Chapter | Handbook of the Economics of Finance | 2012

Behavioral Corporate Finance: A Current Survey

by Malcolm Baker and Jeffrey Wurgler

Abstract

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.

Keywords: Managerial Roles; Theory; Corporate Finance; Financial Management; Investment; Market Timing; Behavioral Finance; Prejudice and Bias; Economics; Forecasting and Prediction;

Citation:

Baker, Malcolm, and Jeffrey Wurgler. "Behavioral Corporate Finance: A Current Survey." In Handbook of the Economics of Finance. Vol. 2, edited by George M. Constantinides, Milton Harris, and Rene M. Stulz. Handbooks in Economics. New York, NY: Elsevier, 2012.