Question 1

How can socially responsible mutual funds make takeover of firms less likely?

Accepted Answer

Socially responsible mutual funds can make takeover of firms less likely by raising the share price of firms that engage in social activities. This is because socially responsible investors tend to prefer investing in companies that are engaged in social, environmental and governance activities. As the demand for such stocks increase, their price also increases, making it more expensive for potential acquirers to acquire the company. This can act as a deterrent for takeover bids and help maintain the independence of the socially responsible firm.

Question 2

Which of the following defines market capitalism?

Accepted Answer

Market capitalism refers to an economic system where resources are allocated and distributed based on market forces. This means that the production, distribution, and pricing of goods and services are determined by supply and demand. In essence, market capitalism relies on the ability of markets to direct the allocation of resources efficiently.

Question 3

Which of the following statements is true from Friedman's perspective?

Accepted Answer

Friedman's perspective is that the economic justification for CSR is weak because it is based on the premise that social causes cannot be served by firms and that citizens can never obtain complete satisfaction from corporate giving. Instead, he argues that citizens should invest their funds in the capital markets and make personal gifts to social causes. Thus, option C is the true statement as it aligns with Friedman's view. Option A is wrong as it contradicts Friedman's belief that citizens can make personal gifts. Option B is wrong as it is not relevant to the discussion of CSR. Option D is partly correct, but it misses the main point that Friedman believes CSR is not the responsibility of firms and that it ultimately harms the interests of shareholders.

Question 4

Economic theory identifies the ________ as the objective that provides the strongest incentives for efficiency.

Accepted Answer

Economic theory prioritizes the maximization of shareholder value as the objective that provides the strongest incentives for efficiency. This means that companies prioritize actions that will increase profits and shareholder returns, rather than other considerations such as social well-being or ethics.

Question 5

The market for control disciplines management and directors to serve shareholder interests through mergers, acquisitions, hostile takeovers, proxy contests, and depressed market valuations.

Accepted Answer

The market for control incentivizes management and directors to focus on actions that will serve shareholder interests, such as pursuing mergers and acquisitions, engaging in hostile takeovers, engaging in proxy contests, and attempting to boost the company's market valuation. This dynamic can create pressure on company leaders to prioritize short-term gains and financial performance over longer-term stability and sustainability.

Question 6

Which of the following is true with regard to the trust gap between firms and the public in general?

Accepted Answer

Research shows that the public trust in large firms is low, and criticisms of business are often viewed with a degree of credibility that is not accorded to the communication by firms. This indicates a significant trust gap between firms and the public. The size of the firm is not a determinant factor in the trust accorded to it. The public's trust in NGOs is generally higher than that in global companies. Additionally, large firms are more vulnerable to social pressures rather than less vulnerable, which nullifies the option D.

Question 7

The extent of corporate social responsibility (CSR) activities by firms depends on ________.

Accepted Answer

The extent of corporate social responsibility activities by firms depends on the role the firm's business plays in society. This means that companies consider the impact of their operations on stakeholders such as customers, employees, suppliers, communities, and the environment, and take appropriate measures to address their concerns. Other factors such as legal requirements, financial performance, and workforce needs may also influence CSR activities, but the social role of the business is the most important determinant.

Question 8

The duty of loyalty supports both Friedman's position and the strategic use of corporate social responsibility (CSR).

Accepted Answer

The duty of loyalty requires that corporate managers prioritize the interests of their company and shareholders. This supports Friedman's position that corporations should primarily focus on maximizing profits. However, implementing CSR as a strategic tool can also support this duty by enhancing the reputation and long-term success of the company, ultimately benefiting shareholders.

Question 9

Investors prefer managerial capitalism to market capitalism.

Accepted Answer

This statement is generally false. In market capitalism, economic decisions are made based on market forces such as supply and demand, while in managerial capitalism, decisions are made by managers who may have their own interests in mind. Many investors prefer market capitalism because it allows for more efficient allocation of resources and competition, which can benefit consumers and shareholders. However, there may be specific circumstances where investors prefer managerial capitalism, such as in companies with strong and effective management teams.

Question 10

Milton Friedman argued that the social responsibility of business is to ________

Accepted Answer

Milton Friedman believed that the social responsibility of business is to maximize profits, as this would ultimately benefit society through economic growth and job creation. He argued that businesses should focus on their fiduciary duty to their shareholders, rather than taking on social or environmental causes that may not directly contribute to their bottom line.

Question 11

Social responsibility focuses less on pressures and more on normative principles that identify duties based on ________.

Accepted Answer

Social responsibility is about identifying and fulfilling obligations and duties based on ethical principles and conceptions of well-being. It is not solely driven by market pressures or profit-maximization goals.

Question 12

The duty of care pertains to conflicts of interest and requires that directors serve the interests of the corporation and its shareholders.

Accepted Answer

The duty of care refers to the requirement that directors make decisions with the diligence, care, and skill that a reasonably prudent person would use under similar circumstances. The duty to avoid conflicts of interest and serve the interests of the corporation and its shareholders is more accurately described as the duty of loyalty.

Question 13

A stakeholder relationship centers on ________.

Accepted Answer

A stakeholder relationship is based on an exchange, where both parties benefit and contribute towards achieving common goals. It is not necessarily focused on rapport with peak organizations, voting rights, or a specific market niche.

Question 14

The courts judge the discharge of the obligations of directors according to a civil law standard referred to as the duty of care rule.

Accepted Answer

The answer of The courts judge the discharge of the...

Question 15

Which of the following is true of Friedman's conception of a corporation?

Accepted Answer

Friedman's conception of a corporation emphasizes that it is a voluntary association of individuals (such as shareholders, employees, and customers) who come together for mutual benefit, typically to engage in productive and trade activities. This view underscores the consensual nature of corporate participation, contrasting with notions of coercion or involuntary association.

Question 16

According to Adam Smith, the surest way to achieve societal well-being was to ________.

Accepted Answer

According to Adam Smith's "invisible hand" theory, when individuals are allowed to pursue their own self-interest in markets, they inadvertently also promote the well-being of society as a whole. Therefore, placing resources in the hands of individuals and allowing them to transact in markets is the surest way to achieve societal well-being according to Smith.

Question 17

From Friedman's perspective, a conception of corporate social responsibility (CSR) that differs from shareholder value maximization must be costly and can have only two interpretations-either a political process is to be used to make decisions or ________.

Accepted Answer

Friedman's perspective on corporate social responsibility (CSR) suggests that any deviation from shareholder value maximization implies that managers are making decisions based on their own interests or values, rather than acting as agents who should prioritize the interests of the shareholders. Thus, they would be acting as principals (making decisions based on their own interests) rather than as agents (making decisions in the best interest of the shareholders).

Question 18

Which of the following is true of the relationship between social responsibility and compliance with laws?

Accepted Answer

Social responsibility goes beyond mere compliance with laws. Criminal prosecution can occur under many laws, such as antitrust laws, securities and exchange laws, and certain environmental laws. Therefore, compliance with laws is just one aspect of being socially responsible, but it does not guarantee a company is fully socially responsible.

Question 19

Which of the following allows the accumulation of resources through retained earnings and their allocation within the firm without having to incur the transactions costs of raising funds in the capital markets?

Accepted Answer

Managerial capitalism allows for the accumulation of resources through retained earnings and their allocation within the firm without having to incur the transactions costs of raising funds in the capital markets. Market capitalism operates with a stronger focus on the efficiency of the capital markets, while cooperative socialism involves collective ownership and decision-making within a community. A welfare economy typically involves government intervention to promote social welfare through various policies and programs.

Question 20

Which of the following is true of Adam Smith's view of markets and resource allocation?

Accepted Answer

Adam Smith believed that markets allowed for decentralized decision making, meaning that individuals and businesses were free to make their own choices regarding production and consumption. This, in turn, led to a more efficient allocation of resources because market forces determined prices and production levels based on supply and demand. Smith did not believe that markets discourage innovation, as innovation is often driven by profit motives within markets. Additionally, efficient markets do not necessarily depend on the goodwill of individuals, as competition within markets can lead to a self-regulating system. While markets may not always allocate resources perfectly or fairly, Smith saw them as the best available option for resource allocation.

Quiz 20: Corporate Social Responsibility