If High-Level Executives of a Company Award Themselves Sizable Bonuses

question 193

Multiple Choice

If high-level executives of a company award themselves sizable bonuses even though the firm they manage is making losses and performing poorly, this event is most likely to arise because of

• A) the law of diminishing marginal returns.
• B) competition among business firms for high-level executives.
• C) economies of scale.
• D) the principal-agent problem.

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Definitions:

Reportable

Pertaining to information or data that must be officially reported or disclosed, typically in compliance with legal or regulatory requirements.

Revenue Test

A criterion used to assess the validity of a company's revenue recognition practices, ensuring reported income arises from core business activities.

Operating Segments

Rephrasing: Operating segments are specific branches or units within a company for which separate financial data is collected and reviewed by the company’s decision-makers for the purpose of resource allocation and performance assessment.

Operating Segment

A distinct business unit within a company for which separate financial information is available and regularly reviewed by the company's management.