A Study On The Value Of Behavioral Finance Theory Based On Irrational Behavior

As an important area of financial management research,"rational man" hypothesis has always been premise of enterprise value and few scholars study the impact of irrational factors on enterprise value. For our GEM market, its short time establishment, small scale, immature market, not standardized Legal system are not only the non-effectiveness factors but also the irrational behavior of each participant severely affects the value of listed enterprises. Using the knowledge of Behavioral Finance Theory and Traditional financial theory principles to explore the impact of irrational factors on the value of companies listed on GEM has a very important significance on the transiting of our GEM from the speculative market to longer-term market and keeping its healthy, sustainable and effective development.Based on a systematic review of relevant literature and theoretical studies, this paper firstly proposes hypothesis on the question of irrational factors’impact on the enterprise value of listed companies, secondly designs a substitution variable, and thirdly empirically analysis the data in2011and2012, finally draw the conclusion. The conclusion is that irrationality is widespread in our GEM market and enterprise value is incorrectly estimated due to the irrational behavior of managers and investors. There is a significant negative correlation between irrational behavior of enterprise managers and enterprise value. Irrational behavior of enterprise managers will harm enterprise value through wrong decisions like investment, financing, dividends and acquisitions. There is a significant positive correlation between irrational behavior of investor and enterprise value. Our GME market is full of noisy traders and because of their limited knowledge, cognitive level and their more concern on short-term profit over long-term the share price is seriously deviated from enterprise value.The paper explores the impact of irrational factors on enterprise value of listed companies on GME market through the Behavioral Finance Theory and achieves the effective integration of traditional financial theory and behavioral finance theory. The paper also broadens the research perspective of enterprise value and provides reference for the assessment of enterprise value of listed companies in our GEM market. At last, the paper puts forward reasonable proposals on the irrational factors’ impact on enterprise value from the perspective of investors, managers and the third-party to maintain the sustainable development of our GME market.