Governance Chain Quiz Part 2

What does the governance chain illustrate in a large business?

• The roles and relationships of different groups in corporate governance

• The financial performance of a company

• The marketing strategies of a business

• The technological advancements in an organization

Who are considered the ultimate principals in the governance chain?

• Managers

• Beneficiaries

• Executive directors

• Senior executives

According to the principal-agent theory, what is necessary for agents to work diligently for principals?

• High salaries

• Proper incentives

• Advanced technology

• Large teams

What might an investor want if a company has made a substantial profit?

• A higher dividend

• More shares

• A new CEO

• A company merger

What is the agency dilemma as highlighted by Jensen and Meckling (1976)?

• The conflict between shareholders and directors over profit distribution.

• The need for agents to act in their own interests.

• The principal having to spend money to ensure agents act in their best interests.

• The difficulty in measuring company performance.

What is a key challenge in the governance chain related to knowledge?

• Monitoring effectiveness.

• Knowledge imbalances.

• Incentive alignment.

• Profit measurement.

What is a potential issue with monitoring limits in governance?

• Agents may focus on short-term gains.

• Principals may not understand the metrics.

• Agents may miss the bigger picture.

• Beneficiaries may lose interest.

What can result from misalignment of incentives and control in governance?

• Improved long-term strategies.

• Short-term gains leading to long-term difficulties.

• Increased shareholder satisfaction.

• Better monitoring metrics.

What is a key issue in governance regarding institutional investors?

• They should focus solely on their own interests.

• They should ensure companies are run appropriately.

• They should avoid large shareholdings.

• They should not intervene in strategy.

Who originally proposed the shareholder theory?

• Adam Smith

• Milton Friedman

• John Maynard Keynes

• Karl Marx