During the 1990s, Rapidly Increasing Stock Prices Exposed a Flaw

question 26

Multiple Choice

During the 1990s, rapidly increasing stock prices exposed a flaw in the shareholder wealth maximization model, the seeking of short-term value maximization. Such behavior by management is characterized by all but which of the following?

• A) a focus on quarterly earnings
• B) overly generous use of stock options to motivate management
• C) improper reporting of earnings by management
• D) All of the above may be characteristics of short-term value maximization.

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Definitions:

Casual

Marked by an informal, relaxed, or unconcerned attitude or manner.

Formal

Pertains to actions, processes, or structures that are officially recognized and enforced by an organization or institution, often characterized by written rules and regulations.

Unobservable Components

Elements or factors within a system or process that cannot be directly seen or measured but influence outcomes.

Culture

The collective social behavior, norms, knowledge, beliefs, arts, laws, customs, capabilities, and habits of the people in these societies.