finance questions

(b) Some people suggest that using stock options as compensation tends to encourage risk-taking behavior on the part of executives. Why might this be the case? (5 points)

Question 2 (10 points) _____

(a) Describe what is meant by the phrase “earnings management” and briefly describe how it is measured. (5 points)

(b) Is the tendency to engage in earnings management affected by corporate governance? If so, how? (5 points)

Question 3 (10 points) _____

One potentially important characteristic of corporate directors is whether they are “independent.” Based on our readings this term, does academic research find that independent directors are truly independent?

Question 4 (10 points) _____

Briefly describe the way in which creditors play a role in corporate governance. How does this role help to increase the value of the firm?

Question 5 (10 points) _____

Briefly describe the concept of “moral hazard” as it relates to corporations in the presence of government bailouts. Who realizes the benefits and who bears the cost of moral hazard? How can the costs of moral hazard be reduced through effective corporate governance?

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