CFA Level I · CFA Level I Exam · Investors and Other Stakeholders
Which stakeholder group is most likely to have a claim on a corporate issuer that ranks ahead of shareholders but is fixed in amount, so that it gains little from the firm's upside?
Creditors are the group with a fixed claim that ranks ahead of shareholders. They are entitled to interest and principal regardless of how profitable the firm becomes, so they gain little from upside, while shareholders hold the residual claim and benefit from higher profits.
- ACreditorsCorrect
- BEmployees paid with stock options
- CCommon shareholders
Explanation
Creditors hold fixed claims (interest and principal) that rank ahead of equity in liquidation. They do not share in the upside, so they focus on the firm's ability to pay. Common shareholders hold the residual claim and gain from upside, and option-paid employees also benefit from equity gains.
Did you get it right without looking?
One question tells you little. A timed set on Investors and Other Stakeholders shows your real accuracy, how long you take and where you lose marks.
More Investors and Other Stakeholders questions
- A company is nearing financial distress. Which stakeholder is most likely to prefer that management take on a high-risk, high-variance inves…
- A company's board chair is also its chief executive officer, and most directors were appointed by the chair and have long personal ties to m…
- A government-owned airline is listed on a stock exchange, with the state holding 60% of the shares and private investors holding 40%. Relati…
- Compared with a shareholder-only view, the stakeholder management framework most likely places greater emphasis on:
- A company's CEO receives a bonus based solely on this year's reported net income. The CEO postpones a profitable but slow-payback equipment …
- Compared with a privately held company, a publicly listed company is most likely to face: