Exam (elaborations)
MIE 480: Exam 3 Detailed Questions and Expert Answers
- Course
- MIE480
- Institution
- North Carolina State University
MIE 480: Exam 3 Detailed Questions and Expert Answers
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MIE 480: Exam 3 Detailed Questions and ExpertAnswers
Corporate Governance - ANS The set of mechanisms used to manage the
relationships among stakeholders and to determine and control the strategic
direction and performance of organizations
Ownership Concentration - ANS Relative amounts of stock owned by individual
shareholders and institutional investors
Board of Directors - ANS Individuals responsible for representing the firm's owners
by monitoring top-level managers' strategic decisions
Executive Compensation - ANS The use of salary, bonuses, and long-term
incentives to align managers' interests with shareholders' interests.
Market for Corporate Control - ANS The purchase of a firm that is underperforming
relative to industry rivals in order to improve its strategic competitiveness
Basis of the Modern Corporation - ANS -Shareholders purchase stock, becoming
residual claimants
-Shareholders reduce risk by holding diversified portfolios
-Professional managers are contracted to provide decision making
, Modern public corporation form leads to efficient specialization of tasks - ANS -
Risk bearing by shareholders
-Strategy development and decision making by managers
Shareholders - ANS Owners (Principals)
Managers - ANS Decision makers (Agents)
Agency Relationship - ANS -Risk-bearing specialist (principal) paying compensation
to
-A managerial decision-making specialist (agent)
Agency Relationship Problems - ANS - Principal and agent divergent interests and
goals
- Shareholders lack direct control of large, public corporations
- Agent makes decisions that result in pursuit of conflicting goals with principal
- It is difficult or expensive for the principal to verify the agent has behaved
appropriately
- Agents fall prey to managerial opportunism
Product Diversification Problem - ANS - Increased size and relationship of size to
managerial compensation
- Reduction of managerial employment risk
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