Chapter 12 Corporate Governance & Business Ethics

Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company? a. Based on a tip-off by a Goldman Sachs employee, the Galleon Group was able to sell its holdings in Goldman Sachs' stocks prior to the announcement. b. GE knew that it could create a profitable venture out of producing green products, so it rolled out the ecomagination strategy. c. Mark Hurd, CEO of HP, was unaware of the sexual harassment allegations, and the board's demand for him to resign caught him by surprise. d. Goldman Sachs was party to the Abacus deal despite knowing its shortcoming

a. Based on a tip-off by a Goldman Sachs employee, the Galleon Group was able to sell its holdings in Goldman Sachs' stocks prior to the announcement.

Which of the following is true of business ethics? a. Certain notions such as fairness, honesty, and reciprocity are universal norms b. Business ethics is an agreed upon code of conduct in business, based on laws c. The perception of what is ethical and what is not is similar across different cultures d. Business ethics needs to be codified into law in order to be followed

a. Certain notions such as fairness, honesty, and reciprocity are universal norms

Outside directors are more likely to watch out for the interests of shareholders of their firm because a. They are more likely to benefit from using inside information to trade stocks b. They do not have the safety of serving on the boards of other firms c. They are part-time employees of the firm d. They have more independence than inside directors

a. They are more likely to benefit from using inside information to trade stocks

According to Michael Porter, which of the following is a problem with many publicly traded companies? a. Shareholders of publicly traded companies do not have a legitimate claim of file. b. Many publicly traded companies have defined value creation too narrowly in terms of financial performance c. There is no transferability of stock ownership in publicly traded companies d. The legal owners of publicly traded companies also make management decisions for the company

b. Many publicly traded companies have defined value creation too narrowly in terms of financial performance

Which of the following statements is true of shareholders in a public stock company? a. They directly supervise and coordinate the manufacture of products and delivery of services b. They are granted a charter of incorporation by the state and legally own company shares c. They are the centerpiece of corporate governance d. They are appointed by a board of directors to oversee the company's management.

b. They are granted a charter of incorporation by the state and legally own company shares

What is a unicorn? a. A public stock company valued at a billion dollars or more b. A public stock company valued at a million dollars or more c. A private start-up company valued at a billion dollars or more d. A private start-up company valued at a million dollars or more

c. A private start-up company valued at a billion dollars or more

Adverse selection in a public stock company occurs when a. A firm's work tasks, incentives, and employment contracts minimize opportunism by agents b. A principal is not aware of the context from which information from an agent is derived c. Information asymmetry increases the likelihood of selecting inferior alternatives d. An agent manipulates information to benefit stockholders

c. Information asymmetry increases the likelihood of selecting inferior alternatives

Which of the following is the source of the principal-agent problem in publicly traded companies? a. The law of legal personality b. Limited liability for investors c. The separation of ownership and control d. Transferability of investor ownership

c. The separation of ownership and control

Which of the following perspectives best supports the shared value creation framework? a. Markets are more often than not defined by societal needs rather than economic needs. b. Failing to create value for society almost always reflects on the short term bottom line c. A firm's competitive advantage depends on pitting economic and societal needs in a trade-off d. Externalities such as pollution, wasted energy, and costly accidents actually create internal costs

d. Externalities such as pollution, wasted energy, and costly accidents actually create internal costs

What are poison pills? a. They are used by shareholders to prevent the founder of a company from taking the company private through a leveraged buyout. b. They are unspecified conditions in the contract between stakeholders in an organization c. They are used by companies in a bid to perform a hostile takeover of competing firms d. They are defensive provisions that kick in should a buyer reach a certain level of share ownership

d. They are defensive provisions that kick in should a buyer reach a certain level of share ownership