Stop cheating on your future with your past... It's Over.

Hi guys welcome back to my blog I hope you all enjoyed my last post on 'The REAL champion of British Business'! Today I am bringing you all an interesting lie...

The lies, the cheating, of course chief executive Martin Winterkorn of VW will pack his bags. Would you really like to be a face of a scandalising German car manufacturing company?

(Click the link below to view the full story of the VW scandal)

 http://www.bloomberg.com/news/articles/2015-09-23/volkswagen-ceo-winterkorn-steps-down-over-emissions-scandal

I am sure you guys are aware of the traumatic VW scandal. Who would ever think such company would do so! Did they think about VW consumers? In business today trust is more important than ever, especially when it comes to your relationships with your clients, customers, employees, and all stakeholders in your business. Trust is right at the foundation of the survival and success of any business. Clearly VW have not understood the core concepts of business. A key for many investors is the confidence that they have in the trustworthiness of the company management. Interesting...

(Ukfinanceyahoo.com, 2015)

As you can see ever since the scandal news leaked shares have dropped immensely, let's just say more than a 50% drop and going! Its stock plummeted 40% by Sept 30. What do we have to say about this? Have the customers of Volkswagen made the right decision?

Interestingly the large fall of 33% in share value is due to negative behavioural & emotional feelings towards the company?

Can we associate the word 'efficient' with VW? 

Hmm... lets dig deeper...

Efficient market hypothesis (EMH) is associated with the idea of a "random walk". As soon information was leaked shares dropped quickly as the above graph shows. Did the share prices of VW follow the theory of 'random walk'? Let me explain to you guys what this theory is the flow of information is unimpeded and information is immediately reflected in stock prices, then tomorrows price change will reflect only tomorrows news and will be independent of the price changes today, (Malkiel, 2003). Basically changes occur when new news enters the market. I think we all can agree that the VW scandal had an effect on the company shares when they dropped the bomb on the market telling us all the theory of 'random walk' reflects in VW's shares. We can certainly say share prices between Sept-Oct represent the scandal.  Tut, Tut VW!

I believe stock market efficiency is important is an important concept in terms of understanding of the working capital markets and in their performance and contribution of the development of the UK. VW's sharp negative stock reaction to unethical behaviour far exceeds the potential economic effects on its future cashflows. Such behaviour damages investor & consumer trust in VW's future integrity, leading to markets must factor in reputation costs to share price discounted cashflow formula. Then again can we say that VW did not consider the company's investors & consumers? Surely they knew they would of been caught out one day? What do you guys think? September 21st lost nearly a fifth of its value, share price is down nearly a third!! Terrible I know right! Three forms of efficiencies: Weak, Semi-Strong & Strong Form. My thoughts say VW fall into the category of semi-strong form efficiency. As we can see VW share prices reflect all known information . Semi-strong form efficiency examines whether or not the prices in a market reflect all publicly available information, (Leuthold, R. Mm., & Hartmann, P. A, (1979). As more news was released about the horrific scandal more of the VW family reacted.

Coffee break anyone?...

Let's get back to business...

The scandal has wiped out a quarter off VW's market value of course this is leaving the managers of VW heads in shame. Ferdinand Piech chairman of VW, chief executive Martin Winterkorn both leaving VW. Do we blame them? Managers should be acting in ways to increase shareholder wealth? Shareholders of VW please comment below and tell me your views! I believe VW show they follow a fundamental analysis within the company. They followed a strategy and this was to manipulate its emissions test data on diesel vehicles ? Am I correct? Resulting in VW customers to lose their trust of VW products.

Lack of stock market efficiency shall we say? CEO Martin Winterkorn went against everything VW stands for. Damaging trust and his sincere apologies is that enough? But can we trust other large car making companies? I don't think we can if such a bomb has been dropped on us! How much do we know and how efficient is the information we have been told? So many questions we have for VW! VW will need to consider issues such as the company's ethical behaviour, social impact, corporate social responsibility policies and its environmental behaviour. Also the treatment of its stakeholders after the damage that has been caused. I believe the market has not been efficient in this case study.

Publicised news on the market effects a company's shares but exactly how much is the market actually efficient?

Will VW win our hearts back?

It's a wrap!

RS.

Next week's post: International Cost of Capital with some exciting news! Stay tuned followers...

I have added a few latest news links about the VW scandal that may interest you further: 

• http://www.bloomberg.com/news/videos/2015-10-16/vw-feels-scandal-s-impact
• http://www.wsj.com/articles/volkswagens-sales-hold-up-in-immediate-aftermath-of-emissions-scandal-1444995714
• http://www.ft.com/cms/s/0/58975016-720f-11e5-9b9e-690fdae72044.html#axzz3okXxsUqq

Please comment below with your thoughts!