Behavioral Corporate Finance: A Survey
Malcolm P. Baker
Harvard Business School; National Bureau of Economic Research (NBER)
Richard S. Ruback
Harvard Business School
NYU Stern School of Business; National Bureau of Economic Research (NBER)
September 29, 2005
Research in behavioral corporate finance takes two distinct approaches. The first emphasizes that investors are less than fully rational. It views managerial financing and investment decisions as rational responses to securities market mispricing. The second approach emphasizes that managers are less than fully rational. It studies the effect of nonstandard preferences and judgmental biases on managerial decisions. This survey reviews the theory, empirical challenges, and current evidence pertaining to each approach. Overall, the behavioral approaches help to explain a number of important financing and investment patterns. The survey closes with a list of open questions.
Number of Pages in PDF File: 64
Keywords: capital structure, IPO, SEO, dividend, investment, psychology, bias, optimism, overconfidence, heuristic
JEL Classification: G30, G31, G32, G34, G35working papers series
Date posted: October 20, 2004 ; Last revised: August 12, 2008
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.594 seconds