Finance and Accounting Banking Regulation and Risk
An analysis of GSK and the pharma industry
Reprisk’s 2013 report cited Glaxo Smith Klein (GSK) amongst the world’s top 10 ‘Most Controversial Companies’ ( http://www.reprisk.com/marketing/wp-content/uploads/2014/04/140416-RepRisk-MCC-Report.pdf ). Your assignment is to research and report on the global pharmaceuticals industry and particularly GSK, by answering the following questions:
1. Trace GSK’s share price over the last two years and compare it with the performance of its rivals and the stock market in general. Is there any evidence that the supposed scandals have affected the way the market values the company? Explain, with reference to the Efficient Market Hypothesis.
2. Some people argue that it’s the responsibility of politicians to say what is legal and what is not and that the role of managers is to push the boundaries as far as they can in order to maximise shareholder value. Other people would argue that companies have a duty to all stakeholders and that demonstrating a strong sense of social responsibility is in the interests of all big corporations. Using evidence from your research on GSK’s actions, which of these two apparently contradictory statements best sums up GSK’s policy and approach? Explain.
3. Review GSK’s dividend policy over the last four quarters. Are the share price movements when the share goes ‘ex dividend’ what you would have expected? Explain. Do you think GSK is using the most effective policy for distributing surplus cash to shareholders? Explain.
4. Recently Pfizer made a bid for AstraZeneca. In your view, why did the bid fail? Did the press play an important role in ensuring the failure of the bid? Was this the best result for society? Explain your answer carefully.
Notes and hints.
1. This is an individual assignment and should be no more than 1,500 words excluding appendices.
2. Each question will be allocated 20 marks. An additional 20 marks will be awarded for breadth and quality of research and referencing (10 marks) and for overall quality of presentation and argument (10 marks). As usual, most of the marks will be awarded for the quality of your arguments and explanations: there are not necessarily any ‘right’ or ‘wrong’ answers. Try to consider and report both sides of the argument, providing supporting evidence, and come to a clear conclusion of your own which follows logically from what you’ve presented.
3. Make sure all of the important information on which you rely for your arguments is fully referenced (including your own appendices and calculations). You must look for comments made in the general and pharmaceutical press to canvass as wide a spread of views and information as you can.
4. In question 1, as a starting point present the share movement graphs you want to refer to (from Yahoo finance or elsewhere) in your report. Find out on when important pieces of news were announced and see whether you can relate it to the share price movements around that time.
5. When you start to think about Q2, a ‘stakeholder analysis’ might help you.
6. Question 3 is not intended to be related directly to questions 1 and 2. It is a technical question on your understanding of dividend policy in general.
7. Question 4 is intended to look at the ‘big picture’, including when proposed corporate actions may not be in the best interests of society….
8. For technical advice, our own textbook, Hillier, is the your most useful reference!
Requirements: For this coursework, you are required to provide an academic discussion on each of the following topics. No introduction or abstract or conclusion is needed for this coursework. Nevertheless, the discussion for each topic should be clear, logical, coherent and insightful. There are four topics in total. Marks will be allocated equally. The main body of text should not exceed 3,500 words in total.
The financial crisis has raised many issues relating to the regulation of the financial system and what needs to be done to prevent recurrences of asset bubbles.
1. Describe the key risks in financial services. Further explain each type of risk with a real-life example and discuss how such risk can be avoided.
2. Explain with a numerical illustration how a bank’s return on equity can be improved through leverage?
3. Explain the process of securitization including a diagram illustration. Further explain why it is useful and how it has been misused during the financial crisis since 2008?
4. Describe the key features of Basel II including the three pillars framework as well as the approches to calculate regulatory capital for credit, market and operational risk.
•Saunders, A and Cornett, M. (2011) Financial Institutions Management: A risk Management Approach. McGraw Hill.
•Apostolik, R., Donohue, C. & Went, P. (2008) Foundations of Banking Risk, Wiley Finance.
•Sironi, A. and Resti, A. (2007) Risk Management and Shareholders Value in Banking: From Risk Measurement Models to Capital Allocation Policies, Wiley Finance.