Citigroup dilemma globalization vs Trumpnomics
Dow
Jones Industrial Average, the efficient stock market has declined to a
historical low in response to bad news Shiller (2007) the largest US based
global bank recently reported a $6 billion tax loss (Google
Finance, 2018). From the recent US election of the forty-fifth President
Donald J. Trump, concerns has surfaced covering the revised corporate tax law
he signed (Berg, 2016). Tax cost presents risk of reducing profits for
shareholders & relative investment value (Harvey, 2014). The appeal of corporate
inversion has become reality for managers to reduce the risk from large tax
fees (Roa, 2015).
History of Citigroup
Citigroup
is a public traded financial institution listed on the New York Stock Exchange
with a troubled past (Gevurtz,
2010). In
2007, the organizations integrity was in question in the wake of the housing
market bubble that eventually led to the market collapse (York, Gumbus & Lilley, 2008). A swarm of
negative news surrounded the corporations’ image with allegation of funds
misappropriations and egregious acts within management (Gevurtz, 2010). Vikram Pandit CEO of Citigroup, employed a risk management
team to handle the company’s negative press while it rebounded from an alarming
performance slump York et al, 2008.
Current Organization Risk
The latest bad news for Citigroup
is the announcement from Pandit, of the corporate twenty- billion dollar tax
deferment (Google
Finance, 2018). The
international bank is forced to pay back twenty-eight percent of $71 billion
earnings that puts the earnings for the company $6 billion in the red (Citi, 2018). Citigroup Corporation earns half of its
profits in countries outside the US (Citi, 2018). In its current structure, future
profits will significantly decline from the new tax bill aimed at domestic
based business with foreign operations (Berg, 2016).
Current Economic Risk
The
American economic climate is filled with tension, anxiety, and divisions (Berg,
2016). Government officials shoulder the inherit task to bring together
opposite sides, resolve issues through incentives, and create synergy through
regional integration (Gasper, Arreola-Risa, & Bierman, 2004). Currently, North America is
experiencing economic unrest. The turmoil in the country is the apparent
consequence of conflicted domestic relations, controversial country elections, and
questionable foreign relations, and declining consumer confidence (Berg,
2016). Therefore, a strategic analysis becomes a multidimensional problem
that triangulates different national governments’ and multiple nations (Dersky,
2014). Countries are continually connecting into a single system through means
of technology, shared transit, and interconnected financial systems (Lobo & Valente, 2014).
Research Proposal
The
proposed research will investigate the role of corporate inversion as a risk
management technique, and additionally observe market response. Corporate inversion is the restructuring of a
domestic based company in foreign soil to avoid paying local taxes (Barker, 2016). The $20 billion
loss at Citigroup has generated discussions into organizational restructure
according to Berg, 2016. Citigroup current global position has been threatened
by U.S. government new tax laws. Since
January Citigroup stock has fell on average 1.86 basis points per month (Google
Finance, 2018). The phenomena of corporate inversion & market response
tells an economic story in the germinal of efficient market literature.
Methodology Quantitative
Here, a quantitative research employs numerical
logic to interpret the phenomena of corporate inversion and market response.
The quantitative research model is created in a comprehensive nature, where
exchanged findings artificially reflects analytics of the current market place.
Quantitative research is rigid and used to interpret numerical logic (Neuman, 2011). Quantitative
research tells a story through data, and instruments; used to measure collected
data, and summarize the findings (Suprun,
Yanova, & Nosov, 2013). This form of research goes beyond the interpretation of words by
counting and valuating the phenomena in the form of calculations (Neuman, 2011).
Quasi-Experimental
Quasi- Experimental consist of
treatment and controlled group to determine the effects of independent
variables (Funderburg, & Laurian, 2015). Twenty participants, will be asked to
participate in the experiment. The sample will be divided into 2 groups, 10 in
the control group, and 10 in the treatment group. Each group will be given a
narrative that reflects the ideas of the investor. The corporate inversion experiment is
conducted in a way where the treatment is measured, and a true baseline is
established (Neuman, 2011). The control group represents the untreated party
and serves as a benchmark in the experiment (Funderburg, & Laurian, 2015).
Data Collection
Participants
will be asked to make an investment decision based on paying taxes or the
avoidance of such. Additionally, the participants will examine the risk in a
global restructure. The treatment group will be assigned a tax bill that reflects
the current law. The control group will operate under the deregulated
assumptions of the previous tax code. The alternatives of foreign variables for
all parties will reflect rights companies have to sell their business to
foreign competitors, or restructured through foreign mergers, or even foreign acquisitions.
Data collected and analysis are performed through accredited supported systems.
Furthermore, the evaluated data will be used to analyze the participant’s
choice. The group’s decision will reflect the participant’s views to support
the corporate inversion or the alternative to agree with tax terms.
The research will examine the
markets support of the options available to Citigroup. A decade ago the
financial holding group faced allegations of questionable business practices (Gevurtz,
2010). Citigroup, mishandling of expenses, and reported bad judgement was then
linked to market punishments York et al, 2008. The CEO, formed a strategic group to
combat negative press (York,
Gumbus, & Lilley, 2008). Since then, company earnings have reflected a decade of continual
growth. What will be the results of the next decision Citigroup will make in
strategy of the current task risk?
References
Barker, J. (2016). Corporate
inversions: The migration of corporate tax revenue. Journal of Applied
Business Research, 32(4), 1137-1144.
http://dx.doi.org.contentproxy.phoenix.edu/10.19030/jabr.v32i4.9726
Berg, C. (2016). Trump's tax
revolution. Institute of Public Affairs Review: A Quarterly Review of
Politics and Public Affairs, the, 68(4), 1.
Citi. (2018). Fourth
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http://www.citigroup.com
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(2015). Bolstering environmental (in)justice claims with a quasi-experimental
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Finance. (2018). Market Summary Citi Group . Retrieved from
http://www.google.com
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(2014). Brazilian cargo road transportation infrastructure: Globalization,
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York, C. C., Gumbus, A., &
Lilley, S. (2008). Reading the tea Leaves—Did citigroup risk their reputation
during 2004–2005?
Presented at ICAA's second
international conference globalization – the good corporation june 26–28, 2007
baruch college, new york city.Business and Society Review, 113(2),
199-225. 10.1111/j.1467-8594.2008.00318.x
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