Firms’ Behavioral Psychology: From Perception to Actions

K. Azim Ozdemir

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

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.

Keywords: Firm behavior; Structural equation modeling; Central Bank of the Republic of Türkiye (CBRT); RESIM program; Latent variables; Monetary policy (search for similar items in EconPapers)
JEL-codes: C51 D9 E31 E32 E52 E71 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2603

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