Chapter 07 Positive ing Theory 2w703c
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Chapter 07 Positive ing Theory 1. Watts and Zimmerman's Positive ing Theory is: A. One of several normative theories of ing B. One of several positive theories of ing C. One of several critical theories of ing D. None of the given options are correct.
2. Which of the following is a central assumption of Positive ing Theory? A. Individuals act solely on the basis of self-interest. B. Firms seek to maximise profits. C. The interests of principals and agents are not aligned. D. Financial statements will be audited regardless of legal requirements.
3. To test whether ing information is useful, researchers such as Ball and Brown tested whether share prices responded to: A. Expected earnings announcements B. Forecast earnings announcements C. Unexpected earnings announcements D. All of the given options are correct.
4. The key theory that underpins Positive ing Theory is: A. The Efficient Markets Hypothesis B. Agency theory C. Normative ethical theory D. None of the given options are correct.
5. The principal's expectation of opportunistic behaviour by his or her agent results in lower payments to: A. The agent B. The principal C. The principal and the agent D. Neither the principal nor the agent
6. According to agency theory, contracts that align the interests of the principal and agent primarily benefit: A. The agent B. The principal C. Both the principal and the agent D. Neither the principal nor the agent
7. Agency theory suggests that government regulation is: A. Necessary, because principals know that agents may not act in their interests B. Necessary, because agents know that principals may not act in their interests C. Unnecessary, because principals know that agents may not act in their interests D. Unnecessary, because agents know that principals may not act in their interests
8. The 'political cost hypothesis' of Positive ing Theory suggests which of the following? A. Large firms are more likely to use ing choices that reduce reported profits. B. Small firms are more likely to use ing choices that reduce reported profits. C. Neither large nor small firms are more likely to use ing choices that reduce reported profits. D. Both large and small firms are more likely to use ing choices that reduce reported profits.
9. The 'bonus plan hypothesis' of Positive ing Theory suggests managers of firms with bonus plans tied to reported income are more likely to use ing methods that: A. Increase prior period reported income B. Increase current period reported income C. Increase future period reported income D. None of the given options are correct.
10. The 'debt/equity hypothesis' of Positive ing Theory predicts which of the following? A. The higher the firm's debt/equity ratio, the more likely managers are to use ing methods that lower income. B. The lower the firm's debt/equity ratio, the more likely managers are to use ing methods that increase income. C. The higher the firm's debt/equity ratio, the more likely managers are to use ing methods that increase income. D. None of the given options are correct.
11. The 'efficiency perspective' of Positive ing Theory suggests that firms will: A. Adopt the ing methods that require the least resources to implement B. Adopt the ing methods that result in the highest reported earnings C. Adopt the ing methods that result in the lowest reported earnings D. Adopt the ing methods that best reflect the underlying economic performance of the entity
12. Which of the following is correct in respect of Positive ing Theory? A. The opportunistic perspective is ex-post, and the efficiency perspective is ex-ante. B. The opportunistic perspective is ex-ante, and the efficiency perspective is ex-post. C. Both the opportunistic and efficiency perspectives are ex-ante. D. Both the opportunistic and efficiency perspectives are ex-post.
13. A manager electing to adopt a depreciation method that increases income, but does not reflect the actual use of the asset, is consistent with: A. The efficiency perspective of Positive ing Theory B. The opportunistic perspective of Positive ing Theory C. Both the opportunity and the efficiency perspectives of Positive ing Theory D. Neither the opportunity nor the efficiency perspectives of Positive ing Theory
14. Which of the following parties desire the firm to take the most risks? A. Managers B. Debtholders C. Owners D. All parties desire the firm to take the same level of risk.
15. Positive ing Theory suggests that bonus schemes benefit: A. Only managers B. Only owners C. Both managers and owners D. Neither managers nor owners
16. Which of the following is the main advantage of using ing earnings instead of share prices to determine bonuses? A. Share prices are influenced by market forces that are outside the control of management. B. ing information is independently audited. C. ing information is unbiased. D. Share prices may be manipulated by managers engaging in insider trading.
17. According to Positive ing Theory, using stock prices to determine bonuses: A. Increases the likelihood of management disclosing good news B. Increases the likelihood of management disclosing of bad news C. Increases the likelihood of management disclosing both good and bad news D. Has no effect on the likelihood of management disclosures
18. According to Positive ing Theory, the existence of debt covenants: A. Can be explained from an efficiency perspective, and gives management an incentive to manipulate ing information from an opportunistic perspective B. Can be explained from an opportunistic perspective, and gives management an incentive to manipulate ing information from an efficiency perspective C. Can be explained from both efficiency and opportunistic perspectives D. Cannot be explained
19. Which of the following is a problem with Positive ing Theory? A. It is not testable. B. It has been empirically discredited. C. It contributes little to improving ing practice. D. None of the given options are correct.
20. Which of the following is not a criticism of Positive ing Theory? A. It is based on the assumption that all action is driven by wealth maximisation. B. It is not value-free. C. It has developed little in the past 30 years. D. Its claims cannot be objectively verified.
21. A contribution of Positive Theory is that it enables us to understand: A. Why interest groups expend resources lobbying for or against particular standards B. Why a manager adopts particular ing techniques over others C. The effect ing standards have on different groups and resource allocation D. All of the given options are correct.
22. Which of the following is an example of political costs under the PAT perspective? A. Wage and salary deductions paid to unions B. Contributions to political parties C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies
23. Which of the following is not an example of a Positive ing Theory or research? A. True income theories B. Legitimacy Theory C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies
24. Which of the following statements is not true about Positive ing Theory? A. It is used to distinguish research aimed at explanation and prediction. B. It is designed to explain and predict which firms will, and which firms will not, use a particular method, and also prescribes which method a firm should use. C. It focuses on the relationships between the various individuals involved in providing resources to an organisation, and how ing is used to assist in the functioning of these relationships. D. One of the key theories that underpins Positive ing Theory is Agency theory.
25. Which of the following statements is true regarding the origins and development of Positive ing Theory? A. Positive research in ing started coming to prominence around the mid-1960s, and appeared to become the dominant research paradigm within financial ing in the 1970s and 1980s. B. The introduction of positive research into ing represented a paradigm shift from normative research to positive research. C. Currently, almost all papers in ing Review and most other leading academic journals are positive research-based. D. All of the given options are correct.
26. Which of the following is not true about Positive ing Theory? A. A positive theory seeks to explain and predict particular phenomena. B. A positive theory focuses on the relationships between various individuals and how ing is used to assist in the functioning of these relationships. C. A positive theory prescribes how a particular practice should be undertaken. D. All of the given options are correct.
27. Which of the following statements is true about what caused the shift in paradigm from normative to positive research? A. The shift resulted from US reports on business education, and improved computing facilities enabling large-scale statistical analysis. B. The shift occurred because positive ing researchers are not concerned with explaining or predicting what is (i.e. that which could be tested empirically); rather, they are concerned with what should be. C. The shift occurred because in positive research, falsifiable hypotheses are not generated from theory. D. All of the given options are correct.
28. It is common practice for managers to be rewarded in a way that is tied to the profits of the firm, the sales of the firm, or the return on assets. That is, their remuneration is based on the output of the ing system. Which of the following is a drawback for such bonus schemes? A. Bonus schemes tied to the performance of the firm will be put in place to align the interests of the owners and the managers. B. Rewarding managers on the basis of ing profits may induce them to manipulate ing numbers. C. There would be limited incentives for the manager to adopt risky strategies that increase the value of the firm. D. The manager may be reluctant to take on optimal levels of debt.
29. Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company? A. A market-based bonus scheme, as it is more appropriate to reward the manager in of the market value of the firm's securities, which are assumed to be influenced by expectations about the net present value of expected future cash flows, and the manager will be given an incentive to increase the value of the firm. B. A fixed basis scheme, so that the managers would not take great risks, reject risky projects, and be reluctant to take on optimal levels of debt as it may be beneficial to those with equity in the firm. C. An ing-based bonus scheme as this will be in the interest of the manager, as that manager will potentially receive greater rewards and will not have to bear the costs of the perceived opportunistic behaviours. D. A combination of fixed basis and ing-based scheme, as assuming that self-interest drives the actions of the managers, it may be necessary to put in place remuneration schemes that reward the managers in a way that is, at least in part, tied to the performance of the firm.
30. Which of the following can be used as an ing measure by the government and other interest groups that a particular organisation (typically large) is generating excessive profits and not paying its 'fair share' to other segments of the community? A. Total sales B. Total profits C. Total assets D. All of the given options are correct.
Chapter 07 Positive ing Theory Key 1. Watts and Zimmerman's Positive ing Theory is: A. One of several normative theories of ing B. One of several positive theories of ing C. One of several critical theories of ing D. None of the given options are correct.
Deegan - Chapter 07 #1 Difficulty: Easy
2. Which of the following is a central assumption of Positive ing Theory? A. Individuals act solely on the basis of self-interest. B. Firms seek to maximise profits. C. The interests of principals and agents are not aligned. D. Financial statements will be audited regardless of legal requirements.
Deegan - Chapter 07 #2 Difficulty: Easy
3. To test whether ing information is useful, researchers such as Ball and Brown tested whether share prices responded to: A. Expected earnings announcements B. Forecast earnings announcements C. Unexpected earnings announcements D. All of the given options are correct.
Deegan - Chapter 07 #3 Difficulty: Easy
4. The key theory that underpins Positive ing Theory is: A. The Efficient Markets Hypothesis B. Agency theory C. Normative ethical theory D. None of the given options are correct.
Deegan - Chapter 07 #4 Difficulty: Easy
5. The principal's expectation of opportunistic behaviour by his or her agent results in lower payments to: A. The agent B. The principal C. The principal and the agent D. Neither the principal nor the agent
Deegan - Chapter 07 #5 Difficulty: Easy
6. According to agency theory, contracts that align the interests of the principal and agent primarily benefit: A. The agent B. The principal C. Both the principal and the agent D. Neither the principal nor the agent
Deegan - Chapter 07 #6 Difficulty: Easy
7. Agency theory suggests that government regulation is: A. Necessary, because principals know that agents may not act in their interests B. Necessary, because agents know that principals may not act in their interests C. Unnecessary, because principals know that agents may not act in their interests D. Unnecessary, because agents know that principals may not act in their interests
Deegan - Chapter 07 #7 Difficulty: Medium
8. The 'political cost hypothesis' of Positive ing Theory suggests which of the following? A. Large firms are more likely to use ing choices that reduce reported profits. B. Small firms are more likely to use ing choices that reduce reported profits. C. Neither large nor small firms are more likely to use ing choices that reduce reported profits. D. Both large and small firms are more likely to use ing choices that reduce reported profits.
Deegan - Chapter 07 #8 Difficulty: Easy
9. The 'bonus plan hypothesis' of Positive ing Theory suggests managers of firms with bonus plans tied to reported income are more likely to use ing methods that: A. Increase prior period reported income B. Increase current period reported income C. Increase future period reported income D. None of the given options are correct.
Deegan - Chapter 07 #9 Difficulty: Easy
10. The 'debt/equity hypothesis' of Positive ing Theory predicts which of the following? A. The higher the firm's debt/equity ratio, the more likely managers are to use ing methods that lower income. B. The lower the firm's debt/equity ratio, the more likely managers are to use ing methods that increase income. C. The higher the firm's debt/equity ratio, the more likely managers are to use ing methods that increase income. D. None of the given options are correct.
Deegan - Chapter 07 #10 Difficulty: Easy
11. The 'efficiency perspective' of Positive ing Theory suggests that firms will: A. Adopt the ing methods that require the least resources to implement B. Adopt the ing methods that result in the highest reported earnings C. Adopt the ing methods that result in the lowest reported earnings D. Adopt the ing methods that best reflect the underlying economic performance of the entity
Deegan - Chapter 07 #11 Difficulty: Easy
12. Which of the following is correct in respect of Positive ing Theory? A. The opportunistic perspective is ex-post, and the efficiency perspective is ex-ante. B. The opportunistic perspective is ex-ante, and the efficiency perspective is ex-post. C. Both the opportunistic and efficiency perspectives are ex-ante. D. Both the opportunistic and efficiency perspectives are ex-post.
Deegan - Chapter 07 #12 Difficulty: Easy
13. A manager electing to adopt a depreciation method that increases income, but does not reflect the actual use of the asset, is consistent with: A. The efficiency perspective of Positive ing Theory B. The opportunistic perspective of Positive ing Theory C. Both the opportunity and the efficiency perspectives of Positive ing Theory D. Neither the opportunity nor the efficiency perspectives of Positive ing Theory
Deegan - Chapter 07 #13 Difficulty: Hard
14. Which of the following parties desire the firm to take the most risks? A. Managers B. Debtholders C. Owners D. All parties desire the firm to take the same level of risk.
Deegan - Chapter 07 #14 Difficulty: Easy
15. Positive ing Theory suggests that bonus schemes benefit: A. Only managers B. Only owners C. Both managers and owners D. Neither managers nor owners
Deegan - Chapter 07 #15 Difficulty: Easy
16. Which of the following is the main advantage of using ing earnings instead of share prices to determine bonuses? A. Share prices are influenced by market forces that are outside the control of management. B. ing information is independently audited. C. ing information is unbiased. D. Share prices may be manipulated by managers engaging in insider trading.
Deegan - Chapter 07 #16 Difficulty: Medium
17. According to Positive ing Theory, using stock prices to determine bonuses: A. Increases the likelihood of management disclosing good news B. Increases the likelihood of management disclosing of bad news C. Increases the likelihood of management disclosing both good and bad news D. Has no effect on the likelihood of management disclosures
Deegan - Chapter 07 #17 Difficulty: Medium
18. According to Positive ing Theory, the existence of debt covenants: A. Can be explained from an efficiency perspective, and gives management an incentive to manipulate ing information from an opportunistic perspective B. Can be explained from an opportunistic perspective, and gives management an incentive to manipulate ing information from an efficiency perspective C. Can be explained from both efficiency and opportunistic perspectives D. Cannot be explained
Deegan - Chapter 07 #18 Difficulty: Hard
19. Which of the following is a problem with Positive ing Theory? A. It is not testable. B. It has been empirically discredited. C. It contributes little to improving ing practice. D. None of the given options are correct.
Deegan - Chapter 07 #19 Difficulty: Easy
20. Which of the following is not a criticism of Positive ing Theory? A. It is based on the assumption that all action is driven by wealth maximisation. B. It is not value-free. C. It has developed little in the past 30 years. D. Its claims cannot be objectively verified.
Deegan - Chapter 07 #20 Difficulty: Easy
21. A contribution of Positive Theory is that it enables us to understand: A. Why interest groups expend resources lobbying for or against particular standards B. Why a manager adopts particular ing techniques over others C. The effect ing standards have on different groups and resource allocation D. All of the given options are correct.
Deegan - Chapter 07 #21 Difficulty: Easy
22. Which of the following is an example of political costs under the PAT perspective? A. Wage and salary deductions paid to unions B. Contributions to political parties C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies
Deegan - Chapter 07 #22 Difficulty: Medium
23. Which of the following is not an example of a Positive ing Theory or research? A. True income theories B. Legitimacy Theory C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies
Deegan - Chapter 07 #23 Difficulty: Medium
24. Which of the following statements is not true about Positive ing Theory? A. It is used to distinguish research aimed at explanation and prediction. B. It is designed to explain and predict which firms will, and which firms will not, use a particular method, and also prescribes which method a firm should use. C. It focuses on the relationships between the various individuals involved in providing resources to an organisation, and how ing is used to assist in the functioning of these relationships. D. One of the key theories that underpins Positive ing Theory is Agency theory.
Deegan - Chapter 07 #24 Difficulty: Hard
25. Which of the following statements is true regarding the origins and development of Positive ing Theory? A. Positive research in ing started coming to prominence around the mid-1960s, and appeared to become the dominant research paradigm within financial ing in the 1970s and 1980s. B. The introduction of positive research into ing represented a paradigm shift from normative research to positive research. C. Currently, almost all papers in ing Review and most other leading academic journals are positive research-based. D. All of the given options are correct.
Deegan - Chapter 07 #25 Difficulty: Easy
26. Which of the following is not true about Positive ing Theory? A. A positive theory seeks to explain and predict particular phenomena. B. A positive theory focuses on the relationships between various individuals and how ing is used to assist in the functioning of these relationships. C. A positive theory prescribes how a particular practice should be undertaken. D. All of the given options are correct.
Deegan - Chapter 07 #26 Difficulty: Easy
27. Which of the following statements is true about what caused the shift in paradigm from normative to positive research? A. The shift resulted from US reports on business education, and improved computing facilities enabling large-scale statistical analysis. B. The shift occurred because positive ing researchers are not concerned with explaining or predicting what is (i.e. that which could be tested empirically); rather, they are concerned with what should be. C. The shift occurred because in positive research, falsifiable hypotheses are not generated from theory. D. All of the given options are correct.
Deegan - Chapter 07 #27 Difficulty: Easy
28. It is common practice for managers to be rewarded in a way that is tied to the profits of the firm, the sales of the firm, or the return on assets. That is, their remuneration is based on the output of the ing system. Which of the following is a drawback for such bonus schemes? A. Bonus schemes tied to the performance of the firm will be put in place to align the interests of the owners and the managers. B. Rewarding managers on the basis of ing profits may induce them to manipulate ing numbers. C. There would be limited incentives for the manager to adopt risky strategies that increase the value of the firm. D. The manager may be reluctant to take on optimal levels of debt.
Deegan - Chapter 07 #28 Difficulty: Medium
29. Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company? A. A market-based bonus scheme, as it is more appropriate to reward the manager in of the market value of the firm's securities, which are assumed to be influenced by expectations about the net present value of expected future cash flows, and the manager will be given an incentive to increase the value of the firm. B. A fixed basis scheme, so that the managers would not take great risks, reject risky projects, and be reluctant to take on optimal levels of debt as it may be beneficial to those with equity in the firm. C. An ing-based bonus scheme as this will be in the interest of the manager, as that manager will potentially receive greater rewards and will not have to bear the costs of the perceived opportunistic behaviours. D. A combination of fixed basis and ing-based scheme, as assuming that self-interest drives the actions of the managers, it may be necessary to put in place remuneration schemes that reward the managers in a way that is, at least in part, tied to the performance of the firm.
Deegan - Chapter 07 #29 Difficulty: Hard
30. Which of the following can be used as an ing measure by the government and other interest groups that a particular organisation (typically large) is generating excessive profits and not paying its 'fair share' to other segments of the community? A. Total sales B. Total profits C. Total assets D. All of the given options are correct.
Deegan - Chapter 07 #30 Difficulty: Easy
Chapter 07 Positive ing Theory Summary Category
# of Questions
Deegan - Chapter 07
30
Difficulty: Easy
20
Difficulty: Hard
4
Difficulty: Medium
6
2. Which of the following is a central assumption of Positive ing Theory? A. Individuals act solely on the basis of self-interest. B. Firms seek to maximise profits. C. The interests of principals and agents are not aligned. D. Financial statements will be audited regardless of legal requirements.
3. To test whether ing information is useful, researchers such as Ball and Brown tested whether share prices responded to: A. Expected earnings announcements B. Forecast earnings announcements C. Unexpected earnings announcements D. All of the given options are correct.
4. The key theory that underpins Positive ing Theory is: A. The Efficient Markets Hypothesis B. Agency theory C. Normative ethical theory D. None of the given options are correct.
5. The principal's expectation of opportunistic behaviour by his or her agent results in lower payments to: A. The agent B. The principal C. The principal and the agent D. Neither the principal nor the agent
6. According to agency theory, contracts that align the interests of the principal and agent primarily benefit: A. The agent B. The principal C. Both the principal and the agent D. Neither the principal nor the agent
7. Agency theory suggests that government regulation is: A. Necessary, because principals know that agents may not act in their interests B. Necessary, because agents know that principals may not act in their interests C. Unnecessary, because principals know that agents may not act in their interests D. Unnecessary, because agents know that principals may not act in their interests
8. The 'political cost hypothesis' of Positive ing Theory suggests which of the following? A. Large firms are more likely to use ing choices that reduce reported profits. B. Small firms are more likely to use ing choices that reduce reported profits. C. Neither large nor small firms are more likely to use ing choices that reduce reported profits. D. Both large and small firms are more likely to use ing choices that reduce reported profits.
9. The 'bonus plan hypothesis' of Positive ing Theory suggests managers of firms with bonus plans tied to reported income are more likely to use ing methods that: A. Increase prior period reported income B. Increase current period reported income C. Increase future period reported income D. None of the given options are correct.
10. The 'debt/equity hypothesis' of Positive ing Theory predicts which of the following? A. The higher the firm's debt/equity ratio, the more likely managers are to use ing methods that lower income. B. The lower the firm's debt/equity ratio, the more likely managers are to use ing methods that increase income. C. The higher the firm's debt/equity ratio, the more likely managers are to use ing methods that increase income. D. None of the given options are correct.
11. The 'efficiency perspective' of Positive ing Theory suggests that firms will: A. Adopt the ing methods that require the least resources to implement B. Adopt the ing methods that result in the highest reported earnings C. Adopt the ing methods that result in the lowest reported earnings D. Adopt the ing methods that best reflect the underlying economic performance of the entity
12. Which of the following is correct in respect of Positive ing Theory? A. The opportunistic perspective is ex-post, and the efficiency perspective is ex-ante. B. The opportunistic perspective is ex-ante, and the efficiency perspective is ex-post. C. Both the opportunistic and efficiency perspectives are ex-ante. D. Both the opportunistic and efficiency perspectives are ex-post.
13. A manager electing to adopt a depreciation method that increases income, but does not reflect the actual use of the asset, is consistent with: A. The efficiency perspective of Positive ing Theory B. The opportunistic perspective of Positive ing Theory C. Both the opportunity and the efficiency perspectives of Positive ing Theory D. Neither the opportunity nor the efficiency perspectives of Positive ing Theory
14. Which of the following parties desire the firm to take the most risks? A. Managers B. Debtholders C. Owners D. All parties desire the firm to take the same level of risk.
15. Positive ing Theory suggests that bonus schemes benefit: A. Only managers B. Only owners C. Both managers and owners D. Neither managers nor owners
16. Which of the following is the main advantage of using ing earnings instead of share prices to determine bonuses? A. Share prices are influenced by market forces that are outside the control of management. B. ing information is independently audited. C. ing information is unbiased. D. Share prices may be manipulated by managers engaging in insider trading.
17. According to Positive ing Theory, using stock prices to determine bonuses: A. Increases the likelihood of management disclosing good news B. Increases the likelihood of management disclosing of bad news C. Increases the likelihood of management disclosing both good and bad news D. Has no effect on the likelihood of management disclosures
18. According to Positive ing Theory, the existence of debt covenants: A. Can be explained from an efficiency perspective, and gives management an incentive to manipulate ing information from an opportunistic perspective B. Can be explained from an opportunistic perspective, and gives management an incentive to manipulate ing information from an efficiency perspective C. Can be explained from both efficiency and opportunistic perspectives D. Cannot be explained
19. Which of the following is a problem with Positive ing Theory? A. It is not testable. B. It has been empirically discredited. C. It contributes little to improving ing practice. D. None of the given options are correct.
20. Which of the following is not a criticism of Positive ing Theory? A. It is based on the assumption that all action is driven by wealth maximisation. B. It is not value-free. C. It has developed little in the past 30 years. D. Its claims cannot be objectively verified.
21. A contribution of Positive Theory is that it enables us to understand: A. Why interest groups expend resources lobbying for or against particular standards B. Why a manager adopts particular ing techniques over others C. The effect ing standards have on different groups and resource allocation D. All of the given options are correct.
22. Which of the following is an example of political costs under the PAT perspective? A. Wage and salary deductions paid to unions B. Contributions to political parties C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies
23. Which of the following is not an example of a Positive ing Theory or research? A. True income theories B. Legitimacy Theory C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies
24. Which of the following statements is not true about Positive ing Theory? A. It is used to distinguish research aimed at explanation and prediction. B. It is designed to explain and predict which firms will, and which firms will not, use a particular method, and also prescribes which method a firm should use. C. It focuses on the relationships between the various individuals involved in providing resources to an organisation, and how ing is used to assist in the functioning of these relationships. D. One of the key theories that underpins Positive ing Theory is Agency theory.
25. Which of the following statements is true regarding the origins and development of Positive ing Theory? A. Positive research in ing started coming to prominence around the mid-1960s, and appeared to become the dominant research paradigm within financial ing in the 1970s and 1980s. B. The introduction of positive research into ing represented a paradigm shift from normative research to positive research. C. Currently, almost all papers in ing Review and most other leading academic journals are positive research-based. D. All of the given options are correct.
26. Which of the following is not true about Positive ing Theory? A. A positive theory seeks to explain and predict particular phenomena. B. A positive theory focuses on the relationships between various individuals and how ing is used to assist in the functioning of these relationships. C. A positive theory prescribes how a particular practice should be undertaken. D. All of the given options are correct.
27. Which of the following statements is true about what caused the shift in paradigm from normative to positive research? A. The shift resulted from US reports on business education, and improved computing facilities enabling large-scale statistical analysis. B. The shift occurred because positive ing researchers are not concerned with explaining or predicting what is (i.e. that which could be tested empirically); rather, they are concerned with what should be. C. The shift occurred because in positive research, falsifiable hypotheses are not generated from theory. D. All of the given options are correct.
28. It is common practice for managers to be rewarded in a way that is tied to the profits of the firm, the sales of the firm, or the return on assets. That is, their remuneration is based on the output of the ing system. Which of the following is a drawback for such bonus schemes? A. Bonus schemes tied to the performance of the firm will be put in place to align the interests of the owners and the managers. B. Rewarding managers on the basis of ing profits may induce them to manipulate ing numbers. C. There would be limited incentives for the manager to adopt risky strategies that increase the value of the firm. D. The manager may be reluctant to take on optimal levels of debt.
29. Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company? A. A market-based bonus scheme, as it is more appropriate to reward the manager in of the market value of the firm's securities, which are assumed to be influenced by expectations about the net present value of expected future cash flows, and the manager will be given an incentive to increase the value of the firm. B. A fixed basis scheme, so that the managers would not take great risks, reject risky projects, and be reluctant to take on optimal levels of debt as it may be beneficial to those with equity in the firm. C. An ing-based bonus scheme as this will be in the interest of the manager, as that manager will potentially receive greater rewards and will not have to bear the costs of the perceived opportunistic behaviours. D. A combination of fixed basis and ing-based scheme, as assuming that self-interest drives the actions of the managers, it may be necessary to put in place remuneration schemes that reward the managers in a way that is, at least in part, tied to the performance of the firm.
30. Which of the following can be used as an ing measure by the government and other interest groups that a particular organisation (typically large) is generating excessive profits and not paying its 'fair share' to other segments of the community? A. Total sales B. Total profits C. Total assets D. All of the given options are correct.
Chapter 07 Positive ing Theory Key 1. Watts and Zimmerman's Positive ing Theory is: A. One of several normative theories of ing B. One of several positive theories of ing C. One of several critical theories of ing D. None of the given options are correct.
Deegan - Chapter 07 #1 Difficulty: Easy
2. Which of the following is a central assumption of Positive ing Theory? A. Individuals act solely on the basis of self-interest. B. Firms seek to maximise profits. C. The interests of principals and agents are not aligned. D. Financial statements will be audited regardless of legal requirements.
Deegan - Chapter 07 #2 Difficulty: Easy
3. To test whether ing information is useful, researchers such as Ball and Brown tested whether share prices responded to: A. Expected earnings announcements B. Forecast earnings announcements C. Unexpected earnings announcements D. All of the given options are correct.
Deegan - Chapter 07 #3 Difficulty: Easy
4. The key theory that underpins Positive ing Theory is: A. The Efficient Markets Hypothesis B. Agency theory C. Normative ethical theory D. None of the given options are correct.
Deegan - Chapter 07 #4 Difficulty: Easy
5. The principal's expectation of opportunistic behaviour by his or her agent results in lower payments to: A. The agent B. The principal C. The principal and the agent D. Neither the principal nor the agent
Deegan - Chapter 07 #5 Difficulty: Easy
6. According to agency theory, contracts that align the interests of the principal and agent primarily benefit: A. The agent B. The principal C. Both the principal and the agent D. Neither the principal nor the agent
Deegan - Chapter 07 #6 Difficulty: Easy
7. Agency theory suggests that government regulation is: A. Necessary, because principals know that agents may not act in their interests B. Necessary, because agents know that principals may not act in their interests C. Unnecessary, because principals know that agents may not act in their interests D. Unnecessary, because agents know that principals may not act in their interests
Deegan - Chapter 07 #7 Difficulty: Medium
8. The 'political cost hypothesis' of Positive ing Theory suggests which of the following? A. Large firms are more likely to use ing choices that reduce reported profits. B. Small firms are more likely to use ing choices that reduce reported profits. C. Neither large nor small firms are more likely to use ing choices that reduce reported profits. D. Both large and small firms are more likely to use ing choices that reduce reported profits.
Deegan - Chapter 07 #8 Difficulty: Easy
9. The 'bonus plan hypothesis' of Positive ing Theory suggests managers of firms with bonus plans tied to reported income are more likely to use ing methods that: A. Increase prior period reported income B. Increase current period reported income C. Increase future period reported income D. None of the given options are correct.
Deegan - Chapter 07 #9 Difficulty: Easy
10. The 'debt/equity hypothesis' of Positive ing Theory predicts which of the following? A. The higher the firm's debt/equity ratio, the more likely managers are to use ing methods that lower income. B. The lower the firm's debt/equity ratio, the more likely managers are to use ing methods that increase income. C. The higher the firm's debt/equity ratio, the more likely managers are to use ing methods that increase income. D. None of the given options are correct.
Deegan - Chapter 07 #10 Difficulty: Easy
11. The 'efficiency perspective' of Positive ing Theory suggests that firms will: A. Adopt the ing methods that require the least resources to implement B. Adopt the ing methods that result in the highest reported earnings C. Adopt the ing methods that result in the lowest reported earnings D. Adopt the ing methods that best reflect the underlying economic performance of the entity
Deegan - Chapter 07 #11 Difficulty: Easy
12. Which of the following is correct in respect of Positive ing Theory? A. The opportunistic perspective is ex-post, and the efficiency perspective is ex-ante. B. The opportunistic perspective is ex-ante, and the efficiency perspective is ex-post. C. Both the opportunistic and efficiency perspectives are ex-ante. D. Both the opportunistic and efficiency perspectives are ex-post.
Deegan - Chapter 07 #12 Difficulty: Easy
13. A manager electing to adopt a depreciation method that increases income, but does not reflect the actual use of the asset, is consistent with: A. The efficiency perspective of Positive ing Theory B. The opportunistic perspective of Positive ing Theory C. Both the opportunity and the efficiency perspectives of Positive ing Theory D. Neither the opportunity nor the efficiency perspectives of Positive ing Theory
Deegan - Chapter 07 #13 Difficulty: Hard
14. Which of the following parties desire the firm to take the most risks? A. Managers B. Debtholders C. Owners D. All parties desire the firm to take the same level of risk.
Deegan - Chapter 07 #14 Difficulty: Easy
15. Positive ing Theory suggests that bonus schemes benefit: A. Only managers B. Only owners C. Both managers and owners D. Neither managers nor owners
Deegan - Chapter 07 #15 Difficulty: Easy
16. Which of the following is the main advantage of using ing earnings instead of share prices to determine bonuses? A. Share prices are influenced by market forces that are outside the control of management. B. ing information is independently audited. C. ing information is unbiased. D. Share prices may be manipulated by managers engaging in insider trading.
Deegan - Chapter 07 #16 Difficulty: Medium
17. According to Positive ing Theory, using stock prices to determine bonuses: A. Increases the likelihood of management disclosing good news B. Increases the likelihood of management disclosing of bad news C. Increases the likelihood of management disclosing both good and bad news D. Has no effect on the likelihood of management disclosures
Deegan - Chapter 07 #17 Difficulty: Medium
18. According to Positive ing Theory, the existence of debt covenants: A. Can be explained from an efficiency perspective, and gives management an incentive to manipulate ing information from an opportunistic perspective B. Can be explained from an opportunistic perspective, and gives management an incentive to manipulate ing information from an efficiency perspective C. Can be explained from both efficiency and opportunistic perspectives D. Cannot be explained
Deegan - Chapter 07 #18 Difficulty: Hard
19. Which of the following is a problem with Positive ing Theory? A. It is not testable. B. It has been empirically discredited. C. It contributes little to improving ing practice. D. None of the given options are correct.
Deegan - Chapter 07 #19 Difficulty: Easy
20. Which of the following is not a criticism of Positive ing Theory? A. It is based on the assumption that all action is driven by wealth maximisation. B. It is not value-free. C. It has developed little in the past 30 years. D. Its claims cannot be objectively verified.
Deegan - Chapter 07 #20 Difficulty: Easy
21. A contribution of Positive Theory is that it enables us to understand: A. Why interest groups expend resources lobbying for or against particular standards B. Why a manager adopts particular ing techniques over others C. The effect ing standards have on different groups and resource allocation D. All of the given options are correct.
Deegan - Chapter 07 #21 Difficulty: Easy
22. Which of the following is an example of political costs under the PAT perspective? A. Wage and salary deductions paid to unions B. Contributions to political parties C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies
Deegan - Chapter 07 #22 Difficulty: Medium
23. Which of the following is not an example of a Positive ing Theory or research? A. True income theories B. Legitimacy Theory C. Costs associated with increased wage claims D. The cost of remaining largely unnoticed by government regulatory agencies
Deegan - Chapter 07 #23 Difficulty: Medium
24. Which of the following statements is not true about Positive ing Theory? A. It is used to distinguish research aimed at explanation and prediction. B. It is designed to explain and predict which firms will, and which firms will not, use a particular method, and also prescribes which method a firm should use. C. It focuses on the relationships between the various individuals involved in providing resources to an organisation, and how ing is used to assist in the functioning of these relationships. D. One of the key theories that underpins Positive ing Theory is Agency theory.
Deegan - Chapter 07 #24 Difficulty: Hard
25. Which of the following statements is true regarding the origins and development of Positive ing Theory? A. Positive research in ing started coming to prominence around the mid-1960s, and appeared to become the dominant research paradigm within financial ing in the 1970s and 1980s. B. The introduction of positive research into ing represented a paradigm shift from normative research to positive research. C. Currently, almost all papers in ing Review and most other leading academic journals are positive research-based. D. All of the given options are correct.
Deegan - Chapter 07 #25 Difficulty: Easy
26. Which of the following is not true about Positive ing Theory? A. A positive theory seeks to explain and predict particular phenomena. B. A positive theory focuses on the relationships between various individuals and how ing is used to assist in the functioning of these relationships. C. A positive theory prescribes how a particular practice should be undertaken. D. All of the given options are correct.
Deegan - Chapter 07 #26 Difficulty: Easy
27. Which of the following statements is true about what caused the shift in paradigm from normative to positive research? A. The shift resulted from US reports on business education, and improved computing facilities enabling large-scale statistical analysis. B. The shift occurred because positive ing researchers are not concerned with explaining or predicting what is (i.e. that which could be tested empirically); rather, they are concerned with what should be. C. The shift occurred because in positive research, falsifiable hypotheses are not generated from theory. D. All of the given options are correct.
Deegan - Chapter 07 #27 Difficulty: Easy
28. It is common practice for managers to be rewarded in a way that is tied to the profits of the firm, the sales of the firm, or the return on assets. That is, their remuneration is based on the output of the ing system. Which of the following is a drawback for such bonus schemes? A. Bonus schemes tied to the performance of the firm will be put in place to align the interests of the owners and the managers. B. Rewarding managers on the basis of ing profits may induce them to manipulate ing numbers. C. There would be limited incentives for the manager to adopt risky strategies that increase the value of the firm. D. The manager may be reluctant to take on optimal levels of debt.
Deegan - Chapter 07 #28 Difficulty: Medium
29. Which of the following bonus schemes would be appropriate for the managers of a biotechnology research company? A. A market-based bonus scheme, as it is more appropriate to reward the manager in of the market value of the firm's securities, which are assumed to be influenced by expectations about the net present value of expected future cash flows, and the manager will be given an incentive to increase the value of the firm. B. A fixed basis scheme, so that the managers would not take great risks, reject risky projects, and be reluctant to take on optimal levels of debt as it may be beneficial to those with equity in the firm. C. An ing-based bonus scheme as this will be in the interest of the manager, as that manager will potentially receive greater rewards and will not have to bear the costs of the perceived opportunistic behaviours. D. A combination of fixed basis and ing-based scheme, as assuming that self-interest drives the actions of the managers, it may be necessary to put in place remuneration schemes that reward the managers in a way that is, at least in part, tied to the performance of the firm.
Deegan - Chapter 07 #29 Difficulty: Hard
30. Which of the following can be used as an ing measure by the government and other interest groups that a particular organisation (typically large) is generating excessive profits and not paying its 'fair share' to other segments of the community? A. Total sales B. Total profits C. Total assets D. All of the given options are correct.
Deegan - Chapter 07 #30 Difficulty: Easy
Chapter 07 Positive ing Theory Summary Category
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