Unfortunately, in recent times we have seen a number of examples of unethical behavior in organizations,...

Unfortunately, in recent times we have seen a number of examples of unethical behavior in organizations, often tied to the organization's handling of finances. Locate a current Wall Street Journal article that discusses ethical issues facing the top leadership or financial managers in today's corporate environment regarding their approach to the financial matters of the firm. Summarize the article. In addition, discuss what pressures exist that might encourage unethical behavior, particularly as it pertains to the firm's financial reporting or situation.

Expert Solution

A current Wall Street Journal article that I am discussing is an article published by James Mackintosh on 3^rd July 2018. The article is titled “How banks distort markets to hide risk”. The article talks about how many European banks are hiding billions of dollars of risky trades from their balance sheet by making adjustments with regards to the reporting dates. The modus that many banks follow in Europe is to increase their borrowing in the money market between reporting dates and then lending the money for short periods so as to earn easy as well as quick profit. The trades are closed down at the end of the month so that exposures are not reflected and a lower leverage is reported by them.

Management of a company is merely agents of the stockholders. The stockholders are the principals of a company and the management works in a way so as to create maximum value. Secondly management has the pressure from the stock market analysts and investors who punish the stock of a company even if the targets of a quarter are not met. This puts a lot of pressure on the management to balance the needs and requirements of the stockholders and investors and to not only meet but to also outperform the expectations of the market.

In a bid to do so management sometimes end up making unethical financial and accounting decisions. They may ‘window dress’ their books of accounts so as to project a more aggressive picture of the company’s financials than in actually are.

Link to the article: https://blogs.wsj.com/moneybeat/2018/07/03/how-banks-distort-markets-to-hide-risk/

jeff jeffy answered 2 years ago

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