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Dmitri is a senior manager for the firm Kopney Inc.Because of his experience,he has been appointed to the board of HKS Inc.,even though he doesn't work for this firm.He also serves on the boards of several other companies.Dmitri is a(n) _____ for Kopney and a(n) _____ for HKS.


A) CEO; COO
B) COO; CEO
C) outside director; inside director
D) inside director; outside director

E) None of the above
F) B) and C)

Correct Answer

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Clare,the CEO of Femica Inc.,reports to the board of directors appointed by the shareholders of Femica.Based on shareholder suggestions,the board ties Clare's compensation to the performance of Femica.Due to this pressure,Clare begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation.This conflict between Clare's interests and the board's interests best illustrates a(n)


A) shareholder capitalism scenario.
B) inside director-outside director conflict.
C) fiduciary responsibility oversight.
D) principal-agent problem.

E) None of the above
F) A) and C)

Correct Answer

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_____ are an agreed-upon code of conduct in business,based on societal norms.


A) Fiduciary responsibilities
B) Poison pills
C) Strategic business points
D) Business ethics

E) None of the above
F) A) and D)

Correct Answer

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_____ is illustrated by a situation in which the principal cannot determine the value created by individual members of a team.


A) Moral hazard
B) Adverse selection
C) Information asymmetry
D) Shareholder capitalism

E) All of the above
F) A) and D)

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The conflict in a principal-agent relationship arises when


A) the company has more outside directors than inside directors.
B) the strategy adopted by the company's agents tries to emulate the mission statement created by the principals.
C) stockholders and agents are involved in the day-to-day operations of the company.
D) the goals of the principals and agents are not aligned with each other.

E) A) and B)
F) A) and D)

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Which of the following statements is true of shareholders in a public stock company?


A) They directly supervise and coordinate the manufacture of products and delivery of services.
B) They are granted a charter of incorporation by the state and legally own company stock.
C) They are the centerpiece of corporate governance.
D) They are appointed by a board of directors to oversee the company's management.

E) A) and D)
F) C) and D)

Correct Answer

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What is the term used to describe a situation in which a manager of a company has more inside information than an investor of the company?


A) insider monopoly
B) stakeholder strategy
C) moral hazard
D) information asymmetry

E) A) and B)
F) A) and C)

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Which of the following is not true of corporate governance in public stock companies?


A) Corporate governance seeks to benefit multiple stakeholders, not just shareholders.
B) Corporate governance provides rules for making decisions on corporate affairs.
C) Corporate governance attempts to address the principal-agent problem.
D) Corporate governance seeks to create a separation between ownership and control.

E) None of the above
F) All of the above

Correct Answer

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According to the perspective of shareholder capitalism,


A) shareholders in public stock companies are restricted from buying shares of two competing companies.
B) shareholders in public stock companies have the most legitimate claim on profits.
C) shareholders in public stock companies have significant decision-making power.
D) shareholders in public stock companies have unlimited financial liability.

E) B) and C)
F) A) and D)

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What helps notions such as fairness,honesty,and reciprocity to be codified into law?


A) The notions are synonymous with law.
B) The notions differ to some degree in different cultures around the globe.
C) The notions are universal norms.
D) The notions are characteristics inherited by each person irrespective of the culture.

E) None of the above
F) All of the above

Correct Answer

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Warren owns shares in a company called Gerarch Communications Inc.The company's financial performance has been declining over the past few months,and the value of its stock has been decreasing.Warren wants to proactively cut his losses and therefore sells his shares.Lawrence,a trading enthusiast,buys shares in Gerarch Communications because he believes that the share prices cannot go anywhere but up.Which of the following characteristics of a public stock company does this scenario best exemplify?


A) separation of legal ownership and management control
B) legal personality
C) limited liability for investors
D) transferability of investor ownership

E) None of the above
F) C) and D)

Correct Answer

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According to the agency theory,


A) conflicts that arise in corporations should be addressed in the legal realm.
B) corporations are more than a set of contracts between parties.
C) companies should focus on generating profits for stockholders.
D) principals and agents have interchangeable roles.

E) C) and D)
F) B) and C)

Correct Answer

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An individual who is part owner of a company and hires another individual to act on his or her behalf is referred to as a(n)


A) agent.
B) manager.
C) employee.
D) principal.

E) A) and C)
F) A) and B)

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According to Michael Porter,which of the following is a problem with many publicly traded companies?


A) Shareholders of publicly traded companies do not have a legitimate claim on profits.
B) Many publicly traded companies have defined value creation too narrowly in terms of financial performance.
C) There is no transferability of stock ownership in publicly traded companies.
D) The legal owners of publicly traded companies also make management decisions for the company.

E) A) and D)
F) None of the above

Correct Answer

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Janis is the CEO of a firm.She has an opportunity to increase the competitive advantage of her company but is not sure if accepting the opportunity is ethical.Which of the following questions would help her decide if accepting the opportunity is ethical?


A) What are the chances that her decision to accept the opportunity will be made public?
B) How much profit would be made if she decided to accept the opportunity?
C) How would the media report her decision to accept the opportunity if it were to become public?
D) How long lasting would the competitive advantage be if she decided to accept the opportunity?

E) B) and C)
F) A) and D)

Correct Answer

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Because of poor management,the stock prices of DigiKing Inc.falls and many investors sell their shares.Soon DigiKing becomes the target of a hostile takeover,during which Charles buys enough shares to exert control over the firm.In this scenario,Charles performs the role of a(n)


A) inside director.
B) outside director.
C) corporate raider.
D) corporate consultant.

E) B) and C)
F) C) and D)

Correct Answer

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What was Goldman Sachs' rebuttal to SEC's claim that it defrauded investors?


A) It is up to the clients to assess the risks involved in any investments.
B) Fabrice Tourre was responsible for putting the deal together, and it was the lapse of an individual, not the entire firm.
C) John Paulson did not reveal his intentions behind creating Abacus.
D) Goldman Sachs' itself lost $100 million in the deal.

E) A) and C)
F) A) and D)

Correct Answer

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A compensatory governance mechanism that allows executives to buy a company's stock at a predetermined price sometime in the future is called a(n)


A) stock option.
B) commission.
C) stock exchange.
D) bonus.

E) B) and C)
F) A) and C)

Correct Answer

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Which of the following best explains why a board of directors may grant stock options as part of a compensation package?


A) to reduce the transferability of stocks between stockholders
B) to bring about a separation of CEO/chair duality
C) to align incentives between shareholders and management
D) to change the liability of shareholders from limited to unlimited

E) All of the above
F) B) and D)

Correct Answer

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Which of the following positions is an example of an inside director for a firm?


A) a senior consultant who is not an employee
B) a chief financial officer
C) a board member who is not an employee
D) a middle manager

E) B) and D)
F) B) and C)

Correct Answer

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