BP's Failure to Debias: Underscoring the Importance of Behavioral Corporate Finance

Hersh Shefrin () and Enrico Maria Cervellati ()
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Hersh Shefrin: Department of Finance, Leavey School of Business, Santa Clara University, Santa Clara, California, USA
Enrico Maria Cervellati: Department of Management, University of Bologna, Italy;

Quarterly Journal of Finance (QJF), 2011, vol. 01, issue 01, 127-168

Abstract: This paper provides a behavioral analysis of BP, whose capital budgeting decisions in the last decade have resulted in a series of high-profile accidents, including the worst environmental disaster in US history. This analysis uses BP as a vehicle to discuss the application of business processes and psychological pitfalls to analyze corporate culture. The paper identifies weaknesses and vulnerabilities in BP's culture, makes comparisons with the corporate financial practices at other firms, and offers suggestions about how BP can engage in debiasing. Notably, the paper also suggests that insufficient knowledge of behavioral decision making resulted in analysts, investors, and regulators attaching insufficient emphasis to the risks in BP's operations. The paper calls for more attention to the psychological aspects of corporate behavior by analysts, regulators, corporate managers, and academics.

Keywords: Behavioral corporate finance; BP; corporate culture; debiasing; analysts; regulators; managers; processes; pitfalls (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S2010139211000043

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