Analysis of the relationship between sample Firms and financial markets

Analysis of the relationship between sample Firms and financial markets

Compaq, Hewlett Packard, IBM, and Oracle are well-followed firms. There are more than 20 analysts who follow these companies. While each company provides substantial amounts of information in the form of financial statements, many analysts and investors actively monitor the movement of these stock prices.

In addition, these stocks trade frequently in these companies. Stock trades for each company amount to more than $1 million monthly on average. Both facts lead us to expect less bias in the information that is available about these four firms.

In the case of Unisys and Hitachi, there seems to be a little bias in the information available. Unisys is one of the largest software companies, but it has suffered from large operating losses over the past five years. There may be a possibility this company attempted to hide bad news as long as it could. With Hitachi, the management consists of only the inside directors. Considering how relatively unsophisticated the stock market is in Japan, it is quite possible that the bias in the information may be even larger than when compared to other US companies. However, biased information is not beneficial for the companies in the long-term, and both companies are well known to the public. Considered that the companies wish to keep their corporate images in their respective stock markets, such bias would not be so serious to the markets.

Disney’s interaction with financial markets

The interaction between firms and financial markets is illustrated when firms make information announcements. Consider Disney’s earnings report. The report contained the news that net income at the company dropped 26% form the prior year’s level, resulting in earnings per share of 43 cents a share. The stock price increased by about 2% on the announcement of this bad news, because the reported earnings per share was higher than 40 cents per share expected by analysts.

There are several interesting points that are worth making here. The first relates to the role that analysts play in setting expectations. In May 2009 for example, there were 25 analysts working at brokerage houses and investment banks who provided estimates of earnings per share for Disney. The lowest of the estimates was 33 cents per share, the highest was 48 cents per share, and the consensus was 40 cents per share. The second relates to the power of expectations. Any news that a company reports has to be measured relative to market expectations before it can be categorized as good or bad news. Thus, a report of a drop in earnings can be good news because it did not drop as much as expected.

Analysis of the relationship between Firms and Society

All companies in our analysis are committed to conducting their businesses in a manner that is compatible with the environment and protecting the quality of the communities where they operate. In their annual reports, we can easily recognize that the management believes that business must work in partnership with suppliers, government, community, and industry groups in an effort to protect the environment. These communities expect their hometown profitable companies to contribute to their societies.

It is also interesting that most of companies in the computer industry contribute to educational institutions such as public libraries and elementary schools. While such contributions increase the corporate images and benefit the communities, they also appear to be a kind of investment. In the future, as computer use grows, the educational institutions and current students can be potential customers. We cite some current examples below.

First, Unisys, while being a relatively low-profile company, provides much needed services to a large number of companies and government organizations. A recent Unisys publication tells of how the company improved the voting system of Costa Rica by digitizing voter information and producing tamper-proof voter identification cards. On other fronts, Unisys sponsors the Science Learning Center, a joint project of Unisys and the National Science Foundation. The SLC provides training to elementary school teachers in ways to incorporate Internet and WWW technology into their classes.

Secondly, according to the annual report of Hitachi, its corporate philosophy is to contribute to society through the development and application of superior technologies. Hitachi meets its responsibilities as a good corporate citizen through the activities of Hitachi-endowed foundations and programs designed to ensure Hitachi contribute to the betterment of the community. For example, it has achieved notable advances in the recycling of products, supported school libraries in Thailand, and provided opportunities to enjoy Japanese art and culture for Americans etc.