Question: Refer to Theory in Practice 12 3 concerning Canadian Superior Energy

Refer to Theory in Practice 12.3 concerning Canadian Superior Energy, Inc.

a. Obviously, the news of well abandonment was a major factor contributing to Canadian Superior’s share price decline in March. However, other reasons for the decline can also be suggested. Give two other reasons.
b. What well- known problem of information asymmetry is suggested by the CEO’s sale of stock in January 2004? Explain.
c. Assuming that the market’s concerns about the information asymmetry problem you identified in part b are well founded, what is the likely effect of these concerns on the share prices of all Canadian oil and gas companies? Why?
d. Suppose that given the CEO’s optimism about the ultimate success of the well, the company believes that its share price is undervalued by the market. Suggest three credible signals that the company and/ or its CEO could give to increase its share price. Explain why the signals you suggest are credible.

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