Managerial psychology and corporate investment rationality: evidence from Tunisian listed firms

Abstract

In this paper, we present an original essay that aims to explore the effect of some psychological biases on corporate investment decision’s rationality. Departing from a sample of traded Tunisian firms and the annual reports of those firms, we construct proxies for the optimism, overconfidence and others behavioral biases.We find that these biases affect corporate investment rationality and our results are robust with numerous control variables attached to the firms and the CEOs characteristics. The paper contributes to the behavioral corporate finance literature since we investigate the effect of a pool of psychological biases that are still unexplored such as the disposition effect, loss aversion and the prospect theory bias on corporate investment rationality index.