1. Agency theory presents some important managerial considerations. Broadly speaking, governance mechanisms need to assure alignment of incentives between principals and agents. The text provides an example of financial institutions in the situation of profits remaining within the firm while losses are paid by the public as a description of
A) a board of directors' problem.
B) a challenge of information symmetry.
C) a moral hazard problem.
D) a private information problem.
E) an adverse selection problem.
2. Which of the following best exemplifies information asymmetry at Lizer Tech Inc., a publicly traded software development firm?
A) The lower-level employees at Lizer are often unaware of what happens in boardroom meetings.
B) The new CEO of Lizer implements a new strategy that focuses on social initiatives.
C)The shareholders of Lizer subscribe to Milton Friedman's views of capitalism while the agents subscribe to Michael Porter's views.
D) The board of directors at Lizer Tech makes significant structural changes to the organization and issues a press release to notify the shareholders.
3. Which of the following is true of public stock companies?
A) There exists an implicit contract based on trust between society and the public stock company.
B) Public stock companies are not required to disclose financial statements.
C) The public stock company is not an important institutional arrangement in developing economies.
D) Society expects public stock companies to add value to society by making profits for shareholders.
4. What, according to Greg Smith, was the cause for the change in ethical climate within Goldman Sachs?
A) The company acquired Abacus, and the conflicting cultures prompted Goldman Sachs to adopt a new hybrid culture.
B) The company had earned a reputation that it could not live up to in the long run.
C) The company went public and began looking at clients and itself as counter parties to a transaction.
D) The company went from caring about customers to creating an inflated share price at any cost.