31
Corporate financial and strategic controlling is
more and more determined by supervisory regu-
lation standards as well as compliance and sus-
tainability requirements. International and natio-
nal German accounting standards and rules have
to face more complex and volatile markets. Audi-
ting, external and internal accounting are there-
fore influenced by corporate management strate-
gy and behaviour. This article discusses the out-
comes of modern behavioural finance onto cor-
porate controlling and accounting, discussing the
effects of asymmetrically biased preferences and
psychological factors onto processes, judge-
ment, decision making and state-of-the-art stan-
dards of corporate controlling and accounting.
Reasons for the Development of
Behavioural Finance Theory
Behavioural finance analyses the psychology of
markets and financial decision making in com-
plex decision situations with non linear biased
utility functions and preference models. These
biases are mostly related to the availability and
presentation of information. The traditional,
neo-classic theory is based onto the assump-
tions of the “Homo oeconomicus“, characte-
rized by perfect markets without restrictions,
rational behaviour and arbitrage opportunities.
In contrary, the new behavioural finance theory
is described by irrational, emotional behaviour
of investors, information asymmetry, the princi-
pal-agent relationship, market psychology, de-
cision making under uncertainty (volatility) and
the application of different types of individual
economic utility functions.
In practice, arbitrage opportunities are often li-
mited by transaction cost and legal restrictions
like short selling regulation as well as liquidity
and equity capital requirements. Stocks are of-
ten priced and valued based on expectations
under the estimation of future earnings and
cash flows and can not be deducted from the
Capital Asset Pricing Model (CAPM) of Sharpe
or the Portfolio Theory of Markowitz. These
facts lead to a steady and longer term appa-
rently undervaluation or overvaluation of stocks
and assets in relationship to peer groups and
market indices. Furthermore, the political envi-
ronment and changing interest rate structure
curves as well as exchange rates overlay pri-
cing and evaluation effects. As a consequence,
market inefficiencies continue to exist and can
not be correct in the near future. This effect is
described as “Noise Trader Risk“.
Behavioural Finance Theories
Key issue of modern behavioural finance theory
is the influence of psychological factors onto
investor’s decision making, leading to irrational
market situations. In the following we introduce
main theories.
Outcomes of Behavioural Finance onto
Controlling and Accounting
by Michael Pietrzak and Karl-Heinz Bächstädt
© tktyfy – www.stock.adobe.com
CM März / April 2019
