Main Flaws in the Contemporary Mainstream Financial Research Paradigm and Suggestions for Improvement

Abstract

This paper outlines the primary shortcomings of the contemporary mainstream financial research paradigm, highlighting issues such as a disorganized discipline structure, ongoing debates over the relationships between risk and return, return and social responsibility, and financial environments and governance, among others. These deficiencies have led to numerous instances of financial decision-making failures and issues related to corporate social responsibility. The core of these major flaws can be traced back to four assumptions that are detached from social reality: "corporate legal fiction", "individualism","rational economic agents", and "perfect markets". Building on this, the paper proposes several ideas for refining the mainstream financial research paradigm. These include adopting assumptions like "corporations as socio-economic entities","individuals within an economic ecosystem", and "economically rational agents with bounded rationality". Additionally, it introduces the concept of an "economic ecosystem" and the notion of "maximizing societal total contributions" as a decision-making criterion.