Behavioral Finance Essay

Document Type:Research Paper

Subject Area:Finance

Document 1

The senior managers, therefore, have to go with their gut instinct or previous experience in similar situations. Thus, most of these top managers being overly optimistic will tend to favor positive outcomes as the ultimate goal that goes against the prudence principle in Economics and accounting disciplines. Prudence Principle in the economics and accounting disciplines calls for the preparation of the worst-case scenarios to avoid significant financial negative impact on the organization (Heaton). Depending on the outcome of the research intended, it will enable other investors, recruiters and researchers determine if there is any correlation between positive optimism by the top-level managers and financial performance of a firm. Due to this fact, this situation warrants for research into determining whether these claims are valid. The other research question will be to determine whether only the optimism of the top-level manager is enough for increased performance in the economic and financial sense (Hmieleski and Baron).

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The method of analysis for the data will be to determine if there will be a statistically significant difference in the means of the over-optimistic managers before them being at the helm of the organization and after the implementation of their beliefs. The researcher will use a threshold score to determine whether a top-level manager is over-optimistic or not so that to enable the researcher to divide the observations into two groups. Work Cited Heaton, J. Managerial Optimism & Corporate Finance.

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