9 Questions
What potential issue can arise from the overuse of stock options?
Manipulation of information by managers to temporarily boost stock prices.
How can boards of directors mitigate agency problems in firms?
By firing underperforming managers.
What role do large institutional investors play in monitoring firms?
They make the life of poor performers uncomfortable by monitoring closely.
How can unhappy shareholders potentially address lax monitoring by a board of directors?
By electing a different board of directors.
What is a potential consequence for underperforming firms when one observes another underperforming business?
They may acquire the underperforming business and replace its management.
What is the main concern regarding managers' manipulation of information to prop up stock prices temporarily?
Stock prices returning to a level reflective of the firm's true prospects.
How do stock options create an incentive for managers to act in a certain way?
By aligning the interests of managers with those of shareholders.
What is the potential impact of boards of directors firing underperforming managers?
Increased accountability within firms.
What measure can unhappy shareholders potentially take against a board of directors that is not adequately monitoring management?
Electing a different board of directors.
Explore the importance of financial markets in the economy, consumption timing, and risk allocation. Understand how investors use securities to shift consumption over time and manage risk through asset allocation.
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