Question 1

To ensure that basic ethical principles are adhered to in the organization, managers should:

Accepted Answer

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.

Question 2

Emphasizing current profitability at the expense of future profitability and profit growth makes an enterprise more attractive to shareholders.

Accepted Answer

A) True 
 B)False

Question 3

To make sure that ethical issues are considered in business decisions:

Accepted Answer

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.

Question 4

The purpose of governance mechanisms in corporations is to:

Accepted Answer

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 (SE
C) . 
D)  limit corporate growth to manageable rates. 
E)  monitor the performance of the Board of Directors.

Question 5

In order to reduce its production costs, Delta LLC has moved its manufacturing facilities to an under-developed country where there are few labor laws. The employees at the manufacturing facilities are children and teenagers, and they receive minimal wages. Which of the following ethical issues is illustrated in this scenario?

Accepted Answer

A)  On-the-job consumption 
B)  Opportunistic exploitation 
C)  Self-dealing 
D)  Information manipulation 
E)  Substandard working conditions

Question 6

Which of the following statements is true about the Board of Directors?

Accepted Answer

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 management. 
E)  Divisional and functional managers usually form the Board.

Question 7

_____ 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.

Accepted Answer

A)  Stock option 
B)  Greenmail 
C)  Self dealing 
D)  On-the-job consumption 
E)  Risk capital

Question 8

Which of the following is a major function of the Board of Directors of a company?

Accepted Answer

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

Question 9

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 accomplishes this goal.

Accepted Answer

A) True 
 B)False

Question 10

Governance mechanisms help align the incentives between principals and agents, and help monitor and control agents.

Accepted Answer

A) True 
 B)False

Question 11

Jacob is a senior manager at Aries LLC.  He has been earning significant bonuses in addition to his salary. He often misrepresents the financial information about the operations he handles, and he acquires more financial resources than he actually needs to run operations. Which of the following concepts is illustrated in this scenario?

Accepted Answer

A)  Glass-ceiling effect 
B)  Self-dealing 
C)  Agency strategy 
D)  Takeover constraints 
E)  Stock options

Question 12

When managers of a firm seek to unilaterally rewrite the terms of contracts with suppliers, buyers, or complement providers in a way that is more favorable to their firm, they are engaging in:

Accepted Answer

A)  opportunistic exploitation. 
B)  information manipulation. 
C)  downsizing. 
D)  greenmail. 
E)  self-dealing.

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

Gamma Corp. recently bought stocks in an under-performing company that has failed to maximize stockholder wealth. Gamma Corp. made changes to the top management structure of the company and 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?

Accepted Answer

A)  Greenmail 
B)  Agency theory 
C)  Information asymmetry 
D)  Self-dealing 
E)  On-the-job consumption

Question 15

Financial statements can be a tool of effective governance only if they provide consistent, detailed, and accurate information.

Accepted Answer

A) True 
 B)False

Question 16

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 an ethical business practice.

Accepted Answer

A) True 
 B)False

Question 17

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?

Accepted Answer

A)  Stock options 
B)  Self-dealing 
C)  The takeover constraint 
D)  Employee incentives 
E)  Greenmail

Question 18

Arnold is a CEO at Gamma LLC. He has control over the corporate funds of the company. Arnold has often used 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?

Accepted Answer

A)  Corporate governance 
B)  On-the-job consumption 
C)  Greenmail 
D)  Information asymmetry 
E)  Information manipulation

Question 19

Which of the following statements is true in the context of financial statements and auditors?

Accepted Answer

A)  The information contained in the financial 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 auditors were found cooperating with companies to misrepresent financial 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 financial statements.

Question 20

To foster ethical behavior through organizational culture, businesses should:

Accepted Answer

A)  avoid explicitly articulating values that place a strong emphasis on ethical behavior. 
B)  draft a formal statement of the ethical priorities they will follow. 
C)  encourage self-dealing among managers. 
D)  eliminate the need for a moral compass. 
E)  avoid putting strong governance processes in place.

Exam 11: Corporate Performance, Governance, and Business Ethics

To ensure that basic ethical principles are adhered to in the organization, managers should:

Emphasizing current profitability at the expense of future profitability and profit growth makes an enterprise more attractive to shareholders.

To make sure that ethical issues are considered in business decisions:

The purpose of governance mechanisms in corporations is to:

Which of the following statements is true about the Board of Directors?

_____ 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.

Which of the following is a major function of the Board of Directors of a company?

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 accomplishes this goal.

Governance mechanisms help align the incentives between principals and agents, and help monitor and control agents.

When managers of a firm seek to unilaterally rewrite the terms of contracts with suppliers, buyers, or complement providers in a way that is more favorable to their firm, they are engaging in:

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.

Financial statements can be a tool of effective governance only if they provide consistent, detailed, and accurate information.

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 an ethical business practice.

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?

Arnold is a CEO at Gamma LLC. He has control over the corporate funds of the company. Arnold has often used 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?

Which of the following statements is true in the context of financial statements and auditors?

To foster ethical behavior through organizational culture, businesses should: