Corporate Investment Decision under Irrationality——A Behavioral Corporate Finance Explanation of Inefficient Investment

Classical corporate finance theory is based on the completely rational participants and effective capital markets hypotheses,which assumes managers and investors to be rational decision-maker. However,more and more market anomalies and abnormal corporate finance behavior indicate that the participants' cognitive bias and market irrationality affect decision-making process and result directly, which is difficult to fall under traditional economic rationality category. In fact,irrationality exists universally in corporate managers group and market investors group, which could affect corporate financial strategies deeply,including financing, investment, dividend policy,annexing and merging. Behavioral corporate finance theory introduces psychical factors and irrationality of corporate managers and market investors into the study of corporate financial behavior,which could provide more practical and more persuasive explanation of inefficient investment behavior.