CEO EMOTIONAL BIAS AND INVESTMENT DECISION BAYESIAN NETWORK METHOD

Download This Article

Abstract

This research examines the determinants of firms’ investment introducing a behavioral perspective that has received little attention in corporate finance literature. The following central hypothesis emerges from a set of recently developed theories: Investment decisions are influenced not only by their fundamentals but also depend on different factors. One factor is the biasness of any CEO to their investment, biasness depends on the cognition and emotions, because some leaders use them as heuristic for the investment decision instead of fundamentals. Keeping this in view, this paper shows how CEO emotional bias (optimism, loss aversion and overconfidence) effects the investment decisions. I will use Bayesian Network Method to examine this relation. Emotional bias has been measured by means of a questionnaire comprising several items. As for the selected sample, it has been composed of some100 Tunisian executives. Our results have revealed that the behavioral analysis of investment decision implies leader affected by behavioral biases (optimism, loss aversion, and overconfidence) adjusts its investment choices based on their ability to assess alternatives (optimism and overconfidence) and risk perception (loss aversion) to create of shareholder value and ensure its place at the head of the management team.

Keywords: Emotional Bias, Corporate Finance, Optimism, Overconfidence, Loss Aversion, Capital Investment Decision, Bayesian Network

How to cite this paper: Azouzi, M. A., & Jarboui, A. (2012). CEO emotional bias and investment decision Bayesian Network method. Corporate Ownership & Control, 9(2-2), 239-256. https://doi.org/10.22495/cocv9i2c2art1