CCardenas W6 Problem Set Essay

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Pages: 2

Week 6 Problem Set
Answer the following questions and solve the following problems in the space provided. When you are done, save the file in the format flastname_Week_6_Problem_Set.docx (where flastname is your first initial and your last name), and submit it to the appropriate Dropbox.

Chapter 29 (pages 983-984):
1. What inherent characteristic of corporations creates the need for a system of checks on manager behavior?
The Corporation allows for the separation of management and ownership. Thus, those who control the operations of the corporation and how its money is spent are not the same who have invested in the corporation. This creates a conflict of interest and this conflict between the investors and managers creates the need for investors to devise a system of checks on managers-the system of corporate governance.

2. What are some examples of agency problems?
Example of agency problems are excessive perquisite consumption (more company jets/company jet travel than needed, nicer office than necessary, etc.). Others are value-destroying acquisitions that nonetheless increase the pecuniary or non-pecuniary benefits to the CEO on net.

3. What are the advantages and disadvantages of the corporate organizational structure?
The Corporate organizational form allows those who have the capital to fund an enterprise to be different from those who have the expertise to manage the enterprise. This critical separation allows a wide class of investors to share the risk of…