MGT Ch 12 Quiz

If a privately held company has a history of legal and ethical problems, those problems can prevent a successful initial public offering (IPO) from taking place. a) True b) False

A

Starling Inc. is a public stock company that provides natural gas for businesses. Although this company generates a large profit, management's focus on reducing costs caused the maintenance budget to be trimmed. Its pipelines have at times leaked, which created significant environmental problems. As a result, the company's value creation has suffered. This scenario supports Michael Porter's warning that public companies a) have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events. b) have defined value creation too narrowly and as a result have ignored political lobbying, thereby contributing to black swan events. c) do not focus enough on increasing firm profits, thereby contributing to low value creation. d) often do not keep economic needs and societal needs separate from each other, thereby contributing to low value creation.

A

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

A

Yelena, the CEO of Andron Inc., reports to the board of directors appointed by the shareholders of Andron. Based on shareholder suggestions, the board ties Yelena's compensation to the performance of Andron. Due to this pressure, Yelena begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. The reasons why the board ties Yelena's compensation to firm performance is to overcome a) principal-agent problem. b) shareholder capitalism scenario. c) fiduciary responsibility oversight. d) inside director-outside director conflict.

A

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 principal-agent problem. a) shared value creation b) moral hazard c) stakeholder strategy d) adverse selection

B

Ben is a manager at Unique Accessories Inc. and is friends with the company's CEO. This privilege gives Ben the information that Unique Accessories is in the midst of talks to take over a leading rival. Ben buys stocks of Unique Accessories with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of Unique Accessories depreciate in the following months. Are Ben's actions unethical? Why or why not? a) No. Ben did not make any profits from trading stocks using this information. b) Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome. c) No. Ben did not ask the CEO to disclose such information to him. d) Yes. It is illegal and unethical for Ben to possess any kind of insider information.B

B

Megan is a graduate student pursuing a course in business. Presented with the case of a company's unethical behavior, Megan wonders if the company's board of directors should ask the CEO to step down. Having a strong belief in Michael Porter's idea of value creation, Megan is most likely to conclude that company's board of directors a) should ask the CEO to step down because agents, unlike principals, are disposable. b) should ask the CEO to step down because it has a greater obligation toward society. c) should not ask the CEO to step down because he was responsible for an almost 90 percent appreciation of the company's stock. d) should not ask the CEO to step down because doing so would cause a profit dip that would affect its shareholders.

B

According to the perspective of shareholder capitalism, shareholders in public stock companies a) are restricted from buying shares of two competing companies. b) have unlimited financial liability. c) have the most legitimate claim on profits. d) have significant decision-making power.

C

Grameen Bank in Bangladesh was founded to provide microcredit to impoverished farmers who wanted to start their own entrepreneurial ventures that would help themselves climb out of poverty. This best exemplifies Michael Porter's suggestion that a) managers need to keep economic needs and societal needs disconnected from each other. b) a firm should expand its internal value chain to include nontraditional partners. c) businesses should focus on creating regional clusters such as Silicon Valley in the U.S. d) the largest but poorest socioeconomic group can yield significant business opportunities.

D

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

D