Behavioural Finance has a significant impact on corporate investment and decision in Nigeria. While traditional finance assumes rational decision-making, behavioural finance introduces psychological factors that influence investment choices, such as overconfidence, herding, and loss aversion. Using a structured questionnaire administered to 102 corporate executives across various sectors, the study applied descriptive statistics, correlation, and regression analysis to examine these biases.
However, findings reveal that all of these Three behavioural factors significantly affect investment decisions, with overconfidence being the most influential. And, this study emphasized that corporate managers are subject to psychological biases which, if unaddressed, may lead to poor capital allocation. More importantly, there is the need to include executive training on behavioural finance, implementation of structured decision frameworks, and behavioural audits to improve corporate financial performance.
Practically, traditional corporate finance theories have long relied on the principle of rationality, assuming that corporate managers act logically, utilize complete information, and always aim to maximize shareholder value through optimal investment decisions. According to this view, corporate investments are guided by objective criteria such as risk-adjusted returns, cost of capital, and profitability indices. However, a growing body of empirical evidence and real-world corporate outcomes challenges this notion. In practice, investment decisions are often not as rational or systematic as traditional theories suggest. Instead, they are shaped by a variety of psychological, emotional, and social factors that fall under the scope of behavioural finance.
This discrepancy between theory and practice raises a fundamental question: why do some firms make poor investment decisions despite access to analytical tools and financial models? The answer, increasingly supported by behavioural finance research, points to the role of human biases in financial decision-making. Corporate executives, like all individuals, are prone to cognitive distortions such as overconfidence, loss aversion, mental accounting, and herding behaviour. These biases may cause them to overestimate project returns, underestimate risks, follow industry trends blindly, or avoid potentially lucrative opportunities due to fear of failure. Such irrationalities can have severe consequences, including capital misallocation, financial losses, strategic failures, and in extreme cases, corporate collapse.
The implications of behavioural finance on corporate investment are particularly relevant in developing countries such as Nigeria. Nigeria’s corporate landscape is a blend of emerging businesses and established conglomerates, operating in a relatively volatile economic environment marked by fluctuating interest rates, currency instability, inconsistent government policies, and infrastructural challenges. In such an environment, behavioural influences may play a more significant role due to limited access to quality data, weaker corporate governance, and inadequate financial literacy among key decision-makers. Despite the critical importance of investment decision-making to corporate performance and economic development, relatively little attention has been given to the behavioural components of these decisions in the Nigerian context.
Thus, this argument is grounded in the recognition that corporate investment is not purely a rational process but one shaped by a complex web of behavioural tendencies. Understanding and addressing these tendencies is crucial for improving investment decisions, enhancing corporate value, and ensuring long-term sustainability. This research thus integrates behavioural finance theory with empirical investigation to examine corporate investment practices in Nigerian firms, offering both academic and practical contributions to finance.
