Short selling in the stock markets is the sale of stocks not owned by the seller. Money is made when the stock drops in value instead of increasing in value, thus making it such a controversial activity. Many have argued that short selling have large detrimental effects to the stock market, however it does also provide benefits to the society. By applying ethical models of reasoning and determining if NRFs are acting in the conflict of interest, we will be able to determine if short selling conducted by NRFs is indeed ethical and whether it should be allowed to be conducted.
Ethical Model of Reasoning
Consequentialism is based on the principle of maximizing utility, focusing on the consequences of the action. As long as the positive consequences outweigh the negative consequences, it is considered as ethical (Brooks & Dunn, 2011). The strength of consequentialism is that it can be applied systematically. Unfortunately, it is difficult to apply because it is difficult to determine and measure all the consequences bore by others. Moreover, there is no definite guideline to who are the stakeholders that should be considered when applying the model (Hart, n.d).
Deontology is a “duty” based ethics. In order to be ethical, one must take proper actions with good intentions resulting in positive consequences (Brooks & Dunn, 2011). The appeal of Deontology is that it provides us with rules that are applicable to all situations as rules. On the other hand, it is rigid and unable to be fair in different situations (Hovland & Wolburg, 2010).
Justice Ethical Approach
Justice ethical approach is where everyone should be treated equally regardless of their social standing and background (Velasquez, Andre, Shanks, S.J, & Meyer, 1990). Justice can be defined as the administering of what the person deserves (Justice, n.d). It is unfortunately an uphill task to determine what people deserve as there are no guidelines or specific rules to adhere to (Velasquez, Andre, Shanks, S.J, & Meyer, 1990).
Conflict of Interest
Conflict of interest is a situation when a person has a duty to more than one party but cannot act fairly for both parties (Hill & Hill, 2008). It could also be a situation when a profession or corporation has a personal stake in the decision being made resulting in him being untrustworthy (Conflict of Interest, n.d.).
Short selling, stakeholders and ethics
Companies who are targeted by NRFs may lose their credibility and thus their ability to raise capital through debt or equity, and then lose its capability to function. The type of company determines if this consequence is beneficial to the society or not. If the company was initially a benefit to the society, like a pharmaceutical company which conducts medical research and produce medicine, its inability to conduct its principal business could be a negative consequence. On the other hand, if a company that harms the society, like a company that...