BUS 225 DAYONE LL
17th Edition
ISBN: 9781264116430
Author: BLOCK
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 20, Problem 11DQ
Why do management and stockholders often have divergent viewpoints about the desirability of a takeover? (LO20-5)
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False
Many firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm's agency problems? Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders' interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defenses?
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- It is an axiom that may be characterized by managers making decisions that conflict with the best interest of the shareholders. a. the risk-return trade-off b. the agency problems c. the curse of competitive markets d. stockholders versus managersarrow_forward6. Why do firms accept underpricing of their initial public offerings (IPOs)?arrow_forward1.Why the limitation of portfilio analysis is it naively following the prescriptions of a portfolio model may actually reduce corporate profits if they are used inappropriately?arrow_forward
- Which of the following statements is false? Group of answer choices a.If management does not consider the needs of the bondholders of a firm, they could end up destroying shareholder value b.If management chooses to ignore the needs of bondholders when structuring a firm, the firm can be expected to have to pay a higher interest rate on its debt c.In a perfect capital market, if a firmʹs current capital structure is not optimal, one can expect that firm to be a takeover target d.Management should focus only on the needs of a firmʹs shareholders since they are the true owners of the firm and, as such, they elect the firmʹs directorsarrow_forwardWhich of the following statements is CORRECT? One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the capital structure. The threat of takeover generally increases potential conflicts between stockholders and managers. Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers. The threat of takeovers tends to reduce potential conflicts between stockholders and managers. The creation of the Securities and Exchange Commission (SEC) eliminated conflicts between managers and stockholders.arrow_forwardIn your opinion, what is the most compelling justification for a forward stock split?arrow_forward
- Suppose you need additional capital to expand,and you sell some stock to outside investors. If youmaintain enough stock to control the company,what type of agency conflict might occur?arrow_forwardWhich of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders? a. Compensating managers with stock options. b. Abolishing the Security and Exchange Commission. c. The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions. d. Financing risky projects with additional debt. e. The threat of hostile takeovers.arrow_forwardAre managers of firms with formidable takeover defenses more or less likely to act in the shareholders’ interest rather than their own?arrow_forward
- Why is it reasonable to ignore diversifiable risk and care only about nondiversififiable risk? What about an investor who puts all of his money into only a single risky stock? Can he properly ignore diversififiable risk?arrow_forwardSuppose a public company compensates its risk averse managers with stock awards rather than stock options, and the company's stock price has fallen precipitously. In this setting, using stock awards will induce more risk taking by management versus the use of stock options. Question options: a) True b) Falsearrow_forwardWhich of the following are negative consequences of compensating managers with stock? Question 14 options: a) Stock compensation can attenuate management shirking and risk aversion b) Stock compensation forces management to bear high levels of firm-specific risk, which cannot be diversified away c) Stock compensation allows a risk-averse manager to be assured of a minimum level of pay d) Stock compensation is less susceptible to market wide effects outside of management controlarrow_forward
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