Managers May Make Decisions That Are Not Consistent with the Goals

question 24

Multiple Choice

Managers may make decisions that are not consistent with the goals of stockholders.This is referred to as the problem.

• A) principal-agent
• B) economic disincentive
• C) incentive-compromise
• D) efficiency-inefficiency
• E) equilibrium

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Definitions:

White Knight

A friendly investor or company that acquires a firm at risk of a hostile takeover, often viewed as a more favorable option by the target company's management.

Bonds

Fixed-income securities that represent a loan made by an investor to a borrower, typically corporate or governmental, which includes terms for variable or fixed interest payments and the return of the original investment at maturity.

Shares

Units of ownership interest in a corporation or financial asset, providing an equal distribution in any profits, if any are declared, in the form of dividends.

Acquiring Company's Stock

Acquiring a company's stock refers to the purchase of a company's shares, which gives the purchaser ownership interest in the company.