The Free-Rider Problem, When Referring to Monitoring of Firms' Performance

question 34

Multiple Choice

The free-rider problem, when referring to monitoring of firms' performance, often results in

• A)ineffective monitoring by the shareholders.
• B)monitoring being delegated by shareholders toboards of directors.
• C)no monitoring by a large number of small individual investors.
• D)ineffective monitoring by the shareholders, monitoring being delegated by shareholders to boards of directors, and no monitoring by a large number of small individual investors.

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Definitions:

Retained Earnings

The portion of net income that is not distributed to shareholders but is kept by the company to be reinvested in its core business or to pay debt.

Year-end Balance Sheet

A financial statement that reports a company's assets, liabilities, and shareholders' equity at the final day of the financial year.

Gross Profit

The financial performance metric that subtracts the cost of goods sold from total sales revenue.

Net Sales

The amount of revenue generated by a company after deducting returns, allowances for damaged or missing goods, and any discounts allowed.