Topic 1
How can investors set up firms to minimize their exposure to the Principal-Agent problem?
Control Rights and Structure of Managerial Incentives
What are Porter's Five Forces Framework?
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products or Services
Competition Rivalry
What is "stuck in middle"?
Failing to make the two tradeoffs between Premium Price, Cost Leadership
What is feudalism?
a decentralized socio-political and economic system in Europe during the Middle Ages
What is oligarchic capitalism?
system where small, wealthy elites control key industries and uses their money to influence government policies, laws, and regulation
What is invisible hand?
individuals pursuing their own self-interest unintentionally promote the general benefit of society
What is arbitrage?
simultaneous purchase and sale of an asset in different markets to profit from a temporary price difference
What are the downsides of efficient market?
1) Income inequality and wealth disparities
2) Short-term focus
3) Ethical concerns
4) Instability and crises
What is double movement?
people go against the idea of improving market conditions that harm the market
What is transaction cost?
extra expenses, time, and effort required to buy or sell a good or service beyond the actual price of the item
What is Pigouvian Tax?
fee imposed by government on businesses for activities that create negative externalities
What is Bank-Cetnered Governance?
What is two-tier model?
model that separates the leadership of a company into two distinct, non-overlapping bodies: the supervisory board and the management board
What is CSV?
a strategy where companies generate economic profit while simultaneously creating value for society by addressing its needs and challenges
What is deontology?
a duty-based framework asserting that actions are morally required based on rules, rights, and obligations, rather than consequences
What is Social Justice Theory?
the belief that companies should not just focus on profits, but also actively ensure fairness, equality, and dignity for all stakeholders—employees, customers, suppliers, and the community
What is virtue theory?
the idea that ethical behavior comes from having a good character, rather than just following a set of rules or calculating the best outcome.
What is valuation principle?
The value of a commodity or an asset to the firm or its investors is determined by its competitive market price
What is utilitarianism?
outcome-focused approach that defines the "most ethical" choice as the one that produces the greatest good for the greatest number of people
What is Ill-Conceived Goals?
targets set by management that, while aiming for a desired outcome, unintentionally encourage employees to behave unethically or cut corners to achieve them
What is Indirect Blindness?
the tendency to hold people or companies less accountable for unethical actions when those actions are carried out by a third party
What is slippery slope?
the process where small, seemingly harmless ethical lapses gradually snowball into major, often illegal, scandals
What is bounded rationality?
the idea that people make "good enough" decisions rather than the absolute best ones because their ability to think, analyze, and access information is limited
What is extractive institution?
a system designed by a small elite to siphon wealth and resources from the general population to themselves
What is factor market?
a marketplace where businesses buy the resources (inputs) they need to produce goods or services