Complete the fill-in-the-blank questions below to test your knowledge of the material in chapter 2 of the textbook.
1
When looking at a corporation, in the context of agency theory, the owners are the .
Agency theory identifies the relationship where one party, the principal, delegates work to another party, the agent. In the context of a corporation, the owners are the principal and the directors are the agent.
Page reference: 12/13
2
The choice of an appropriate governance structure can help align the interests of directors and .
Transaction cost economics views the firm as a governance structure. A sound governance structure will help ensure that the interests of directors and shareholders are in common.
Page reference: 12/14/15
3
When directors view themselves as an elite at the top of the company, this is hegemony.
In this instance, directors will tend to recruit/promote new directors taking into account how well the new appointments will fit into that elite.
Page reference: 12
4
theory takes account of a wider group of constituents rather than focusing just on shareholders.
In juxtaposition to agency theory is stakeholder theory which focuses on a wider group of constituents than just shareholders. In some governance systems, stakeholders, such as employees, will have representation at board level. The focus on maximising shareholder value is not so over-riding as in companies which emphasise shareholder interests at all costs.
Page reference: 12/16
5
theory views the directors as the stewards of the company's assets and so they will be predisposed to act in the best interests of the shareholders.
The theory draws on the assumptions underlying transaction cost economics and agency theory.
Page reference: 12/16/17
