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Which of the following descriptions best exemplifies adverse selection?

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

Why does Michael Porter recommend expanding the customer base of an organization in terms of the shared value creation framework?

A) Doing so could yield significant business opportunities that could improve the standard of living of the poor.

Which of the following could be used as an example of why a stakeholder strategy approach to business has shortcomings?

A) the nonsustainable debt levels incurred by sovereign governments to fund social programs

Domenick 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 Domenick based on his stated credentials without verifying them. Two days into the job, Domenick's team lead realizes that Domenick does not know much of what he claimed to know during the interview. This scenario best exemplifies

Adverse Selection

Janet hires Vanessa to perform a critical task in her organization. However, Vanessa has misrepresented her knowledge, skills and abilities and Janet has no way of knowing whether Vanessa can indeed perform well. This is an example of

Adverse Selection

Resumé overstatements for team openings

Adverse selection example

Vanessa accepts a job as vice president for human resources at a paper manufacturing start-up. She discovers that the start-up believes that teamwork is so important that it plans to award all raises and bonuses by splitting them equally within a team rather than presenting them to individual employees. What action should Vanessa take regarding this plan?

Cancel the plan because under it, opportunistic employees will do little or no work. Play/Pause VideoMute/Unmute Video ADVERTISEMENT

Galleon Group's Founder

Information asymmetry

Jim is the CEO of a financial services firm. What action should Jim take to be sure the firm avoids moral hazards?

Jim is the CEO of a financial services firm. What action should Jim take to be sure the firm avoids moral hazards?

A company scientist working on personal research

Moral hazard

________ is the term that describes the difficulty of the principal to ascertain whether the agent has really put forth a best effort.

Moral hazard

Stockholders' relationships with managers

Principal-agent problem

Which of the following best supports the fact that Dieselgate was unethical when entering the U.S. market?

The engineers installed "defeat devices" that altered the concentration of harmful emissions when EPA regulators tested the vehicles.

To help increase and maintain ethical values for future managers, a group of Harvard Business School students developed

a voluntary MBA oath that explicitly recognizes the role of business in society and its responsibilities beyond shareholders.

Nexus of legal contracts

agency theory

PolyCon 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

have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events.

A mortgage loan officer persuades unsuspecting consumers to sign up for exotic mortgages, such as "option ARMs." These mortgages offer borrowers the choice to pay less than the required interest, which is then added to the principal while the interest rate can adjust upward. Because of this setup, many borrowers are unable to repay the mortgage once the interest rates go up. Which of the following phrases best describes this scenario?

legal but not ethical

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.

moral hazard

Jack is a board member of firm A but is not an employee of firm A; Jack is a senior executive from firm B. Jack can best be described as a(n)

outside director.

Which of the following characteristics of a public stock company deals with principals and agents?

separation of legal ownership and management control


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