HIS 112
HIS 112
null Edition
ISBN: 9781323880203
Author: Pearson
Publisher: PEARSON C
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Chapter 8, Problem 8.1.15PA
To determine

Private equity firms as a solution to reduce the principle-agent problem.

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An article in The Wall Street Journal discusses a trend among some large U.S. corporations to base the compensation of outside members of their boards of directors partly on the performance of the corporation. "This growing practice more closely aligns the director to the company. [Some] companies link certain stock or stock-option grants for directors to improved financial performance, using a measure such as annual return on equity." (a)  How would such a linkage tend to reduce the agency problem between managers and shareholders as a whole? (b)  Why could directors be more efficient than shareholders at improving managerial performance and changing their incentives? (c)  How does the concept of moral hazard apply to this situation and what policies can be put in place to mitigate it?
Explain briefly why stock prices are a leading economic indicator.
In chapter 7, "Financial Markets," of the book Naked Economics, the author, Charles Wheelan, states, that, "...all financial instruments - no matter how complex the bells and whistles - are based on four simple needs." Which of the below is NOT of these "simple needs"?     Raising Capital.       Assumption of risk.       Insuring Against Risk.
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