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Financial Markets and Efficiency

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Questions and Answers

What potential issue can arise from the overuse of stock options?

Managers becoming more cautious in their decision-making.

Manipulation of information by managers to temporarily boost stock prices. (correct)

Enhanced communication between managers and shareholders.

Increased transparency in financial reporting.

How can boards of directors mitigate agency problems in firms?

By encouraging managers to manipulate information for short-term gains.

By firing underperforming managers. (correct)

By avoiding monitoring management closely.

By reducing transparency in financial reporting.

What role do large institutional investors play in monitoring firms?

They avoid involvement in the oversight of firms.

They make the life of poor performers uncomfortable by monitoring closely. (correct)

They ensure that poor performers remain in their positions.

They encourage manipulation of financial information by managers.

How can unhappy shareholders potentially address lax monitoring by a board of directors?

By electing a different board of directors. Signup and view all the answers

What is a potential consequence for underperforming firms when one observes another underperforming business?

They may acquire the underperforming business and replace its management. Signup and view all the answers

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. Signup and view all the answers

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. Signup and view all the answers

What is the potential impact of boards of directors firing underperforming managers?

Increased accountability within firms. Signup and view all the answers

What measure can unhappy shareholders potentially take against a board of directors that is not adequately monitoring management?

Electing a different board of directors. Signup and view all the answers

Financial Markets and Efficiency

Choose a study mode

Podcast

Questions and Answers

What potential issue can arise from the overuse of stock options?

How can boards of directors mitigate agency problems in firms?

What role do large institutional investors play in monitoring firms?

How can unhappy shareholders potentially address lax monitoring by a board of directors?

What is a potential consequence for underperforming firms when one observes another underperforming business?

What is the main concern regarding managers' manipulation of information to prop up stock prices temporarily?

How do stock options create an incentive for managers to act in a certain way?

What is the potential impact of boards of directors firing underperforming managers?

What measure can unhappy shareholders potentially take against a board of directors that is not adequately monitoring management?

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