Faith Integration

Running head: GROUP 1 FAITH INTEGRATION 2

GROUP 1 FAITH INTEGRATION 2

Introduction

In today’s constantly changing world, applying Christian values to finance is not an issue that has been explored in depth. There are many assets (stocks, bonds, derivatives, fixed assets, etc.) companies and investors own, with each bearing the potential for return and risk. For financial managers and investors to act in accordance with their Christian faith, they would first have to seek to learn from the biblical principles about the way in which they act on behalf of others. “Whoever loves money never has enough; whoever loves wealth is never satisfied with their income. This too is meaningless.” (Ecclesiastes 5:10, New International Version)

Goals and Corporate Governance

For organizations to be successful, they need to set up goals, which will be guide their operations. In addition, they also need to have a good corporate governance which will function to ensure that all the operations within the organization are in line with the goals of the organization.  Corporate governance and goals are the basis for the success of an organization. The two work hand in hand where goals act as guidance for the governance of an organization to make the organization achieve long term goals. Through corporate governance, the organization will be controlled and directed towards the achievement of the objectives of the businesses (O’Mahony & Mason, 2017). This is how they will lead to success of the company since the objectives will be met through corporate governance.

Corporate governance is advantageous to an organization in that it ensures that there is economic growth for the organization because of organizations performs well when it focuses on its goals and objectives. Also, with good corporate governance, investors will feel attracted to invest in the business and this will help in increasing the capital for the organization. This will then lead to a lower capital cost which is very attractive as it leads to a positive share price (Yermack, 2017). As a result, organizations should be working to ensure that they have a good corporate governance. This is what the bible advocates for. The Bible encourages us to set goals as well as back them with good governance which will not give up and everything will be okay. The success of anything we do will be down to the goals we set as well as the governance that will be backing the goals. Chronicles 4:10 (NIV), “But as for you, be strong and do not give up, for your work will be rewarded.”

Company Value and Stocks

A company’s value and stock prices go hand in hand. When there is any change in the value of stock, that change is also seen in the company’s overall value. For this reason, financial managers and investors keep a close eye on stock prices. According to Brealey, Myers, and Marcus (2018) stock prices and company values are the major determining factors in how successful a company is current and how successful they will be in the future. Sometimes, financial investors may want to invest in risky stocks with the hopes of receiving a potentially large payoff, not only for the company but also themselves. Financial managers who own shares in the company they work for will be driven to increase the company’s market value. However, the future is never certain, so managers must decide how much risk they are able to accept (Arora & Marwaha, 2014).

Exodus 20:3 (NIV) states, “You shall have no other gods before me.” Sometimes investors and managers place the value of money before the needs of their clients and the company. Investors must know the characteristics of which stocks have the potential for risk and return. High risk stocks can go either way, having a big payoff or causing investors to lose money. God expects his followers to only worship and glorify Him. We His followers begin to place the gods of materialism and net worth before Him, they are not representing His best image. Any business activities must be done to benefit all of society and Man should not be corrupted or exploited simply by making a profit.

Management and Dividend Decisions

Company managers are given a strong responsibility. They are depended on by the company to make profitable and appropriate decisions to enhance business activity. With that said, managers also hold a strong importance with investors, since their actions and decisions help influence decisions on investing with a company. For this reason, a naturally developed trust relationship occurs. Managers strive to enhance business activities for their investors, and investors put strong faith in manager capabilities that their finances will be entrusted and utilized in a mutually beneficial manner.  Proverbs 27:17 states, “Iron sharpens iron, and one man sharpens another” (English Standard Version). One of those beneficial variables would be dividend consistency.

According to Brealey, Myers, and Marcus (2018) “Managers ‘smooth’ dividends and hate to cut them back.  Dividends tend to follow the growth in long-run, sustainable earnings.  Transitory fluctuations in earnings rarely affect dividend payouts” (p. 510).  Companies, and their managers, strive to continually provide reassurance to their shareholders that managers are doing their best to maintain business stability and seeking gainful practices.  Romans 15:4 states, “For whatever was written in former days was written for our instruction, that through endurance and through the encouragement of the Scriptures we might have hope” (ESV).  They also do not want to give investors false hope by acting too prematurely.  According to Chan, Powell, Shi, and Smith (2018) “Companies therefore increase dividends only in response to a permanent increase in earnings, not to a current rise in earnings if the dividend increase might subsequently have to be rescinded should the earnings rise note be permanent” (p. 127).  Managers take the trust relationship between their company and its investors very seriously and work hard to present an honest dedication to their partners.  Psalm 111:8 “They are established forever and ever, to be performed with faithfulness and uprightness” (ESV).  Managers should concentrate on betterment while not rushing their approach, something such as an increased dividend return that will just be reverted back in a short-time can lead to investor indecisions, and potential drops in the market.  According to Brealey, Myers, and Marcus (2018) “It is no surprise, therefore, to find that the announcement of a dividend increase prompts a small rise in the stock price and that a dividend cut results in a fall” (p. 510). 

Conclusion

Finance professionals are faced with the difficult task making tough decisions that can help or hinder the company or individual whom they are working for “A successful investor is not the one who makes short-term huge profits but the one who sets the clear-cut investment objectives, decides the time and period of investment, studies the market, understands his risk taking ability along with the expected rate of return and also determines the major assets traded on the financial system” (Arora & Marwaha, 2014).

References

Arora, S., & Marwaha, K. (2014). Variables influencing preferences for stocks (high risk investment) vis-à-vis fixed deposits (low-risk investment). International Journal of Law and Management,56(4), 333-343. doi:10.1108/ijlma-07-2013-0032

Brealey, R. A., Myers, S. C., & Marcus, A. J. (2018). Fundamentals of corporate finance (9th ed.). New York, NY: McGraw-Hill. 

Chan, K. F., Powell, J. G., Shi, J., & Smith, T. (2018). Dividend persistence and dividend behavior. Accounting and Finance, 58, 127-147. Retrieved from https://onlinelibrary-wiley-com.ezproxy.liberty.edu/doi/epdf/10.1111/acfi.12208

O’Mahony, J., & Mason, M. (2017). Post-traditional corporate governance. In Globalization and Corporate Citizenship: The Alternative Gaze (pp. 74-90). Routledge.

Yermack, D. (2017). Corporate governance and blockchains. Review of Finance, 21(1), 7-31.