©THEBRIGHTSTARS 2024
SGMA 591 Exam Questions With Correct
Answers
What are the three groups of stakeholders - answer✔( Capital Market ) stakeholders
Shareholders and the major suppliers of a firm's capital including debt holders
( Product Market ) stakeholders
A firm's primary customers, suppliers, host communities, and unions representing the workforce
( Organizational ) stakeholders
Firm's employees, including both non-managerial and managerial personnel
What are the two different views of firm - answer✔Firm as Property
-Profitability over Responsibility
-Zero Sum
-US
Firm as Social Entity
-Responsibility over prof
-Stakeholder symbiosis
-Europe, Japan
What is most critical criterion in prioritizing stakeholders. - answer✔Power
Firm as _____ of contracts - answer✔Nexus of contracts, including:
Ownership contract: shareholder
Lending contract: debt-holder
Employee contract: manager & employees
, ©THEBRIGHTSTARS 2024
Corporate Governance: - answer✔A set of mechanisms used to manage the relationships (&
conflicting interests) among stakeholders, and to determine and control the strategic direction
and performance of organizations (aligning strategic decisions with company values)
Agency Theory deals with the relationship between - answer✔Principals-Owners and of the
firm (shareholders)
Agents-who are the paid by principals to perform a job on their behalf (executives)
Information Asymmetry - answer✔One party to a transaction has more or better information
than the other source of 'agency costs'
How do agency problems occur? - answer✔Adverse Selection(ex ante)-Limited ability of
shareholders to determine competencies of execs
Moral Hazard (ex post)-Because owners have limited access to company information, making
executives free to pursue their own interests.
Managerial Opportunism - answer✔Seeking self interest with guile (cunning and deceit)
How does diversification benefit execs? - answer✔Bigger firms=Larger compensation
Larger portfolio-Less risk of unemployment
What are agency costs - answer✔Sum of incentive costs, monitoring costs, enforcement costs,
and individual financial losses incurred by principals, because governance mechanisms cannot
guarantee total compliance by the agent
What are internal governance measures - answer✔Ownership concentation
(institutional shareholders, blockholders, shareholders)
Board of Directors
Executive Compensation
What are external governance measures - answer✔Market for Corporate Control
This market is a set of potential owners seeking to acquire undervalued firms and earn above-
average returns on their investments by replacing ineffective top-level management teams.
Ineffective or opportunistic managers can be replaced by takeover, thus threat of takeover may
discipline managers.
What are the three types of Directors? - answer✔Insiders
Related Outsiders
SGMA 591 Exam Questions With Correct
Answers
What are the three groups of stakeholders - answer✔( Capital Market ) stakeholders
Shareholders and the major suppliers of a firm's capital including debt holders
( Product Market ) stakeholders
A firm's primary customers, suppliers, host communities, and unions representing the workforce
( Organizational ) stakeholders
Firm's employees, including both non-managerial and managerial personnel
What are the two different views of firm - answer✔Firm as Property
-Profitability over Responsibility
-Zero Sum
-US
Firm as Social Entity
-Responsibility over prof
-Stakeholder symbiosis
-Europe, Japan
What is most critical criterion in prioritizing stakeholders. - answer✔Power
Firm as _____ of contracts - answer✔Nexus of contracts, including:
Ownership contract: shareholder
Lending contract: debt-holder
Employee contract: manager & employees
, ©THEBRIGHTSTARS 2024
Corporate Governance: - answer✔A set of mechanisms used to manage the relationships (&
conflicting interests) among stakeholders, and to determine and control the strategic direction
and performance of organizations (aligning strategic decisions with company values)
Agency Theory deals with the relationship between - answer✔Principals-Owners and of the
firm (shareholders)
Agents-who are the paid by principals to perform a job on their behalf (executives)
Information Asymmetry - answer✔One party to a transaction has more or better information
than the other source of 'agency costs'
How do agency problems occur? - answer✔Adverse Selection(ex ante)-Limited ability of
shareholders to determine competencies of execs
Moral Hazard (ex post)-Because owners have limited access to company information, making
executives free to pursue their own interests.
Managerial Opportunism - answer✔Seeking self interest with guile (cunning and deceit)
How does diversification benefit execs? - answer✔Bigger firms=Larger compensation
Larger portfolio-Less risk of unemployment
What are agency costs - answer✔Sum of incentive costs, monitoring costs, enforcement costs,
and individual financial losses incurred by principals, because governance mechanisms cannot
guarantee total compliance by the agent
What are internal governance measures - answer✔Ownership concentation
(institutional shareholders, blockholders, shareholders)
Board of Directors
Executive Compensation
What are external governance measures - answer✔Market for Corporate Control
This market is a set of potential owners seeking to acquire undervalued firms and earn above-
average returns on their investments by replacing ineffective top-level management teams.
Ineffective or opportunistic managers can be replaced by takeover, thus threat of takeover may
discipline managers.
What are the three types of Directors? - answer✔Insiders
Related Outsiders
