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Behavioral Biases in Firms' Growth Expectations

July 21, 2017
Maiko Koga*1
Haruko Kato*2


This paper provides evidence that firms exhibit behavioral biases in their growth expectations. Using firm-level survey data, we document that optimism and pessimism biases are generated by the business cycle, financial market conditions, and firm-specific factors including firms' past experiences. We also demonstrate that biases affect the real business decisions of firms. Firms' fixed investment and R&D spending are raised by optimism and hampered by pessimism. The above findings imply that behavioral biases generated by the firms can be an alternative mechanism on how macroeconomic and financial conditions affect their investment behavior in addition to the traditional optimization mechanism.

JEL Classification
D84, E03, E22

Behavioral bias, Expectation, Firm, Investment, Optimism bias, Pessimism bias, Survey data

  1. *1Research and Statistics Department, Bank of Japan
  2. *2Research and Statistics Department, Bank of Japan


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