Ch. 12 Questions
Which of the following are examples of moral hazard?
A company dumping pollution into a local lake that must be cleaned using taxpayer money Banks making very risky loans with the knowledge that the governement will bail them out if necessary A copywriter secretly working on her novel while at work (Moral hazard refers to situations in which the cost of failure are accrued to another party)
Which of the following statements is correct regarding the interests of principals and agents?
Agents may be more interested in personal goals, such as maximizing their compensation or gaining power Principals want to maximize shareholder returns
A job seeker claiming to have extensive computer programming experience when their knowledge of the subject is minimal would be an example of...
adverse selection
The idea that a corporation is simply a collection of legal contracts is known as...
agency theory
They shared value creation framework is a tool intended to help businesses...
benefit all stakeholders, not just shareholders
Corporate governance is a system of...
checks and balances
The idea of corporate social responsibility (CSR) suggests that a firm's obligations should...
exceed the traditional imperative to increase profits
Social consequences of business activities, including pollution, energy loss, and dangerous accidents, are known as...
externalitites
Managers who act upon secret company information for personal gain, such as by trading stocks based on the knowledge of future initiatives, are guilty of...
insider trading
In regard to the public sock company, limited liability means that...
investors are not responsible for any debts incurred by the company, and are only at risk of losing the invested capital.
According to the agency theory, which of the following managerial functions can be used to avoid adverse selection and moral hazard?
organization control
The primary difference between outside and inside members of the board of directors is
outside directors are not employees of the firms, whereas inside directors are
Additional functions of a board of directors beyond general strategic oversight include...
selection, evaluating, and compensating the CEO ensuring that the firm's accounting practices and reports are accurate assessing and mitigating risk
A board of directors is elected to represent the interests of...
shareholders
An executive can legally earn a significant profit from stock options if...
the firm performs well and the actual price per share exceeds the negotiated strike price
In 2014, 25% of GE's Board were women. Compared to other Fortune 500 companies, the Board of Directors at GE is ______ in gender.
fairly diverse
Economist Michael Porter and many others argue that the value of public stock companies is too narrowly defined in terms of_____, leading to scandals and economic crises.
financial performance
In comparison to other countries, the United States ranks ______ in terms of its acceptance of shareholder capitalism
near the middle