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Full-Text Articles in Business
Reputational Capital, Steven D. Dolvin
Reputational Capital, Steven D. Dolvin
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Ratings agencies are supposed to provide an independent view on a firm's (or country's) financial outlook. However, their involvement in the subprime crisis (i.e., their AAA rating on defunct MBS securities) revealed that the rating agencies are often more reactive than proactive. Thus, they seem to have lost much of their respect and influence. See article here, Breakout.
Manipulating Earnings, Steven D. Dolvin
Manipulating Earnings, Steven D. Dolvin
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To cover recent losses associated with CDS trading (see earlier post), JP Morgan sold securities in which they had an unrecognized gain. While this move will make their earnings look less negative, the trades will actually hurt firm value as they will trigger taxable gains and reduce future earning power. Thus, for long-term investors, metrics such as cash flow may be better measures then earnings, which tend to be more short-term in nature, as well as more easy to manipulate. (See article here, Reuters.)
Hp Cuts Jobs, Stock Price Rises, Steven D. Dolvin
Hp Cuts Jobs, Stock Price Rises, Steven D. Dolvin
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HP announced on May 23 that it will cut 27,000 jobs (see article). In class I asked students what they thought happened to the stock price. Most thought the price would drop since this is a negative indicator. However, the stock price actually rose 2.2% from its prior day close, while the market was flat. The issue is efficiency (and margin). If HP can sell the same amount with fewer employees, earnings will be higher--which translates to higher growth (and therefore market value).