Psychology and financial management: Behavioral corporate finance

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Abstract

In this paper, we present behavioral corporate finance. Unlike the dominant theory of modern corporate finance, behavioral corporate finance allows situations in which investors are not entirely rational. Behavioral corporate finance also allows corporate financial managers to have nonstandard preferences, to make biased decisions, and even, occasionally to be irrational. All those irrationalities might have a significant impact on the corporate objective function, corporate financial and investment policy as well as to system of corporate governance.