Behavioral finance FAQ / Glossary (Corporate Behavior)
This is a separate page of the B section of the Glossary.
This page is a spin off of the behavioral article
Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
in finance / economics / management
This article has its own page
Behavioral corporate management
See also overreliance
on management objectives
What makes CEOs tick?
And how do corporations really navigate in uncharted waters?
Behavioral corporate management (*) is the study of behaviors, either rational
or irrational (**), which are found:
In business and corporate organization and operations,
In executive decisions,
In corporate governance,
And so on, in relation with other organizations that imply hierarchy and
administration (see below "related topics").
To sum it up, it tries to explore the little "work secrets" of the business and
its bosses (**), and to give them a few tips to avoid blunders.
(*) Also called corporate behavioral management / corporate behavioral
economics / corporate behavioral finance.
Yes, you can choose!
(**) The financial / economic "rationality" criterion is usually value maximizing,
albeit a narrow, and not easy to define, notion (see "value", "utility"...).
(***) And by extension its staff, here we have work / human resources psychology.
The need to understand what is going on in a corporation
After Amazonian tribes, corporations are the last frontier for ethnologists.
Much has been written on leadership,
decision making, organization
Much has also been written on how isolated
Amazonian, Indonesian or ...Parisian tribes
Many novelists, journalists, script writers and ideologues
earn their bread in corporation bashing.
But even so, how
behave is a still an
The main aspects observed
Looking for brain fingerprints on the executive desk.
This inquisitive field of research covers, among less blatant aspects,
the following psychological and sociological traits and issues:
Generally, the various styles of business-making,
governance and management.
The main formal or informal rules and practices of the business.
For example privileging conformity or innovation / initiative?
The balance between narrow economic motivations and more
general drives: ethics, job satisfaction, affect, power, glory...
The decision making process inside the firm and the repartition
of powers: empowerment, agency theory, groupthink...
The styles of internal and external communication / information.
Not to forget cultural traits specific to a corporation:
attitudes toward quality and service, development, risk taking...
It also tries to find what specific corporate behavioral biases can make
things go wrong and create havoc
The main corporate orientations involved
When companies get self-centered and committed
(see commitment) to their traditions, even when the related
activities and practices become obsolete (see status quo bias).
Or on the other hand when they over-diversify and
overextend their business in a wild binge.
This could show a lack of clear strategic vision and an overconfidence
in an organization that might be unable to manage what becomes a
"monster" in size and complexity.
In particular, the rationale behind some mergers and acquisitions is
sometimes doubtful (see "winner's curse").
Their attitudes to financial leveraging might be over-cautious or
Specific manager traits, which might be behind those corporate
biases, such as narcissism (see that word), or at least overconfidence.
Although this biased mental attitude might help to make bold and successful
decisions outside the trodden path, it might also bring behavioral excesses
that put the business in danger.
Some excessive remuneration practices of top executives,
notably in big corporations, at the detriment of shareholders and other
An overreliance on management objectives and norms (see the related
The overconfidence can also pollute the whole corporate culture
into conformity and arrogance,
It can be shared by the whole workforce and make the corporation blind to
new evolutions (conservatism) as well as to risks (by discarding safety rules).
The same thing can happen to public administrations (see public choice)
Corporations are among the top dogs in the ecosystem.
How they behave is crucial for society.
In our world in which corporations are key players, behavioral corporate finance /
management is one of the main "nodes" among other economic and social phenomena.
Obviously, it has relations with behavioral economics and behavioral
finance in general.
It can be considered as a part of the broader subject of administrative behavior.
It has also some similarities with the study of public choice and of public /
It has some relation with entrepreneur psychology (see that phrase) at least in
It tends to be quite different in well established large corporations that can have a
bias for conformity.
As for democracy in businesses, it certainly can progress, with a less pyramidal
organisation, but it is made difficult by the existence of multiple stakeholders, and
the legitimate primacy of the main sovereign : the customer who holds in its hand
the final business survival decision.
(*) To find those messages: reach that Behavioral-Finance group and, once there,
1) click "messages", 2) enter your query in "search archives".
Members of the Behavioral Finance Group, please vote
on the glossary quality at Behavioral-Finance/polls