BUAD441 FINAL QUESTIONS

Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary change many Boards of Directors have initiated? A) Compensating directors with stock options rather than with fixed remuneration B) Moving toward having directors from different backgrounds C) Establishing and using formal processes to evaluate the Board's performance D) Strengthening the internal management and accounting control systems

A) Compensating directors with stock options rather than with fixed remuneration

In practice, the cost minimization strategy can be more expensive than the opportunity maximization strategy. Which of the following is a way in which the cost minimization strategy is less expensive than the opportunity minimization strategy? A) The prevention of opportunistic behavior by the partner(s) B) The costs of writing detailed contracts C) The cost of extensive monitoring mechanisms D) The loss of unexpected opportunities

A) The prevention of opportunistic behavior by the partner(s)

Dragonfly, publishers of children's books, has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different because Dragonfly produces children's literature, whereas White Rabbit focuses on child-level nonfiction scientific and nature topics. Which of the following statements is probably TRUE about this acquisition? A) This is a horizontal acquisition. B) Economies of scope are unlikely to result from this acquisition. C) This is an example of virtual integration. D) Dragonfly is beginning to build a conglomerate.

A) This is a horizontal acquisition.

Greentech, Inc., is a bioengineering firm specializing in food crops. It is considering a cooperative alliance with an Asian agribusiness firm, AsiaFoods, to jointly produce improved crops for the Asian market. The risks that Greentech should consider before entering this alliance include all of the following EXCEPT: A) Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance? B) Will AsiaFoods make alliance-specific investments? C) Has AsiaFoods accurately represented its competencies? D) Can Greentech expect opportunistic behavior from AsiaFoods?

A) Will Greentech be able to use a cost-minimization management strategy in the AsiaFoods alliance?

An international diversification strategy is one in which a firm: A) expands into a potentially large number of geographic locations and markets. B) expands into nearby markets. C) expands into one or a few markets. D) acquires a firm in a foreign country.

A) expands into a potentially large number of geographic locations and markets.

McDonald's, Hilton International, and Subway all heavily rely on the ____ strategy. A) franchising cooperative B) cross-border alliances C) transnational D) network cooperative

A) franchising cooperative

A firm may narrow its focus to a specific region of the world: A) so that it can better understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets. B) to take advantage of limited protections of intellectual property so that it can manufacture innovative products without restrictions. C) because that market is most different from its domestic market and so represents an unexploited "greenfield opportunity" for its products. D) in order to obtain greater economies of scale.

A) so that it can better understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets.

Increasingly, customers worldwide are demanding emphasis on local requirements and companies require efficiency as global competition increases. This has triggered an increase in the number of firms using the ____ strategy. A) transnational B) universal C) global D) multi-domestic

A) transnational

A licensing agreement: A) can be greatly impacted by currency exchange rate fluctuations. B) allows a foreign firm to purchase the rights to manufacture and sell a firm's products within a host country. C) results in two firms agreeing to share the risks and the resources of a new venture. D) is best way to protect proprietary technology from future competitors.

B) allows a foreign firm to purchase the rights to manufacture and sell a firm's products within a host country.

When a firm is overly dependent on one or more products or markets, and the intensity of rivalry in that market is intense, the firm may wish to ____ by making an acquisition. A) increase new product speed to market B) broaden its competitive scope C) overcome entry barriers D) increase its economies of scale

B) broaden its competitive scope

Institutional owners are: A) shareholders in the large institutional firms listed on the New York Stock Exchange. B) financial institutions such as mutual funds and pension funds that control large-block shareholder positions. C) banks and other lending institutions that have provided major financing to the firm. D) prevented by the Sarbanes-Oxley Act from owning more than 50 percent of the stock of any one firm.

B) financial institutions such as mutual funds and pension funds that control large-block shareholder positions.

A virtually exclusive reliance on financial controls may occur when outsider-dominated Boards exist. This may lead to all of the following EXCEPT: A) reduction in R&D expenditure. B) high executive turnover. C) increased diversification of the firm. D) excessive management compensation.

B) high executive turnover.

Acquisitions can become a time sink for top level managers for all the following reasons EXCEPT: A) they must prepare for acquisition negotiations. B) only top managers can perform the required due diligence. C) the integration process after acquisition requires managerial attention. D) managers are involved in the search for viable acquisition candidates.

B) only top managers can perform the required due diligence.

Backward integration occurs when a company: A) owns its own source of distribution of outputs. B) produces its own inputs. C) is divesting unrelated businesses. D) is concentrated in a single industry.

B) produces its own inputs.

U.S. Steel and Nucor (the two remaining major players in the U.S. steel industry) have been forming alliances as a means to enter markets in Europe and Asia. The steel industry is an example of a ________ market in which firms typically use alliances to gain market access. A) intermediate-cycle B) slow-cycle C) fast-cycle D) standard-cycle

B) slow-cycle

When a firm acquires its supplier, it is engaging in a(n): A) merger. B) vertical acquisition. C) hostile takeover. D) unrelated acquisition.

B) vertical acquisition.

Which of the following firms would be the most likely to be a successful candidate for acquisition and restructuring? A) A start-up communications technology firm B) A management consulting firm that has a tradition of long term client-consultant relationships C) A tire manufacturer established in 1910 D) A medical practice

C) A tire manufacturer established in 1910

Which of the following is NOT a result of over-diversification? A) Managers become short-term in their orientation. B) Executives do not have a rich understanding of all of the firm's business units. C) Managers emphasize strategic controls rather than financial controls. D) Firms use acquisition as a substitute for innovation.

C) Managers emphasize strategic controls rather than financial controls.

The ownership of major blocks of stock by institutional investors have resulted in all of the following EXCEPT: A) making CEOs more accountable for their performance. B) challenges to the decisions of Boards. C) a direct effect on firm performance. D) focusing attention on ineffective Boards of Directors.

C) a direct effect on firm performance.

Firms with core competencies that can be exploited across international markets are able to: A) meet local government requirements more quickly than their international competitors. B) enter new markets more quickly. C) achieve synergies and produce high-quality goods at lower costs. D) enhance their market image and brand loyalty among local consumers.

C) achieve synergies and produce high-quality goods at lower costs.

Offshore Oil Exploration Partners (OOEP) has entered into a cooperative strategy with Malay Petroleum. The resulting documents are long, formal, and detailed. They specify detailed responsibilities of each partner and include methods of monitoring accounting and technical procedures. OOEP and Malay Petroleum are using the ____ management approach. A) opportunity maximization B) trust but verify C) cost minimization D) pragmatic realism

C) cost minimization

All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile takeover EXCEPT: A) defense tactics are usually beneficial for the executives of the target firm. B) defense tactics are opposed by institutional investors. C) defense tactics make the costs of a takeover lower. D) defense tactics vary in their effectiveness as a defense to takeovers.

C) defense tactics make the costs of a takeover lower.

Corporate governance is important to nations because: A) company Boards have lobbied for strong governance. B) the United States requires that other nations adopt its governance practices. C) firms seek to invest in nations with national governance standards that are acceptable to them. D) shareholders want large stock returns.

C) firms seek to invest in nations with national governance standards that are acceptable to them.

A businessperson in Atlanta who wishes to develop a luxury pet kennel approaches the owner of the highly successful Pet Resort and Day Spa in Houston to see if the owner is interesting in franchising the Pet Resort brand. The Atlanta businessperson's goal is to: A) join in a vertical complementary alliance with Pet Resort. B) collude with Pet Resort to diminish competition in the kennel industry in Atlanta. C) gain access to Pet Resort's tacit knowledge. D) get venture capital from Pet Resort.

C) gain access to Pet Resort's tacit knowledge.

The four aspects of Porter's model of international competitive advantage include all of the following EXCEPT: A) demand conditions. B) factors of production. C) political and economic institutions. D) related and supporting industries.

C) political and economic institutions.

Terrorism creates an economic risk for firms, which: A) is created by governmental bans on doing business with terrorist regimes. B) is absorbed by firms that are highly geographically diversified and that operate in both secure and insecure locations. C) reduces the amount of investment foreign companies will make in a country perceived to be terror-prone. D) is offset by the above-average returns for firms that have learned how to operate in such an environment.

C) reduces the amount of investment foreign companies will make in a country perceived to be terror-prone.

Compared to managers, shareholders prefer: A) riskier strategies with greater diversification for the firm. B) safer strategies with more focused diversification for the firm. C) riskier strategies with more focused diversification for the firm. D) safer strategies with greater diversification for the firm

C) riskier strategies with more focused diversification for the firm.

The main difference between the related constrained level of diversification and the related linked level of diversification is: A) whether the diversification is vertical or horizontal. B) whether the diversification is value-creating or value-neutral. C) the level of resources and activities shared among the businesses. D) the percentage of total organizational profitability that comes from the dominant business.

C) the level of resources and activities shared among the businesses.

Product diversification provides two benefits to managers that do not accrue to shareholders: ____ and ____. A) the manager's supervisory needs are lowered; the manager is allowed greater time to oversee a wider range of activities B) greater experience in a wider range of industries; lessening of managerial employment risk C) the opportunity for higher compensation through firm growth; a reduction in managerial employment risk D) the manager frequently invests in the acquired firm, which allows him or her extensive profits; the manager can frequently buy excess assets divested by the acquired firm

C) the opportunity for higher compensation through firm growth; a reduction in managerial employment risk

The expenses incurred by firms trying to create synergy through acquisition are called ____ costs. A) diversification B) differentiation C) transaction D) interaction

C) transaction

The quickest and easiest way for a firm to diversify its portfolio of businesses is to make acquisitions.

TRUE

Which of the following is a value-reducing reason for diversification? A) Conforming to antitrust regulation B) Enhancing the strategic competitiveness of the entire company C) Gaining market power relative to competitors D) Expanding the business portfolio in order to diversify managerial employment risk

D) Expanding the business portfolio in order to diversify managerial employment risk

____ typically result(s) in the acquiring firm being able to prevent valuable human resources in the acquired firm from leaving. A) High compensation B) Private synergy C) Financial slack D) Friendly acquisitions

D) Friendly acquisitions

Which of the following statements is FALSE? A) Private synergy is more likely when the two firms in an acquisition have complementary assets. B) Synergy resulting from an acquisition generates gains in shareholder wealth beyond what they could achieve through diversification of their own portfolios. C) Private synergy results when the combination of two firms yields competencies and capabilities that could not be achieved by combining with any other firm. D) Private synergy is easy for competitors to understand and imitate.

D) Private synergy is easy for competitors to understand and imitate.

Which of the following is FALSE about corporate governance in China? A) Firms with higher state ownership tend to have lower market value and more volatility in those values over time. B) With increasing frequency, the compensation of top executives of Chinese companies is closely related to prior and current financial performance of the firm. C) The Chinese governance system may be tilting toward the Western model. D) The state still uses direct and/or indirect controls to influence the strategies employed by most firms.

D) The state still uses direct and/or indirect controls to influence the strategies employed by most firms.

Which of the following is NOT an incentive for firms to become multinational? A) Opportunities to integrate operations on a global scale B) To gain easier access to raw materials C) To gain access to consumers in emerging markets D) To avoid high domestic taxation on corporate income

D) To avoid high domestic taxation on corporate income

Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to 3 years' salary because DictionAry has been bought in a hostile takeover by its main competitor. Ambrose received: A) a silver handshake. B) a poison pill. C) greenmail. D) a golden parachute.

D) a golden parachute.

Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that: A) are managerial motives to diversify. B) create value. C) reduce value. D) are value-neutral.

D) are value-neutral.

A global corporate-level strategy differs from a multi-domestic corporate-level strategy in that in a global strategy: A) the firm sells in multiple countries. B) competitive strategy is decentralized and controlled by individual strategic business units. C) products are customized to meet the individual needs of each country. D) competitive strategy is dictated by the home office.

D) competitive strategy is dictated by the home office.

Revenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which best describes the corporate level strategy of UPS? A) related constrained B) single business C) related linked D) dominant business

D) dominant business

Entering new markets through acquisitions of companies with new products is not risk-free, especially if acquisition becomes a substitute for: A) risk analysis. B) international diversification. C) market discipline. D) innovation.

D) innovation.

The fastest and easiest way for a firm to diversify its portfolio of businesses is through acquisition because: A) unrelated acquisitions are usually uncomplicated because the acquired firm is allowed to continue to function independently as it did before acquisition. B) of barriers to entry in many industries. C) innovation in both the acquired and the acquiring firm is enhanced by the exchange of competencies resulting from acquisition. D) it is difficult and time intensive for companies to develop products that differ from their current product line.

D) it is difficult and time intensive for companies to develop products that differ from their current product line.

In the United States, cooperative strategies to reduce competition may result in ____ if they are explicit. A) government takeover of the firms B) increased tax liabilities C) dissolution of the firm D) litigation

D) litigation

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT: A) corporate headquarters can allocate capital according to more specific criteria than is possible with external market allocations. B) corporate headquarters has more complete information about the subsidiary businesses than the external capital market. C) corporate headquarters can more effectively discipline underperforming management teams through resource allocation than can the external market. D) the firm can acquire other firms with innovative products instead of allocating capital to research and development.

D) the firm can acquire other firms with innovative products instead of allocating capital to research and development.

One of the primary reasons for failure of cross-border strategic alliances is: A) conflict between legal and business systems. B) security concerns and terrorism. C) high debt financing. D) the incompatibility of the partners.

D) the incompatibility of the partners.

The downside of synergy in a diversified firm is: A) the reduction of activity sharing. B) excessive focus on risky innovation. C) increasing independence of businesses. D) the loss of flexibility.

D) the loss of flexibility.

To increase the likelihood of success between partners assuming that trust exists, ____ approach(es) should be used to manage cooperative strategies. A) both the cost minimization and opportunity maximization B) None of the these options are correct. C) the cost minimization D) the opportunity maximization

D) the opportunity maximization

A nonequity strategic alliance exists when: A) two partners in an alliance own unequal shares in the combined entity. B) two firms join together to create a new company. C) the partners agree to sell bonds instead of stock in order to finance a new venture. D) two or more firms have a contractual relationship to share resources and capabilities.

D) two or more firms have a contractual relationship to share resources and capabilities.

A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(n) ____ strategy. A) network B) horizontal complementary C) uncertainty reduction D) vertical complementary

D) vertical complementary

Corporate-level strategy is concerned with ____ and how to manage these businesses. A) whether to integrate backward or forward. B) whether the portfolio of businesses should generate immediate above-average returns or should be troubled businesses which will create above-average returns only after restructuring C) whether the firm should invest in global or domestic businesses D) what product markets and businesses the firm should be in

D) what product markets and businesses the firm should be in

The factors that lead to poor long-term performance by acquisitions include all of the following EXCEPT firms: A) growing too large. B) having too much debt. C) being unable to achieve synergy. D) with insufficient diversification.

D) with insufficient diversification.

United Technologies, Textron, Samsung, and Hutchison Whampoa Limited are examples of diversified firms that have no relationships between their businesses. These firms all use the strategy of unrelated diversification.

TRUE

A firm uses a corporate-level diversification strategy for a variety of reasons, all of which have to do with ways to create value.

FALSE

An advantage of using horizontal, vertical, or related acquisitions is that they are not subject to regulatory review.

FALSE

Cooperation in slow-cycle markets is extremely rare because these industries are declining.

FALSE

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.

FALSE

Establishing a wholly-owned subsidiary provides the quickest access to a new market.

FALSE

Even if effectively implemented, the transnational strategy often produces lower performance than does the implementation of either the multi-domestic or global strategies.

FALSE

Evidence suggests that acquisitions usually lead to favorable financial outcomes, especially for the acquiring firm.

FALSE

Firms can increase their speed to market for new products by pursuing an internal product development strategy rather than an acquisition strategy.

FALSE

Firms with both operational and corporate relatedness are favorites of investment analysts because the transparency and clarity of their financial statements clearly show the value-creation resulting from the combination of multiple businesses.

FALSE

Horizontal business-level strategic alliances have greater probability of creating sustainable competitive advantage than do vertical business-level strategic alliances.

FALSE

In a vertical complementary alliance, firms share some of their resources and capabilities from the same stage of the value chain to create a competitive advantage.

FALSE

In the Chapter 6 Opening Case, Disney achieved growth and diversification through mergers and acquisitions.

FALSE

It is relatively common for a firm to develop new products internally to diversify its product lines.

FALSE

Large or extraordinary debt is defined as overpaying for an acquired firm.

FALSE

Mutual forbearance is a form of explicit collusion between firms in which competitors avoid attacking rivals they meet in multiple markets.

FALSE

Nonequity strategic alliances exist when two or more firms join together to create an independent firm.

FALSE

Research suggests that wholly owned subsidiaries and expatriate staff are inappropriate for service industries because those industries require close contact with customers, high levels of professional skills, specialized know-how, and customization.

FALSE

Strategic alliances tend to increase the risk associated with international expansion for the U.S. partner because of the greater dependence on the foreign firm.

FALSE

Successful product diversification is expected to increase the variability in the firm's profitability because the earnings are generated from several different business units.

FALSE

The current Chinese cross-border strategy is to focus on buying global brands, sales networks, and goodwill in branded products.

FALSE

The lower the barriers to entry, the more likely firms will use acquisition as a means to enter a market.

FALSE

A company that chooses a truly global corporate-level strategy assumes that the liability of foreignness will be minimal.

TRUE

A major advantage of multi-domestic strategies is the ability to customize products and services for the specific market, although this sacrifices economies of scale.

TRUE

An effective corporate strategy creates aggregate returns across all businesses that exceed what those returns would be without the strategy and contributes to the firm's strategic competitiveness and ability to earn above-average returns.

TRUE

As globalization grows, adequate corporate governance is becoming an important requirement for doing business with a foreign firms and in foreign countries.

TRUE

Because of recent ineffective performance, Boards of Directors are experiencing increasing pressure from shareholders, lawmakers, and regulators to be more effective in preventing managers from acting in their own interest.

TRUE

Boards with many members from the firm's top management team tend to have weak monitoring and control systems for managerial decisions.

TRUE

By choosing a region where markets are more similar, the firm may be able to better understand those markets and cater to their needs, but also achieve economies through sharing of resources.

TRUE

Corporate governance involves oversight in areas where owners, managers, and members of Boards of Directors may have conflicts of interest.

TRUE

Corporate governance mechanisms are designed to ensure that top managers make strategic decisions that best serve the interests of the entire group of stakeholders.

TRUE

Downscoping makes management of the firm more effective because it allows the top management team to better understand the remaining businesses.

TRUE

Firms in slow-cycle markets can use alliances to enter restricted markets or to establish franchises in new markets.

TRUE

Firms in standard-cycle markets seek to gain economies of scale through cooperative alliances.

TRUE

Firms that sold off related units in which resource sharing was a possible source of economies of scope have been found to produce lower returns than those that sold off businesses unrelated to the firm's core businesses.

TRUE

Franchising is an alternative to pursuing growth through mergers and acquisitions.

TRUE

In a diversified firm, capital allocation can be adjusted according to more specific criteria than is possible with external market allocation of capital.

TRUE

In the modern U.S. corporation, the ownership and managerial control of the firm are separated.

TRUE

International diversification is a strategy through which a firm expands the sale of its goods and services across borders of global regions and countries into a potentially large number of geographic locations of markets. Instead of entering one or a few markets, international diversification means that the firm enters multiple markets.

TRUE

Michael Porter's Determinants of National Advantage describe factors associated with the firm's domestic environment that contribute to its dominance in a particular global industry.

TRUE

Most acquisitions that are designed to achieve greater market power entail buying a competitor, a supplier, a distributor, or a business in a highly related industry.

TRUE

Recent emphasis on corporate governance stems mainly from the failure of corporate governance mechanisms to adequately monitor and control top-level managers' decisions.

TRUE

Research suggests that institutional activism may not have a strong direct effect on firm performance but may indirectly influence the targeted firm's strategic decisions, including those concerned with international diversification and innovation.

TRUE

Strategic alliances are cooperative strategies between firms that combine their resources and capabilities to create a competitive advantage.

TRUE

Tacit collusion is not explicitly illegal in the United States even though it results in higher prices for consumers.

TRUE

The Dodd-Frank Wall Street Reform and Consumer Protection Act is the most sweeping set of financial and regulatory reforms in the United States since the Great Depression.

TRUE

The market for corporate control is composed of individuals and firms that buy ownership positions or take over potentially undervalued corporations and make changes to those corporations, including the replacement of the top managers.

TRUE

When a firm initially pursues an international business-level strategy, the resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries.

TRUE

When implementing a restructuring strategy, a company would do best by focusing on mature, low-technology businesses rather than high-technology or service businesses.

TRUE