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GE's board has only one inside director, Jeffrey Immelt, GE's CEO, who also acts as chairman of the board.This is known as duality.Which of the following statements represents the best argument for this duality in GE?


A) The CEO is likely to be more responsible because he is setting his own performance targets.
B) The CEO might be able to influence the board through setting the meeting agendas.
C) The CEO possesses invaluable inside information that can help chair the board effectively.
D) The CEO will suggest board appointees who are friendly toward him or her.

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

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Roman owns shares in a company called Copnay Telecom Inc.The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing.Roman wants to proactively cut his losses and therefore sells his shares.Jeremy, a trading enthusiast, buys shares in Copnay Telecom 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) B) and C)
F) A) and D)

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What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies?


A) It gives the managers greater control of the performance of the organization in the long term.
B) It reduces the trust of shareholders in the organization as a vehicle for value creation.
C) It helps companies increase firm profits by creating shared value.
D) It enables companies to create social value by addressing society's needs but prevents them from creating economic value for shareholders.

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

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How do principal-agent problems cascade down the hierarchy in an organization?

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Senior executives, such as the CEO, face...

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What is the argument of Michael Porter and several others regarding the focus of public companies? According to Michael Porter, what are the consequences of their focus?

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Michael Porter and others argue that many public companies have defined value creation too narrowly in terms of financial performance.This in turn has contributed to some of the black swan events, such as large-scale accounting scandals and the global financial crisis.Managers' pursuit of strategies that define value creation too narrowly may have negative consequences for society at large, as evidenced during the global financial crisis.This narrow focus has contributed to the loss of trust in the corporation as a vehicle for value creation, not only for shareholders but also other stakeholders and society.

Adverse selection in a public stock company occurs when:


A) information asymmetry increases the likelihood of selecting inferior alternatives.
B) a firm's work tasks, incentives, and employment contracts minimize opportunism by agents.
C) a principal is not aware of the context from which information from an agent is derived.
D) an agent manipulates information to benefit stockholders.

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

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The Securities and Exchange Commission (SEC) makes all financial reports filed by public companies available electronically via the _____ database.


A) GAAP
B) JASON
C) EDGAR
D) PARMER

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

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Neville and Andre are customer care employees at JPN Care.In between calls, Neville and Andre spend time on Facebook and YouTube.The relaxed guidelines at JPN allow them to do that.However, sometimes, they knowingly avoid answering calls or keep customers on hold, while they check their social networking accounts.Such behavior:


A) is neither unlawful nor unethical; hence, Neville and Andre cannot be reprimanded.
B) typically exemplifies the agency problem of adverse selection.
C) goes against the principles of shareholder capitalism.
D) can be stopped by implementing performance incentives and strict control mechanisms.

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

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D

Which of the following is an important internal corporate-governance mechanism?


A) Shareholder capitalism
B) Board of directors
C) Market for corporate control
D) Activist investors

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

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How does Nobel laureate Milton Friedman's view of the firm's social obligations tie in with shareholder capitalism?

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Nobel laureate Milton Friedman stated hi...

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Who appoints the board of directors in a public stock company?


A) Auditors
B) Shareholders
C) Employees
D) CEOs

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

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Describe moral hazard with an example.

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Student answers will vary.
Moral hazard ...

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One of the ways to foster ethical behavior in employees is to:


A) avoid codifying organizational culture.
B) create a control system that encourages desired values.
C) view clients as counter parties to transactions.
D) align the vision statement of the organization with its informal culture.

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

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The day-to-day operations of a publicly traded company are conducted by:


A) people who own the company, such as shareholders.
B) its managers and lower-level employees.
C) people who finance the company, such as investors.
D) the CEO and the board of directors.

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

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How does a leveraged buyout impact a public company?

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In a leveraged buyout (LBO), a single in...

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What are poison pills?


A) They are used by shareholders to prevent the founder of a company from taking the company private through a leveraged buyout.
B) They are unspecified conditions in the contract between stakeholders in an organization.
C) They are used by companies in a bid to perform a hostile takeover of competing firms.
D) They are defensive provisions that kick in should a buyer reach a certain level of share ownership.

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

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What is agency theory?

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Agency theory suggests that the firm can...

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Rehman is a firm believer in Milton Friedman's view of a firm's social obligations.With which of the following statements is Rehman most likely to agree?


A) Businesses can use their resources to create profit as long as they do so within the rules of the game.
B) Firms should not go beyond their economic responsibility to increase profits.
C) Firms should define value creation more narrowly in terms of financial performance.
D) Businesses should engage in open and free competition without deception or fraud, only as long as their competitors do so.

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

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A

The _____ is the centerpiece of corporate governance and is composed of inside and outside members.


A) institutional investors group
B) board of directors
C) group of shareholders
D) scientific advisory board

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

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The informational advantage that agents possess over principals is often based on the fact that:


A) the information is extremely secure and protected from exposure to anyone outside the company.
B) public stock companies are characterized by information symmetry.
C) insiders are the first to learn about important developments before the information is released to the public.
D) agents are legally permitted to freely trade the information in exchange for benefits, unlike principals.

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

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