Behavioral Corporate Finance: An Updated Survey

Malcolm Baker, Jeffrey Wurgler

NBER Working Paper No. 17333
Issued in August 2011
NBER Program(s):   CF

We survey the theory and evidence of behavioral corporate finance, which generally takes one of two approaches. The market timing and catering approach views managerial financing and investment decisions as rational managerial responses to securities mispricing. The managerial biases approach studies the direct effects of managers’ biases and nonstandard preferences on their decisions. We review relevant psychology, economic theory and predictions, empirical challenges, empirical evidence, new directions such as behavioral signaling, and open questions.

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Acknowledgments

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