IntroDuction:
1. President Shogaki thought this was a case of material facts and he disclosed those facts to the public. But stock prices dropped sharply due to this disclosure, and some shareholders did not welcome the disclosure. Did Shogaki madethe right decision?
The company has to be on its toes when handling sensitive information particularly the one that can be disclosed financially. Many stakeholders of the company have different interests vested in the enterprise and they will actively seek out the information that is effecting their interests whether negatively or positively.
Same is the case with shareholders, who are the major stakeholders of the company. all relevant information whether it pertains to finances or production, is of utmost importance to them. The impact of these developments are felt in the stock or share price of the company. Positive developments lead to rise in share price resulting in an increased investors’ interest in the company. On the other hand, the negative impacts will decrease the value of the company in the stock markets.
The companies work upon analyzing the risks associated with the nature of their business, leading to either speculation or hedging. While hedging involves counteracting the differences between gains and losses and minimizing the risks associated with the business, speculation revolves around the direction that the company is likely to take based on the assets available to the prevailing market conditions in which the company operates. Hedging is sort of insurance against possible fluctuations while speculation is guessing those fluctuations.
Saizeriya Hedging OR Speculation Harvard Case Solution & Analysis
The disclosure of losses made by the company shows that company based its decisions on speculations while attempting to hedge the risks of the speculations made. The company’s need to acquire other currency to enable its transactions backfired when the derivative deals with the banking firm BNP Paribas collapsed. The disclosure led to the fall in the share price of the company and the only way it can get out of this situation is through reducing their operations and lowering their dependency on the derivative markets for profitability.
The company could not make profits from the derivative instruments and the disclosure of this information reduced its investors’ interest, hence it can be concluded that the information should not have been disclosed at this point. However, now that the information is open, timely and appropriate decisions can be taken to mitigate the further risks which may arise and to overcome the crisis.
2. Why should a company hedge?
In recent times it has become important that a company has insurance in case of occurrence of unforeseen circumstances. Implementation of such insurance enables coverage of all the possible outcomes that may impact the company adversely, however, the company itself favor its continuity above all else. This means thatit will be finding ways to analyze and mitigate risks associated with its business.
Business risks is a vast term and contains all sort of risks including financial risks, inventory risks, production failures, employee management, etc. To mitigate these risks, the business hasto focus on implementing controls so that the risks can be identified at operational level...........
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