If Someone Deliberately Understates Costs and Thereby Increases Profits, This

question 38

True/False

If someone deliberately understates costs and thereby increases profits, this can cause the price of the stock to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

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Definitions:

Social Loafing

A phenomenon in group settings where individuals reduce their effort because they believe others will pick up the slack.

Group Polarization

The tendency for a group to make decisions that are more extreme than the initial inclination of its members, especially after group discussions.

Racially Prejudiced

Holding prejudgments or hostile attitudes towards individuals of a different race based on stereotypes and biases.

Groupthink

A psychological phenomenon in which the desire for harmony or conformity within a group results in an irrational or dysfunctional decision-making outcome.