Working Paper: NBER ID: w25162
Authors: Ulrike Malmendier
Abstract: Behavioral Corporate Finance provides new and testable explanations for long-standing corporate-finance puzzles by applying insights from psychology to the behavior of investors, managers, and third parties (e. g., analysts or bankers). This chapter gives an overview of the three leading streams of research and quantifies publication output and trends in the field. It emphasizes how Behavioral Corporate Finance has contributed to the broader field of Behavioral Economics. One contribution arises from the identification of biased behavior (also) in successful professionals, such as CEOs, entrepreneurs, or analysts. This evidence constitutes a significant departure from the prior focus on individual investors and consumers, where biases could be interpreted as `low ability,' and it implies much broader applicability and implications of behavioral biases. A related contribution is the emphasis on individual heterogeneity, i. e., the careful consideration of the type of biases that are plausible for which type of individual and situation.
Keywords: No keywords provided
JEL Codes: G02; G3; G4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Biased behavior of CEOs and managers (M12) | systematic deviations from rational decision-making (D91) |
| systematic deviations from rational decision-making (D91) | corporate outcomes (G38) |
| investor biases (G41) | managerial responses (M54) |
| managerial responses (M54) | corporate financing decisions (G32) |
| behavioral biases (D91) | corporate financing decisions (G32) |
| investor sentiment (G41) | corporate financing decisions (G32) |
| managerial biases (D91) | shareholder value (G34) |