Financial Risk Mitigation

Discussion post Employers and Reporting: Financial Risk Mitigation

Please see attachment to respond to peers.

This topic covers corporate accounting and finance. Based on the readings and your experience, explain how employers put themselves at potential risk with reporting on issues that lead to financial risks. Offer at least two ways they can avoid or mitigate this type of risk.

Can be 1 to 2 paragraphs. APA Format

Requirements: .doc file

Answer preview

Financial risks refer to the possibility that a particular business will lose money due to financial issues. Sometimes employers have to report the financial status of a company and the issues that lead to financial risks. However, managers expose their company to a potential risk when they disclose financial issues in their company. That is, they may favor investors in the stock market through insider trading. When investors are buying shares, they look for the company’s ability to grow in the future. Therefore, knowledge about financial issues will discourage investors from buying shares, making it hard for the company to raise capital. Besides, disclosing issues that lead to financial risks facilitate corporate takeover. According to Mazouz and Zhao (2019), a corporate takeover happens when the acquirer buys the majority shares from a poorly performing company in order to gain control. When investors learn that a company is having financial issues, they may acquire the most shares at reduced prices, after which they assume ownership of the company. Therefore, employers should be careful when disclosing issues that lead to financial risks.