The Main Advantage of Using Accounting Earnings Instead of Stock

question 11

Multiple Choice

The main advantage of using accounting earnings instead of stock prices to determine bonuses is that:

• A) Stock prices are influenced by market forces that are outside the control of management
• B) Accounting information is independently audited
• C) Accounting information is unbiased
• D) Stock prices may be manipulated by managers engaging in insider trading

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Definitions:

Command-and-control Regulation

Regulatory approach where the government sets specific standards or limitations on the activities of businesses, often related to environmental or safety measures.

Pollution Permits

Allowances provided by government regulations that permit companies to emit a certain level of pollutants.

Global Warming

The long-term increase in Earth's average surface temperature, primarily due to human activities such as fossil fuel burning.

Invisible Hand

A term coined by economist Adam Smith to describe the self-regulating nature of the marketplace where individuals' pursuit of self-interest leads to societal benefits.