Richard Petri is chief financial officer at Computer Electronics, Inc. In this c

Question

Richard Petri is chief financial officer at Computer Electronics, Inc. In this capacity, he attends all monthly board of directors meetings. A special meeting of the board of directors was called to discuss substantially increasing the amount of cash dividends paid to stockholders this year. The board voted unanimously to increase the dividend. Later that night, Richard called his uncle and hinted around that Computer Electronics, Inc., was going to make its stockholders very happy. His uncle didn't own any stock in Computer Electronics but went out and purchased 500 shares the next day.

1. Did Richard do anything unethical?

2. What should Richard's boss do if he finds out what Richard said to his uncle?

3. What are the possible reasons a corporation might want to pay a very low or high dividend in any given year?

Explanation / Answer

Hi,

Please find the answer as follows:

a) Yes, Richard was involved in insider trading by providing information that may result in fluctuations in the stock prices of the compnay to outside parties. This action is not in the best interests of the company and Richard.

b) Richard's boss should immediately report the issue to the management and take disciplinary action against Richard.

c) Low dividend could be on account of low profits or on account of management's decision to retain profits in the business for investment purposes. High dividends could result from high profitability or to build investor interest and confidence in the company.

Thanks.

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