1 Master of Business and management, Osaka University, Yamadaoka, Suita city, Japan.
2 Bachelor of Business Administration, China Three Gorges University, Yichang City, Hubei Province, China.
3 Bachelor of Business Administration (Major in Finance), Bangladesh University of Professionals, Dhaka, Bangladesh.
4 Officer at Department of Banking Inspection, Bangladesh Bank, Dhaka, Bangladesh.
Review Article
World Journal of Advanced Research and Reviews, 2019, 03(03), 081-086
Received on 08 October 2018; revised on 20 October 2019; accepted on 24 October 2019
Cognitive biases play a crucial role in shaping corporate financial decisions, particularly in the high-stakes arenas of mergers, acquisitions, and investments. This paper investigates the various cognitive biases that influence the decision-making processes of executives and boards, often leading to suboptimal financial outcomes. By conducting a comprehensive review of existing literature, performing detailed case studies, and employing robust data analysis techniques, this research aims to illuminate the intricate mechanisms through which cognitive biases operate within the realm of corporate finance. The study identifies key biases such as overconfidence, anchoring, confirmation bias, and loss aversion, examining how these psychological phenomena can distort judgment and lead to flawed decision-making. For instance, overconfidence may drive executives to pursue aggressive growth strategies without adequately assessing risks, while confirmation bias can result in the neglect of critical information that contradicts existing beliefs. Furthermore, the paper explores the broader implications of these biases on organizational performance and financial health, highlighting the potential for significant economic repercussions when biases go unchecked. By synthesizing insights from behavioral finance and organizational psychology, this research not only elucidates the impact of cognitive biases but also offers practical recommendations for mitigating their effects. Strategies such as fostering diverse decision-making teams, implementing structured decision-making frameworks, and enhancing awareness through training programs are proposed to help organizations navigate the complexities of corporate finance more effectively. Ultimately, this paper contributes to the understanding of how cognitive biases can shape financial decision-making in corporate settings and underscores the importance of adopting a more analytical and evidence-based approach to enhance decision quality and organizational outcomes.
Loss Aversion; Corporate Finance; Budget; Economics; Financial Risks
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Md Ashraful Alam, Md Sultanul Arefin Sourav, Tanvir Rahman Akash and Md Rakibuzzaman. Analyze how cognitive biases influence corporate financial decisions, such as mergers, acquisitions, and investments. World Journal of Advanced Research and Reviews, 2019, 3(3), 081-086. Article DOI: https://doi.org/10.30574/wjarr.2019.3.3.0076