Exam 3 - CH12 Flashcards
(25 cards)
Corporate Governance is the mechanisms to:
- direct and control a firm
- attempt to address the principal-agent problem
Agency Theory views a firm as a:
nexus of legal contracts
Agency Theory considers:
- Relationships among shareholders, managers, and hierarchies.
- Front-line employees have an informational advantage over management.
- Firms need to design work tasks, incentives, and employment contracts to minimize opportunism by agents
What is adverse selection?
information asymmetry increases the likelihood of selecting inferior alternatives
What is a moral hazard?
when one party takes undue risks or shirk other responsibilities as the costs accrue to the other party
The centerpiece of corporate governance is:
The board of directors
The board of directors is elected by:
shareholders
True or False: The board of directors can consist of individuals outside the company
true
What are the responsibilities of the board of directors?
- General strategic oversight and guidance
- Selecting, evaluating, and compensating the CEO
- Risk assessment & mitigation
-Ensuring true and accurate financial
statements - Ensuring firm’s compliance with laws and regulations
What is business ethics?
an agreed-upon code of conduct in business, based on societal norms
What is the difference between legal and ethical conduct?
Legal may not be ethical but is minimum acceptable standard, ethical may not be legal but is the right thing to do.
What to ask yourself when facing an ethical dilemma?
-Do the actions fall into acceptable norms of professional behavior?
-Does it feel comfortable explaining and defending the decision in public?
Ethical leadership is critical when:
-CEOs at large public firms face increasing scrutiny.
-Formal and informal cultures
What is a business model?
Plan that details the firm’s
competitive tactics and initiatives
A business model explains how the firm intends to:
make money, and how the firm conducts its business with buyers, suppliers, and partners.
_____ innovation may be more
important in achieving superior performance than product or process innovation
business model
What are the popular business models?
- Razor / Razorblade
- Subscription
- Pay-As-You-Go
- Freemium
- Wholesale
- Agency
- Bundling
What is the razor / razorblade model?
The initial product is often sold at a
loss or given away for free in order to
drive demand for complementary
goods.
What is the pay-as-you-go model?
Users pay for only the services they consume
What is the freemium model?
Provides the basic features
free of charge, premium offers more services
What is the wholesale model?
Products sold at a fixed price to
retailers
What is the agency model?
Producer relies on an agent or
retailer to sell the product at a
predetermined percentage
commission
What is the bundling model?
Selling products or services for
which demand is negatively correlated at a discount
What is “long-tail”?
a business model innovation
in which companies can obtain a large(r) part of their revenues by selling a small number of units from among almost unlimited choices.
