Strategic Management Theory An Integrated Approach 11th Edition Test Bank - Charles W. L. Hill

Strategic Management Theory An Integrated Approach 11th Edition Test Bank – Charles W. L. Hill

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Title : Strategic Management: Theory: An Integrated Approach

Author : Charles W. L. Hill – Gareth R. Jones – Melissa A. Schilling

Edition : 11th Edition

Type : TestBank

Product Description

Strategic Management Theory An Integrated Approach 11th Edition Test Bank – Charles W. L. Hill

Strategic Management Theory An Integrated Approach 11th Edition Test Bank – Charles W. L. Hill

SAMPLE

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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

a. True

b. False

ANSWER: POINTS:

DIFFICULTY:

True

I

Easy

LEARNING OBJECTIVES: SMIA.HILL.l5.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.01 -Understand the relationship between stakeholder management and corporate performance

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: POINTS:

DIFFICULTY:

True

I

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

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

8. While many agency relationships work well, problems arise when agents and principals have different goals.

a. True

b. False

ANSWER: POINTS:

DIFFICULTY:

True

I

Easy

LEARNING OBJECTIVES: SMIA.HILL.l5.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

LEARNING OBJECTIVES: SMIA.HILL.15.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

11. Stockholders receive a return on their investment in a company’s stock from dividend payments and capital appreciation.

a. True

b. False

ANSWER: POINTS:

DIFFICULTY:

True

1

Easy

LEARNING OBJECTIVES: SMIA.HILL.15.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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: POINTS:

DIFFICULTY:

False

1

Easy

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

13. Attaining future profit growth may require investments that reduce the current rate of profitability.

a. True

b. False

ANSWER: POINTS:

DIFFICULTY:

True

1

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

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: POINTS:

DIFFICULTY:

True

1

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thinking

KEYWORDS: Bloom’s: Application

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: POINTS:

DIFFICULTY:

False

1

Easy

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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 align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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

a. True

b. False

ANSWER: False

POINTS: 1

DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to

align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

22. Principals ahnost always have more information about the resources that agents are managing than the agents themselves.

a. True

b. False

ANSWER: POINTS:

DIFFICULTY:

False

I

Easy

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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: POINTS:

DIFFICULTY:

True

I

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

KEYWORDS: Bloom’s: Knowledge

24. are external stakeholders in a company. a. Stockholders

b. Managers c. Employees d. Customers

e. Board members

ANSWER: POINTS:

DIFFICULTY:

d

1

Moderate

LEARNING OBJECTIVES: SMIA.HILL.15.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

25. are internal stakeholders in a company. a. Customers

b. Goverrnnent regulators c. Board members

d. Suppliers

e. Creditors

ANSWER: POINTS:

DIFFICULTY:

c

1

Moderate

LEARNING OBJECTIVES: SMIA.HILL.15.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

b

1

Challenging

LEARNING OBJECTIVES: SMIA.HILL.15.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thinking

KEYWORDS: Bloom’s: Application

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 b. On-the-job consumption c. Greenmail

d. Glass-ceiling effect

e. Takeover constraint

ANSWER: POINTS:

DIFFICULTY:

a

1

Moderate

LEARNING OBJECTIVES: SMIA.HILL.15.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thinking

KEYWORDS: Bloom’s: Application

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

DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.15.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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 DIFFICULTY: Moderate

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: Comprehension

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: POINTS:

DIFFICULTY:

b

I

Easy

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to

align the interests of stockholders and managers NATIONAL STANDARDS:  United States- BUSPROG: Ethics KEYWORDS: Bloom’s: Comprehension

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

c

I

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

b

I

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

c

I

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG:Analytic

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

a

I

Easy

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to aligu the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

e

I

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thinking

KEYWORDS: Bloom’s: Application

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

41. is a situation where an agent has more knowledge about resources he or she is managing than the principal has.

a. Information manipulation b. On-the-job consumption c. Information asymmetry d. Greenmail

e. Self-dealing

ANSWER: POINTS:

DIFFICULTY:

c

I

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.02- Explain why maximizing returns to stockholders is often viewed as the preeminent goal in many corporations

NATIONAL STANDARDS:  United States- BUSPROG: Ethics

KEYWORDS: Bloom’s: Comprehension

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

e. On-the-job consumption

ANSWER: POINTS:

DIFFICULTY:

d

I

Moderate

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: Reflective Thinking

KEYWORDS: Bloom’s: Application

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

LEARNING OBJECTIVES: SMIA.HILL.15.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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

DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.15.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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

LEARNING OBJECTIVES: SMIA.HILL.15.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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

DIFFICULTY:                       Moderate

LEARNING OBJECTIVES: SMIA.HILL.15.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS:                        Bloom’s: Comprehension

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

e. On-the-job consumption

ANSWER: POINTS:

DIFFICULTY:

a

1

Moderate

LEARNING OBJECTIVES: SMIA.HILL.15.11.05 -Identify the main ethical issues that arise in business and the causes of unethical behavior

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thinking

KEYWORDS: Bloom’s: Application

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: POINTS:

DIFFICULTY:

b

I

Moderate

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: Reflective Thinking

KEYWORDS: Bloom’s: Application

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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 b. On-the-job consumption c. Agency strategy

d. Greenmail

e. Self-dealing

ANSWER: POINTS:

DIFFICULTY:

a

I

Moderate

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

KEYWORDS: Bloom’s: Application

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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: POINTS:

DIFFICULTY:

e

I

Moderate

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: Reflective Thinking

KEYWORDS: Bloom’s: Application

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thinking

KEYWORDS: Bloom’s: Application

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: POINTS:

DIFFICULTY:

c

I

Moderate

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: Reflective Thinking

KEYWORDS: Bloom’s: Application

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 DIFFICULTY: Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to aligu the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

d

I

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.04- Explain why these governance mechanisms do not always work as intended

NATIONAL STANDARDS:  United States- BUSPROG: Reflective Thin- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

c

I

Moderate

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

KEYWORDS: Bloom’s: Comprehension

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: POINTS:

DIFFICULTY:

d

I

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

KEYWORDS: Bloom’s: Knowledge

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: POINTS:

DIFFICULTY:

b

I

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

KEYWORDS: Bloom’s: Knowledge

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: POINTS:

DIFFICULTY:

b

I

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

KEYWORDS: Bloom’s: Knowledge

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: POINTS:

DIFFICULTY:

b

I

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

KEYWORDS: Bloom’s: Knowledge

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: POINTS:

DIFFICULTY:

e

I

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

KEYWORDS: Bloom’s: Knowledge

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: POINTS:

DIFFICULTY:

a

1

Easy

LEARNING OBJECTIVES: SMIA.HILL.15.11.05 -Identify the main ethical issues that arise in business and the causes of unethical behavior

NATIONAL STANDARDS:  United States- BUSPROG: Ethics

KEYWORDS: Bloom’s: Comprehension

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

DIFFICULTY: Moderate

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

NATIONAL STANDARDS:  United States- BUSPROG: Ethics

KEYWORDS: Bloom’s: Comprehension

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

LEARNING OBJECTIVES: SMIA.HILL.l5.11.03 -Describe the various governance mechanisms that are used to align the interests of stockholders and managers

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Knowledge

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:

POINTS: DIFFICULTY:

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.

I

Moderate

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: Comprehension

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:

POINTS: DIFFICULTY:

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.

I

Moderate

LEARNING OBJECTIVES: SMIA.HILL.l5.11.01 -Understand the relationship between stakeholder management and corporate performance

NATIONAL STANDARDS:  United States- BUSPROG: Analytic

KEYWORDS: Bloom’s: Comprehension

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:

POINTS: DIFFICULTY:

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.

1

Moderate

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: Reflective Thinking

KEYWORDS: Bloom’s: Application

Strategic Management Theory An Integrated Approach 11th Edition Test Bank – Charles W. L. Hill

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