Quiz 12

Which of the following descriptions best exemplifies adverse selection?

A manager cannot ascertain the contributions of individual team members in team production.

Which of the following is a recommended guideline for the composition of a board of directors to implement corporate governance?

Close to two-thirds of the board of directors should consist of outside directors.

Which of the following real-world examples best exemplifies a Shared Value creation framework?

GE's ecomagination strategy that focuses on providing cleaner and efficient sources of energy, while generating billions in revenues

In terms of agency theory, which of the following is an agency problem?

adverse selection

Why did the local Metro Transit Authority (MTA) order Uber to cease and desist?

MTA argued that Uber was operating a taxi service without proper licensing.

In public stock companies, inside directors

are appointed by shareholders to provide the board with necessary company information.

Which of the following is one of the problems that corporate governance seeks to address?

principal-agent problem

According to agency theory,

corporations are viewed as a set of legal contracts between different parties.

Which of the following is one of the implications of information asymmetry between principals and agents?

Agents can pass on the information to select principals who can trade stocks based on this information.

BestTech Inc. is a publicly traded company that specializes in manufacturing consumer electronics. Which of the following best exemplifies the implementation of a Shared Value creation framework at BestTech Inc.?

BestTech uses recycled materials to create its commercially successful products.

Which of the following best exemplifies information asymmetry at Lizer Tech Inc., a publicly traded software development firm?

The board of directors at Lizer Tech makes significant structural changes to the organization and issues a press release to notify the shareholders.

What, according to Greg Smith, was the cause for the change in ethical climate within Goldman Sachs?

The company went public and began looking at clients and itself as counter parties to a transaction.

How is the characteristic of separation of legal ownership and management control disadvantageous to publicly traded companies?

The managers delegated to make decisions on behalf of shareholders might pursue their personal interests.

Which of the following is true of public stock companies?

There exists an implicit contract based on trust between society and the public stock company.

A leveraged buyout (LBO)

changes the ownership structure of a company from public to private.

Travis owns shares of Lobster Krown Inc., a food and beverages company. The company's financial situation takes a turn for the worse and ends up in severe debt. Despite owning shares of Lobster Krown, Travis is not responsible for bringing more money into the company to get it out of its debt. Which characteristic of public stock companies does this scenario best exemplify?

limited liability for investors

Christopher works for Ocean Media Inc., a large corporation. His work requires him to travel extensively and, as a result, he spends much time working remotely. Taking advantage of the situation, Christopher often works on personal projects instead of company projects. Ocean Media has difficulty checking on Christopher's work because he has no supervision in many of the places where he travels. This scenario exemplifies a(n)

moral hazard.

In __________, the stockholders are the legal owners of the company who delegate decision-making authority to professional managers.

public stock companies

One of the major differences between inside directors and outside directors of a company is that outside directors are more likely to

watch out for the interests of the shareholders of the company.

Michael Porter is in favor of the Shared Value creation framework because he believes that it

will not only allow companies to gain and sustain a competitive advantage, but also reshape capitalism and its relationship to society.