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Finance Examination

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Finance Examination

Chapter 1
Discussion Questions and Solutions

3. In a corporation, what group has the ultimate responsibility for protecting and managing stockholder’s interests?
A corporation’s top management has the ultimate responsibility of protecting and managing stockholder’s interests. There are essentially two groups responsible for protecting and managing the interests of stockholders being the Board of Directors and the top Management Team. However, the ultimately responsibility falls with the top management team, as they tend to be on hands-on in the daily operations of a business or a corporation. The top management team includes the Chief Executive Officer (CEO), Managing Director (MD), Chief Financial Officer (CFO) and all the rest of the top managers and leaders of the organization. They should know what is going on and be held accountable for not reporting shortcomings, expectations, news, and so on in a timely manner to the Board and also to corporate shareholders. In a corporation, the responsibility of the board of directors comes in when they have to determine strategic plans and objectives together with the top management, as well as reporting what management will have achieved in managing the company. Shareholders on the other end are waiting for results since they are the ultimate owners of a corporation, and since they cannot run the company, they bestow the ultimate responsibility of protecting and managing the shareholder’s (stockholder’s) interests with management of the company, who are overseen by the board of directors.

5. What issue does agency theory examine? Why is it important in a public corporation rather than in a private corporation?
The agency theory is about one party engaging or employing another party to take care or manage their interests as per set rules or expectations. The issues that

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