Question

Technically, the required return of an investment can be determined by determining the investments risk profile. However, many intangible factors influence an investor’s decision to invest. Discuss the intangible factors that may come into play in the investment decision process.

Answer 1

Intangible factors are
1. Good Will: The brand value or brand good will is a notional value which increases the share value of firm . It should be factored in because such companies have very high P/E ratio yet they provide good returns to investors.
2. Ethics and Transparency: Companies which have high regard for ethics and perform all operations in a legal way while satisfying all stakeholders have huge potential for higher returns. While companies with profitability but facing legal issues and less transparency might provide less returns.
3. Management Performance and Corporate Governance: Good Management performance and corporate governance can provide a good signal to investors that the company is in good hand and will yield higher returns in future.

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