected data analysis outputs from SPSS are attached. The bibliography and references for the research are listed in this section

38 Chapter One Introduction Figure 1-3 Outline of this thesis Source: developed for this research

39 Chapter One Introduction 1.9 Summary of the chapter Chapter One outlined the foundation and objectives for this research. It introduced the research problem, research issues, methodology and potential contributions to the body of knowledge. This research was justified and the significance of the study was pointed out. Overall thesis content was outlined and definitions were presented. The scope and limitation of the study were highlighted. Chapter One provides a holistic picture of the research before moving on to the literature review chapter that elaborates further on theoretical models and the formulation of research propositions which will form the hypotheses of this research study

40 Chapter Two: Literature Review Chapter 2 Literature Review 2.1 Introduction to Chapter Two In Chapter One, the scope of the research, questions to be explored and outline of the thesis were discussed. The research problem and research issues were introduced with potential contributions of the research and its significance. In this chapter, contemporary literature on consumer behaviour, innovation adoption and diffusion processes are reviewed. The research focuses on the adoption and diffusion process and consequential behaviours of individual investor users of online securities trading. Section 2.2 provides an introduction to online securities trading. This is followed by a discussion of consumer behaviour. There are many different areas of research within the broad consumer behaviour discipline. This study focuses on one aspect of consumer behaviour, namely, Diffusion of Innovations. Diffusion of Innovations is one of the major chapters found in many consumer behaviour books (Neal, Del & Haskins 2004; Wells & Presky 1996) (Schiffman et al. 2005) (Solomon 1999, p.281). The history of diffusion research and models of diffusion of innovations among consumers are reviewed in section 2.4. Consequences of Innovations, the final and arguably most important stage of Diffusion of Innovation, which is also the main focus of this study, is reviewed in this section. Section 2.5 is devoted to the development of a theoretical model for use in this study. The last section summarises the chapter

41 Chapter Two: Literature Review Figure 2-1 Overview of Chapter Two Source: developed for this research

42 Chapter Two: Literature Review 2.2 Stock Exchange and Online Securities Trading As outlined in Chapter One, this research is focused on online securities trading as an innovation taken up by retail investors, who are envisaged as consumers of the technology and services, and their consequential trading behaviours. This section describes the terminologies in the securities industry, and in particular the financial tools of online securities trading. a. Securities According to the Securities and Futures Act issued by the Monetary Authority of Singapore, the central bank, securities means stock issued or proposed by a government or a commercial corporation (MAS 2001). There are many other financial instruments like derivatives, options, unit trusts and contracts for difference that could be referred to as securities in general. However, most commonly, securities traded by retail investors are in the form of stock, which is a certificate representing ownership of one or more shares of a corporation s equity. (MAS 2001) b. Stock Exchange Stock exchange means an approved exchange in respect of the operation of its securities market (MAS 2001). The term stock exchange and securities exchange are used interchangeably. The stock exchange is a market which brings together people who want to buy or sell shares in a company

43 Chapter Two: Literature Review The laws of supply and demand determine the prices buyers and sellers settle on. The companies that use the service provided by the stock exchange to sell their shares are referred to as listed companies. The stock exchange provides a common platform for retail investors to buy or sell their stock of a listed company via a brokerage firm. The stock exchange also provides a market for a growing number of secondary products derived from shares like stock indexes, options and contracts for difference. c. The roles of the Stock Exchange The stock exchange is classified as an organised institution for the sale and purchase of shares where prices are determined by the forces of supply and demand in the market (Teweles & Bradley 1998). The market works more efficiently when an exchange allows for ready communication between many buyers and sellers of stocks offered by the companies. d. Stock broker A broker is an individual or institution that, acting as an agent, brings buyers and sellers together enabling them to enter into contracts to which the broker is not a principal. Brokers charge a commission for this service

44 Chapter Two: Literature Review e. Securities Trading Process The securities trading process involves four steps: (i) the trading order by the investor; (ii) the routing of this order for execution; (iii) the establishment of the price; and finally, (iv) the execution of the order. (Sharma, M. K. & Bingi 2000) In the traditional model of securities trading, the retail investor calls a broker of a brokerage firm by telephone. The broker receives the order and transfers it to the brokerage society. The society then routes the order again to the agent who will try to find the best offer for the execution of the order. This is elaborated in Figure 2.2 (Sharma, M. K. & Bingi 2000). Figure 2-2 Traditional trading process flowchart Source: (Sharma, M. K. & Bingi 2000) f. Online Securities Trading In conventional broking, retail investors usually make a phone call to their broker in a securities brokerage firm to place an order to buy or sell shares

45 Chapter Two: Literature Review In contrast, online securities trading is considered as a new innovation in the financial industry which allows retail investors to buy and sell securities via the Internet, using a browser to navigate the brokerage firm s website (DeForge 2001). The retail investor who owns a user account with the online securities trading provider will log in to the system via the Internet and place a trading order directly through his or her computer. The system will route the order to the stock exchange for matching, execution and settlement (Sharma, M. K. & Bingi 2000). The online securities trading flow is presented in Figure 2.3. The brokerage staff are not involved in the online securities trading process but in some cases they provide research and advisory services to the retail investors for additional fees. Figure 2-3 Online securities trading process flowchart Source: (Sharma, M. K. & Bingi 2000) Online securities trading is leading a revolution of the financial industry, utilising online technology to provide a more efficient and effective trading tool. Buying and selling stocks on the Internet is one huge success story in the stock-broking industry (Shankar 2002). The success of online securities trading can be supported by the survey conducted by Thailand Securities Institutes (see Table 2.1) on the online

46 Chapter Two: Literature Review securities trading in Asia (TSI 2006a). The percentage of online trading value out of retail trading in Korea is 60.9 percent. In Taiwan, the percentage of online trading value of the total market is 31.7 percent. The total value of stock trading done via online securities trading in Asia is substantial. Table 2-1 Online stock trading in Asia % Online Trading Value of Retail Trading % Online Trading Korea Taiwan Singapore Hong Kong Thailand (2005) (2006) (2004) (2005) (2006) 60.9% N/A N/A 11.5% 11.97% 47.3% 31.7% 10% 3.7% 6.56% Value of Total Market % Online Investors N/A 26.27% N/A 31.8% 23.96% # Total Investors 3,537,000 38,079,336 2,500,000 1,631, ,585 Source: (TSI 2006a) Following are the advantages and disadvantages of using online securities trading as compared to traditional broking: Cost Advantage: It is generally far cheaper for investors to trade stock online as compared to using a traditional service from a broker. For conventional broking, the brokerage firm needs to pay the brokers wages and have a physical location for the broker to operate from. When the same trade is done online, the transaction is handled by a computer system. Most brokerage firms reduce the price they charge for execution of trades done by investors online. Using the commission charges from Phillip Securities in Singapore as a reference, an investor pays 0.50 percent of the trade if the transaction is done by phone through a broker. However, the commission charge is only 0.28 percent of the trade if the investor trades online (POEMS 2008)