Behavioral Corporate Finance: An Updated Survey

HANDBOOK OF THE ECONOMICS OF FINANCE, Vol. 2, George M. Constantinides, Milton Harris, and Rene M. Stulz, eds., Elsevier Press, 2012

106 Pages Posted: 15 Aug 2011  

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Jeffrey Wurgler

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: August 12, 2011

Abstract

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.

Keywords: Behavioral, Corporate Finance, Sentiment, Catering, Market Timing, Irrational, Bias, Overconfidence, Optimism, Signaling, Behavioral Signaling

JEL Classification: G14, G30, G31, G32, G34, G35

Suggested Citation

Baker, Malcolm P. and Wurgler, Jeffrey, Behavioral Corporate Finance: An Updated Survey (August 12, 2011). HANDBOOK OF THE ECONOMICS OF FINANCE, Vol. 2, George M. Constantinides, Milton Harris, and Rene M. Stulz, eds., Elsevier Press, 2012. Available at SSRN: https://ssrn.com/abstract=1909013 or http://dx.doi.org/10.2139/ssrn.1909013

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeffrey A. Wurgler (Contact Author)

NYU Stern School of Business ( email )

Stern School of Business
44 West 4th Street, Suite 9-190
New York, NY 10012-1126
United States
212-998-0367 (Phone)
212-995-4233 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~jwurgler/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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