Hill SM TB CH 11

1. A union and the general public are examples of internal stakeholders.
a. True
b. False
ANSWER: False
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.11.01 -Understand the relationship between stakeholder management
and corporate performance
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
2. In corporations, agency theory is used to explain the relationship between stockholders and corporate managers, and
between upper-level managers and the lower-level managers they supervise.
a. True
b. False
ANSWER: True
POINTS: I
DIFFICULTY: Easy
NATIONAL STANDARDS: United States- BUSPROG: Analytic
3. An agency relationship continues down a hierarchy within a company.

a. True
b. False
ANSWER: True
POINTS: I
DIFFICULTY: Easy
4. There is a certain amount of performance ambiguity inherent in the relationship between a principal and agent.
a. True
b. False
ANSWER: True
POINTS: I
DIFFICULTY: Easy
DIFFICULTY: Moderate
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thinking
KEYWORDS: Bloom's: Application
6. All stakeholders have an exchange relationship with the company.

a. True
b. False
ANSWER: True
POINTS: I
DIFFICULTY: Easy
7. Agency theory offers a way of understanding why managers do not always act in the best interests of stakeholders.
a. True
b. False
ANSWER: True
POINTS: I
DIFFICULTY: Easy
8. While many agency relationships work well, problems arise when agents and principals have different goals.
a. True
b. False
ANSWER: True
POINTS: I
DIFFICULTY: Easy
9. If a company fails to take stakeholder claims into account, stakeholders may withdraw their support.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.11.01 -Understand the relationship between stakeholder management
10. Strike price is the price at which the stock was trading when the option was originally granted.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.11.03 -Describe the various governance mechanisms that are used to
align the interests of stockholders and managers
11. Stockholders receive a return on their investment in a company's stock from dividend payments and capital
appreciation.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.11.02- Explain why maximizing returns to stockholders is often
viewed as the preeminent goal in many corporations
12. Emphasizing on current profitability at the expense of future profitability and profit growth makes an enterprise more
attractive to shareholders.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often
13. Attaining future profit growth may require investments that reduce the current rate of profitability.
a. True
b. False
ANSWER: True
POINTS: 1
KEYWORDS: Bloom's: Comprehension
14. According to an SEC investigation, Computer Associates, one of the world's largest software companies, backdated
contracts to boost the company's reported revenues. This is not prescribed as an ethical business practice.
a. True
b. False
ANSWER: True
POINTS: 1
15. Maximizing long-run profitability and profit growth is the best way to satisfy the claims of several key stakeholder
groups irrespective of how the company does so.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
16. Financial statements can be a tool of effective governance only if they provide consistent, detailed, and accurate
information.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to
17. Strategic control systems are the primary governance mechanisms established within a company to reduce the scope
of the agency problem between levels of management.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
18. Governance mechanisms help align the incentives between principals and agents, and help monitor and control
agents.
a. True
b. False
ANSWER: True
POINTS: 1
DIFFICULTY: Easy
19. Inside directors are not full-time employees of the company.

a. True
b. False
ANSWER: False
POINTS: 1
20. An effective governance arrangement exists when the CEO is also the chairman of the board of directors.
a. True
b. False
ANSWER: False
POINTS: 1
DIFFICULTY: Easy
21. Stock-based compensation schemes for senior executives are designed to align the interests of managers with those
of stockholders.
a. True
b. False
ANSWER: True
POINTS: I
22. Principals ahnost always have more information about the resources that agents are managing than the agents
themselves.
a. True
b. False
ANSWER: False
POINTS: I
DIFFICULTY: Easy
23. Ethical dilemmas are situations where there is no agreement over exactly what the accepted principles of right and
wrong are.
a. True
b. False
ANSWER: True
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.11.05 -Identify the main ethical issues that arise in business and the
causes of unethical behavior
NATIONAL STANDARDS: United States- BUSPROG: Ethics
24. are external stakeholders in a company.
a. Stockholders
b. Managers
c. Employees
d. Customers
e. Board members
ANSWER: d
POINTS: 1
25. are internal stakeholders in a company.

a. Customers
b. Goverrnnent regulators
c. Board members
d. Suppliers
e. Creditors
ANSWER: c
POINTS: 1
26. Arnold is a CEO at Gamma LLC. He has control over the corporate funds of the company. Arnold has often taken
funds from the company to pay for his travel and hotel expenses. The funds could otherwise have increased
stockholder returns. Which of the following concepts is illustrated in this scenario?
a. Corporate governance
b. On-the-job consumption
c. Greenmail
d. Information asymmetry
e. Information manipulation
ANSWER: b
POINTS: 1
DIFFICULTY: Challenging
27. Matthew is a divisional manager at Venus Inc. and reports to the CEO of the company. The CEO delegates
resources and authority to Matthew so that he can ensure good performance from the division. Matthew has more
employees working under him than required and he has not told the CEO about this, even though there are other
departments that are in need of more employees. Which of the following concepts is illustrated here?
a. Information asymmetry
c. Greenmail
d. Glass-ceiling effect
e. Takeover constraint
ANSWER: a
POINTS: 1
28. Which of the following statements is true about the board of directors?
a. The board members are directly elected by the employees of the company.
b. The board has no legal authority to hire, fire, and compensate the CEO.
c. Some of the board members hold positions on the boards of several companies.
d. The board has no power to nominate people for positions in the management.
e. Divisional and functional managers usually form the board.
ANSWER: c
POINTS: 1
29. Which of the following statements concerning profitability and profit growth is NOT true?
a. Attaining future profit growth may require investments that reduce the current rate of profitability.
b. Managers must find the right balance between profitability and profit growth.
c. Too much emphasis on current profitability at the expense of profit growth can make an enterprise less
attractive to shareholders.
d. Satisfying the claims of other key stakeholder groups happens at the risk of decreased profitability and profit
growth.
e. Too much emphasis on profit growth can reduce profitability and make an enterprise less attractive to
shareholders.
ANSWER: d
POINTS: I
30. is a source of gaining wealth by corporate raiders who benefit by pushing companies to either change their
corporate strategy to one that will benefit stockholders, or by charging a premium for these stocks when the
company wants to buy them back.
a. Stock option
b. Greenmail
c. Self dealing
d. On-the-job consumption
e. Risk capital
ANSWER: b
POINTS: I
DIFFICULTY: Easy
31. Which of the following statements is true in the context of stock-based compensation?
a. Stock options usually result in information asymmetry.
b. Stock-based compensation schemes for executives can align management and stockholder interests.
c. A particular cause for concern is that stock options are often granted at extremely high strike prices.
d. Critics deny that stock-based compensations motivate managers to improve company performance. e.
Granting more stock options often results in an increase in stockholder equity.
ANSWER: b
POINTS: I
32. Which of the following statements is true in the context of financial statements and auditors?
a. The information contained in the fmancial statements can enable a stockholder to calculate the ROIC of a
company in which he or she invests.
b. Publicly traded companies in the United States are not required to file quarterly or annual reports with the
SEC.
c. So far, there have been no cases in which the auditors were found complying with the companies to
misrepresent fmancial information.
d. The SEC requires that the accounts be audited by a committee formed by the board members and senior
employees of the company.
e. Sarbanes-Oxley Act in 2002 barred CEOs and CFOs from endorsing their company's fmancial statements.
ANSWER: a
POINTS: I
33. Which of the following is true of stakeholders?
a. Creditors are examples of internal stakeholders.
b. Stakeholders do not engage in an exchange relationship with their company.
c. Stockholders are internal stakeholders that provide an enterprise with risk capital.
d. The goals of different stakeholder groups within a company are the same, and therefore do not lead to any
conflicts.
e. It is mandatory for a company to satisfy the claims of all stakeholders.
ANSWER: c
POINTS: I
34. Which of the following statements is true in the context of principal-agent relationships?
a. The agency relationship is confmed to the top management and does not continue down the hierarchy within
the company.
b. Agents almost always have more information about the resources they are managing than the principal does.
c. Information asymmetry can make it easier for principals to measure how well an agent is performing.
d. In a principal-agent relationship, the decision making power rests entirely with the principals.
e. The relationship between the company and the suppliers is an example of a principal-agent relationship.
ANSWER: b
POINTS: I
35. Which of the following is NOT an accurate statement about current levels of pay for CEOs ofU.S.-based firms?
a. CEOs also earn from the stock options that they grant to managers.
b. Empire building helps CEOs increase their earnings.
c. CEO compensation is closely tied to corporate performance in most fmns.
d. CEO pay is rising more rapidly than pay for other workers.
e. The level of CEO compensation is determined by the corporate board of directors.
ANSWER: c
POINTS: I
NATIONAL STANDARDS: United States- BUSPROG:Analytic
36. When corporate CEOs and top managers use their power and control over funds to satisfy their personal desires for
wealth or status, it is called:
a. on-the-job consumption.
b. greernnail.
c. information asymmetry.
d. self-dealing.
e. risk capital.
ANSWER: a
POINTS: I
DIFFICULTY: Easy
37. Which of the following statements is true about strategic control systems?
a. They are usually set by government regulators that top management is required to follow.
b. Their primary purpose is to foster on-the-job consumption.
c. Their purpose is to ensure that the wealth of stockholders is maximized.
d. They relieve employees and management of legal and ethical constraints.
e. They are designed to encourage information asymmetry.
ANSWER: c
POINTS: I
aligu the interests of stockholders and managers
38. Which of the following statements is true about takeover constraint?

a. It encourages managers to put their own interests above those of stockholders.
b. It usually occurs when the management has maximized the wealth of the stockholders.
c. It often gives senior managers more independence when it comes to granting stock options.
d. It has ceased to exist in companies since the late 1990s.
e. It is the governance mechanism of last resort invoked only when the others have failed.
ANSWER: e
POINTS: I
39. Gamma Corp. has recently bought stocks in an under performing company that has failed to maximize stockholder
wealth. Gamma Corp. has made changes to the top management structure of the company and has persuaded the
management to pursue strategies that maximize the wealth of stockholders. Gamma Corp. has been able to earn
millions by doing so. Which of the following concepts is illustrated in this scenario?
a. Greenmail
b. Agency theory
c. Information asymmetry
d. Self-dealing
e. On-the-job consumption
ANSWER: a
POINTS: I
40. Which of the following statements is true about corporate raiders?

a. They are underperforming corporations that have been acquired by other companies.
b. They are government-funded organizations that help underperforming companies recover.
c. They may purchase stock in a company to take over the business and run it more efficiently.
d. They lack power to interfere with the top management decisions.
e. They discourage companies from pursuing strategies that help maximize stockholder wealth.
ANSWER: c
POINTS: I
41. is a situation where an agent has more knowledge about resources he or she is managing than the principal
has.
a. Information manipulation
c. Information asymmetry
d. Greenmail
e. Self-dealing
ANSWER: c
POINTS: I
42. Venus LLC. is a large monopolistic electronic finn. The firm has been putting a lot of pressure on some of the
complementor companies, asking them to bundle their products along with the products made by Venus LLC, which
will make it mandatory for customers to buy Venus LLC. products along with the complementary products, even if
they are unrelated. In this scenario, Which of the following does Venus LLC's actions demonstrate?
a. Agency strategy
b. Dumping strategy
c. Price limiting
d. Anticompetitive behavior
ANSWER: d
POINTS: I
43. Which of the following is NOT a governance mechanism used to align the interests of managers and stockholders?
a. Self-dealing
b. The board of directors
c. Stock-based compensation schemes
d. Strategic control systems
e. Takeover constraints
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
44. Which of the following is NOT a responsibility of the board of directors?

a. Monitor corporate strategy decisions and ensure that they are consistent with stockholder interests
b. Apply sanctions on management when appropriate
c. Hire, fire, and compensate the CEO
d. Develop targets for divisional managers
e. Make sure the audited fmancial statements present a true picture of the company's financial situation
ANSWER: d
POINTS: 1
45. Members of the board of directors are supposed to be agents for:

a. stockholders.
b. employees.
c. executive officers.
d. customers.
e. suppliers.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
46. Which of the following statements about the board of directors is NOT true?
a. Board members are elected by stockholders.
b. The board can be held legally accountable for a company's actions.
c. The board has the legal authority to hire, fire, and compensate the CEO.
d. All the directors are full-time employees of the company.
e. Outside directors help perform the monitoring function of the board.
ANSWER: d
POINTS: 1
47. The internal research department of Libra Inc. has found that the packaging of health supplements produced by the
company is faulty, and is resulting in poor quality. Despite this knowledge, the company has not improved the
packaging and instead has advertised to its customers that their packaging is foolproof. Which of the following
concepts is illustrated in this scenario?
a. Information manipulation
b. Anticompetitive behavior
c. Agency strategy
d. Information symmetry
ANSWER: a
POINTS: 1
LEARNING OBJECTIVES: SMIA.HILL.15.11.05 -Identify the main ethical issues that arise in business and the
48. Jacob is a senior manager at Aries LLC. Jacob has been earning a lot of money in addition to his salary. He often
misrepresents the fmancial information about the operations he handles; he acquires more fmancial resources than he
actually needs to run operations. Which of the following concepts is illustrated in this scenario?
a. Glass-ceiling effect
b. Self-dealing
c. Agency strategy
d. Takeover constraints
e. Stock options
ANSWER: b
POINTS: I
49. Which of the following is a major function of the board of directors of a company?
a. Approving decisions made by divisional managers
b. Monitoring line managers
c. Aligning corporate strategy with stockholder interests
d. Creating contracts with suppliers
e. Designing marketing strategies for the company
ANSWER: c
POINTS: I
50. The purpose of governance mechanisms in corporations is to:

a. centralize company resources to the top management.
b. reduce the scope and frequency of the agency problems.
c. satisfy the requirements of the Securities and Exchange Commission (SEC).
d. limit corporate growth to manageable rates.
e. monitor the performance of the board of directors.
ANSWER: b
POINTS: I
DIFFICULTY: Easy
51. Gemini Corp. is a large automobile manufacturer that has contracts with several suppliers. To gain more benefits
from an upholstery supplier, Gemini Corp. unilaterally changed the contract and pressurized the supplier to lower its
prices. Which of the following concepts is illustrated in this scenario?
a. Opportunistic exploitation
c. Agency strategy
d. Greenmail
e. Self-dealing
ANSWER: a
POINTS: I
52. A stock option is a right to buy:

a. shares of the company's stock at the stock's current price.
b. shares of the company's stock at half the stock's current price.
c. shares of the company's stock at a predetermined price at some point in the future.
d. bonds issued by the company.
e. stock in an underperforrning company.
ANSWER: c
POINTS: I
DIFFICULTY: Easy
53. In order to reduce its production costs, Delta LLC. has moved its manufacturing units to an underdeveloped country
where there are few labor laws. The employees at the manufacturing units are children and teenagers, and they
receive minimal wages. Which of the following ethical issues is illustrated in this scenario?
a. On-the-job consumption
b. Opportunistic exploitation
c. Self-dealing
d. Information manipulation
e. Substandard working conditions
ANSWER: e
POINTS: I
54. Nicole is a salesperson at a local Ford dealership. Her bonus pay is dependent upon surpassing sales targets, thus
increasing the profitability of the company. Which of the following governance mechanisms is illustrated in this
scenario?
a. Stock options
b. Self-dealing
c. The takeover constraint
d. Employee incentives
e. Greenmail
ANSWER: d
POINTS: I
55. Alpha LLC. is large paint manufacturing company. Despite government regulations, the company has been illegally
disposing its chemical wastes in a lake, which is an important habitat for several fish and birds. Which of the
following ethical concerns is illustrated in this scenario?
a. On-the-job consumption
b. Opportunistic exploitation
c. Envirornnental degradation
d. Self-dealing
e. Substandard working conditions
ANSWER: c
POINTS: I
56. Which of the following statements concerning stock-based compensation schemes for executives is NOT true?
a. Under accounting regulations that were enforced until2005, stock options, like wages and salaries, were
expensed.
b. Huge stock-option grants can align the interests of management and stockholders.
c. Stock-based compensation schemes can dilute the equity of stockholders.
d. Huge stock-option grants increase the outstanding number of shares in a company.
e. Top managers can earn huge bonuses from stock options that were granted several years prior.
ANSWER: a
POINTS: I
aligu the interests of stockholders and managers
57. A criticism of stock-based compensation plans is that:

a. they discourage empire building.
b. they reduce motivation among agents.
c. they do not aligu management and stockholder interests
d. they dilute stockholders' equity.
e. they adversely affect the earnings of principals.
ANSWER: d
POINTS: I
LEARNING OBJECTIVES: SMIA.HILL.l5.11.04- Explain why these governance mechanisms do not always
work as intended
58. Which of the following statements is true in the context of unethical behavior?
a. Business ethics significantly differ from personal ethics.
b. An individual with a strong sense of personal ethics is more likely to engage in self-dealing.
c. A personal ethical code will exert a profound influence on the way individuals behave as businesspeople.
d. Focusing only on applying straightforward business calculus can completely eliminate ethical concerns.
e. An organizational culture that fosters decision making on purely economic terms eliminates unethical
practices.
ANSWER: c
POINTS: I
59. To ensure that basic ethical principles are adhered to in the organization, managers should:
a. build an organizational culture that places a high value on economic aspects.
b. make sure that leaders within the business only articulate the rhetoric of ethical behavior.
c. put minimal governance processes in place.
d. check with prior employees regarding someone's reputation before hiring.
e. foster and encourage on-the-job consumption.
ANSWER: d
POINTS: I
DIFFICULTY: Easy
60. To foster ethical behavior through organizational culture, businesses should:

a. avoid explicitly articulating values that place a strong emphasis on ethical behavior.
b. draft a formal statement of the ethical priorities to which a business adheres.
c. encourage self-dealing among managers.
d. eliminate the need of a moral compass.
e. avoid putting strong governance processes in place.
ANSWER: b
POINTS: I
DIFFICULTY: Easy
61. Which of the following governance mechanisms is regarded as the option of last resort?
a. Strategic control system
b. Takeover constraint
c. Board of directors
d. Stock-based compensation system
e. Financial statements and auditors
ANSWER: b
POINTS: I
DIFFICULTY: Easy
62. Managers using company funds for their own personal consumption is called .
a. information manipulation
b. self-dealing
c. takeover constraint
d. greenmail
e. information asymmetry
ANSWER: b
POINTS: I
DIFFICULTY: Easy
63. When managers pay bribes to gain access to lucrative business contracts, they are engaging in:
a. information asymmetry
b. utilitarianism.
c. self-dealing.
d. greenmail.
e. corruption.
ANSWER: e
POINTS: I
DIFFICULTY: Easy
64. When managers of a finn seek to unilaterally rewrite the terms of a contract with suppliers, buyers, or complement
providers in a way that is more favorable to their firm, they are engaging in:
a. opportunistic exploitation.
b. information manipulation.
c. downsizing.
d. greenmail.
e. self-dealing.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.11.05 -Identify the main ethical issues that arise in business and the
65. To make sure that ethical issues are considered in business decisions:
a. companies should eliminate the principal-agent approach.
b. companies should have a no-layoff policy.
c. top managers should articulate and model ethical behaviors.
d. top managers should generously grant stock options.
e. companies should hire and promote employees with a strong focus on economic gains.
ANSWER: c
POINTS: 1
LEARNING OBJECTIVES: SMIA.HILL.15.11.06 -Identify what managers can do to improve the ethical climate
of their organization, and to make sure that business decisions do not violate good
ethical principles
66. Identify and discuss the governance mechanisms that help align the incentives of stockholders and managers, and
help monitor and control management.
ANSWER: Agency problems in organizations are well documented and well understood. The four
main types of governance mechanisms to help address agency problems are discussed
below.
The board of directors is the first governance mechanism. Board members are elected
by shareholders and have specific statutory responsibility, so this mechanism may
break down primarily because of the structure of the board. First, boards are often
dominated by insiders who often have position authority and access to information that
outside directors do not have. In addition, many boards are chaired by the CEO D the
ultimate insider.
A second governance mechanism is stock-based compensation. The idea behind this
mechanism is that it helps align the frnancial interests of shareholders and managers.
When share price rises, both benefit; when it falls, they both suffer. A problem with
stock-based compensation is that many companies have used stock options that distort
their real cost and dilute the value of shareholders' holdings.
A third mechanism is financial statements and auditors. Good governance relies on
accurate and timely information about company performance. Transparency is the
cornerstone of frnancial reporting. Unfortunately, recent high-profile examples of
companies (Enron, Computer Associates) that have falsified reports to present an
inaccurate picture of company performance indicate that this mechanism has problems.
A frnal governance mechanism is the takeover constraint. When companies are
mismanaged and not creating the value that they should, the possibility of an outside
party corning in, taking over control (through a hostile raid), replacing existing
management, and then turning the company around may be the ultimate management
punishment for poor performance. A problem with this mechanism is that many
companies (and states) have put in place takeover defenses that make it much more
difficult to take over a company.
POINTS: 1
DIFFICULTY: Easy
67. Consider a national chain of company-owned fast-food restaurants. For this finn, list the important stakeholders.
Then describe how each stakeholder group can affect the firm's profitability.
ANSWER: Internal stakeholders of a national chain of fast-food restaurants would include the
managers and employees of the frrm and the firm's stockholders. External stakeholders
would include customers, who are probably young adults and young families; suppliers,
such as wholesalers of food and paper products; and banks and other creditors. Local
governments regulate issues about food safety and handling at food service
establishments, and the federal, state, and local governments regulate a wide variety of
issues, from hiring practices to tax collection, to accessible restaurant desigu. Unions
may be a stakeholder if the restaurant workers are unionized. Local communities and
society are also external stakeholders.
Each of these groups can have a positive or a negative impact on profitability. Here is
just one example. If customers are satisfied that they are receiving value for their
money, they will purchase the frrm's products, increasing the frrm's profitability. But if
the customers are not satisfied, they will refrain from purchasing and may even give
the frrm bad word-of-mouth advertising, which will reduce sales and profitability.
POINTS: I
68. Explain the principles of agency theory, including the issues it addresses. What are some effective ways to deal with
agency problems, as implied or stated by agency theory?
ANSWER: Agency theory addresses situations where one individual or group (the principals) relies
on another individual or group (the agents) to make decisions and take actions on their
behalf. In many of these situations, there are opportunities for mutual gain, but there
are also opportunities for the agents to act in their own best interests, to the detriment
of the principals. Opportunities for exploitation exist because agents have more access
to information about the situation and to other resources than do the principals.
Therefore, the principals cannot fully monitor the actions of the agents and must trust
the agents to some extent.
One way to manage agency problems is to align the two parties' goals Dthat is, to create
opportunities for mutual gain and reduce opportunities for one-sided gain. For example,
if corporate managers are compensated based on stock price, then they are more likely
to work toward increasing stock returns, which would also benefit stockholders. If
managers are compensated based on the size of the firm, then they will work toward
increasing the size of the firm, which may not be beneficial for stockholders. Another
tactic is to reduce information asymmetry to the extent possible by overseeing or
monitoring the principals' actions closely. However, there will always be a need for the
principal to trust the agent to some extent.
POINTS: I
69. Business ethics are concerned with accepted principles of right or wrong governing the conduct of businesspeople.
Identify and discuss the common examples of unethical decisions that businesspeople have made.
ANSWER: Unethical behavior often occurs when people decide to put their own interests ahead of
those of the firm and its stakeholders. Common examples of unethical behavior include:
Self-dealingDpursuing personal enhancements with company funds.
Information manipulation D hiding or distorting information (usually negative) that would
show how the company is really performing. The information is usually frnancial but
may be nonfrnancial (data that a company's products are harmful).
Anticompetitive behaviorD concerns a broad range of behaviors that limit competition
and may harm customers.
Opportunistic exploitation D occurs when managers of a company seek to unilaterally
rewrite the terms of a contract with suppliers, buyers, or complement providers.
Substandard working conditions D paying below-market rates or underinvesting in
working conditions to reduce costs; an important issue in international operations.
Envirornnental degradation D actions that directly result in pollution or other forms of
envirornnental harm.
Cormption D paying bribes to gain access to lucrative contracts or personal gain.
POINTS: 1

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1. A union and the general public are examples of internal stakeholders.

3. An agency relationship continues down a hierarchy within a company.

6. All stakeholders have an exchange relationship with the company.

19. Inside directors are not full-time employees of the company.

25. are internal stakeholders in a company.

38. Which of the following statements is true about takeover constraint?

40. Which of the following statements is true about corporate raiders?

44. Which of the following is NOT a responsibility of the board of directors?

45. Members of the board of directors are supposed to be agents for:

50. The purpose of governance mechanisms in corporations is to:

52. A stock option is a right to buy:

57. A criticism of stock-based compensation plans is that:

60. To foster ethical behavior through organizational culture, businesses should:

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