Interplay of Corporate Collapse

Question: Discuss about the Interplay of Corporate Collapse. Answer: Introduction: The case study of John clerk examined the big bath behavior exhibited by the new CEOs. The lecture slides establish the relationship between the accounting information and share price. In Page 12 of the lecture states, that a good earnings announcement increases share price and vice versa. Therefore, management will make biased accounting choices as per page 16 and can engage in big bath as mentioned by John clerk. In big bath theory additional costs are written off when the earnings are below expectation so that in later the company could show improved performance (Homsombat et al., 2014). The company has reported an after tax loss of $2.8 billion in 2014 (Yang, 2015). The financial results show that the liquidity position and cash balance of the company is strong (Rankin et al., 2015). The share price of the company is directly affected by the performance of the company. In page 15 of the lecture it is stated there are enough studies that have been conducted to show that market initially under reacts to the post earnings announcement but in long run the share price reflects the announcement. The investors relies on numerical data as an anchor as per page number 33 of cornerstone of behavior finance. The main conclusion of the information prospective study as provided in page 18 of the lecture states that accounting earning disclosures affects the share price and volume of transactions. The financial result of the company is expected to improve so it is advised that as the price has fallen the investor should buy more shares of the company at lower price (Carnegie et al., 2014). Reference Carnegie, G. D., OConnell, B. T. (2014). A longitudinal study of the interplay of corporate collapse, accounting failure and governance change in Australia: Early 1890s to early 2000s. Critical Perspectives on Accounting, 25(6), 446-468. Homsombat, W., Lei, Z., Fu, X. (2014). Competitive effects of the airlines-within-airlines strategyPricing and route entry patterns.Transportation Research Part E: Logistics and Transportation Review,63, 1-16. Rankin, M., Stanton, P. A., McGowan, S. C., Ferlauto, K., Tilling, M. (2012). Contemporary issues in accounting: Wiley. Yang, H. (2015). Airfare Determinants on the Kangaroo Route (Australia-UK Market): A Case Study of the Influences of Airlines, Alliances and Airports. In15th AIAA Aviation Technology, Integration, and Operations Conference(p. 3026).