The Influence of Branding on Investment Decisions under Uncertainty: A Behavioral Finance Perspective on Investors in Renewable Energy Stocks

Reducing the dependence on fossil fuels and mitigating climate change are important policy objectives in the European Union and around the world. Accelerating the deployment of renewable energy resources is one way of contributing to those objectives. This requires substantial public and private investments. These investments are subject to considerable uncertainty for a number of reasons, including the volatile price of oil, ongoing tech-nology development and uncertainties related to public policies. Government support can be important to facili-tate the growth of renewable energy markets, but unclear objectives and stop-and-go policies have also been shown to have a negative influence on private investment (Mitchell et al. 2006). The fact that renewable energy technologies are often commercialized by relatively young firms adds another uncertainty to investors, which is a lack of information about historic financial performance. The level of uncertainty varies between different types of renewables. Compared to more established renewable energy types such as wind energy, which is cost-competitive with conventional sources of electricity in certain locations, solar photovoltaics is characterized by a lower technological maturity and therefore increased technology, market and policy risk. Nevertheless, photovol-taics is seen as one of the most promising renewable energy forms of the future. The growth rates for photovol-taics are estimated with 28% p.a. until 2010 and 30% p.a. from 2010 to 2020 (EREC, 2004). This considerable market growth has an enormous impact on the need for capital to finance R&D and production of photovoltaic technology. Despite the fact that investors increasingly look beyond conventional technologies and invest in renewable ener-gies, the role of the financial market with regard to the acceptance of renewable energy innovation is still an under-researched field (Wüstenhagen, Wolsink, & Bürer, 2007). Therefore, the main research questions of this project are as follows: - How do investors cope with the increased risk and future uncertainty associated with investments in re-newable energies in general and particularly in early stage technologies such as photovoltaics? - What measures or heuristics do investors use in such situations of high uncertainty? - What is the role of brands in investment decisions under uncertainty? - How can branding be used to decrease perceived risk in investment decisions related to low-maturity clean technology? We respond to these questions by applying findings from consumer behavior and branding research to invest-ment decisions in renewable energies. We take a behavioral finance perspective and investigate how brands influence the risk-return assessment and final investment choice of individual investors.