Chapter 8 - Test 3 Flashcards
The most common organization structure for implementing a corporate diversification strategy is the U-form.
f
Another name for the M-form is the multidivisional structure.
t
In the multidivisional structure, each business that the firm engages in is managed through a division.
t
The divisions in an M-form organization are true profit-and-loss centers.
t
All firms that use the multidivisional structure use the same criteria for defining the boundaries of profit-and-loss centers.
f
Divisions in an M-form organization should be large enough to represent identifiable business entities but small enough so that a division general manager can manage each one effectively.
t
Divisions in an M-form organization should be large enough to represent identifiable business entities but small enough so that a division general manager can manage each one effectively.
f
The M-form structure is designed to create checks and balances for managers that increase the probability that a diversified firm will be managed in ways consistent with the interests of its equity holders.
t
Whenever one party to an exchange delegates decision-making authority to a second party, an agency relationship has been created between these parties.
t
In an agency relationship the party delegating the decision-making authority is called the agent.
f
One common agency problem occurs when managers decide to take some of a firm’s capital and invest it in managerial perquisites that do not add economic value to the firm but that do directly benefit those managers.
t
In an M-form organization the role of the board of directors is to formulate corporate strategies consistent with equity holders’ interests and to assure strategy implementation.
f
In principle, only the CEO and the president report to the board of directors while other senior managers report only to the CEO.
f
Research on outside members of boards of directors tends to show that outside directors, as compared to insiders, tend to focus less on monitoring a firm’s economic performance than on other measures of firm performance.
f
Research has shown that separating the roles of CEO and board chair is positively correlated with firm performance when firms operated in high-growth and very complex environments.
t
To the extent that a board of directors begins to operate a business on a day-to-day basis, it goes beyond its capabilities.
t
A board of directors typically consists of 15 to 30 individuals drawn from a firm’s top management group and from individuals outside the firm.
f
The title chairman of the board often, but not always, identifies the firm’s senior executive.
f
Institutional owners are usually pension funds, mutual funds, insurance companies, or other groups of investors that have joined together to manage their investments.
t
In 1970, institutions owned 62 percent of the equity traded in the United States; by 1990, institutions owned 48 percent of this equity and by 2002, they owned only 32 percent of this equity.
f
The senior executive in an M-form organization has two responsibilities: strategy formulation and strategy implementation.
t
In an M-form organization, the chief executive officer is solely responsible for strategy implementation.
f
Only accounting measures of performance can be used in accurately measuring the performance of divisions within a diversified firm.
f
One of the strengths of using a hurdle rate to measure the performance of divisions in a diversified firm is that if the corporation has a single hurdle rate, there is little ambiguity about the performance objectives of divisions.
t