Managerial Analysis

Question 1

What is upper echelon theory?

Answer 1

Idea that top executives view their situations through their own highly personalized lenses

Question 2

What is bounded rationality?

Answer 2

The concept of how the rationality of decisions is limited by the decision maker as they bring their own personality and individualism into decisions which affect their possession of rationality

Question 3

What are management preferences?

Answer 3

Preferences which are formed by the interaction of personal attributes, beliefs, character, and job context/situational pressures

Question 4

What are the 3 roots of strategic preference?

Answer 4

Basic needs, beliefs, job context/situational pressure

Question 5

What are the 5 aspects that make up management preferences?

Answer 5

Personal attributes, beliefs, job context, competencies, frozen preferences

Question 6

What is a strategic vision?

Answer 6

Provides direction for where a firm is going in the future

Question 7

Why is it important to communicate strategic vision?

Answer 7

Foster commitment to strategic direction
Motivate and inform all share holders

Question 8

What is a strategic mission?

Answer 8

Describes the firm’s current business and purpose (who, what, why)

Question 9

What does the ideal mission statement contain?

Answer 9

Identify product, set apart from rivals, specifies need being served, who is being served

Question 10

What are core values?

Answer 10

ethical standards/norms that govern the behaviour of individuals within a firm

Question 11

Why do we set objectives?

Answer 11

to convert vision and mission into specific, measurable, timely goals

Question 12

What are financial and strategic objectives?

Answer 12

Financial objectives: top management targets for financial performance and focused internally on firm’s operations and activities

Strategic objectives: related to a firm’s marketing standing and competitiveness and focused externally on competition

Question 13

What is corporate governance?

Answer 13

the system by which companies are directed and controlled

Question 14

What is the role of the Board of Directors

Answer 14

ensure strategic direction of organization is in the best interest of the corporation and monitor management behaviour

Question 15

Who does the Board of Directors comprise of?

Answer 15

Inside directors: part of company’s senior management
Outside directors: not employees of firm, senior exec of other firms

Question 16

Preferred Board of Directors characteristics include

Answer 16

experts, focused on future, have access to information, and the right incentive

Question 17

What does a strong independent board of directors entail?

Answer 17

informed about performance, guides CEO’s, advises top management, rejects bad actions, certifies CEO, debates

Question 18

What are other governance mechanisms?

Answer 18

Executive compensation (long term incentives)
Government regulators and agencies
Audits
Security/business/media analysts

Question 19

What is agency theory?

Answer 19

seperation of ownership from control and firm is viewed as a nexus of legal contracts

Question 20

What is adverse selection?

Answer 20

misrepresentation of a job -> beyond one’s abilities

Question 21

What is moral hazard

Answer 21

difficulty to know whether the agent gives their best

Question 22

What is the principal agent problem?

Answer 22

refers to the conflict in interests and priorities that arises when one person or entity takes actions on behalf of another person or entity + information asymmetry

Question 23

What are agency costs

Answer 23

costs associated to not working towards company goal