Behavioral Corporate Finance: An Updated Survey
Malcolm P. Baker
Harvard Business School; National Bureau of Economic Research (NBER)
NYU Stern School of Business; National Bureau of Economic Research (NBER)
August 12, 2011
HANDBOOK OF THE ECONOMICS OF FINANCE, Vol. 2, George M. Constantinides, Milton Harris, and Rene M. Stulz, eds., Elsevier Press, 2012
We survey the theory and evidence of behavioral corporate finance, which generally takes one of two approaches. The market timing and catering approach views managerial financing and investment decisions as rational managerial responses to securities mispricing. The managerial biases approach studies the direct effects of managers’ biases and nonstandard preferences on their decisions. We review relevant psychology, economic theory and predictions, empirical challenges, empirical evidence, new directions such as behavioral signaling, and open questions.
Number of Pages in PDF File: 106
Keywords: Behavioral, Corporate Finance, Sentiment, Catering, Market Timing, Irrational, Bias, Overconfidence, Optimism, Signaling, Behavioral Signaling
JEL Classification: G14, G30, G31, G32, G34, G35
Date posted: August 15, 2011
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