Discussion Reply
Research an example of a foreign government taking minority equity positions, in one of its domestic firms, that in doing so has improved the firm’s performance
The writer has a point by stating that the idea of the government taking over a defaulting bank is great both to the state’s economy, and the company’s reputation. For instance, the Bank of Baroda case, the Indian government invested in it when it was undergoing significant financial distress due to the forex frauds. The government saved the bank by taking up an additional stake and merging it Dena and Vijaya banks, which were also defaulting. However, in as much as the banks got saved from defaulting, the customers will be disadvantaged as suggested by the writer. This is because the merger may lead to sales positions termination, loss of consumer relations, and misunderstanding over new commission charges (Basu 1). This will lead to unhappy customers who may eventually decide to leave, leading to a loss on the companies.
Determine if that investment has allowed the firm to invest in projects they would not otherwise pursue
I believe the writer is right by suggesting that the Iceland government’s involvement in the renationalization of its banks when they were hit with economic disaster in 2008 the country’s economy. In as much as it let three of its major banks fail, it was for the greater good. By rooting out the reckless banks, the government solved the issue from its very source. In doing so, the government discovered that the banks were run by credit, and loans were not disbursed according to equity. This propelled it’s taking over banking to handle the mess that had been created. If it had just focused on saving the affected banks from falling, there would have still been high chances of an issue like that reoccurring in the future.
Is there evidence suggesting that this minority equity investment was successful because of the government’s role?
I agree with the writer as the Icelandic economy was only saved due to the government’s intervention. The bank sector was already failing and had the government not invested in it; the economy would have crashed significantly. Moreover, the writer highlights the various benefits that resulted from the intervention like enhanced tourism, citizens investing in local businesses, and bared foreign investment thanks to the Iceland government.
Work Cited
Basu, Chirantan. “How Can a Company Merger Affect Consumers?” Small Business – Chron.com, Chron.com, 26 Oct. 2016, https://smallbusiness.chron.com/can-company-merger-affect-consumers-37226.html.