Chapter 5

Question 1

Adverse Selection

Answer 1

The inability of shareholders to identify the precise competencies and personal attributes of top managers when they are hired.

Question 2

Agency Problem

Answer 2

A situation in which a firms’ top managers (i.e., the “agents” of the firms’ owners) do not act in the best interests of the shareholders.

Question 3

Diversification

Answer 3

The process of acquiring companies to increase a firm’s size.

Question 4

Employee Stock Ownership

Answer 4

Formal programs that transfer shares of stock to a company’s employees.

Question 5

Ethical Relativism

Answer 5

The idea that ethics is based on accepted norms in a culture, meaning that what is ethical in one nation or culture might be unethical in another.

Question 6

Goals

Answer 6

Desired general ends toward which efforts are directed.

Question 7

Integrative Social Contracts of View of Ethics

Answer 7

Perspective suggesting that decisions should be based on existing norms of behavior, including cultural, community, or industry factors.

Question 8

Justice View of Ethics

Answer 8

Perspective suggesting that all decisions will be made in accordance with established rules or guidelines.

Question 9

Leveraged Buyout

Answer 9

A takeover in which the acquiring party borrows funds to purchase a firm.

Question 10

Managerial Ethics

Answer 10

An individual’s responsibility to make business decisions that are legal, honest, moral, and fair.

Question 11

Moral Hazard

Answer 11

When parties in an arrangement do not share equally in the risks and benefits.

Question 12

Objectives

Answer 12

Specific, verifiable, and often quantified versions of a goal.

Question 13

Objectivism

Answer 13

A philosophical perspective, espoused by Ayn Rand, that emphasizes an objective reality understood by logic and reason and focuses on individual freedom and property rights.

Question 14

Offshoring

Answer 14

Relocating some or all of a firm’s manufacturing or other business processes to another country typically to reduce costs.

Question 15

Religious View of Ethics

Answer 15

Perspective that evaluates organizational decisions on the basis of personal or religious convictions.

Question 16

Self Interest View of Ethics

Answer 16

Perspective suggesting the benefits of the decision maker should be the primary consideration when weighing a decision.

Question 17

Social Responsibility

Answer 17

The expectation that business firms should serve both society and the financial interests of shareholders.

Question 18

Stakeholders

Answer 18

Individuals or groups who are affected by or can influence an organization’s operations.

Question 19

Sustainable Strategic Management

Answer 19

The strategies and related processes that promote superior performance from both market and environmental perspectives.

Question 20

Takeover

Answer 20

The purchase of a controlling quantity of shares in a firm by an individual, a group of investors, or another organization. Takeovers may be friendly or unfriendly.

Question 21

Triple Bottom Line

Answer 21

The notion that firms must maintain and improve social and ecological performance in addition to economic performance.

Question 22

Utilitarian View of Ethics

Answer 22

Perspective suggesting that anticipated outcomes and consequences should be the only considerations when evaluating an ethical dilemma.