Exam 8: Organizing to Implement Corporate Diversification

In ________ budgeting, corporate executives create a list of all capital allocation requests from divisions in a firm, rank them from "most important" to "least important" and then fund all the projects a firm can afford, given the amount of capital that is available and no project receives funding simply because it was funded in the past.

All firms that use the multidivisional structure use the same criteria for defining the boundaries of profit-and-loss centers.

In an M-form organization the role of the board of directors is to formulate corporate strategies consistent with equity holders' interests and to assure strategy implementation.

The ________ is a subcommittee of the board of directors that maintains the relationship between the firm and external capital markets.

Research has shown that separating the roles of CEO and board chair is positively correlated with firm performance when firms operated in high-growth and very complex environments.

Intermediate products or services are those products or services that are produced in one division of a diversified firm that are used as inputs by another division.

Economic methods of divisional performance in a diversified firm build on accounting methods but adjust those methods to incorporate short-term investments that may generate long-term benefits.

A business unit within a diversified firm may be sold to the public through a(n)

The senior executive (the president or CEO) in an M-form organization has two responsibilities:

Under which transfer pricing scheme is the transfer price set equal to the selling division's actual cost of production or set equal to the cost of production if the selling division were operating at maximum efficiency?

Which of the following statements regarding institutional investors is accurate?

In a diversified firm, market prices are set by a firm's corporate management to accomplish corporate objectives while transfer prices are determined by the market forces of supply and demand.

When adjusting a division's accounting earnings for use in the economic value added calculations, R&D spending is usually

A board of directors typically consists of

Discuss the role of institutional investors in an M-form organization. In addressing this question, be sure to identify who institutional investors are and discuss trends in institutional ownership and whether institutional investors encourage managers to act in ways that are consistent with the interests of equity holders or if institutional investors are overly myopic.

Only accounting measures of performance can be used in accurately measuring the performance of divisions within a diversified firm.

Define what constitutes an agency relationship and the roles of the principal and the agent; discuss how the agency relationship is reflected in the context of corporate diversification and when the agency relationship can be effective; and identify two common agency problems.

In 1970, institutions owned 62 percent of the equity traded in the United States; by 1990, institutions owned 48 percent of this equity and by 2002, they owned only 32 percent of this equity.