Deck 1: Corporations and Corporate Governance

Question 1

The principal-agent problem can be described as:

A)Managers will always try to pursue enough profits to keep stockholders satisfied.
B)The owner acts as the agent of the firm and the manager is the principal who controls the firm.
C)If shareholders cannot effectively monitor the managers' behavior, managers may be tempted to use the firm's assets for their own ends.
D)All of the above
E)None of the above.

Answer 1

C

Question 2

Capitalism is an economic system of business based on public enterprise.

Answer 2

False

Question 3

Which is perhaps the most important advantage of the corporate business form?

A)Easy to start up.
B)Double taxation for shareholders can be avoided.
C)Running a corporation is usually not very expensive.
D)Access to the capital market.
E)None of the above is an important advantage.

Answer 3

D

Question 4

Solutions to the principal-agent problem are incentives and monitoring

Question 5

The main goal of a company is to create an environment conducive to earning long-term profits.

Question 6

The owners of corporations act as agents for the firm and bear unlimited personal liability.

Question 7

In general, basic forms of business can be ___.

A)a sole proprietorship
B)a partnership
C)a corporation
D)All of the above.
E)None of the above.