Investors’ Perception towards Service Quality of Dematerialized (DEMAT) Account in Nepal

Concept: Dematerialization is the process by which physical share certificates of an investor are converted to an equivalent number of securities in electronic format. The converted securities are owned traded and utilized like physical securities. Purpose: Purpose is to analyze the investors’ perception towards service quality of DEMAT account in Nepal. Methodology Used: Descriptive and analytical research designs have been used for the study. Primary data through the questionnaires has been collected using convenience-sampling technique for the study to know the awareness, opinions, feelings and perceptions on Nepali Depository System. Questionnaires have been developed in five point Likert Scale and Cronbach’s alpha test has been conducted to test the reliability of the data. Findings: Majority of respondents are satisfied with the different features of DEMAT account and responsiveness dimension of service provider is more attractive than other dimension.


Background
Trading of stock through dematerialized (DEMAT) account is a new trading mechanism in Nepalese financial market. It has just been 5 years that the government has made it compulsory to transact securities through DEMAT. DEMAT is the foundation of concurrent changes in the capital market in Nepal.
In Nepal, DEMAT is a new concept for share market investors. The depository system was fully implemented on 17th August 2015 (The Kathmandu Post, 2015). An investor or a person having shares of various companies listed in Nepal Stock Exchange (NEPSE), are required to dematerialized their www.scholink.org/ojs/index.php/sssr Studies in Social Science Research Vol. 1, No. 2, 2020 27 Published by SCHOLINK INC. physical shares by opening a DEMAT account.
Dematerialization is the process by which physical share certificates of an investor are converted to an equivalent number of securities in electronic format. The converted securities are owned traded and utilized like physical securities. Trading and settlement, that is delivery and payment in dematerialized format, changed the functioning of the stock market. These changes have brought huge impact on the behavior of investors, stock exchanges, depository participants and custodians (Saravanakumar & Ganesan, 2017).
The capital market provides a means for issuers to raise capital from the investors. Capital market is a medium for mobilizing the finance out of the savings of the community and making it available to the users that is to the industry, trade, commerce for meeting their funds requirements.
In Nepal, comparatively lesser number of people were interested in investing into stock market because of complex paper works involved in trading in the market. However, our stock market has evolved over the years with the opening of more brokering offices, entry of mutual funds and credit rating agencies, increase in the number of merchant bankers, entry of production companies and increasing participation of investors in the primary market (Shrestha, 2016).
As the market grew larger, this lead to number of problems such as duplication of shares, fake shares, fake signatures, signature mismatches, difficulty in ownership transformation and as such. Physical certificate of stocks became the major reason for rising arbitration cases and investors disputes. The system of physical delivery of scrip posed many problems for the purchaser as well as the seller in the form of delayed settlements, long settlements process, high level of failed trade, high cost of transaction, bad deliveries and as such (K.C, 2017). Thus, to eliminate paper work and facilitate scrip less trading and electronic book entry of the trading of securities, it became necessary to replace the old system of transfer and settlement with the new and modern system of depositories.
While physical certificate management was a laborious and tedious part of portfolio management services in the past, the development of streamlining and digitization of share market operations into full fledged dematerialized trading, brings efficiency that makes portfolio management services more convenient and efficient (Shrestha, 2016).
The depository services regulation, 2067, eliminated paper based system and investors began to transact using DMAT account. Dematerialization is the process by which physical share certificates of an investor are converted to an equivalent number of securities in electronic format. The converted securities are owned traded and utilized like physical securities. Trading and settlement, that is delivery and payment in dematerialized format, changed the functioning of the stock market. These changes have brought huge impact on the behavior of investors, stock exchanges, depository participants and custodians (Saravanakumar & Ganesan, 2017 (Kumar, 2017).
In Nepal, dematerialization is a new concept for share market investors.

Purpose of the Study
The major objective of the study is to analyze the investors' perception towards service quality of DEMAT account in Nepal. However, the specific objectives of the study are: a. To assess investor's level of satisfaction towards service rendered by depository units of Nepal b. To examine the most important determinants of customer's satisfaction.
c. To analyze and evaluate the impact of service quality dimensions rendered by Depositary Participant's on customer satisfaction.

Hypothesis of the Study
The following hypothesis can be formulated for the study: H1: There is no significant difference between investor's satisfaction and reliability.
H2: There is no significant difference between investor's satisfaction and responsiveness.
H3: There is no significant difference between investor's satisfaction and assurance.
H4: There is no significant difference between investor's satisfaction and empathy.
H5: There is no significant difference between investor's satisfaction and tangibles.

Rationale of the Study
The concept of DEMAT account is very new in Nepalese Stock market. Even subsequent numbers of educated people are unaware about the account. Although government has made it compulsory to transact stocks through the account, people still have not completed the formalities regarding the same.
Many who have opened were still processing to dematerialize their shares. This research will help examine the satisfaction of customers of DEMAT account in Nepal. Research and study is needed to know about the current position of the services rendered by the DPs, so that necessary reforms can be made.
The result of this study will help to identify the expectations of the investors regarding the service quality of DPs and their satisfaction status. This will help the financial institutions of Nepal to improve their qualities and features of DEMAT services.

Limitations of the Study
The following are the limitations of the study: a.
The study examines limited service quality dimensions. It does not examine other service quality dimensions such as communications, understanding, courtesy, etc. b.
The results may not be universally applicable due to regional constraints as the study covers investors from Nepal, especially Kathmandu valley. c.
The study is based on the sample of investors. So, it is not free from sampling bias such as limitation of selecting sample size from the total population. d.
The study doesn't cover institutional investor.

Theoretical Framework
Five service quality dimensions i.e. Reliability, Responsiveness, Assurance, Empathy and Tangibles have been selected from the SERVEQUAL Model by which service quality can be measured. If those dimensions are positive to customers, the overall service quality can meet the satisfaction level of customers, if not customers will be dissatisfied with their current service. Reliability means that the company delivers on its promises about delivery, service, provision, problem resolutions and pricing.
Customers want to do business with companies that keep their promises, particularly about the service outcomes and core service attributes. Responsiveness dimension is concerned with customer's request, questions and complains promptly and attentively. Responsiveness of a firm depends upon time it takes to answer or deal with customer's problems. Assurance means to inspire, trust and confidence, which can be defined as employees' knowledge of courtesy and the ability of the firm and its employees to inspire trust and confidence.
Empathy means to provide caring individualized attention the firm provides its customers. Empathy is an additional plus to win the trust & confidence of the customers and at the same time increase the loyalty. Under tangibles, dimension customers derive their perception of service quality by comparing the tangible associated with these services provided. It is the appearance of the physical facilities, equipment, personnel and communication material.

Methodology Used
The descriptive and analytical research design have been used in the study. The dependent variable of the study is Investor's Satisfactions where as independent variable of the study are Reliability, Responsiveness, Assurance, Empathy and Tangibles.
The populations of the study were all those people having DEMAT account in Nepal. A sample of 384 DEMAT account holders in urban and semi urban areas are taken using convenience sampling technique for the study to know the awareness, opinions, feelings and perceptions on Nepali Depository System.
Simple close ended questionnaire has been used collect the information from the respondents. Each question is based on some specific scenario relating to stock market investing and equity investment decision making. These scenarios were very much similar to the situations faced by investors while investment decision making in stock market. Five Points Likert Scale has been used for the study, where "1"represent strongly disagree to "5" represent strongly agree. The collected data has been statistically analyzed using different statistical tools like frequency analysis, correlation analysis and regression analysis. Cronbach Alpha test has been used for the study, the result of Cronbach's Alpha test are valid and reliable.

Respondents' Profile Analysis
The respondents' profile analysis covers analysis in terms of gender, age, occupation, investment experience, frequency of trade and dematerialization of the shares owned.  Source: Opinion Survey.  Source: Opinion Survey.    Source: Opinion Survey.  Source: Opinion Survey.

Descriptive Analysis
The descriptive analysis of data collected through the questionnaires have been analyzed in terms of minimum and maximum value, mean value and standard deviation of each dependent and independent variable. Questions related to each determinant and their descriptive statistics are shown below:  Mean of all statements are above 3. Among five statements, the statement "Records are accurately maintained" has the highest mean 3.87 with standard deviation 0.87, while the statement, "Service is not delayed" has the lowest mean 3.45 with the standard deviation 1.05. Mean value of all the statements ranges from 3.45 to 3.87, which indicated that there is consistency in responses of the respondents on the specified Likert scale item. The average mean of all statements of Reliability is 3.69 with standard deviation of 0.88. It indicates that the average score is more than three which means reliability is perceived good and satisfactory.  participants. Mean of all statements are above 3. Among four statements, the statement "Information are made easily available to the customers" has the highest mean 4.12 with standard deviation 0.67, while the statement, "The employees are always willing to help customers" has the lowest mean 3.63 with the standard deviation 0.82. Mean value of all the statements ranges from 3.63 to 4.12, which indicated that there is consistency in responses of the respondents on the specified Likert scale item. The average mean of all statements of Responsiveness is 3.85 with standard deviation of 0.78. It indicates that the average score is more than three which means responsiveness is perceived good and satisfactory.  participants. Mean of all statements are above 3. Among four statements, the statement "Employees have knowledge to answer customer's inquires" has the highest mean 3.93 with standard deviation 0.82, while the statement, "The customers feel safe in their transactions with the depository" has the lowest mean 3.73 with the standard deviation 0.75. Mean value of all the statements ranges from 3.73 to 3.93, which indicated that there is consistency in responses of the respondents on the specified Likert scale item. The average mean of all statements of Assurance is 3.83 with standard deviation of 0.75. It indicates that the average score is more than three which means Assurance is perceived good and satisfactory.  indicates that the average score is more than three which means Empathy is perceived good and satisfactory.  Mean of all statements are above 3. Among three statements, the statement "The depository have updated equipment and services". has the highest mean 3.87 with standard deviation 0.75, while the statement, "The physical facilities of the depository are appealing" has the lowest mean 3.62 with the standard deviation 0.85. Mean value of all the statements ranges from 3.62 to 3.87, which indicated that there is consistency in responses of the respondents on the specified Likert scale item. The average mean of all statements of Tangibles is 3.77 with standard deviation of 0.81. It indicates that the average score is more than three which means Tangibles is perceived good and satisfactory.   indicates that the average score is more than three which means investor's satisfaction level is perceived good.

Ranking De-motivating Factors
The following table represents the ranking of demotivating factors to Investors.

Correlation Analysis
Pearson's Correlation analysis has been carried out to analyze the degree and direction of relationship among the variables. The correlation analysis between dependent and independent variables has been presented in the table below.  Table 15 shows the result of the Pearson's correlation coefficient between Investor's satisfaction and the independent variables shows that all the independent variables have positive and significant relationship with the dependent variable at 1 percent level of significance.
Assurance has the strongest positive association with investor's satisfaction (r = 0.533), followed by Responsiveness of depository unit (r = 0.471) and Reliability (r = 0.452). Tangibles (r = 0.412) and Empathy (r = 0.394) also has a positive association with investor's satisfaction toward services provided by depository units in Nepal.

Multiple Regression Analysis
The multiple regression analysis has been carried out to know the variability and significance of the variables taken under study, which has been presented in the tables below.  Every one unit increase in Assurance will increase 0.23 units of Investor's Satisfaction level, followed by Reliability (β= 0.17), Empathy (β= 0.13), Responsiveness (β= 0.13) and Tangibles (β= 0.07)

Hypothesis Testing
H1: Reliability has significant impact on investor's satisfaction. Results of the correlation coefficient and regression analysis shows that null hypothesis is rejected, which means reliability has significant impact on investor satisfaction.
H2: Responsiveness has significant impact on investor's satisfaction. Results of the correlation coefficient and regression analysis shows that null hypothesis is rejected, which means responsiveness has significant impact on investor satisfaction.
H3: Assurance has significant impact on investor's satisfaction. Results of the correlation coefficient and regression analysis shows that null hypothesis is rejected, which means assurance has significant impact on investor satisfaction.
H4: Empathy has significant impact on investor's satisfaction. Results of the correlation coefficient and regression analysis shows that null hypothesis is rejected, which means empathy has significant impact on investor satisfaction.
H5: Tangibles has significant impact on investor's satisfaction. Results of the correlation coefficient and regression analysis shows that null hypothesis is accepted, which means tangible doesn't have significant impact on investor satisfaction.

Major Findings
The major findings of the study are: a. Responsiveness dimension of service provider is more attractive than other dimension.
b. Majority of respondents are satisfied with the different features of DEMAT account.
c. Most of the respondents ranked "delay in dematerialization of shares" as the most important determinant of dissatisfaction followed by non-receipt of interest/bonus/dividend/rights.

Discussion
The findings of this study revel strong positive and significant relation between the combination of perceived service quality dimensions and investor satisfaction, implying that highly perceived reliability, responsiveness; empathy and assurance lead to higher investor satisfaction. However, tangibles dimension does not have significant impact in investors' satisfaction. The most important predictor of investor satisfaction in this study is assurance dimension.
The findings from this research are consistent with past results. The results are similar to results from various researches conducted by Patel (2012), Kaur (2013) and  and Ramakrishan and Malhotra (2012) regarding investors' satisfaction and perception towards service of depository participants and DEMAT account. They found that majority of investors were satisfied with service of DEMAT account. In comparative study, they are highly satisfied with safety, cost, IPO, rights and bonus, share deposit features of DEMAT account while least satisfied with trading mechanism settlement and periodic statement facility. Kaur and Jain (2012) used SERVQUAL model to determine the factors, which influence the investors' perception and satisfaction. They found that perceived service quality dimensions have significant impact on investor satisfaction. Felix (2017) also used SERVQUAL model to measure service quality and customer satisfaction in selected banks in Rwanda. He proved that reliability, responsiveness, assurance, empathy and tangibles have significant impact in customers' satisfaction. This study shows that all service quality dimensions, except tangibles dimension, have positive impact in investors' satisfaction.

Conclusion
This research has been carried out to determine customer's perception towards the service quality of DEMAT account in Nepal, to access investor's level of satisfaction towards service rendered by Depository units of Nepal, to measure reasons of customer's dissatisfaction in DP's service, to determine the impact of service quality dimensions rendered by DPs on customer satisfaction and to determine most important determinants of customer's satisfaction.
The study has followed descriptive research design, where SERVQUAL model, which includes five, attributes of service quality namely reliability, responsiveness, assurance, empathy and tangibles were examined independently for analyzing their effect in investors' satisfaction.
The findings of the study indicates that investors perceive that service of DEMAT account has quality and meet their expectations. Responsiveness dimension has of service provider is more attractive than other dimension.
Majority of respondents are satisfied with the different features of DEMAT account. Most of the respondents ranked "delay in dematerialization of shares" as the most important determinant of dissatisfaction.
The results of the estimated model indicate that most important predictor of investor satisfaction in this study is assurance dimension. The result revel strong positive and significant relationship between service quality dimensions and investor's satisfaction.
The most important predictor of investor satisfaction in this study is assurance dimension. Thus, the assurance involved politeness of service provider, knowledge and behavior of the service provider have the greatest impact on investor satisfaction.
Finally, from all the findings, we can conclude that investor's perception towards service quality of DEMAT account meet their expectations, they are satisfied with the different features of DEMAT.

Implications
The following practical implications of the study are: a.
Nepalese universities and management schools should include DEMAT account in their courses and curriculum in order to create awareness and to provide the knowledge regarding new share trading mechanism.
b. In Nepal, DPs must focus on simplification of online registration and online periodic statement or balance inquiry. Availability of information and promptness in service provision must always be on priority for the DPs. Similarly, DPs should further improve the trading settlement in DEMAT account to increase satisfaction level of the investors.
c. This study also found that tangibles is not so important to the investors. Thus, as long as DPs are able to provide investor convenient service, physical facilities could be of secondary importance.