This is a hypothetical question about how the market might react under these conditions.

Let's say we're Acme Works, a multi-million dollar company. Each year, for the past 20 years, our profit has been $100 million yearly. We're a publicly traded company.

Some of our business practices have been less than ethical. Perfectly legal, but not really ethical. We've had a change of heart, and now we're going to be stopping some of these practices. These practices have a direct influence on our revenue, and by ending these practices, our profit will drop roughly 90% (leaving us a profit of $10 million yearly).

How would this influence the perception of the company? How would the stock price change? Would there be more or less uncertainty with the company? How are the stockholders affected?

  • This feels like a homework question. It's impossible to know these things in reality, since there are too many factors to know how they would change.
    – D Stanley
    Jun 28 at 18:33
  • Who are the stakeholders? Did you mean stakeholders, largely defined as everything on earth, or did you mean to ask how are the stockholders affected?
    – quid
    Jun 28 at 18:33
  • @DStanley Not a homework question, just something I've been thinking about for a while. As an alternative, consider planned obsolescence, with a company like Boeing. If their planes are made better, and last longer, then eventually there will be a point where less are sold, and to keep up with expectations, they have to inflate the price of the product.
    – Zymus
    Jun 28 at 18:35
  • @quid Yes, stockholders would be more appropriate, but there was also some thought about various FTE's that might have this stock included in them, which would be affected (maybe less dramatically).
    – Zymus
    Jun 28 at 18:36

The stock market isn't interested in ethics. So if profits are going down by 90%, then the share price will go down. But the amount it goes down by is entirely down to how potential investors now view the company. There is no formula that will tell you that.

The loss in share price may be lower if the company is anticipating future regulation, and positioning itself to be ahead of the game when that regulation comes in.

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