BUS498 Chapter 12 Quiz

Which of the following descriptions best exemplifies adverse selection? a. A manager cannot ascertain the contributions of individual team members in team production. b. A research scientist uses the organization's resources to conduct personal research. c. An employee spends time on social networking sites during work hours. d. An interview candidate lists his qualifications in chronological order.

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

Why did the San Francisco's Metro Transit Authority (MTA) order Uber to cease and desist? a. MTA argued that Uber was operating a taxi service without proper licensing. b. MTA claimed that Uber failed to uphold its promise to give part of its profit to MTA. c. MTA argued that Uber failed to comply with the emission standards for vehicles. d. MTA claimed that Uber was attempting to create a monopoly on taxi services.

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

Which of the following is one of the implications of information asymmetry between principals and agents? a. The information comes to all stakeholders simultaneously, which is disadvantageous to the stockholders. b. Principals tend to be better informed than the agents, and thus will avoid delegating decision-making authority to their agents. c. Outsiders, such as shareholders, are the first to learn about important developments, before the information is released to the employees. d. Agents can pass on the information to select principals who can trade stocks based on this information.

a. The information comes to all stakeholders simultaneously, which is disadvantageous to the stockholders.

How is the characteristic of separation of legal ownership and management control disadvantageous to publicly traded companies? a. The managers delegated to make decisions on behalf of shareholders might pursue their personal interests. b. The shareholders may misuse their power to make decisions for the company and make decisions only for their profit. c. The managers delegated to make decisions may be too focused on maximizing total returns to shareholders. d. The shareholders do not directly supervise the activities of the board of directors.

a. 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? a. There exists an implicit contract based on trust between society and the public stock company. b. Public stock companies are not required to disclose financial statements. c. The public stock company is not an important institutional arrangement in developing economies. d.Society expects public stock companies to add value to society by making profits for shareholders.

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

According to agency theory, a. corporations are viewed as a set of legal contracts between different parties. b. agents are viewed as people who are the legal owners of the company. c. principals should empower agents to run the corporation as they deem fit. d. trading stocks using inside information is ethical but not legal.

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

In public stock companies, inside directors a. generally form the lower levels of management in an organization. b. are appointed by shareholders to provide the board with necessary company information. c. are not full-time employees of the firm. d. are more likely to watch out for shareholders' interests than external directors are.

a. generally form the lower levels of management in an organization

Alexander works for Salamon Telecommunications 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, Alexander often works on personal projects instead of company projects. Salamon Telecommunications has difficulty checking on Alexander's work because he has no supervision in many of the places where he travels. This scenario exemplifies a(n) a. moral hazard. b. inverse selection. c. poison pill. d. outside director.

a. moral hazard.

Michael Porter is in favor of the shared value creation framework because he believes that it a. will not only allow companies to gain and sustain a competitive advantage, but it will also reshape capitalism and its relationship to society. b. is the responsibility of the company to focus on creating profits and nothing else. c. is the duty of a company to focus on benefitting shareholders who have the most legitimate claim on profits. d. will help to pit economic and societal needs in a trade-off.

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

In terms of agency theory, which of the following is an agency problem? a. shared value b. adverse selection c. corporate social responsibility d. stakeholder strategy

b. adverse selection

Which of the following is a recommended guideline for the composition of a board of directors to implement corporate governance? a. Fortune 500 companies should only hire directors from each other's companies. b. A company's board of directors should not contain more than ten members. c. Close to two-thirds of the board of directors should consist of outside directors. d. The CEO is the best person to act as the chairman or chairwoman of the board.

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

MegaValu 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 MegaValu Inc.? a. MegaValu's employees work in shifts to adhere to the 8-hour work day rule. b. MegaValu's products are developed in a high-tech R&D facility based in Texas. c. MegaValu uses recycled materials to create its commercially successful products. d. MegaValu has a customer reward program for its most loyal customers.

c. MegaValu uses recycled materials to create its commercially successful products.

What, according to Greg Smith, was the cause for the change in ethical climate within Goldman Sachs? a. The company acquired Abacus, and the conflicting cultures prompted Goldman Sachs to adopt a new hybrid culture. b. The company had earned a reputation that it could not live up to in the long run. c. The company went public and began looking at clients and itself as counter parties to a transaction. d. The company went from caring about customers to creating an inflated share price at any cost.

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

Which of the following is a problem that corporate governance seeks to address? a. limited liability for investors b. shared-value creation c. the principal-agent problem d. the Ecomagination problem

c. the principal-agent problem

One of the major differences between inside directors and outside directors of a company is that outside directors are more likely to a. be full-time professionals at the company. b. provide the board with information regarding the company's performance. c. watch out for the interests of the shareholders of the company. d. align interests with the management and CEO of the company.

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

Which of the following real-world examples best exemplifies a shared value creation framework? a. Uber's use of technology to prevent law enforcement from monitoring its drivers b. GE's strategy of developing multiple products for the same purpose and altering its products to suit the culture of different countries c. HP's decision to ask its CEO, Mark Hurd, to resign after he was accused of sexual harassment d. GE's Ecomagination strategy that focuses on providing cleaner and efficient sources of energy while generating billions in revenues

d. GE's Ecomagination strategy that focuses on providing cleaner and efficient sources of energy while generating billions in revenues

Which of the following best exemplifies information asymmetry at Amber Narwhal Inc., a publicly traded software development firm? a. The lower-level employees at Amber Narwhal are often unaware of what happens in boardroom meetings. b. The new CEO of Amber Narwhal implements a new strategy that focuses on social initiatives. c. The shareholders of Amber Narwhal subscribe to Milton Friedman's views of capitalism, while the agents subscribe to Michael Porter's views. d. The board of directors at Amber Narwhal makes significant structural changes to the organization and waits several weeks before issuing a press release about it.

d. The board of directors at Amber Narwhal makes significant structural changes to the organization and waits several weeks before issuing a press release about it.

A leveraged buyout (LBO) a. is based on an expectation that the new private owners will not restructure the company at any cost. b. requires the buyer to disclose financial statements of the company once it becomes private. c. forces shareholders to sell their shares at lower prices than the actual value. d. changes the ownership structure of a company from public to private.

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

Shane owns shares of Vegan Pizza 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 Vegan Pizza, Shane 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? a. transferability of investor ownership b. legal personality c. separation of legal ownership and management control d. limited liability for investors

d. limited liability for investors

In __________, the stockholders are the legal owners of the company who delegate decision-making authority to professional managers. a. family-owned firms b. proprietorships c. nonprofit companies d. public stock companies

d. public stock companies