Behavioural Finance and Organisations: A Review

Přehled oboru behaviorální finance a organizace

Petr Houdek and Petr Koblovský

Acta Oeconomica Pragensia, 2016, vol. 2016, issue 2, 33-45

Abstract: The article presents a short overview of heuristics and biases in managerial decision-making under risk and the consequences of such non-standard preferences for financial health of organisations. It is argued that, particularly in the case of inefficient ownership control or poor corporate governance, such bounded rationality manifestations can have a significant impact on a firm's performance. We also argue that in such cases risk preferences of individual managers can be more idiosyncratic. We illustrate that using the concepts of limited attention, reference-dependence decision-making and especially overconfidence (over-optimism). The relevance of such concepts is shown on a number of real data studies analysing investment policies of firms, their leverages, financing strategies and decisions on mergers and acquisitions. We also include recommendations targeted at minimising negative outcomes of bounded rationality at the managerial level in respect of financial health of firms. The final parts concern limits of the current empirical literature.

Keywords: heuristics; biases; behavioural finance; risk preferences; overconfidence; over-optimism; limited attention; availability heuristics; corporate governance (search for similar items in EconPapers)
JEL-codes: D23 D81 L20 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.18267/j.aop.527

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