A behavioural finance approach to working capital management. Issue 8 (14th July 2016)

• Record Type: Journal Article
• Authors: Ramiah, Vikash; Zhao, Yilang; Moosa, Imad; Graham, Michael
• Is Part Of: European journal of finance. Volume 22:Issue 8/9(2016)
• Page Start: 662
• Page End: 687
• Publication Date: 2016-07-14
• Subjects: loss aversion -- high confidence -- anchoring -- self-serving bias -- working capital management; Finance -- Periodicals; Finance -- Europe -- Periodicals; International finance -- Periodicals; 332.094
• DOI: 10.1080/1351847X.2014.883549
• Languages: English
• ISSNs: 1351-847X

Abstract

Abstract : This paper documents the behaviour of corporate treasurers who are involved in the decision-making process in the areas of cash, inventory, accounts receivable, accounts payable and risk management during the global financial crisis. Using a survey questionnaire, we attempt to find out if working capital managers are prone to certain heuristic-driven biases, such as loss aversion, high confidence level, anchoring and self-serving biases. Our findings show that these professionals exhibit signs of behavioural biases. Although the biases lead to sub-optimal decisions in certain areas of working capital management (WCM), they can also be desirable attributes in other aspects of WCM. We propose a profile of a good working capital manager.