Which of the following statements is FALSE?By tying compensation to performance, shareholders aim to prevent/reduce agency problems.Increasing the pay-for-performance sensitivity comes with the added benefit of reducing manager's risk.During the 1990s, most companies adopted compensation policies that more directly gave managers anownership stake by including grants of stock or stock options to executives.Stock and option grants give managers an incentive to increase the stock price to make their stock or options asvaluable as possible.

A dispute arising when people (the agents) delegated to look after the benefits of others (the…

Answered: Which of the following statements is…

Business/Professional Ethics Directors/Executives/Acct

8th Edition

ISBN:9781337485913

Author:BROOKS

Publisher:BROOKS

Chapter5: Corporate Ethical Governance & Accountabililty

Section: Chapter Questions

Problem 13.2EC

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In developing a compensatory share option plan, a company's objective is to motivate executives and employees to manage the company in a way that increases stock price. to decrease employee turnover. to enhance compensation packages without having to expend cash. to do all of these options.
Which one of the following actions by a financial manager creates an agency problem? Lowering selling prices that will result in increased firm value Agreeing to expand the company at the expense of stockholders' value Borrowing money when doing so creates value for the firm Agreeing to pay management bonuses based on the market value of the firm's stock
How are conflicts between the shareholders and the management created? Which of the following is most accurate? a. They have either different political or religious beliefs. b. They have different views on how to manage people. The shareholders want a more liberal approach while the management wants micromanaging. c. The management would want to undertake higher risk projects in anticipation of higher returns because management compensation and bonuses are partly tied to financial performance, while shareholders may want to limit risks and invest instead in projects with lower risk. d. None of the choices are correct.
2 (a)There is a conflict of interest between stockholders and managers. In theory, stockholders are expected to exercise control over managers through the annual meeting or the board of directors. In practice, why might these disciplinary mechanisms not work? (b)There are some corporate strategists who have suggested that firms focus on maximizing market share rather than market prices. When might this strategy work, and when might it fail? (c)It is often argued that managers, when asked to maximize stock price, have to choose between being socially responsible and carrying out their fiduciary duty. Do you agree? Can you provide an example where social responsibility and firm value maximization go hand in hand?
which of the following could be a potential solution to the agency problem between managers and shareholders? 1. having the managers meet more often 2. having fewer managers 3. paying the managers higher cash wages 4. having more female managers than the males managers 5. giving the managers a part of the company through stock-based compensation
A company's board thinks it needs to reward top management for advancing the company's aims. The board decides on bonuses based on share price rises at the end of each year. Bonuses will be given in shares that managers can keep or sell. What are the ramifications of such a bonus scheme?
Which of the following is NOT normally regarded as being a good reason to establish an ESOP? a. To help retain valued employees. b. To increase worker productivity. c. To make it easier to grant stock options to employees. d. To enable the firm to borrow at a below-market interest rate. e. To help prevent a hostile takeover.
a. How does the offering of stock options to CEOs attempt to align CEO incentives with shareholder incentives?b. Enron was a company that was ruined in part because of the stock options offered to upper management. Explain.c. In addition to accounting reforms, how might stock options be changed to try to prevent situations like what happened at Enron from occurring in the future?
All things equal, managerial risk aversion will have the following effect: Question options: a) CEOs will pass on NPV < 0 projects, which is an indirect agency cost b) Less diversified executives will place a lower value on riskier forms of compensation c) CEOs will prefer debt over equity financing for new projects d) CEOs will be less willing to accept underpricing at an initial public offering
Which of the following statements is/are INCORRECT? O 1) Takeover threats tends to affect managerial behavior. 2) Corporations have the double taxation problem. O 3) Compensating managers with more stock options and less cash income can reduce the conflicts of interest between bondholders and managers. O 4) Both a and c are incorrect. 5) Both b and c are incorrect.
If a company’s board of directors wants management to maximize shareholder’s wealth, should the CEO’s compensation be set as a fixed amount, or should the compensation depend on how well the firm performs? If it is based on performance, how should performance be measured? Would it be easier to measure performance by the growth rate in reported profits or the growth rate in the stock’s intrinsic value? Which would be the better performance measure? Why?
Which of the following statements most likely describes a situation that would motivate amanager to issue low-quality fi nancial reports?A . Th e manager’s compensation is tied to stock price performance.B . Th e manager has increased the market share of products signifi cantly.C . Th e manager has brought the company’s profi tability to a level higher thancompetitors.

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