DB FINANCIAL MANAGEMENT

How Google’s Stock Split Protected its Founder’s Votes

            In 2014, the company Google created two classes of shares so that the founders both Larry Page and Sergey Brin can continue to have control. The decision was made due to that when companies decide to go public (which was intending to happen later that year for the company), the founders often lose control of their company when excessively many shares are being distributed. The shares were split into ”A” shares and “C” shares, which are known as the GOOG and GOOGL stock ticker symbols for Alphabet formerly known as Google. The difference between the two shares is that GOOG shares “C” does not have any voting rights while GOOGL “A” does. “There is a third type of share, class-B, which are held by founders and insiders that grant 10 shares per vote. Class-B shares cannot be publicly traded” (Investopedia, 2020).

            Therefore, Google was able to avoid the typical split by simply doubling the number of their existing shares (the value of each share would be halved), and was able to split their stock in a unusual way that no one expected. “If Google did a typical split, they’d double the voting power of the A shares relative to the B shares, which would dilute the founders’ voting power” (George, 2015). With the issue of the non-voting stock, the value of each public share has become more affordable for everyday investors with double as many shares available. Other companies were able to see the benefits of Google creating this avenue to just allowing the voting rights to stay at the top level of the company governance.

            “The growth in Google’s outstanding shares threatened to undercut a system that Page and Brin had set up to ensure they have final say in all key decisions” (Morris, 2014). The founders of this company, made a decision that they believed was best for them even if it caused controversy amongst the investors’ standards. James 1:5 ESV, “If any of you lacks wisdom, let him ask God, who gives generously to all without reproach, and it will be given him.”

Reference:

George. (2015, August 29). What happened during the Google Stock split? SigFig. https://support.sigfig.com/hc/en-us/articles/202586324-What-happened-during-the-Google-Stock-split-.

Morris, D.  (2014, April 2). Here's why Google Inc is about to split its shares for the first time in its history. Financial Post. https://business.financialpost.com/investing/google-inc-stock-split.

Investopedia. (2020, May 14). Alphabet's GOOG vs. GOOGL: What's the Difference? Investopedia. https://www.investopedia.com/ask/answers/052615/whats-difference-between-googles-goog-and-googl-stock-tickers.asp.

 

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Bank Regulation Spawns a New Security

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Discussion Board 2

 

            Leading up to the financial crisis of 2007-2009, financial institutions utilized collateralized debt obligations (CDOs) that protected them from running out of capital required to satisfy the debt they have on their books. “If you ever find an unsatisfied clientele, do something right away, or capital markets will evolve and steal it from you” (Brealey, Myers, & Allen, 2020, p. 467). Many people feel that if there is a chance that there is going to be a run on their financial institution that they should be the first in line to be able to withdraw all of the money in their account(s). Bank regulations were created to prevent this from happening because it required the financial institution to hold a minimum amount of capital to protect them in the event the assets on their books fall in value and their customers lose faith in the financial institution’s ability to protect their asset(s).

Collateralized debt obligations (CDOs)

            “Insufficient capital provisioning due to flawed and overly optimistic risk assessments is at the center of the problem” (Giesecke & Kim, 2011, p. 32). Financial institutions invested in risky loans that they hoped would be repaid in the future, but that is not always the case, so it was important that they bundle the less risky loans with the more risky loans to ensure that they have enough money to be able to satisfy the withdrawals when their customers want to take money from their account(s). One of the problems that financial institutions discovered when using CDOs was that there was little research on how they worked, so they did not have a reference price when they priced the packaged loans which caused mispricing that affected the bottom line of the financial institution (Luo, Tang, & Wang, 2018). The financial crisis showed the government that there was a need for more regulations to not only help and protect financial institutions from not having enough capital to run efficiently, but it would also protect the customers of those financial institutions from losing the money in their account(s).

Biblical integration  

            Proverbs 6:22 says, “when you walk, their counsel will lead you. When you sleep, they will protect you. When you wake up, they will advise you” (NLT). When people choose a financial institution to work with, they have done so because it meets all their financial management needs. They hope that everything the financial institution does will ensure that their money is safe and protected from being lost. The financial crisis showed people that financial institutions were not conducting business in a way that God taught us in the scriptures because they were not keeping their customer’s best interests in mind so the government had to develop more regulations to ensure they were protected.

 

 

 

 

 

 

 

 

 

 

 

References

Blue Letter bible verse. New Living Translation. Retrieved May 28, 2020 from

            https://www.blueletterbible.org/ .

Brealey, R. A., Myers, S. C., & Allen, F. (2020). 13th edition. Principles of Corporate Finance.

            McGraw Hill Education: New York, NY.

Giesecke, K. & Kim, B. (2011). Risk analysis of collateralized debt obligations. Operations

Research 59 (1). 32-49. Retrieved May 28, 2020 from file:///C:/Users/cassa/OneDrive/Desktop/BUSI%20685%20Financial%20Management/DB2%20reference%202.pdf.

Luo, D., Tang, D. Y., & Wang, S. Q. (2018). Model specification and collateralized debt

            obligation (mis)pricing. Journal of Futures Market 38 (11). 1284-1312. Retrieved

May 28, 2020 from file:///C:/Users/cassa/OneDrive/Desktop/BUSI%20685%20Financial%20Management/DB2%20reference.pdf.

 

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