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

question 93

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 above are explanations for the separation of ownership and control.

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Definitions:

Strict Scrutiny

The most exacting standard of review used by the courts in determining the constitutionality of a statute; requires a compelling government interest and the least restrictive means of attaining that objective.

Insurance Coverage

The amount of risk or liability covered for an individual or entity by way of insurance services.

Constitution Authority

The legal power or right granted to an entity or person by a constitution, governing the ability to perform certain actions.

Federal Funds

Central bank reserves loaned by one bank to another, typically overnight, to meet reserve requirements.