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Unethical behavior in finance

- Why is ethical behavior so critical to the practice of finance?
- Cite at least three examples of financial managers/corporate executives who did not exercise ethics and the results of their choices.
- Discuss how corporations can increase their value as a result of non-financial actions.
- What benefits might a corporation reap if they consider non-financial actions as part of their decision making?
- Choose two major financial events that occurred in the past. How did each event change the financial landscape?

Discussion:
- Imagine that you are employed as a financial analyst for a mid-size corporation. Answer each of the following questions from that perspective.
- A friend is asking about your work, and wonders why you have to use so many different option pricing formulas in your job. How would you answer your friend's question? Would you advise a potential investor to exercise a call option or a put option? Explain.

Solution Preview

Why is ethical behavior so critical to the practice of finance?
I think that these two are inseparable. Finance, after all, is built on trust with the belief that participants will do the right thing and guided by this belief.

Making money should not take precedence over ethical behavior. To quote Warren Buffet during his testimony before the House Telecommunications and Finance Subcommittee, "If I hear of an employee losing the company money, I'll be understanding. However, if I hear of any employee losing Salomon one shred of reputation, I'll be ruthless!" (Dobson, 1993).

Cite at least three examples of financial managers/corporate executives who did not exercise ethics and the results of their choices.
One example where executives acted unethically resulting to severe changes in their industry is what happened in the insurance industry in Malaysia (Haron, Ismail, Hamzah, & Razak, 2011) where complaints about unethical practices of insurance agents are mounting.

Another example is Diamond Foods accounting practices for its payments to its farmer-partners (Jennings, ...

Solution Summary

The impact of unethical behaviors to third parties

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