Emotions in the Financial Markets

Fairchild, Richard

doi:10.1002/9781118813454.ch19

Cited by 11 publications

(6 citation statements)

References 45 publications

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“…Likewise, we have focused only on those biases that we consider to be most relevant for understanding deviations from internalization theory's predictions. However, the body of literature on heuristics and biases is large, so other affective biases as well as their interactions (e.g., Livet, 2010;Fairchild, 2014) are likely to also have a significant influence.…”

Section: Discussionmentioning

confidence: 99%

Entry mode deviation: A behavioral approach to internalization theory

2019

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We explore when and why decision makers choose international entry modes (e.g., hierarchies or markets) that deviate from internalization theory's predictions. By applying a cognitive perspective on entry mode decision making, we propose that the performance of prior international activities influences decision makers' behavior in different ways than assumed in internalization theory. More specifically, due to a representativeness bias, underperforming (overperforming) past ventures influence the decision to change (continue using) the previous entry mode choice, which may result in an entry mode deviation. In addition, the propensity to deviate from theoretical predictions is stronger when the experience is recent and/or salient due to an availability bias. In conclusion, we argue that internalization theory can benefit from incorporating more systematically important behavioral assumptions on how firms enter international markets. In so doing, we contribute to the recent conversation on how variations in human behavior influence internalization theory.

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Section: Discussionmentioning

confidence: 99%

Entry mode deviation: A behavioral approach to internalization theory

2019

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“…In particular, we enrich the framework on the relationship between performance discrepancies in foreign countries and organizational changes by providing evidence on the moderating role of location‐specific anchor bias on the direct relationship between discrepancies and the organizational change considered. However, we have focused only on a single bias, while the literature on heuristics and biases is rich and provides suggestions for including various other affective biases (i.e., the representativeness and salience bias have been already shown to play a role in the companies' entry strategies, see, e.g., Elia et al, 2019) that are likely to have a significant influence on restructuring and relocation strategies (Fairchild, 2014; Livet, 2010).…”

Section: Discussionmentioning

confidence: 99%

Re‐Evaluating the Offshoring Decision: A Behavioural Approach to the Role of Performance Discrepancy

Elia

Goerzen

Piscitello

et al. 2022

J Management Studies

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Firms are in a continuous process of critically re‐evaluating their offshoring strategies due to performance discrepancies. While prior research has focused on the implementation of organizational responses to performance shortfalls, we examine the offline search process, a key antecedent of organizational change, during which firms simultaneously explore alternative solutions when facing either a positive or a negative discrepancy between performance and aspirations. We adopt the Behavioural Theory of the Firm (BTOF) to investigate how the search process is affected by the size and nature (as being positive or negative) of the discrepancy as well as how it is moderated by cognitive biases. By examining 441 offshoring initiatives, we study firms' search processes in a novel context that refers either to ‘local’ solutions that are close to the current activity (i.e., expansion in the same host country) or ‘distant’ solutions that are far from the current one (i.e., relocation to a third country or to the home country). Our results provide new insights into organizational search, namely that performance shortfalls lead to distant search unless this choice is moderated by a location‐specific anchor bias relating to the strategic importance of host location, while positive discrepancies trigger local search with decision‐makers more inclined to consider expansion in the current host country.

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“…Considering the emotions and financial markets, Fairchild (2014) argues that the latest research in the field of behavioral finance recognizes, in contrast to traditional finance which are based on a model of rational choice and on the assumption that market participants are fully rational which maximize the expected utility, that in reality investors and managers are not fully rational, for the reason that they are affected by psychological biases and influenced by emotions when making decisions.…”

Section: Literature Reviewmentioning

confidence: 99%

The impact of certain psychological factors of investors and managers on the capital structure

Babanić¹

2018

EurJ Appl Econ

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Abstract:Psychology represents the basic requirement for the emergence of disciplines such as behavioral finance and behavioral economics. It has contributed to a better understanding of the behavior of economic actors under conditions of risk arising from the imperfections of cognitive abilities of human beings. Consequently, it is necessary to change the economic models based on mathematical laws in favor of descriptive models that consider the cognitive abilities of the human mind. The most common decisions that are being studied in the field of behavioral finance are the decisions regarding capital structure in companies. The methodology in this paper is based on the net operating income approach. This approach is analyzing the financial section of income statement that refers to the financial expenses of the companies. Financial expenses are assumed to be fixed, determining financial break even, as a consequence of use of financial leverage. The main task of this paper is to determine the impact of some psychological factors in the terms of capital structure and financial leverage, through two case studies of comparative analysis of income statements of the companies Puma and Adidas that will consequently affect the achievement of financial breakevens well as the profitability of the companies. Therefore it is possible to conclude that some analyzed psychological aspects in the process of financial decision making of investors and managers can influence the capital structure decisions, which can be a subject of further researches.

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Emotions in the Financial Markets

Cited by 11 publications

References 45 publications

Entry mode deviation: A behavioral approach to internalization theory

Entry mode deviation: A behavioral approach to internalization theory

Re‐Evaluating the Offshoring Decision: A Behavioural Approach to the Role of Performance Discrepancy

The impact of certain psychological factors of investors and managers on the capital structure

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