Explain how each of the following market forces helps reduce incentive conflicts between shareholders and management: a) the market for corporate control, b) the managerial labor market, and c) the product market.
What will be an ideal response?
The market for corporate control assures that, with sufficient financial disclosure, competing management teams could make hostile takeover offers for firms with poorly performing management teams. The U.S. has a relatively active takeover market. The managerial labor market rewards executives with a good track record by providing a greater number of offers (for other CEO positions and board positions) or greater compensation or both. The product market limits managerial agency problems through the price system. Companies with higher costs that have arisen through poor management will be more likely to fail because their profits will be reduced at the prevailing price.
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Refer to Table 2-9. What is Serena's opportunity cost of making a necklace?
A) 1/2 of a bracelet B) 1/2 of a necklace C) 3/4 of a bracelet D) 2 necklaces
One argument advanced in favor of not increasing the income tax on individuals with high income is that
A) increasing income tax increases wealth which contributes to increases in GDP. B) increasing the income tax on these individuals will reduce economic efficiency. C) not increasing income taxes will discourage corporations from increasing investment. D) increasing the income tax affects mostly middle-income and low-income individuals who are already paying heavy income taxes.