Why Is It Rational to Make Shareholders "Weak" by Giving

question 83

Multiple Choice

Why is it rational to make shareholders "weak" by giving control to the managers of the firm?

• A)This may be rational when shareholders may be neither qualified nor interested in making business decisions.
• B)This may be rational since many shareholders find it easier to sell their shares in an underperforming firm than to monitor the management.
• C)This may be rational to the extent that managers are answerable to the board of directors.
• D)All of the options are explanations for the separation of ownership and control.

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Definitions:

Accounts Receivable

Outstanding payments from customers for goods or services received from a company but not yet settled.

Adjusting Entry

An accounting entry made at the end of an accounting period to allocate revenue and expenses to the period in which they actually occurred.

Liability Account

A type of financial account which represents a company's legal debts or obligations that arise during the course of business operations.

Expense Account

An account used in accounting to track expenditures related to the operation of a business, including costs for goods, services, and operational activities.