Troy University Week 1 Corporate Scandals at Enron Discussion Questions

I need an explanation for this Management question to help me study.

1. In the wake of corporate scandals atEnron,Tyco, and WorldCom, some argue that managers of large, publicly owned firms sometimes make decisions to maximize their own welfare as opposed to that of stockholders. Does such behavior create problems in using value maximization as a basis for examining managerial decision-making?
2. What are some potential benefits to companies of paying executives with stock options? What are some potential risks to companies of paying executives with stock options?
3. What is a depository institution and what types of depository institutions are found in the United States? How do they act as intermediaries between savers and borrowers? Why do they play this role?
4. Some economists argue that deregulated deposit rates combined with deposit insurance led to the insolvency of many depository institutions. On what basis do they make such an argument?

this is an answer from a classmate

1. In the wake of corporate scandals at Enron, Tyco, and WorldCom, some argue that managers of large, publicly owned firms sometimes make decisions to maximize their own welfare as opposed to that of stockholders. Does such behavior create problems in using value maximization as a basis for examining managerial decision-making? Yes, such behavior creates problems in using value maximization as a basis for examining managerial decision-making. Value maximization assumes that managers will act in the best interest of shareholders, but if managers prioritize their own interests over those of the shareholders, this assumption is violated. If managers prioritize their own interests, they may take actions that benefit themselves, such as increasing their own compensation, at the expense of shareholders, such as by not investing in long-term growth opportunities or by taking unnecessary risks. Such behavior can lower shareholder value and may undermine investor confidence in the market.
2. What are some potential benefits to companies of paying executives with stock options? What are some potential risks to companies of paying executives with stock options? One potential benefit of paying executives with stock options is that it aligns the interests of executives with those of shareholders, as they have a financial stake in the success of the company. This can incentivize executives to work harder and make decisions that will increase shareholder value. Additionally, paying executives with stock options can help to conserve cash, as it does not require the company to pay out cash-based compensation. However, potential risks include executives prioritizing short-term stock price gains over long-term growth and development, as well as the possibility of executives engaging in unethical behavior to inflate the stock price.
3. What is a depository institution and what types of depository institutions are found in the United States? How do they act as intermediaries between savers and borrowers? Why do they play this role? A depository institution is a financial institution that accepts deposits from individuals and businesses and uses these funds to make loans. There are three main types of depository institutions in the United States: commercial banks, thrift institutions (savings and loan associations and savings banks), and credit unions. These institutions act as intermediaries between savers and borrowers by taking in deposits from individuals and businesses and using these funds to make loans to other individuals and businesses. They play this role to help facilitate economic growth and development by making credit available to those who need it.
4. Some economists argue that deregulated deposit rates combined with deposit insurance led to the insolvency of many depository institutions. On what basis do they make such an argument? Economists argue that deregulated deposit rates combined with deposit insurance led to the insolvency of many depository institutions because it created a moral hazard problem. The deregulation of deposit rates allowed depository institutions to compete for deposits by offering higher interest rates, which encouraged individuals and businesses to deposit their funds in riskier institutions. Deposit insurance provided a safety net for depositors, which reduced the discipline that depositors would otherwise exert on these institutions by monitoring their behavior and withdrawing their deposits from institutions that were engaging in risky activities. As a result, depository institutions had less incentive to manage risk prudently, and their failure to do so led to insolvency for many of them.