Abstract

http://ssrn.com/abstract=1769213
 
 

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BP's Failure to Debias: Underscoring the Importance of Behavioral Corporate Finance


Hersh Shefrin


Santa Clara University - Leavey School of Business

Enrico Maria Cervellati


University of Bologna - Department of Management

March 29, 2011

SCU Leavey School of Business Research Paper No. 11-05

Abstract:     
This paper provides a behavioral analysis of BP, whose capital budgeting decisions in the last decade have resulted in a series of high profile accidents, including the worst environmental disaster in U.S. history. The analysis uses BP as a vehicle to discuss the application of business processes and psychological pitfalls to analyze corporate culture. The paper identifies weaknesses and vulnerabilities in BP’s culture, makes comparisons with the corporate financial practices at other firms, and offers suggestions about how BP can engage in debiasing. Notably, the paper also suggests that insufficient knowledge of behavioral decision making resulted in analysts, investors, and regulators attaching insufficient emphasis to the risks in BP’s operations. The paper calls for more attention to the psychological aspects of corporate behavior by analysts, regulators, corporate managers, and academics.

Number of Pages in PDF File: 55

Keywords: behavioral finance, debiasing, decision-making

JEL Classification: G00, G30

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Date posted: February 27, 2011 ; Last revised: August 26, 2011

Suggested Citation

Shefrin, Hersh and Cervellati, Enrico Maria, BP's Failure to Debias: Underscoring the Importance of Behavioral Corporate Finance (March 29, 2011). SCU Leavey School of Business Research Paper No. 11-05. Available at SSRN: http://ssrn.com/abstract=1769213 or http://dx.doi.org/10.2139/ssrn.1769213

Contact Information

Hersh Shefrin (Contact Author)
Santa Clara University - Leavey School of Business ( email )
Dept. of Finance
Santa Clara, CA 95053
United States
408-554-6893 (Phone)
408-554-4029 (Fax)
Enrico Maria Cervellati
University of Bologna - Department of Management ( email )
Via Capo di Lucca, 34
Bologna, 40126
Italy
0039(0)512098103 (Phone)
0039(0)51246411 (Fax)
HOME PAGE: http://www.sa.unibo.it
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