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:

Operating Activities

Transactions and other events related to the core business operations, including revenue and expense activities that affect the net income.

Inventory Increases

A rise in the amount of goods and materials on hand, often indicative of increased production or decreased sales.

Cost of Goods Sold

Represents the direct costs attributable to the production of the goods sold by a company, including material, labor, and overhead costs.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.