The purpose of this chapter is to focus and review again on the previous research which had done in this topic. With this chapter in the project, it can help the reader to get a clear picture or to have a better understand of this study. In this chapter, it consist of the statement and the result of prior researches which examine what affect the selection key criteria of a stock broking company. From the previous research, it is found that five independent variables of the selection key criteria of stock broking companies are affected by:
2.1 Selection Key Criteria of Stock Broking Companies
Selection key criteria can be define as how the individual consider the concept or a set of combination concepts in order to retrieve an answer or decisions which will be satisfied by the user (John, W and Sons, 1991). Usually an individual will assigned it based on the situation and seek for the situation which is more suitable for them. Beside that’s, selection decision will be normally made when individual looking for the thing matched with his preferences. (Bretz, Ash & Dreher, 1989; Turban & Keon,1993;Cable & Judge, 1994).Other than that, the individual would like to choose the preferences which would be more suitable for the individual personality (Bowen et al., 1991). On the other hands, stock broking companies services refer to type of service which provided by broker to play the role of buying and selling of a stock (Chan et al., 1991). According to Jamal and Nasel (2002), most of the customers have a higher expectation of the service quality. Therefore when there is a high expectation from the customer, the will form a gap of expectation (Mehrdad Alipour and Jalalsadeghisharif, 2010). Because of the expectation, it cause most of the customer need to make their selection due to certain factor. As a conclusion, in this research the selection key criteria of the stock broking companies will be tested with the demographic variable, branches and location, online trading services, purpose and type of investment and the last will be the services.
In the investment field, there are a lot of investor or can be known as the customer of the stock broking company. Most of the investor demographic backgrounds can be distinguish to make a comparison of the differences investor behaviors (Quester et al, 2007; Siles et al., 1994). Since there are a demographic factors, investor background can be divided into few categories where it is age, income, education, culture or nationality of a particular person (Au et al., 2001; Quester et al, 2007). According to (Mittal, 2001; Kamakura, 2001) the characteristics of a particular person can be contributes to a variety type of customer or investor due to the tolerance levels and the repurchase decisions or the use of services intention and behaviour.
Income would be the main factor of selecting a stock broking company. Customer who tends to be lower income would like to switch banks compare with the higher income customer (Colgate, 2001; Hedge, 2001). When the people who enter the white-collar groups, most of them had a higher incomes will be the one who switch to other banks and select other banks (Li,2008; China Daily,2007; Duthie, 2005) .The reason of this thing happen might cause by the cost or better services of other banks. The latest research show that income level of an investor or customer tend to spend in different level, the business quantity or how frequent the trading of the share and the number of workers were found in order for a investor to choose the branch (Hong Jae Weon,2010; Hong Won Eui,2010; Kwak Yoon Sik, 2010).
According to the Oxford English dictionary age can be defined as the person length of time that he or she has lived or something that has existed .The researcher of Colgate and Hedge (2001) had found that the younger generation of investor and customer who like to switch banks and it is one of the largest groups. It might be the main thing how the people would affecting the selection of stock broking company. More recent research according to the researcher of Clemes et al.(2007), he had proven that most of the younger customer or the investor were the majority group of switching the banks or the investment banks. With the hypothesis of Michael D.Clemes, Christoper Gan and Dongmei Zhang (2010), they had strengthens the point of previous researchers. They able to obtain the result of positive relationship between the younger age and the customer switching banks because of the services and the older age were negative relationships.
Oxford English Dictionary had stated that education was the teaching or training of people. Education can be one of the factors of affecting the selection stock broking company.Colgate and Hegde (2001) had mention that investor or customer who tend to be less-educated would be the customer who switch from one to another compare with the customers who more highly educated. There is a research which had done in US had proven that most of the people who highly educated would had a positively influenced of the usage of online banking (Kolodinsky et al, 2004). With this statements, the researchers had found that the online banking will be one of the main selection key criteria and will normally selected by the people in stock broking companies. Most of the people tends to be more high educated and it has cause the people who switch the investment banks more often (Li, 2008; China Daily, 2007; Duthie, 2005). It is because the education had made them become more informative and provide them an idea to select the better choice. If the investor had a strong education background, they might select the stock broking company which offered more analysis tools to the investors and how to interpret or choose the shares.
2.3 Branches and Location
Branches can be defined as principal interface between banks and their client from the main organization which delivering their services in order to execute their services (Oxford English Dictionary, 2004; Calcagnini, Riccardo and Hester (1999).
In U.S. commercial bank had increased up to 12 percent, to more than 90,000, with total offices exceeding the peak number after the year 1993(FDIC, 2004). There are few researchers argued about the issue of non-bank firms against the retail bank franchises. As Orlow, Radecki and Wenninger (1996) demonstrated, the retail financial services or trading services which offered through branches expansion will be more expensive channels compare with the non-bank firm or branches. But Spieker (2004) had argued that companies branches able to be operated more effectively, better market share and profitable distribution compared with the non-bank firm or branches.
Therefore due to the changes in the economic and demographic condition, there was possibility of the increasing number of branch. With the increasing number of branches, it might improves the performances of the investment bank when it is well operated which demanded by customer (Spieker, 2004). Since there is a change in demographic which had mention early in demographic factors, it had indirectly stated that the main thing that investor select of a stock broking company will be branches which available in Malaysia. Other than the branches factor, the location of the branch might imply that the scope and the larger branch network with more market share or number of potential investor (Dick, 2003). Since now the year of 2011, there are a lot of online vendor or online investor, but the branches and the location of the stock broking company is important.
In the year 2006, Gi-In Song had concluded that the branch profit will be make will be depend on the location and the branches in that region, Therefore, it will be the majority key selection of by an investor supported by (Gi- In Song, 2006) as they are more preferable on the services convenience, psychological trust affect the continuous commitment of the service. The companies with a smaller branch network, profit which able generate will be slightly lower compare with the larger branch network (Gi- In Song, 2006). Therefore, it shown that most of the people are willing to select the bank or investment bank with had a larger branch network (Berger et al, 2007).
Other than the stock broking company itself, the investor or the customer will be the key of the problem. Demographic factor such as income level of an investor or customer tend to spend in different level. The business quantity will be based on the number of workers in the companies and it will be more frequent of share trading due to the location matters (Hong Jae Weon, 2010; Hong Won Eui, 2010; Kwak Yoon Sik, 2010). It has indirectly interprets that if the branch available at the urban area will be more profitable compare with the branches with the rural area. As a result, it showed the location of head office is significant and positive (Sanjeong Nam, 2008; Paul N.Ellinger, (2008). As a result, the previous research able to prove that branches and location will be the investor key selection of a stock broking companies.
2.4 Online trading Services
According to Arwinder Singh(2010) online services means that a platform which can be communicate interactively and it was instantly with no distances limit to receive n information and conduct business from remote without human assistances.
According to the researcher previous studies (U.S. General Accounting Office, 2001, p.7) stated that in the year 1995 up to the year of 2000, there are over 19 million online brokerage accounts which had been open by the investor. There is a researchers had reemphasis on the online brokerage might be increase and exceeded one trillion dollars and it is means that the online trading investor had increase as well (Smith and Barney (2002).Therefore, it had proven that recent technological advancement has transformed the entire business marketplace (Burt and Sparks, 2003; Ong, H.B and Cheng, M.Y, 2007).
With the advancement of internet, the investors able to access to various kinds of information about the financing information such as real-time stock prices, and portfolio management. To prove the statement which had mentions earlier, the increasing number of trader was attracted toward the online investing is because of the advice and information given to the investor (Farrell, 1999). According to Wong, (2000), he had mentioned that trading through online system was executed and confirmed within a second of time. Nevertheless, investor can place their trade order directly, rather than through a broker. Indirectly it can give investors an exaggerated sense of control over the outcome of their trades (Brad, M.N and Terrance, O, 2001).
Due to this factor, the online trading service will be the main key selection of a stock broking company by an investor and potential investor. According to the researcher, the customer or investors tend to be younger and highly educated. He or she will be the one who considered the online trading systems (Stranahan, 2007; Kosiel, 2007). By using the online trading services, investor able to obtain more information, as well as providing their personals information through this technology such as Facebook for social interaction purposes (Hines, 2008).
In a recent study of reaction times describe that online trading services perceived efficiency, system reliability, customer service, and personal characteristics. Nowadays the online trading system had become so popular and a trend as able to provide efficiency (Arwinder Sign, 2010). In term of the branches and the online trading services, it is a substitute. According to the Italy research by Corrocher (2006), he had mention that the online-banking and physical presences (measured as branch intensity) can be used to replace each other or in the other which is substitutes.
Therefore, the interpretation is that less established of branches, the more efficient and cheaper way to access new clients through online trading as it is a major key selection of the investor in this technology era (Brad, M.N and Terrance, O, 2001). With this statement proven by this few researchers, it has indirectly mentions that the online brokerage will be the major selection services of stock broking companies. Beside that’s, there is a statement said that the broker able to use the technology such as online trading and the social networking application or website to enhance the broker relationships with the investor or customer (Y.C. Lee, G.G, 2010;Meredith, 2010; Marchant, 2010). There is a researcher proven the result that, the number of online trading had increase due to the relationship of buying and selling volume of shares. Arwinder Singh,Phd (2010) found that there was a research contributed a great significance between the demographic of the investor of online trading. As a result, due to the changes of investor demographic factors and the importance of online trading, the online trading services would be one of the criteria to be selected by the investors.
2.5 Purpose and The Type of Investment
According to Oxford dictionary, purpose can be defined as the need of a situation. On the other hand, stock brokers can be known as the securities remisiers in a stock broking company which play a fundamental role to execute the investor buying and selling of a stock and other type of investment due to the different type of broker (Chan et al., 1991). Beside the type of broker, there is a research stated that there is four type of investor where it was gamblers, experienced investors, service seekers and green horns. (Chan et al., 1991). Recently there was a research study about an individual investment purpose. (Jaffe, 1989; Erb and Harvey,2006; Hiller et al.,2006).
There was some investor who wants to invest and hedge funds through mutual fund and mutual fund execute by different broker because of the dynamic use of long and short position (Sharpe, 1992; Fung, 1997; Hsieh, 1997). According to the researcher, the investor choose to hedge funds was because of it has zero beta with respect to the conventional asset-class indices and diversified portfolio due to a systematic risk factor ( Fung and Hsieh, 2002,2003,2004). Other than the mutual funds investment, there is a commodities futures investment where it is execute by the future broker by the stock broking company and it is not necessarily available at the stock broking company.
According to the investor, the purpose of the investor to invest on the commodity futures been used to play a role of diversification opportunities and as well as hedge against the inflation of the economic (Bodie and Rosansky, 1980; Elton et al., 1987; Edwards and Park., 1996;Erb and Harvey, 2006). According to the researches, they had mentions that the commodities futures were significantly related to business conditions and able to counter the effects of the business cycles (Bessembinder and Chan., 1992; Bjornson and Carter, 1997).
More recently, there was another research had touch on the same document where the commodities futures was one of the investment vehicle of inflation hedging properties (Jensen et al., 2002; Gorton and Rouwenhorst., 2004). The argument had mention that during the inflation period, if the price of the commodity increase would slightly benefit to the long positions in the future while the security will suffer from the bearish market. It had proven again in the year of 2004 by K.Geert Rouwenhorst. He had proven that there will be a negative correlation between the commodity future with the stock and bonds. The stock and bond will react positively to the inflation and the commodity future hedges against the inflations. More recent research (Vrugt et al, (2004); Erb and Harvey, 2006) had concluded that using the commodities able to reduce with less than proportional return against some of the level of portfolio risk. Other than the mutual funds investment offered by the stock broking company or banks, there was other investment such as gold investment. Again different stock broking company offered different investment. There was a researcher prove that the purpose of gold investment was a hedging vehicle as well. In the year of 2003, there were two researchers Stock and Watson had studies and surveyed the people about the financial assets for future inflation. Both of them had stated that there were no recent research reports which mention the gold as a hedging vehicle.
But according to the researchers, they had argued that gold future or gold investment can be used as a diversification way and hedge against the inflation, political unrest and as well as currency risk (Ariovich, 1983; Aggarwal et al, 1992; Dooley et al, 1995; Ghosh et al, 2002; Capie et al, 2005). It is because the gold was totally different with commodities and gold was more durable, relatively transportable, universally acceptable and easily authenticated (A.C. Worthington, 2010; M.Pahlavani, 2010). But later on the researchers (A.C. Worthington and M.Pahlavani (2010) said that the gold investment only hedge small number of occasions such as 1875-1879, 1884-1889, 1892-1899,1974-1975, 1977-1991 and 2006 or in the term of short term period it was unable to hedge inflation. As Worthington and Pahlavani (2010) pass result, the inflation hedging quality was depends on the long-term relationship between the price of gold and inflation rate because it significant to the structural changes between the gold market and consumer prices. Therefore different investment purpose will be selected by different investor purpose and due to the different services or product offer by the stock broking companies, the investor got to choose in different way.
2.6 Services Quality
Services can be defined as an economic activity offered by one party to another at a specific time and places. Services was use to create a value or to give benefit to the customer. As a result, services offered by a company encourage them to bring a desired change in or on behalf of the recipient of the service (Cronin and Taylor, 1992).
Generally service quality was the gap between the customer or investor expectations and the perceptions of the service performance of a particular company (Tam, 2004; Parasuraman et al, 1994; Gronroos, 1988). It will be the main key selection of a potential or existing customer which had a direct and indirect impact. There will be an impact to user repeat their repurchase behavior or he or she might recommend the service to other peoples (Durvasula et al, 2004). According to researcher, he had mentions that the service quality was derived from the magnitude and divided into 5 different directions of gaps (Izah Mohd Tahir, 2007; Nor Mazlina Abu Bakar 2007). The 5 gap of the services quality were divided into understanding, service standards, service performance, communication and service quality.
In the earlier research by Duncan and Elliot (2002), the customers and financial performance in Australian bank and credit unions had shown a direct relationship between each other. Indirectly it had shown that when the services were good, it would attract more customers to use the service and recommend to other people. In the earlier year before the year of 2000, there is a positive relationships research between customer satisfaction and repurchase behaviour due to services offered by a particular company (Andreassen and Lindestad, 1998; Colgate et al, 1996; Fornell, 1992; Liljander and Strandvik, 1995; Srinivasan, 1996; Stauss and Neuhaus, 1997; Storbacka et al., 1994).Furthermore, there was another research had done a same research on the same topic. According to Arasli (2005), he had studied a case about the service quality perception of Greek Cypriot bank customers. The result which he had obtained had proven that there was a relationship. He able to show that service quality will be affecting each other between the customer satisfaction and through positive word of mouth. Nevertheless, he had realized that most of the customer expectation will not be satisfied when the gap of customer and company expectation gap was formed.
Therefore the researcher concluded that highest effect on customer satisfaction will make a positive impact to word of mouths between the customers and potential customers. Last but not least, Lim Widdows and Park (2006) had found that there was a direct and indirect effect of service quality between an economics value. An economic value and emotional value affect the customer loyalty intention. As a conclusion, service quality bring profit to the companies and the people choose a stock broking company through the services quality which able to offer to them.