This paper, Vinal Barbaros's Options, stresses that the decline in profitability is already a major issue with regard to the shareholder value of the passive owner; when the costs are reported accurately, the owner will know the real state of the company's operations. …
From this study it is clear that when the issues are revealed, conflicts may arise from agency interests, as the uncertainty in the company's future due to its failing operations may threaten the status quo, especially when it comes to cost-cutting activities such as downsizing in order to address the problem on profitability. One of the key stakeholders in this case is the company's major investor, the creditor National Bank of Australia. If the company reports the true amount of the cost estimates, the bank will have to protect its position with regard to its investment in the company. This can be done by downgrading the company's credit rating and increasing the interest payments due to default, or look for a second way out when it comes to getting the amount that is due. In this case, the owner or the major shareholder is deprived of knowing the true performance of the company. Because he does not know, he cannot do something in order to preserve his wealth or shareholder value. As for the company's employees, they will not be informed of the company's shortcomings with regard to dealing with its efficiency and operations productivity. As for the company's major investor, its creditor the National Bank of Australia, it will be able to grant a renewal on the company's loan by assuming that nothing is wrong in the company's operations, which puts its financial position in the company at risk because of misleading information. If the company continues to fail during its subsequent operations, the bank will have to suffer and absorb the losses with regard to the company's failure to pay on time. If the company has been able to recoup its losses, the bank has still been misled by the company because of the act; when it is found out, the bank can resort to proper means in order to compensate it for the possible losses from such act. ...
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(Vinal Barbaros'S Options Essay Example | Topics and Well Written Essays - 2000 Words)
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