Behavioral Corporate Finance And Practice Of Capital Market

In mainstream finance, research in corporate behavior, just like that of normal investors, is based upon the hypothesis of complete rationality. Yet empirical study of behavioral finance demonstrates that market participants are not entirely rational, which may lead to pervasive behavioral bias in the financial market. Corporate behavioral bias has something to do with the nature and target of the company, investor's sentiment and manager's decision process. Researches in behavioral finance along with those in management decision behavior facilitate the spring-up and development of behavioral corporate finance, which focuses on financial decisions of listed companies under irrational circumstances of capital market. This paper will elaborate preliminarily on abnormal corporate financial decisions in terms of behavioral corporate finance and attempt to investigate whether sentiment of either investor or manager might have impact on such corporate financial decisions as investment, financing and dividend allocation etc. via various mechanisms and will render analysis on critical corporate investment and financial mode. Sound operation of listed companies and rational investment behavior of investors constitute a significant cornerstone to ensure stable and healthy growth of capital market. In view of the sluggish domestic capital market, the paper will attempt to expatiate from the perspective of behavioral corporate finance on different "unique" financial decisions of domestic listed companies in terms of the reality of China's stock market driven by irrational factors. Research on this burgeoning subject is of crucial theoretical and practical significance to the sound and orderly operation and long-term development of current domestic capital market and the study regarding behavioral bias of listed companies. The research will also be conducive to the adoption and implementation of effective regulatory measures by market watchdog, fostering rational sentiment among the public and enhancing capital allocation efficiency of the stock market.