EXAM STUDY MATERIALS 8/7/2024 11:29 AM
Strategic Management Chapter 10 Exam
Questions With Correct Answers
Corporate governance is a relationship among - answer✔✔stakeholders that is used to determine
and control the strategic direction and performance of organizations
corporate governance is concerned with - answer✔✔identifying ways to ensure that strategic
decisions are made more effectively
corporate governance is used in corporations to - answer✔✔establish order between the firm's
owners and its top-level managers whose interests may be in conflict
internal governance mechanisms - answer✔✔ownership concentration, board of directors,
executive compensation
Ownership Concentration - answer✔✔Relative amounts of stock owned by individual
shareholders and institutional investors
board of directors - answer✔✔Individuals responsible for representing the firm's owners by
monitoring top-level managers' strategic decisions
Executive Compensation - answer✔✔The use of salary, bonuses, and long-term incentives to
align managers' interests with shareholders' interests.
market for corporate control (external) - answer✔✔the purchase of a firm that is
underperforming relative to industry rivals in order to improve its strategic competitiveness
Basis of the modern corporation - answer✔✔-Shareholders purchase stock, becoming residual
claimants
-Shareholders reduce risk by holding diversified portfolios
-Professional managers are contracted to provide decision making
Modern public corporation form leads to efficient specialization of tasks: - answer✔✔-risk
bearing by shareholders
-strategy development and decisions making by managers
, EXAM STUDY MATERIALS 8/7/2024 11:29 AM
without separation a firm may be limited by - answer✔✔the abilities of its owners to manage and
make effective strategic decisions
an agency relationship exists when - answer✔✔one party delegates decision-making
responsibility to a second party for compensation
Agency Relationship Problems - answer✔✔(1) Principal (Shareholders) and agent (managers)
may have divergent interests and goals. (2) Shareholders lack direct control of large, publicly
traded corporations. (3) Agent makes decisions that result in the pursuit of goals that conflict
with those of the principal. (4) It is difficult or expensive for the principal to verify that the agent
has behaved appropriately. (5) Agent falls prey to managerial opportunism.
managerial opportunism - answer✔✔the seeking of self-interest with guile (cunning or deceit)
Managerial Opportunism is: - answer✔✔-an attitude (inclination)
-a set of behaviors (specific acts of self-interest)
managerial opportunism prevents - answer✔✔the maximization of shareholder wealth (the
primary goal of owner/principals)
the problem of product diversification - answer✔✔-Increased size, and the relationship of size to
managerial compensation
-Reduction of managerial employment risk
Use of Free Cash Flows - answer✔✔-Managers prefer to invest these funds in additional product
diversification (see above).
-Shareholders prefer the funds as dividends so they control how the funds are invested.
Response to Managerial Opportunism - answer✔✔Principals do not know beforehand which
agents will or will not act opportunistically.
Thus, principals establish governance and control mechanisms to prevent managerial
opportunism.
agency costs - answer✔✔the sum of incentive costs, monitoring costs, enforcement costs, and
individual financial losses incurred by principals because governance mechanisms cannot
guarantee total compliance by the agent
principals may engage in - answer✔✔monitoring behavior to assess the activities and decisions
of managers
dispersed shareholding makes it difficult and inefficient to - answer✔✔monitor management's
behavior
Strategic Management Chapter 10 Exam
Questions With Correct Answers
Corporate governance is a relationship among - answer✔✔stakeholders that is used to determine
and control the strategic direction and performance of organizations
corporate governance is concerned with - answer✔✔identifying ways to ensure that strategic
decisions are made more effectively
corporate governance is used in corporations to - answer✔✔establish order between the firm's
owners and its top-level managers whose interests may be in conflict
internal governance mechanisms - answer✔✔ownership concentration, board of directors,
executive compensation
Ownership Concentration - answer✔✔Relative amounts of stock owned by individual
shareholders and institutional investors
board of directors - answer✔✔Individuals responsible for representing the firm's owners by
monitoring top-level managers' strategic decisions
Executive Compensation - answer✔✔The use of salary, bonuses, and long-term incentives to
align managers' interests with shareholders' interests.
market for corporate control (external) - answer✔✔the purchase of a firm that is
underperforming relative to industry rivals in order to improve its strategic competitiveness
Basis of the modern corporation - answer✔✔-Shareholders purchase stock, becoming residual
claimants
-Shareholders reduce risk by holding diversified portfolios
-Professional managers are contracted to provide decision making
Modern public corporation form leads to efficient specialization of tasks: - answer✔✔-risk
bearing by shareholders
-strategy development and decisions making by managers
, EXAM STUDY MATERIALS 8/7/2024 11:29 AM
without separation a firm may be limited by - answer✔✔the abilities of its owners to manage and
make effective strategic decisions
an agency relationship exists when - answer✔✔one party delegates decision-making
responsibility to a second party for compensation
Agency Relationship Problems - answer✔✔(1) Principal (Shareholders) and agent (managers)
may have divergent interests and goals. (2) Shareholders lack direct control of large, publicly
traded corporations. (3) Agent makes decisions that result in the pursuit of goals that conflict
with those of the principal. (4) It is difficult or expensive for the principal to verify that the agent
has behaved appropriately. (5) Agent falls prey to managerial opportunism.
managerial opportunism - answer✔✔the seeking of self-interest with guile (cunning or deceit)
Managerial Opportunism is: - answer✔✔-an attitude (inclination)
-a set of behaviors (specific acts of self-interest)
managerial opportunism prevents - answer✔✔the maximization of shareholder wealth (the
primary goal of owner/principals)
the problem of product diversification - answer✔✔-Increased size, and the relationship of size to
managerial compensation
-Reduction of managerial employment risk
Use of Free Cash Flows - answer✔✔-Managers prefer to invest these funds in additional product
diversification (see above).
-Shareholders prefer the funds as dividends so they control how the funds are invested.
Response to Managerial Opportunism - answer✔✔Principals do not know beforehand which
agents will or will not act opportunistically.
Thus, principals establish governance and control mechanisms to prevent managerial
opportunism.
agency costs - answer✔✔the sum of incentive costs, monitoring costs, enforcement costs, and
individual financial losses incurred by principals because governance mechanisms cannot
guarantee total compliance by the agent
principals may engage in - answer✔✔monitoring behavior to assess the activities and decisions
of managers
dispersed shareholding makes it difficult and inefficient to - answer✔✔monitor management's
behavior
