Behavioral vs. Traditional Corporate Finance: An Unabashed Critical Review

41 Pages Posted: 11 Sep 2018

See all articles by James S. Ang

James S. Ang

Florida State University; Florida State University - College of Law

Date Written: August 29, 2018

Abstract

Research in behavioral corporate finance has accumulated to the point that it may now be a viable contender as an alternative to traditional corporate finance. This review consists of three parts. First, I discuss the foundations behind these two competing theories. I clarify concepts such as rational versus irrational behaviors of managers contrasted with those of the investors. Second, I make side by side comparisons and a critical examination of the two theories in the main topic areas of dividends, capital structure, and investments. Part three gives practical suggestions on how practitioners may use behavioral finance in their dealings as well as avoid known behavioral biases.

Keywords: Corporate finance, behavioral finance, dividends, capital structure, corporate investments.

JEL Classification: G3,G1,G02,K

Suggested Citation

Ang, James S., Behavioral vs. Traditional Corporate Finance: An Unabashed Critical Review (August 29, 2018). FSU College of Law, Public Law Research Paper No. 889; FSU College of Law, Law, Business & Economics Paper No. 18-6. Available at SSRN: https://ssrn.com/abstract=3240672 or http://dx.doi.org/10.2139/ssrn.3240672

James S. Ang (Contact Author)

Florida State University ( email )

College of Business
Tallahassee, FL 32306-1042
United States
904-644-8208 (Phone)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States

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