Question

A. Corporate governance is designed to give executives managerial discretion and accelerate them to make quick decisions. Is this statement true?

B. Agent relationship between professional executives and owners of a firm can cause agency costs. What is NOT the example of agency costs?

Select one:

a. monitoring costs (e.g., auditing & hiring board directors)

b. incentive costs (e.g., stock option)

c. operating costs due to low bargaining power against suppliers.

d. financial losses caused by fraudulent bookkeeping.  

C.

Organizational structure is effective when it is well aligned with organizational strategy. So, executives should make organizational structure flexible when adopting differentiation/value innovation whereas they should make it stable when adopting cost leadership. Is this statement true?

D.

Centralization/decentralization is defined as the level at which strategic decision making authority is located in the organization. If only executives make strategic decisions, the organization is highly centralized. If middle managers and employees can make strategic decisions, it is highly decentralized. Is this statement true?

Answer 1

A, true

Corporate governance consists of a set of rules, regulations and processes of the organization which help manage the firm better, Thus, there is clarity and proper strategy for empowerment and decentralization of authority.

B, c. operating costs due to low bargaining power against suppliers.

The remaining options are examples of agency costs. While option C is the cost which is not affected by Agent relationships.

C. True. The differentiation and value innovation strategy requires dynamic changes and creativity. While, cost leadership is much more focussed and ensures all employees focus on reducing costs , such that the company can offer lowest or most competitive pricing to customers and generate sales.

D. True. Decentralization means employees are empowered to take decisions with respect to their respective tasks or work areas. While a centralized structure means the power and authority lies with the top management anf the lower level employees have to simply follow their instructions.