mgmt 425 ch 12

Can define and explain business ethics as described in Chapter 12 _____ are an agreed-upon code of conduct in business, based on societal norms. A. Fiduciary responsibilities B. Poison pills C. Strategic business points D. Business ethics

D. 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 shortcomings.

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.

Can define and explain business ethics as described in Chapter 12 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.

Can define and explain business ethics as described in Chapter 12 Which of the following is regarded as the most internal of control mechanisms? A. business ethics B. executive compensation C. the market for corporate control D. government regulation

A. business ethics

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

A. information asymmetry increases the likelihood of selecting inferior alternatives.

Jennifer received a tip from a close friend who is an executive manager of a publicly traded company called MegaRed Inc. The manager received some inside information about how to trade MegaRed stock to get a huge profit. He shared this information with his Jennifer. This scenario is an example of A. information asymmetry. B. adverse selection. C. stakeholder strategy. D. shared value creation.

A. information asymmetry.

The root cause of the principal-agent problem between senior executives and lower-level employees can be explained by the A. informational advantage of the lower-level employees. B. higher number of lower-level employees than senior executives. C. knowledge of employees regarding day-to-day tasks. D. operational expertise of lower-level employees in concentrated areas of a particular field.

A. informational advantage of the lower-level employees.

_____ is illustrated by a situation in which the principal cannot determine the value created by individual members of a team. A. Moral hazard B. Adverse selection C. Information asymmetry D. Shareholder capitalism

B. Adverse selection

Can define and explain business ethics as described in Chapter 12 Which of the following is an implication for the strategist in the context of corporate governance and a company's success? A. Very few and specific corporate-governance mechanisms can be effective in addressing the principal-agent problem. B. Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage. C. Leading by ethical example often has a less strong effect on employee behavior than words. D. A firm that restricts its responsiveness to stockholders (and no other stakeholders) and keeps them committed to its vision will be successful.

B. Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage.

At Opnic Corp., a cross-functional team is formed to work on a project for a new client. The team consists of Darius and four other members. At most of the team's presentations to senior management, Darius takes the lead and discusses project specifics with the management, while others chip in with additional information. At the completion of the project, Darius is recommended for promotion, while the other team members receive little recognition for their hard work. The reality is that Darius did very little actual work but spent some time compiling the project report based on different documents submitted by the others. This scenario at Opnic Corp. is a typical consequence of A. moral hazard. B. adverse selection. C. shared value creation. D. corporate governance.

B. adverse selection.

Can define and describe adverse selection Raj is a recent graduate who states that he has interned at a major accounting firm so that his value as a candidate for employment increases. A start-up recruits Raj based on his stated credentials without verifying them. Two days into the job, Raj's team lead realizes that Raj does not know much of what he claimed to know during the interview. This scenario best exemplifies A. moral hazard. B. adverse selection. C. shared value creation. D. corporate governance.

B. adverse selection.

The risk of employee opportunism on behalf of agents in a public stock company is exacerbated by A. stakeholder strategy. B. information asymmetry. C. corporate governance. D. groupthink

B. information asymmetry.

Can define and explain the principal-agent problem GLD Inc. is a publicly traded company. The stockholders of this company delegate the authority to make decisions for the company to a CEO named George. The stockholders expect George to make decisions that will benefit the company. However, George begins to find ways to maximize his total compensation, which at times hinders GLD's performance. This scenario reflects A. value creation problems. B. principal-agent problems. C. inside director-outside director problems. D. fiduciary responsibility problems.

B. principal-agent problems.

Which of the following is the source of the principal-agent problem in publicly traded companies? A. the law of legal personality B. the separation of ownership and control C. limited liability for investors D. transferability of investor ownership

B. the separation of ownership and control

A company scientist at a biotechnology company decides to work on his own research project, hoping to eventually start his own firm, rather than on the project he was assigned. However, the company's stockholders are unaware of this situation. This is an example of a(n) _____ in the context of a principle-agent problem. A. adverse selection B. stakeholder strategy C. moral hazard D. shared value creation

C. moral hazard

Which of the following acts in the Goldman Sachs-Galleon Group insider trading scandal is an egregious exploitation of information asymmetry? A. Galleon Group's decision to trust Rajat Gupta's information as accurate B. Rajaratnam receiving information regarding Warren Buffet's impending multibillion-dollar injection into Goldman Sachs C. Warren Buffet's decision to inject a huge amount of money into Goldman Sachs based on its financial reports D. Rajat Gupta providing information regarding Warren Buffet's impending multibillion-dollar injection into Goldman Sachs

D. Rajat Gupta providing information regarding Warren Buffet's impending multibillion-dollar injection into Goldman Sachs

What is the term used to describe a situation in which a manager of a company has more inside information than an investor of the company? A. insider monopoly B. stakeholder strategy C. moral hazard D. information asymmetry

D. information asymmetry

Understands the terms moral hazard, adverse selection, and information asymmetry In principal-agent relationships, _____ describes the difficulty of principals to ascertain whether agents have really put forth their best efforts. A. the agency problem B. adverse selection C. on-the-job consumption D. moral hazard

D. moral hazard

Rajat Gupta's role in providing inside information to Galleon Group for the benefit of Galleon Group's stockholders and himself is an example of A. shareholder capitalism. B. adverse selection. C. shared value creation. D. moral hazard.

D. moral hazard.

Clare, the CEO of Femica Inc., reports to the board of directors appointed by the shareholders of Femica. Based on shareholder suggestions, the board ties Clare's compensation to the performance of Femica. Due to this pressure, Clare begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. This conflict between Clare's interests and the board's interests best illustrates a(n) A. shareholder capitalism scenario. B. inside director-outside director conflict. C. fiduciary responsibility oversight. D. principal-agent problem.

D. principal-agent problem.

Can define and explain the principal-agent problem (CHAPTER 12) In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems? A. the expectation that the agent will follow the country's laws and regulations B. the expectation that the agent will go above and beyond the call of duty C. the expectation that the agent will reconnect economic and social needs D. the expectation that the agent will act in the principal's best interest

D. the expectation that the agent will act in the principal's best interest

The conflict in a principal-agent relationship arises when A. the company has more outside directors than inside directors. B. the strategy adopted by the company's agents tries to emulate the mission statement created by the principals. C. stockholders and agents are involved in the day-to-day operations of the company. D. the goals of the principals and agents are not aligned with each other.

D. the goals of the principals and agents are not aligned with each other.