When a financial institution is involved in a financial scandal, its value falls by more than the amount of any fines and settlement payments due to the ruin of its credibility and reputation. Depending on the size of the company and the amount imposed, it may have the resources to meet such obligations. However, smaller firms have a lower revenue collection model hence leading to the plummeting of its value. Moreover, such scandals often cause bad publicity, which spoils the corporation’s image to its customers (Brealey, Myers & Allen, 2011). Under these circumstances, the clients lose trust in the brand and its management thereby opting to switch allegiances to rival products. By so doing, a significant source of income would have been wiped out and this is detrimental to the health of the business.

Similarly, such occurrences erode the confidence that investors and other stakeholders have in the enterprise. In particular, they do not believe that the officials are competent to steer the workforce and by extension the market into profitability. Thus, some of them may be forced to sell their shares and exit from the company while others may demand a change in leadership. While the latter may face resistance between different factions within the corporation, the former cannot guarantee future success as well. Therefore, while the settlement of fines and payments may have been made, the psychological damage of the brand will already have been done. It may take a long time before recovering. Meanwhile, vital sponsors such as advertisers and other partners will dissociate themselves from the firm thereby reducing its value and appeal across a large section of the population (Brealey, Myers & Allen, 2011). The expenses to repair this battered image will be costly as well, reducing its value even further.




Brealey, R. A., Myers, S. C. & Allen, F. (2011). Principles of Corporate Finance, Concise Edition, (2nd ed.). New York, NY:  McGraw-Hill Irwin.








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