After some large companies were caught lying on their profit reports.in the 1980s, thetightened it's regulation of the Stock Market to winback the public's confidence in investing.

Stock market is place where the listed companies or companies who are registered on stock market can…

Answered: After some large companies were caught…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 3Q

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1) What would happen to the standard of living in the United States if people lost faith in our financial markets? Why? 2) How does a profitable capital market help reduce the prices of goods and services? 3) The SEC attempts to protect investors who purchase newly issued securities by requiring issuers to provide relevant financial information to potential investors. The SEC does not provide an opinion on the actual value of the securities.Therefore, a reckless investor could pay too much for some shares and consequently lose a lot. Do you think the SEC should, as part of each new offering of stocks or bonds, give investors an opinion on the appropriate value of the securities being offered? Explain
1)How does a profitable capital market help reduce the prices of goods and services? 2) The SEC attempts to protect investors who purchase newly issued securities by requiring issuers to provide relevant financial information to potential investors. The SEC does not provide an opinion on the actual value of the securities.Therefore, a reckless investor could pay too much for some shares and consequently lose a lot. Do you think the SEC should, as part of every new offering of stocks or bonds, give investors an opinion on the appropriate value of the securities being offered? Explain.
(a). Large businesses spend millions of dollars annually on insurance. Why? Should they insure against all risks or does insurance make more sense for some risks than others? (b). Why might firms prefer to fund investments using retained earnings or debt rather than issuing equity? (c). How does asymmetric information explain the negative stock price reaction to the announcement of an equity issue?
1. What do you think the consequences might be in financial markets if individuals consumed more of their incomes and thereby reduced the supply of funds available to financial institutions? 2. Stem Corporation received confirmation that all its PSE listing requirements were in order, and that it may proceed to issue its stock. The company plans to raise P500 million on the stock issue. On what market do you expect this stock to be traded? Would this transaction take place on the money market or the capital market? 3. Over the past 100 years, the level of government regulation of financial institutions and markets has ebbed and flowed or, as some economists might argue, has ebbed and flooded. Although the laws and regulatory agencies created by the government have various defined and not-so-well defined goals, what might you argue is the single biggest benefit of government regulation?
What comment or conclusion can be made about this? Large amounts of national debt can lead to higher interest rates and lower stock prices. Stocks are a reflection of investor confidence. If those investors lose confidence in where those companies operate then their stock price will take a hit.
An investment bank’s clients wanted to manipulate its stock price in order tofacilitate a better selling price in private placement deal with a pension fund.To assist the client, the investment bank solicits other advisory clients to buythe company stock; at the same time solicits other clients to sell the samecompany stock to effect a matched. These trades represent a large percentage of the company’s stock volume, which leads to a drastic increase in price. Comment the action of the investment bank.
Companies often are under pressure to meet or beat Wall Street earnings projections in order to increase stock prices and also to increase the value of stock options. Some resort to earnings management practices to artificially create desired results. Required: 1. How can a company manage earnings by changing its depreciation method? Is this an effective technique to manage earnings? 2. How can a company manage earnings by changing the estimated useful lives of depreciable assets? Is this an effective technique to manage earnings? 3. Using a fictitious example and numbers you make up, describe in your own words how asset impairment losses could be used to manage earnings. How might that benefit the company?
The history of the stock market shows that there are a large number of start -up corporations whose stock price traded at high market values despite large losses and never any positive earnings. Why would investors be willing to pay a high price for the stock of a corporation that has never reported positive earnings?
In 1996, allegations were made against Moody’s that it was issuing ratings on bonds it had not been hired to rate, in order to pressure issuers to pay for their service. How has the increasing availability and use of the internet impacted the ability of stock traders to act unethically?
Which of the following would not be an appropriate reason for a firm to repurchase its stock: As an investment if management believes the market has undervalued the stock price. In order to have sufficient shares to cover employee stock programs. Solely to boost Earnings Per Share. Both A and B.
1. The structure of financial markets is influenced by the problems relating to asymmetric information. For each of the market characteristics below, indicate whether the problem arises because of Adverse Selection or Moral Hazard. (1=Adverse Selection, 2=Moral Hazard) The SEC requires disclosure of annual operations to current shareholders. The most used sources of external funds for a company are loans, not stocks or bonds. JCPenney will find it easier to issue stock than the Charlie's Store in downtownVermillion. Loan contracts include language restricting the borrower's actions
A finding that individual investors withdrew funds from the stock market after the 2008-09 crash and added most funds to stocks in 2018-19 after a ten year bull market run is an evidence of: Lemming factor Overconfidence bias Loss aversion bias O Mental accounting bias

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