CH 5 Shared Value and Competitive Advantage

5.1 ESG Dimensions | LO 5-1 |
Which statements correctly describe the ESG criteria?

They evaluate firms on standards that go beyond financial results

They include environmental, social, and governmental aspects

5.1 ESG Dimensions | LO 5-1 |
Match each description to the correct ESG criteria dimension
ENVIRONMENTAL

working to address climate change and other sustainability goals

5.1 ESG Dimensions | LO 5-1 |
Match each description to the correct ESG criteria dimension
SOCIAL

pursuing policies that promote diversity, equity, health and safety, human rights, and inclusion

5.1 ESG Dimensions | LO 5-1 |
Match each description to the correct ESG criteria dimension
GOVERNANCE

addressing factors related to business ethics, legal compliance, transparency, shareholder democracy, and board independence

5.1 Shareholder Capitalism | LO 5-1 |
In ________, the stockholders are the legal owners of the company who delegate decision-making authority to professional managers.

public stock companies

5.1 Shareholder Capitalism | LO 5-1 |
What is shareholder capitalism?

an economic system in which the owners of shares in a public company are the company's legal owners and the providers of risk capital

5.1 Shareholder Capitalism | LO 5-1 |
The economic system in which the owners of shares in a public company are the company's legal owners and the providers of risk capital is called ________.

shareholder capitalism

5.1 Public Stock Company | LO 5-1 |
A public stock company is considered by law to be an entity with legal rights and obligations. This is known as ________.

legal personality

5.1 Public Stock Company | LO 5-1 |
In regard to the public stock company, limited liability means that ________.

investors are not responsible for any debts incurred by the company and are only at risk of losing their invested capital

5.1 Public Stock Company | LO 5-1 |
Hector owns shares of Space Games Corporation, an online gaming platform. The company's financial situation takes a turn for the worse and ends up in severe debt. Despite owning shares of Space Games, Hector is not responsible for bringing more money into the company to get it out of its debt.
Which characteristic of public stock companies does this scenario best exemplify?

limited liability for investors

The characteristic of public stock companies that this scenario best exemplifies is limited liability for investors.

This characteristic means that the shareholders who provide the risk capital are liable only for the capital specifically invested, and not for other investments they may have made or for debts of the firm.

5.1 Public Stock Company | LO 5-1 |
The legal owners of publicly traded companies are called ________.

shareholders

5.1 Public Stock Company | LO 5-1 |
In order to be considered a legal owner of a public company a person or organization must ________.

own at least one share of the company's stock

5.1 Shareholder Capitalism | LO 5-1 |
When a firm goes bankrupt shareholders ________.

cannot recover their risk capital

5.1 Shareholder Capitalism | LO 5-1 |
From the view of a shareholder the measure of competitive advantage that matters most is ________.

return on risk capital

5.1 Shareholder Capitalism | LO 5-1 |
When public companies define value creation too narrowly in terms of financial performance it can lead to ________.

black swan events

5.1 Capitalism Challenges | LO 5-1 |
What are the three defining problems faced by capitalism today according to strategy scholar Rebecca Henderson?

climate change

beleaguered institutions

economic inequality

5.1 Externalities | LO 5-1 |
Social consequences of business activities including pollution, energy loss, and dangerous accidents, are known as ________.

externalities

5.1 CSR to CSV | LO 5-2 |
With the most recent view at the top the correct historical order is ________.

Creating Shared Value (CSV)

Pursuing Corporate Social Responsibility (CSR)

Maximizing Profits

5.1 Shared Value Creation | LO 5-2 |
The shared value creation (SVC) framework encourages managers to focus on which needs?

Economic

Social

5.2 Competitive Advantage | LO 5-3 |
Which of the following are standard performance dimensions for a company?

how much shareholder value a firm creates

a firm's accounting metrics

how much economic value a firm generates

5.2 Competitive Advantage | LO 5-3 |
The firm's accounting metrics, ability to create shareholder value, and ability to generate economic value tend to be correlated.

True

5.2 Accounting Metrics | LO 5-3 |
Which of the following correctly describe the information used for comparing the performance of public companies based on accounting profitability?

The information is derived from such data as income statements and balance sheets

The information is filed in a 10-K report

The relative performance is evaluated using standardized financial metrics

5.2 Accounting Metrics | LO 5-3 |
Return on invested capital return on assets, and return on revenue are examples of ________.

profitability ratios

5.2 Accounting Metrics | LO 5-3 |
Which of the following are among the most commonly used metrics for comparing the performance of different companies?

return on invested capital

return on assets

return on equity

return on revenue

5.2 Accounting Metrics | LO 5-3 |
When competitive advantage is assessed from an analysis of publicly available data a firm measures its ________.

accounting profitability

5.2 Accounting Metrics | LO 5-3 |
Which of the following is an advantage of accounting data?

Accounting data can be easily transformed into financial ratios to help assess and evaluate the competitive performance of firms

Accounting data enable managers to conduct direct performance comparisons between different companies.

5.2 Accounting Metrics | LO 5-3 |
When a firm does favorably compared to similar firms it is said to ________.

outperform

5.2 Shareholder Value Creation | LO 5-3 |
The idea that all available information about a firm's past, current state, and expected future performance is embedded in the market price of the firm's stock is called the __________.

efficient-market hypothesis

In this perspective, a firm's share price provides an objective performance indicator.

5.2 Shareholder Value Creation | LO 5-3 |
A company's total return to shareholders consists of ________.

stock price appreciation

dividends received

5.2 Shareholder Value Creation | LO 5-3 |
Investors in a company are mostly concerned about the company's ________.

total return to shareholders

5.2 Shareholder Value Creation | LO 5-3 |
Stock market valuation is equal to ________.

number of outstanding shares multiplied by the share price

5.2 Shareholder Value Creation | LO 5-3 |
Market capitalization is calculated as ________.

share price × number of outstanding shares

5.2 Shareholder Value Creation | LO 5-3 |
The Luminarium Corporation has a market capitalization of $100,000,000, and each share is worth $100.
How many outstanding shares are there?

1,000,000 outstanding shares

Market Cap = Share Price × Shares Outstanding
$100,000,000/$100 per share = 1,000,000 outstanding shares

5.2 Shareholder Value Creation | LO 5-3 |
If a company has 50 million shares outstanding, and each share is traded at $200, the market capitalization is ________.

$10 billion

5.2 Shareholder Value Creation | LO 5-3 |
Which of the following are disadvantages of the shareholder value creation approach?

Stock prices are influenced by psychological mood

Stock prices can be highly volatile

Macroeconomic factors affect stock prices

5.2 Shareholder Value Creation | LO 5-3 |
Stock market valuations are often unreliable due to market fluctuations and are therefore not used to assess competitive advantage.

False

5.2 Shareholder Value Creation | LO 5-3 |
A better measure of a firm's long-term performance is ________.

total return to shareholders

5.2 Shareholder Value Creation | LO 5-3 |
Which would provide the best benchmark of a computer firm's performance relative to other high-tech firms?

the NASDAQ computer index

5.2 Economic Value Creation | LO 5-4 |
The difference between the cost of producing a product and the price consumers are willing to pay is known as ________.

economic value created

5.2 Economic Value Creation | LO 5-4 |
Economic value creation is calculated as ________.

the sum of consumer and producer surplus

5.2 Economic Value Creation | LO 5-4 |
The most a consumer is willing to pay for a product is equivalent to the product's ________.

total perceived consumer benefits

5.2 Economic Value Creation | LO 5-4 |
ECONOMIC VALUE CREATED is the difference between _________.

a buyer's willingness to pay (V) and the firm's total cost (C)

5.2 Economic Value Creation | LO 5-4 |
The subjectively determined maximum amount a customer would pay is its ________.

reservation price

5.2 Economic Value Creation | LO 5-4 |
Another name for producer surplus is ________.

profit

5.2 Economic Value Creation | LO 5-4 |
Producer surplus is calculated as ________.

price charged − cost of production

5.2 Economic Value Creation | LO 5-4 |
Commuter Scooter is a public company whose shares are currently trading in the market at $100 each. The company manufactures electric scooters at the cost of $600 per unit and sells them in the market for $1,000 each.
What is the company's producer surplus?

$400

Commuter Scooter's producer surplus is $400.
The difference between the price charged for a product (P) and the cost to produce it (C) is the producer surplus (P - C).
1,000 - 600 = 400
The firm captures this amount as profit per unit sold.

5.2 Economic Value Creation | LO 5-4 |
________ is best described as the difference between the value a consumer attaches to a good or service and what they paid for it.

Consumer surplus

Consumer surplus is the difference between the value a consumer attaches to a good or service (V) and what they paid for it (P), or (V - P).

5.2 Economic Value Creation | LO 5-4 |
The sum of consumer surplus and producer surplus for a good or service equals the _________.

economic value created (EVC)

5.2 Economic Value Creation | LO 5-4 |
When a trade occurs the consumer and producer both capture ________.

some of the economic value

5.2 Economic Value Creation | LO 5-4 |
Achieving competitive advantage means maximizing the difference between ________.

consumers' willingness to pay

the cost to produce the good or service

5.2 Economic Value Creation | LO 5-4 |
If Firm B has a higher reservation price at equal cost, who has the competitive advantage?

Firm B

5.2 Cost Structure | LO 5-4 |
The money spent to set up a sales website is a ________ cost.

fixed

5.2 Cost Structure | LO 5-4 |
Fixed costs are ________ consumer demand.

independent of

5.2 Economic Value Creation | LO 5-4 |
Which of the following examples shows economic value created?

The price a customer is willing to pay for a good or service is more than the cost the firm incurs to produce it.

Economic value created is the difference between value (V) and cost (C).

Economic value created is the difference between a buyer's willingness to pay for a product or service and the firm's total cost to produce it.

5.2 Economic Value Creation | LO 5-4 |
To determine value in the eyes of consumers, a firm can ________.

examine consumers' purchasing habits for their revealed preferences

5.2 Economic Value Creation | LO 5-4 |
Which statements about disadvantages of the value creation perspective are true?

Value varies by consumer

Difficult to estimate for large firms

Difficult to determine willingness to pay

5.2 Economic Value Creation | LO 5-4 |
A firm may charge the same price as competitors in order to ________.

gain market share

5.2 Balanced Scorecard | LO 5-5 |
Managers often turn to the ________ framework.

balanced scorecard

5.2 Balanced Scorecard | LO 5-5 |
The balanced scorecard draws from ________.

multiple internal and external performance metrics

5.2 Balanced Scorecard | LO 5-5 |
The balanced scorecard offers which of the following?

measures of internal processes

customer satisfaction measures

complements financial metrics

5.2 Balanced Scorecard | LO 5-5 |
Answering "How do we create value?" ensures ________.

future organizational learning

future competitiveness

future innovation

5.2 Balanced Scorecard | LO 5-5 |
The balanced scorecard enables managers to ________.

translate strategic vision into operational goals

implement feedback and learning

communicate and link strategic vision

5.2 Balanced Scorecard | LO 5-5 |
When using the balanced scorecard approach to assess a firm's performance, which of the following is a key question that strategic leaders need to answer?

How do shareholders view us?

Strategic leaders using the balanced scorecard develop strategic objectives and appropriate metrics by answering four key questions:
How do customers view us?
How do we create value?
What core competencies do we need?
How do shareholders view us?

5.2 Balanced Scorecard | LO 5-5 |
30% revenue from new products answers which question?

How do we create value?

5.2 Triple Bottom Line | LO 5-6 |
Which dimensions make up the triple bottom line?

economic

ecological

social

5.2 Sustainable Strategy | LO 5-6 |
A strategy pursued long term without harming people or the planet is ________.

a sustainable strategy

5.2 Sustainable Strategy | LO 5-6 |
Which statement about sustainable strategy is true?

It can be pursued over time without harmful effects on people or the environment

5.3 Competitive Advantage | LO 5-6 |
Which statements about firm strategy and competitive advantage are true?

No single best strategy exists

Consider qualitative and quantitative dimensions

Measure overall firm performance

5.3 Competitive Advantage | LO 5-6 |
Which performance dimensions matter in judging strategy effectiveness?

quantitative

qualitative