Instant Download Microsoft Word Current 2014-15 The entire course study guide includes the homework solutions in word format for ETH 557 (bachelors program). Your tutorial will include these files: Just shoot us an email or contact us via live chat. Our expert ETH tutors will add the answers to the study guide within 1 day. You will receive a free update to the study guide with the answers you need. Yes, this guide is designed to help students get through the Week 4 Assignment with ease. Resources: This week’s Electronic Reserve Readings Conduct additional research, and then answer each question in two 350- to 700-word responses: •   Penn Square Bank: What were the ethical pressures on the firm concerning documentation, credit extension, and revenue recognition that lead to the final collapse? What should have been done to reduce or offset these pressures? •   Dow Corning Bankruptcy: What were the business’ ethical challenges involved in filing bankruptcy for Dow Corning? Analyze the actions of the two parent companies, Dow and Corning that represent the largest ethical issues.

Introduction

The collapse of Penn Square Bank and the bankruptcy of Dow Corning are two significant events in the history of business ethics. Both cases are examples of ethical challenges faced by companies and the actions they took that led to dire consequences. In this study, we will analyze the ethical pressures on Penn Square Bank and the ethical challenges faced by Dow Corning during their bankruptcy filing. We will also examine the actions of the parent companies, Dow and Corning, that represent the largest ethical issues in the Dow Corning case.

Penn Square Bank: Ethical Pressures and Collapse

Penn Square Bank was a small, Oklahoma-based bank that collapsed in 1982. The bank’s demise was precipitated by its involvement in risky energy loans. The bank engaged in aggressive lending practices, often with inadequate documentation and lax credit extension standards. The ethical pressures on the firm concerning documentation, credit extension, and revenue recognition were significant factors that contributed to its ultimate collapse.

Regarding documentation, Penn Square Bank failed to follow strict regulatory guidelines for loan underwriting processes. The bank lacked proper documentation for many loans, which made it difficult to accurately assess the credit quality and inherent risks associated with these loans. This lack of documentation not only violated regulatory requirements but also prevented proper risk management and oversight by the bank.

In terms of credit extension, Penn Square Bank was under significant pressure to extend loans to the energy sector, which was experiencing a boom at that time. The bank faced intense competition from other banks and financial institutions in financing ambitious energy projects. This pressure to generate revenue quickly led to a relaxation of credit extension standards and an increased risk appetite. Consequently, the bank extended loans to borrowers with weak financial positions and questionable collateral, further exacerbating its risk exposure.

Revenue recognition was another ethical pressure on Penn Square Bank. The bank engaged in questionable accounting practices to recognize revenue from loans immediately, even before the loans were fully funded or secured. This practice artificially inflated the bank’s financial performance and misled investors and regulators about its true financial health. The pressure to show strong growth and profitability pushed the bank to manipulate its accounting practices, ultimately leading to a misleading portrayal of the bank’s financial condition.

To reduce or offset these ethical pressures, Penn Square Bank should have implemented stronger internal controls, risk management systems, and ethical governance practices. The bank should have adhered to regulatory guidelines for documentation, credit extension, and revenue recognition. Additionally, the bank should have established a robust risk assessment process to accurately evaluate the creditworthiness of borrowers and the associated risks of the loans. By implementing these measures, the bank could have mitigated the ethical pressures it faced and avoided its collapse.