Behavioral finance FAQ / Glossary (Corporate Behavior)

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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,
i: incidental

Behavioral biases
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?

Definition:

Behavioral corporate management (*) is the study of behaviors, rational or
         not (**), which are found:

In business and corporate organization and operations,

In executive decisions,

In corporate governance,

And so on, in relation with other cases 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 psychology of work /
         human resources.

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

and management.


Much has also been written on how isolated 

Amazonian, Indonesian or ...Parisian
tribes behave.


Many novelists, journalists, script writers and

ideologues earn their bread in corporation

bashing.

But even so, how
corporations
behave
is a still
underdeveloped
area of

Behavioral
Finance /

Behavioral
Economics

studies and...
... repairs.

 

The main aspects observed
          in corporate behavior

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 either conformity or innovation
/ initiative?

The balance between narrow economic motivations and

more general drives: ethics, job satisfaction, affect, power,
trophy...

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 conservative, self-centered and

   committed (see commitment) to  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 as well as 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 exuberant.


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 

of shareholders and other stakeholders

An overreliance on management objectives and norms (see 
   the related article)


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)

Related topics

Corporations are among the top dogs in the ecosystem.

How they behave is crucial for society.

In our world corporations are key players and behavioral corporate finance /
management is one of the main "nodes" among other economic and social
phenomena.

Obviously behavioral management is related to  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 / corporate governance.

It has some relation with entrepreneur psychology (see that phrase) at
   least in small businesses,

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 ess
       
pyramidal organisations, 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 BF group and, once there,
      1) click "messages", 2) enter your query in "search archives".

 Members of the BF Group, please
 vote on the glossary quality at BF polls

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This page last update: 23/08/15  

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