We apply cumulative prospect theory and hedonic framing to evaluate discount reverse convertibles (DRCs) and reverse convertible bonds (RCBs) as important examples of structured products from a boundedly rational investor’s point of view. While common expected utility theory would also conclude that DRCs and RCBs are of interest to investors with moderate return expectations and underestimated stock return volatility, that theory would overestimate the market success of DRCs and underestimate that of RCBs in comparison to a situation with bounded rationality. Hedonic framing and relatively low subjectively felt competence levels of investors are decisive for the demand for RCBs.

We examine theoretically and experimentally a certain class of new financial instruments which are designed as lotteries on the outcome of prominent sports events like the Soccer World Cup 2006. From a theoretical point of view, sports betting products may be superior to a fixed rate investment because of heterogeneous expectations, risk-loving behavior of investors or additional non-monetary utility components. In comparison to the direct placement of bets at bookmakers’, sports betting products may be preferable in cases of hedonic framing. Our experimental section, however, reveals the limited practical relevance of these theoretical arguments for “average” decision makers. Despite this, financial instruments with sports betting components offer a certain profit potential due to the diversity of preferences across individuals. Summarizing, the issuance of sports betting products may actually be mainly driven by marketing aspects, nevertheless sports betting products may be considered to be “viable” niche products with low cost of capital for banks.

Based on a large international sample, we examine the effects of CSR on the cost of equity under different levels of investor protection. In countries where investor protection is strong (poor), our results show that the cost of equity falls (rises) when a firm invests in CSR. Our findings are robust to alternative variable definitions, sample selection, analyst forecast bias, and various methodological specifications. We also demonstrate that the investor base channel is able to explain different outcomes regarding the relation between CSR and the cost of equity, and we derive implications for both financial practice and public policy.

We study a model that relates dividend payout policy to behavioral issues based on the ideas of mental accounting. A panel analysis across 29 countries and over 43,000 firm-years demonstrates that our model studying the relation between dividends and patience, loss aversion, and ambiguity aversion can be verified empirically. Our paper seems to be the first that highlights empirically in a straightforward way the relevance of behavioral patterns as important determinants for corporate dividend policy, while previous empirical studies could tackle this issue only indirectly. With several robustness tests we also address potential doubts concerning the quality of our data and analyze further implications of our theory.