Briefly discuss the incentives for financial managers to conduct their business in an ethical manner.
Answer: Extreme ethical lapses such as those evident in the Madoff Ponzi scheme may also break laws and result in fines or imprisonment. In less extreme cases, deceptive accounting practices or sales techniques once exposed lead to a loss of trust. Because individuals and firms are reluctant to do business with those they mistrust, a reputation for unethical behavior over the long run leads to adversarial relations with business partners, a loss of customers, and destruction of the firm's value.
The goal of maximize shareholder wealth inevitably conflicts with socially responsible behavior on the part of corporation.
The Sarbane-Oxley Act addresses insider trading by members of Congress.
Answer: FALSE
A reputation for unethical behavior can negatively affect the value of a company's stock.
Answer: TRUE
The agency problem arises due to the separation of ownership and control in a corporation.
Answer: TRUE
