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Behavioral Corporate Finance

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  • 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.

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  • Ulrike Malmendier, 2018. "Behavioral Corporate Finance," NBER Working Papers 25162, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25162
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    2. Blank, D. Brian & Hadley, Brandy, 2021. "When CEOs adapt: An investigation of manager experience, policy and performance following recessions," Journal of Corporate Finance, Elsevier, vol. 71(C).
    3. Hao, Liang & Rong, Wang & Haikun, Zhu, 2020. "Growing up under Mao and Deng : On the ideological determinants of corporate policies," BOFIT Discussion Papers 20/2020, Bank of Finland, Institute for Economies in Transition.
    4. Li, Delong & Lu, Lei & Mu, Congming & Yang, Jinqiang, 2019. "Biased beliefs, costly external finance, and firm behavior : A Unified theory," Research Discussion Papers 18/2019, Bank of Finland.
    5. Beshears, John & Kosowsky, Harry, 2020. "Nudging: Progress to date and future directions," Organizational Behavior and Human Decision Processes, Elsevier, vol. 161(S), pages 3-19.
    6. Xudong Fu & Janet Hamilton & Qin Lian & Tian Tang & Qiming Wang, 2021. "New institutional investors in the IPO secondary market: Sentiment or fundamentals?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(2), pages 299-341, June.

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    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G3 - Financial Economics - - Corporate Finance and Governance
    • G4 - Financial Economics - - Behavioral Finance

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