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P14–19Ethics Problem Assume that you are the CFO of a company contemplating a stock repurchase next...

P14–19Ethics Problem Assume that you are the CFO of a company contemplating a stock repurchase next quarter. You know that there are several methods of reducing the current quarterly earnings, which may cause the stock price to fall prior to the announcement of the proposed stock repurchase. What course of action would you recommend to your CEO? If your CEO came to you first and recommended reducing the current quarter’s earnings, what would be your response?

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Ans. If company was to repurchase stock next quarter and as a CFO of company whether it is ethical to recommend to reduce current quarterly earnings by using several methods to repurchase the stock at lesser price for company using insider information. The answer is that it is unethical to reduce current quarterly earnings to cause fall in stock prices to reduce the purchase cost. Here company is using insider information to benefit company in terms of reduce payment for repurchase of it's stock. Not only it is unethical, but it is also crime to use the insider information for manipulating stock prices using insider information. This method of reducing stock prices should not be recommended to CEO for stock repurchase of company. The answer would remain same even if CEO comes first and recommends reducing the current quarter’s earnings because it will not change the fact that here company is manipulating it's financials to repurchase it's stock at lesser price.      


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