The implications of Behavioral Finance on Corporate Finance Muh-Guei Shiau Associate Professor Department of Business Administration China Institute of Technology There are two ways to re-discuss the issues of Corporate Finance from the point of view in Behavioral Finance: 1) markets are rational but managers possess various kinds of behavior biases; 2) managers are rational and will explore every opportunity derived 1
by market behavioral biases. In addition, behavioral biases should also be considered when discussing high-tech venturing process, especially fund-raising in the early stage of a start-up. This research covers many issues in corporate finance which should consider behavior finance in, and provides a direction for further thinking to incorporate behavioral finance arguments into corporate finance theory. Keywords: Behavioral Finance, Corporate Finance, Venturing 2
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V ( x, p; y, q) = V ( y) + π ( p)[ V ( x) V ( y)] V (y) [ V ( x) V ( y)] 7
π ( 0) = 0 π ( 1) = 1 π ( rp) > rπ ( p) π ( p ) > p π ( p) + π (1 p) < 1 π ( pq) π ( pqr) logπ log p π ( p) π ( pr) (perceptual biases) (judgmental biases) (impression management) Bazerman (1998) 8
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