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CFA Level I · CFA Level I Exam · Investors and Other Stakeholders

A firm's management cuts employee training and delays supplier payments to lift this year's earnings. Over time, the stakeholder management framework most likely predicts that this strategy will:

Cutting training and delaying supplier payments likely damages relationships with employees and suppliers, reducing productivity and supply reliability and lowering long-term firm value. The framework treats these relationships as value sources, so sacrificing them for short-term earnings is most likely counterproductive.

  1. Araise long-term value because shareholders alone determine success.
  2. Bdamage relationships that support productivity and supply, which can reduce long-term firm value.Correct
  3. Chave no effect since stakeholders cannot affect the firm's cash flows.

Explanation

The framework holds that stakeholder relationships are sources of value. Neglecting employees and suppliers can lower productivity, loyalty and supply reliability, which hurts long-term value. Stakeholders can affect cash flows, so the third option is wrong.

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