Examining the Impact of Investors' Mental Accounting Behavioral Bias on Financial Policies in the Iranian Stock Market

Abstract

Among various behavioral biases, mental accounting is an economic concept introduced for the first time by Richard Thaler in 1985. One of the most significant consequences of this mental mechanism is that individuals assign different values to the same monetary unit. The aim of this research is to examine the impact of investors' mental accounting behavioral bias on financial policies in the Iranian stock market. The statistical population of the study includes 14 top investment companies and their investee companies, comprising a total of 109 companies during the period from 2014 to 2020. Panel data models and STATA software were used for data analysis. The results indicated that investors' mental accounting does not have a significant interactive effect on the relationship between growth opportunities and the growth of total fixed assets and long-term investments. Although mental accounting leads to loss aversion and a tendency toward the mean reversion of stock returns, resulting in decreased stock returns and consequently reducing companies' ability for new investments in the form of growth in total fixed assets and long-term investments, the negative impact of mental accounting is not strong enough to alter the relationship between growth opportunities and the fourth investment index. Therefore, the first hypothesis of the study, which posits that investors' mental accounting significantly impacts the relationship between growth opportunities and the growth of total fixed assets and long-term investments, was not confirmed. In general, adopting financial policies for profitable investments and appropriate financing plays a crucial role in the growth of companies.