Marjorie Pagsinuhin 46234
TTh 10-11:30 Ms. Lynleen A. Alagasi
MODULE 1 ACTIVITY
Answer for the following questions using your own understanding and own words.
1. Search and read issues or scandal regarding Enron and Sarbanes Oxley Act of 2002
This is what I have found and read from my search about Enron and Sarbanes Oxley Act of 2002.
Source:
The Fall of Enron and the Creation of the Sarbanes Oxley Act of 2002. Connell, Megan. La Salle
University Digital Commons.
https://digitalcommons.lasalle.edu/cgi/viewcontent.cgi?article=1029&context=honors_projects
2. If all the companies had an objective of maximizing shareholder wealth, would people overall
tend to be better or worse-off?
For me, it depends on the company’s actions to maximize their shareholder’s wealth. First of
all, maximizing the wealth of shareholders would mean reducing costs which most of the times lead
to lower quality of their products and service just to boost their profit and stock price. This might be
the effect on the short-run, but in the long-run, the company’s market value and profits would drop
as the customer’s wants are not satisfied. On the other hand, if reducing costs means outsourcing
labor and mass producing in other countries, employment opportunities were given to people in third
Marjorie Pagsinuhin 46234
TTh 10-11:30 Ms. Lynleen A. Alagasi
world or developing countries. Second, if all the firms are maximizing their companies’ wealth,
ordinary consumer’s might not be able to cope up with the ever-fast-growing inflation, if all
production increases while the wages of the workers are constant. Unless the companies pay higher
salary wages to their employees and create more job opportunities, people would be worse-off,
widening the gap between the poor and the rich.
3. Contrast objective of maximizing earnings with that of maximizing wealth.
The objective of maximizing earnings of a company is to earn lots or bigger amounts of
profit by producing maximum output with limited input (short-term) while maximizing the wealth
means increasing the market value of the company’s common shares (long-term)
4. Should the managers of a company own sizable amounts of common stock in the company? What
are the pros and cons?
In my opinion, managers owning big amounts of common stock would only create a
problem if they act only for their own interests. Seeing as they are also normal human beings too,
having control over the operations of the company and possessing majority of the stocks is a
dangerous risk, although giving them the benefit of the doubt might do the company some good.
Indeed, managers may increase or decrease the company’s performance and in turn yield great
or bad results to the firm’s market value, it would depend upon the duration or timing of the
managers to buy or sell stocks to know if these managers know something that the stockholders
don’t, so stakeholders should always make sure the company’s financial statements are always
error-free and there’s no fraudulent transactions happening.