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Ethics Problem: Corporate Finance

The ethics problem is:
Assume that you are the CFO of a company contemplating a stock repurchase next quarter. You know that there are several methods of reducing the current quarterly earnings, which may cause the stock price to fall prior to the announcement of the proposed stock repurchase.

What course of action would you recommend to your CEO?

If your CEO came to you first and recommended reducing the current quarter's earnings, what would be your response?

Solution Preview

One of the main principles of finance is one called capital market efficiency, which refers to the fact that all information is available to all parties at the same time. The question implies that the CFO/CEO has information not being shared in a forthright manner with the investing public, and by extension, the stakeholders. This is absolutely what federal regulators have passed laws trying to prevent --- reference Sarbanes - Oxley --- and attempting to insure ...

Solution Summary

Ethics in business implies that the right thing will be done, even if nobody is watching. This discussion provides a template for doing the right thing, even when a superior may request otherwise, and an example of how it might be handled.

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