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An Introduction To Behavioral Corporate Finance

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Author Info

  • Dedu Vasile

    ()
    (Academia de Studii Economice, Bucuresti, FABBV)

  • Turcan Ciprian Sebastian

    ()
    (Doctorand Academia de Studii Economice, FABBV Scoala doctorala)

  • Turcan Radu

    ()
    (Universitatea din Oradea, Facultatea de Stiinte Socio-Umane)

Abstract

The purpose of this paper is to reflect the behavioral aspects that govern corporations. The paper briefly presents some of the main pillars of behavioral corporate finance: management, closed – end funds puzzle, dividends and the importance of aggregate earnings releases. The first pillar consists in a brief presentation of the behavioral factors related to the management of corporations, such as the fact that independent directors are not that independent as they should be, they do not have the prerequisite expertise for assessing complex financial risks, the importance of ethics and having a corporate culture that nurtures doing the right thing above anything else and the fact that CEO’s decisions reflect in good part, their personal style rather than a set of criteria determined by the company. In the second part of the paper, it is treated the puzzle why would investors buy a closed-end fund at its IPO price, knowing that it is likely to fall to a discount, when they could buy instead an open-end fund that is guaranteed always to trade at par and some mentions about the way that dividend policy may be influenced by managers “catering” to the demands of investors and also the effects of aggregate earnings announcements over the market returns.

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Bibliographic Info

Article provided by University of Oradea, Faculty of Economics in its journal The Journal of the Faculty of Economics - Economic.

Volume (Year): 1 (2012)
Issue (Month): 2 (December)
Pages: 471-476

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Handle: RePEc:ora:journl:v:1:y:2012:i:2:p:471-476

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Postal: Universitatii str. 1, Office F209, 410087 Oradea, Bihor
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Web page: http://anale.steconomiceuoradea.ro/
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Related research

Keywords: Behavioral finance; conflicts of interests; corporate finance; managers; dividends; closed-end fund puzzle; aggregate earnings;

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References

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  1. David Hirshleifer & Sonya Seongyeon Lim & Siew Hong Teoh, 2009. "Driven to Distraction: Extraneous Events and Underreaction to Earnings News," Journal of Finance, American Finance Association, American Finance Association, vol. 64(5), pages 2289-2325, October.
  2. Nicholas Barberis & Richard Thaler, 2002. "A Survey of Behavioral Finance," NBER Working Papers 9222, National Bureau of Economic Research, Inc.
  3. Itzhak Ben-David & John R. Graham & Campbell R. Harvey, 2007. "Managerial Overconfidence and Corporate Policies," NBER Working Papers 13711, National Bureau of Economic Research, Inc.
  4. Kothari, S.P. & Lewellen, Jonathan & Warner, Jerold, 2003. "Stock Returns, Aggregate Earnings Surprises, And Behavioral Finance," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 4284-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Malcolm Baker & Jeffrey Wurgler, 2002. "Market Timing and Capital Structure," Journal of Finance, American Finance Association, American Finance Association, vol. 57(1), pages 1-32, 02.
  6. Malcolm Baker & Jeffrey Wurgler, 2003. "A Catering Theory of Dividends," NBER Working Papers 9542, National Bureau of Economic Research, Inc.
  7. Randall Morck, 2004. "Behavioral Finance in Corporate Governance - Independent Directors, Non-Executive Chairs, and the Importance of the Devil’s Advocate," NBER Working Papers 10644, National Bureau of Economic Research, Inc.
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