What is a likely consequence if financial institutions view a company's results as overstated?

When financial institutions perceive a company's results as overstated, it can lead to decreased trust in the management of that company. This skepticism arises because stakeholders, including lenders and investors, rely on accurate and reliable financial reporting to make informed decisions. If a company is suspected of manipulating its financial statements or presenting an overly optimistic view of its performance, it can create doubts about the integrity and capability of its management.

The reduced trust can result in several consequences, such as increased scrutiny of the company's financial practices, reluctance from potential investors to engage with the company, and a more challenging environment for raising capital. Consequently, any future dealings with financial institutions may become fraught with caution and suspicion, potentially leading to higher costs of borrowing and a decrease in investor confidence.

This erosion of trust does not typically have positive implications for the company's overall reputation or operational effectiveness, impacting long-term growth and stability.