Student Solution

-->

"Education is the most powerful weapon which you can use to change the world”
– Nelson Mandela

1 University

1 Course

1 Subject

Ch-11_Disc Answers_Wanda Calvin

Ch-11_Disc Answers_Wanda Calvin

Q Ch11-Discussion Questions 1. How prevalent has the agency problem been in corporate America during the last decade? During the late 1990s, there was a boom in ini- tial public offerings of Internet companies (dot. com companies). The boom was supported by sky-high valuations, often assigned to Internet start-ups that had no revenues or earnings. The boom came to an abrupt end in 2001, when the NASDAQ stock market collapsed, losing almost 80% of its value. Who do you think benefited most from this boom: investors (stock- holders) in those companies, managers, or investment bankers? 2. Why is maximizing ROIC consistent with maximizing returns to stockholders? 3. How might a company configure its strategy- making processes to reduce the probability that managers will pursue their own self-interest at the expense of stockholders? 4. In a public corporation, should the CEO of the company also be allowed to be the chairman of the board (as allowed for by the current law)? What problems might this present? 5. Under what conditions is it ethically defensible to outsource production to companies in the developing world that have much lower labor costs when such actions involve laying off long-term employees in the firm’s home country? 6. Is it ethical for a firm faced with a labor shortage to employ illegal immigrants to meet its needs?

View Related Questions

Solution Preview

As far as the question is concerned, with various corporate outrageous scandals the prevalence of agency problems that have been in the corporate America has been highlighted. The agency problems can be described as various conflicts of interest that comes up when on party in the corporate relationship is anticipated to act in the best interest of another party (many a time these party’s correspond to management and the stockholders of the company). There have been numerous examples of companies that engaged in unethical and often illegal behaviour and exhibited the occurrences of agency problems.