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Firms’ Behavioral Psychology: From Perception to Actions

Author

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  • K. Azim Ozdemir

Abstract

Changes in firm executives’ perceptions of profitability may lead to business expansion or contraction. This study focuses on the antecedents and consequences of changes in profitability perceptions. First, conceptual constructs related to how firm executives perceive and interpret economic conditions are developed. Subsequently, the relationships among these constructs are modeled within the framework of Structural Equation Modeling. Using data from interviews conducted under the Economic Lens to the Real Sector (RESÝM) program carried out by the Central Bank of the Republic of Türkiye (CBRT), the results obtained from the estimated model can be summarized as follows: (1) During periods of high inflation, the fear of losing profitability becomes a dominant sentiment among firms and disrupt pricing behavior. (2) In periods of tight monetary policy, firms’ optimism regarding external demand more strongly motivates production activities. (3) When monetary policy is tight, employment intentions tend to be observed predominantly among firms that also exhibit strong investment intentions. (4) Even when monetary policy is supportive, firms may continue to perceive financial conditions as tight in certain periods.

Suggested Citation

  • K. Azim Ozdemir, 2026. "Firms’ Behavioral Psychology: From Perception to Actions," Working Papers 2603, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2603
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Research/Working+Paperss/2026/26-03
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    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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