(a) If a financial institution is caught up in a financial scandal, would you expect its value to fall by

more or less than the amount of any fines and settlement payments.

A) It depends on the size of the Institution and how much cash flow the firm has liquid.

The size of the scandal is another aspect, depending on how much cash flow the firm

has, in respect to the firm’s value. It shouldn’t find it hard to pay off any fines, take

for example Tesco. Who deal with very little debt, which allows this company have

continuous cash flow and allows them to pay fines and settlements straight away,

which doesn’t have an effect on the firm’s value. Another aspect is if its hundreds of

millions or something small then the penalty won’t be as costly to the institution as a

larger amount. However it will not be the same level as the fine or settlement

payment, cause large companies and firms can generate a lot of revenue to pay off any

bad acts within the business market. The Value of the institution however could drop

as to whether the shareholder want to leave the financial institution. Which could

cause bad Public relations, and misleading accounting of funds. Or it could lead to a

huge loss in sales or investors. Example of a financial scandal in the banking sector,

Anglo Irish Chairman, Sean Fitzpatrick had personal borrowings that he hid away in

reserve accounts in Anglo Irish of 120 million, Mr Fitzpatrick has now used this

stolen money to pay for an elite team of lawyers, to try win his case. Where he is

clearly in the wrong. This 120 Million is so small compared to the value of what the

Anglo Irish Bank was valued at, the fine doesn’t have any effect on the firm’s value.

However as said before the firm public relations is badly affected.

(b) Many firms have devised defences to make it more difficult or costly for other firms to

take them over. How might such defences affect the firm's agency problems?
B) Many firms have devised defences to make it more difficult or costly for other firms

to take them over. How might such defences affect the firm's agency problems?

There are many defences, one such defence is having more than fifty percent of the

Shares of a company stop any takeover and any ruling over power. Manager might

just want to sell as much shares as possible to keep cash flow coming in and

investments, so it looks good on accounts. So shareholders may want the takeover to

happen, to benefit the company in the long run. This may lead to Work Council and

Directors getting involved in industrial disputes.

Another defence which is used by firms is having the Board of Directors who is

representing different parties or even different organisations of firms. Your business

can make sure they have an over ruling so it cannot be finalised unless needs be. This

can be frustrating for the firm’s agency, and create problems dealing with the

stakeholders as some may want change in the organisation and some stakeholders

may want another aspect or resist the change to the organisations. This could create

industrial relations between top management and employees as to whether which

direction they want the company to approach. Many firms have work council if they

are a large organisation, so the employees have a say at the AGM (Annual General

Meetings). So they can be involved in the decision making of the future of the

company.

Shareholders have right plans. The minute there is news of a hostile takeover, the

shareholders are exposed to attractive discounted stock of the company which they

can purchase. Which makes it harder for corporate raider to take control.