Corporate Governance

question 12

Essay

Corporate Governance. In a fully informed stock market, news regarding the enforcement of federal laws against publicly traded firms would have no effect on target firm stock prices. A "rational expectations hypothesis" predicts that investors would be unaffected by announcements concerning the enforcement actions of federal agencies because current stock prices accurately reflect discounted future cash flows based upon all relevant information. An absence of announcement effects tied to federal law enforcement actions would suggest that the market is fully aware of illegal activity, the probability of getting caught, and the potential sanctions tied to detection and conviction. Future cash flows lost following federal law enforcement actions can include the costs of sacrificing illegal advantages over competitors, investigation expenditures, litigation expenses, and lost reputational capital. An absence of abnormal returns tied to federal law enforcement actions does not mean that there is no cost to being caught; it simply implies that the market correctly anticipates the magnitude and probability of such costs. Here it is important to recognize that the term "caught" does not necessarily imply guilt as well. Under the rational expectations hypothesis, market participants also know the probability of innocent firms being investigated or sued.
A. How would you interpret positive stock-price effects tied to public announcements regarding the enforcement actions of federal agencies?
B. Conversely, how would you interpret negative stock-price effects tied to public announcements regarding the enforcement actions of federal agencies?

Acquire knowledge about ethical issues in organizational behavior and management practices.

Grasp the basic principles of social learning theory, including key dimensions such as symbolizing, forethought, self-control, and self-efficacy.

Recognize the role of empowerment in employee performance and organizational success.

Distinguish between reinforcement schedules based on time (interval) and behavior (ratio) and their effectiveness in various scenarios.

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Definitions:

Memorizing Strategies

Techniques or methods used to aid in the absorption, retention, and recall of information.

Different Groups

Refers to various categorizations of individuals based on criteria such as characteristics, interests, beliefs, or demographics.

Manipulation

The act of skillfully handling, controlling, or using something, often with negative connotations of deception or unfair influence.

Independent Variable

The variable in an experiment that is manipulated or changed by the researcher to investigate its effect on the dependent variable.