55 Pages Posted: 27 Feb 2011 Last revised: 26 Aug 2011
Date Written: March 29, 2011
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.
Keywords: behavioral finance, debiasing, decision-making
JEL Classification: G00, G30
Suggested Citation: 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: https://ssrn.com/abstract=1769213 or http://dx.doi.org/10.2139/ssrn.1769213