The understandability of bond prospectuses : a qualitative study of Maltese individual investors

Abstract

Purpose: Despite the numerous bond issues made in recent years, little is known about the usefulness and relevance of a bond prospectus to retail investors. Primarily, for a bond prospectus to be relevant it must be understandable. Therefore, since no research has been carried out about the understandability of bond prospectuses to Maltese individual investors, the objective of this dissertation is to explore to what extent investors rely on such financial documents upon making an economic decision to invest in bonds. Design: This study involves the collection of primary data from individual investors, by means of two focus group sessions. Furthermore, interviews with officials from the MFSA were carried out as the research endeavour deemed best. Findings The study brings into light the main perceptions of local investors towards bond prospectuses. The qualitative data analysis of the focus group sessions demonstrated that retail investors consider reading and understanding a bond prospectus as a daunting task. Investors criticised various generic layout issues prospectuses contain, along with the technical terminologies used which are beyond public comprehension. Conclusion and Implication: The dissertation suggests a simplified version of the bond prospectus to be implemented, along with an educational campaign to reduce investment illiteracy.