It has always been an intrinsic issue of economy: accused of being disconnected from individuals' reality, this science has been attacked for long times, by various researchers and experts, such as psychologists. And effectively, a plethora of arguments have been provided for integrating greater psychological realism in economics, in order to improve it. Over the years, searchers such as Danny Kahneman, Amos Tversky, Richard Thaler, and more recently Colin Camerer and George Loewenstein, have set in doubts some of the basis of mainstream economics, demonstrating it as psychologically unrealistic. This claim for greater psychological consideration and realism is now providing results and a new science has been defined, in order to combine properly those two fields. Called “Behavioral Economics” or ‘Economic Psychology”, this enhances the profound efforts which has been done to capture and integrate psychologically more realistic aspects of human nature into economic science. And moreover, this science of behavioral economics has also been introduced in the daily economy and in the micro level of organizations, through corporate models, for instance.
[...] We remind that the Corporate Governance Theory has been introduced to limit the Agency Costs created by interests' conflicts between (the more often) managers and shareholders. In order to limit those agency costs, the society has created some laws which have an impact on managers' behaviour. The main objective of those laws is to monitor managers' actions and choices. In 2002, the United-States voted the Sarbanes-Oxley law which reinforced the power and the obligation of boards of directors and which limited the power of managers by revising the remuneration model. [...]
[...] When psychological and behavioural research design the economical field A new Corporate Governance Theory The Behavioural Corporate Governance examines the effects of managers', monitors' and investors' behaviour on corporate performance and seeks to provide greater realism in understanding agent behaviour within a corporate governance setting. To study the new increasing incorporation and preponderance of this theory in the organizations' economical overview, we mainly based our analysis on the article published by the professor Charreaux from the Bourgogne University in France, untitled “Toward a behavioural corporate governance theory: an exploratory view cahier du Fargo, n°1050601, June 2005. [...]
[...] In the following table, we sum up the vision of Charreaux: Traditional corporate Behavioural corporate governance : law and governance finance theory Informal agency costs Cost agency and based on interest competences cost due to Cost conflicts between the behavioural bias managers and shareholders. Cost of disciplinary and encouragement mechanism We do not talk about Competences gain due to Gain gain but of reduction the behavioural bias of agency costs Disciplinary leverage. Cognitive and Reducing agency cost behavioural Role of and interests conflicts disciplinary leverage. [...]
[...] Other researcher, as Sheffrin (2001) distinguishes the bias and the behavioural cost in order to generate a Behavioural Corporate Governance framework. From this basis, Charreaux has simplified Sheffrin's work in two parts in order to explain the origins of the behavioural cost. The Internal Origin represents the cognitive and emotional bias of manager. The cognitive bias is a consequence of a mistaken reasoning, whereas emotional bias occurs when the emotions dominate the reasoning. The External Origin deals with errors coming from the analysts' behaviour. [...]
[...] Lazonick and O'Sullivan (1998) say that the Cognitive Corporate Governance encourages companies to adopt a learning organisation and limit the interaction conflicts between stakeholders. Unfortunately, all those works are theories; a strict application and a posterior study of the relevancy of Behavioural Corporate Governance theory must be established in order to formalize it. References Clark, J. M “Economics and Modern Psychology: Journal of Political Economy 26 1-30. Cordes, C Role of “Instincts” in the Development of Corporate Culture”. Journal of Economic Issues 747-764. [...]
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