A Research On The Irrational Investment And Financing Behavior Of Small Enterprises

The small enterprises are playing a very important role of our national economicdevelopment and social stability. The investment behavior and financing behavior isimportant for small enterprises. There are more and more irrational investment behaviors andirrational financing behaviors among the small enterprises to be solved. Study abroad forirrational financial behavior has gradually matured, but our researches for irrational financialbehavior are on the initial stage. So far most of the researches for the irrational financialbehavior are in view of the perspective of investors and managers. Most of the listedenterprises had been researched. But research for small and medium enterprises are very fewstudied, especially for small enterprises. But small and medium enterprises are important inChina national economies; to solve these problems will create an enormous contribution tosmall enterprise’s survival and development.Firstly, according to the characteristics of small firms, I analyze the irrational financialbehavior from the perspective of managers in this article. Then, I point out the irrationalfinancial behavior of small enterprises in their investment and financing process. Insufficientinvestment and over-investment are two typical irrational behaviors of the small enterprises.There are two irrational behaviors in the small enterprises, the financing preference andover-financing. Then, combined with an analysis of behavioral finance, I analyze the reasonof the irrational investment and irrational financing in small enterprises, the aspect of thefirst analysis is based on overconfidence, and the second point of view is based on herdmentality. Using Cognitive Biases to explain the irrational judgment among the Incrementalcash flow, external competitive factors, sunk costs and so on. Finally, recommendations areproposed according the analysis of the various irrational behaviors.