Question

Mr. Smith bought 200 shares of Apple stock today. Apple stock is listed on NASDAQ. Mr. Smith is
concerned about a potential issue that the managers fail to maximize the shareholders’ interests. Which of
the following are effective means of aligning management goals with shareholder interests?
I. Employee stock options
II. Threat of a takeover
III. Management bonuses tied to performance goals
IV. Threat of a proxy fight
A. I, II, III, and IV
B. II and IV only
C. I, II, and III only
D. I, III, and IV only
E. I and III only

Answer 1

Answer is A

Reason Employee stock options, Threat of a takeover, Management bonuses tied to performance goals, Threat of a proxy fight.

Management is concerned with increase the shareholder with increase their wealth that is based on the effort taken by manager to increase the value of its company and their shares. when ESOP comes in front of the manager they employees themselves work hard to increase the value of their stock, in the same way it will increase the wealth of shareholder as well. manager will work hard to avoid any takeover and merger of the company, manager can be motivated to word hard as effort will produce goods result and their incentives too. in last threat of a proxy right will be avoided if manager maximize the shareholder interest and take effort to maximize the company assets value.