SEVI 3013 Exam 3 Questions Answered Correctly Graded A+
Corporate governance - Answers the set of mechanisms used to manage the relationships
among stakeholders and to determine and control the strategic direction and performance of
organizations
how is corporate governance used to monitor and control managers' decisions? - Answers it
includes oversight in areas where there are conflicts of interest among major stakeholders,
including the election of directors, supervision of CEO pay, and the organization's overall
structure and strategic direction.
Three internal governance mechanisms - Answers 1. ownership concentration
2. board of directors
3. executive compensation
The separation of ownership and managerial control - Answers allows shareholders to purchase
stock, which entitles them to income (residual returns) from the firm's operations after paying
expenses
agency relationship - Answers exists when one party delegates decision-making responsibility
to a second party for compensation
Managerial opportunism - Answers the seeking of self-interest with guile (i.e., cunning or deceit)
problems that result from the agency relationship - Answers - the potential for a divergence of
interests
- a lack of direct control of the firm by shareholders
Managerial opportunism prevents - Answers the maximization of shareholder wealth
Product diversification can create two benefits for top-level managers that shareholders do not
enjoy - Answers 1. Top-level managers can increase their compensation.
2. Managerial employment risk—the risk of job loss, loss of compensation, and loss of
managerial reputation—can be reduced.
Agency costs - Answers 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
corporate governance mechanisms have received greater scrutiny due to the passing of -
Answers The Sarbanes-Oxley Act of 2002
board of directors - Answers a group of elected individuals whose primary responsibility is to
, act in the owners' best interests by formally monitoring and controlling the firm's top-level
managers
board members are classified into one of three groups - Answers 1. Insiders
2. Related outsiders
3. Outsiders
Insiders - Answers The firm's CEO and other top-level managers
Related outsiders - Answers • Individuals not involved with the firm's day-to-day operations, but
who have a relationship with the company
Outsiders - Answers Individuals who are independent of the firm in terms of day-to-day
operations and other relationships
Executive compensation - Answers a governance mechanism that seeks to align the interests of
managers and owners through salaries, bonuses, and long-term incentives such as stock
awards and options.
hostile takeover - Answers acquisition of a target company by an acquiring firm that is
accomplished not by coming to an agreement with the target company's management but by
going directly to the company's shareholders or fighting to replace management in order to get
the acquisition approved
_________ __________ __________ ensure that the interests of all stakeholders are served -
Answers Effective governance mechanisms
strategic competitiveness results when firms are governed in ways that permit at least minimal
satisfaction of: - Answers - Capital market stakeholders (e.g., shareholders)
- Product market stakeholders (e.g., customers and suppliers)
- Organizational stakeholders (e.g., managerial and non-managerial employees)
Organizational structure - Answers specifies the firm's formal reporting relationships,
procedures, controls, and authority and decision-making processes
Structural stability - Answers provides the capacity the firm requires to consistently and
predictably manage its daily work routines
Structural flexibility - Answers makes it possible for the firm to identify opportunities and then
allocate resources to pursue them as a way of being prepared to succeed in the future
Strategic controls - Answers largely subjective criteria intended to verify that the firm is using
appropriate strategies for the conditions in the external environment and the company's
Corporate governance - Answers the set of mechanisms used to manage the relationships
among stakeholders and to determine and control the strategic direction and performance of
organizations
how is corporate governance used to monitor and control managers' decisions? - Answers it
includes oversight in areas where there are conflicts of interest among major stakeholders,
including the election of directors, supervision of CEO pay, and the organization's overall
structure and strategic direction.
Three internal governance mechanisms - Answers 1. ownership concentration
2. board of directors
3. executive compensation
The separation of ownership and managerial control - Answers allows shareholders to purchase
stock, which entitles them to income (residual returns) from the firm's operations after paying
expenses
agency relationship - Answers exists when one party delegates decision-making responsibility
to a second party for compensation
Managerial opportunism - Answers the seeking of self-interest with guile (i.e., cunning or deceit)
problems that result from the agency relationship - Answers - the potential for a divergence of
interests
- a lack of direct control of the firm by shareholders
Managerial opportunism prevents - Answers the maximization of shareholder wealth
Product diversification can create two benefits for top-level managers that shareholders do not
enjoy - Answers 1. Top-level managers can increase their compensation.
2. Managerial employment risk—the risk of job loss, loss of compensation, and loss of
managerial reputation—can be reduced.
Agency costs - Answers 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
corporate governance mechanisms have received greater scrutiny due to the passing of -
Answers The Sarbanes-Oxley Act of 2002
board of directors - Answers a group of elected individuals whose primary responsibility is to
, act in the owners' best interests by formally monitoring and controlling the firm's top-level
managers
board members are classified into one of three groups - Answers 1. Insiders
2. Related outsiders
3. Outsiders
Insiders - Answers The firm's CEO and other top-level managers
Related outsiders - Answers • Individuals not involved with the firm's day-to-day operations, but
who have a relationship with the company
Outsiders - Answers Individuals who are independent of the firm in terms of day-to-day
operations and other relationships
Executive compensation - Answers a governance mechanism that seeks to align the interests of
managers and owners through salaries, bonuses, and long-term incentives such as stock
awards and options.
hostile takeover - Answers acquisition of a target company by an acquiring firm that is
accomplished not by coming to an agreement with the target company's management but by
going directly to the company's shareholders or fighting to replace management in order to get
the acquisition approved
_________ __________ __________ ensure that the interests of all stakeholders are served -
Answers Effective governance mechanisms
strategic competitiveness results when firms are governed in ways that permit at least minimal
satisfaction of: - Answers - Capital market stakeholders (e.g., shareholders)
- Product market stakeholders (e.g., customers and suppliers)
- Organizational stakeholders (e.g., managerial and non-managerial employees)
Organizational structure - Answers specifies the firm's formal reporting relationships,
procedures, controls, and authority and decision-making processes
Structural stability - Answers provides the capacity the firm requires to consistently and
predictably manage its daily work routines
Structural flexibility - Answers makes it possible for the firm to identify opportunities and then
allocate resources to pursue them as a way of being prepared to succeed in the future
Strategic controls - Answers largely subjective criteria intended to verify that the firm is using
appropriate strategies for the conditions in the external environment and the company's
