The separation of ownership from management creates a situation in which: a. Management may act in its own best interests rather than those of the shareholders b. Management may act in its own best interests rather than those of the employees c. Management may act in its own best interests rather than those of the creditors d. Management may act in its own best interests rather than those of the debtors

The separation of ownership from management creates a situation in which: a. Management may act in its own best interests rather than those of the shareholders b. Management may act in its own best interests rather than those of the employees c. Management may act in its own best interests rather than those of the creditors d. Management may act in its own best interests rather than those of the debtors

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter1: An Overview Of Managerial Finance

Section: Chapter Questions

Problem 6PROB

See similar textbooks

Similar questions

The separation of ownership from management creates a situation in which: a. Management may act in its own best interests rather than those of the creditors b. Management may act in its own best interests rather than those of the debtors c. Management may act in its own best interests rather than those of the shareholders d. Management may act in its own best interests rather than those of the employees
The Principal-Agent Problem arises A) because managers have little incentive to work in the interest of shareholders when this means working against their own self-interest. B) because of the separation of ownership and control in a corporation. C) Both A and B D) None of the above
Elaborate two (2) approaches on how to tackle issue on the conflict of interest between management and shareholders
A According to shankman(1999), two features make agency relations special. One of this is inherent conflict of interest between shareholders and managers. What is the other? a- limited communication between owners and managers b- large difference in defined rights and obligations c- informational asymmetry between principal and agents d- short term focus of the ownership goals
Which of the following statements is consistent with the principle of control as defined by IFRS 10 Consolidated Financial Statements? a. The investor must be exposed to a return from the investee. b. The investor has the ability to use its power over the investee to affect the amount of the returns from the investee. c. An investor yet to direct the relevant activities of an investee has no power over the investee. d. An investor cannot have control over an investee if another investor has existing rights to participate in the direction of the relevant activities.
Which of the following is closest to IFRS 3 Business Combinations definition of control? A company is deemed to have control over another only when it owns a majority of the voting shares of another company. B. A company is deemed to have control when it can elect a majority of the Board members of another company. C. Control is the ability to direct the activities of a company that most significantly affect the investor's returns. D. Control exists only when a company has the continuing power to determine the operating and financing policies of another company and attempts to exercise such powers.
18. Which of the following is not an incentive for company managers to exercise their accounting discretion? Select one: a. Accounting-based debt covenants b. Contests for corporate control c. Management compensation contracts d. Report a company's performance faithfully
1. explain how the separation of ownership and control in american corporation might lead to poor management.
Which of the following statements is FALSE? In the shareholder/debtor relationship, the: a. Debtor is the principal, because they have delegated authority to management b. Shareholder and debtor interests are increasingly aligned as the company takes on more debt. c. Interests of the firm’s management tend to be aligned more closely with those of the firm’s shareholders d. Shareholders have an incentive to take on risky projects because they get to keep residual earnings of the firm a. Interests of the firm’s management tend to be aligned more closely with those of the firm’s shareholders b. Shareholders have an incentive to take on risky projects because they get to keep residual earnings of the firm c. Debtor is the principal, because they have delegated authority to management d. Shareholder and debtor interests are increasingly aligned as the company takes on more debt.
1. Which of the following is a distinguishing characteristic of a nonbusiness organization? Select one: A). There is an absence of ownership interests that can be sold, transferred, or redeemed. B). It does not depreciate its capital assets. C). It does not charge fees for any of its services. D). Its revenues do not exceed its expenses
Which of the following statements is CORRECT? Select one: a. Conflict of interest between shareholders and managers is not possible. b. By definition, the agency problem can only take place in corporations but not in proprietorships and partnerships. c. Conflict of interest between shareholders and bondholders is not possible. d. Managers always work to maximize the long-run value, and therefore the price, of their company stocks. This is exactly what shareholders desire.
Which one of the following is the least likely reason a company may acquire an ownership interest in another company? Select one: a.To benefit form an overvaluing of assets in the investee company b. To oust an inefficient management team c. To take advantage of operating and/or cost synergies d. To exercise an active role in the business' activities