Exam 10: Corporate Governance

An agency relationship exists when one party delegates decision-making responsibility to a second party for compensation.

CEO duality exists when a single individual is both the CEO and the chair of the board.

Prints4U is a small printing firm in Minneapolis, MN.As is typical for a firm of this size, the managers own a __________ percentage of the firm.As a result, there is __________ separation between ownership and managerial control.

Explain why executive compensation is or is not effective as an internal governance mechanism.

More intense application of governance mechanisms such as mandated by Sarbanes-Oxley and Dodd-Frank may cause firms to take on fewer risky projects and thus increase potential shareholder wealth.

Both top executives and owners of the firm wish to diversify the firm to reduce risk.

Executive compensation is considered an external corporate governance mechanism because it is determined in part by market forces.

LeederTech is facing a hostile takeover.Its focus as a defense strategy has been to ensure some continuity.It has decided to pursue a strategy that will prevent an acquirer from replacing the entire board of directors immediately, even though this tends to have very low success and a negative or negligible effect on shareholder wealth.What strategy did LeederTech select?

Which of the following statements about corporate governance is false?

Historically, __________ have been at the center of the German corporate governance system.

Xion Industries is a private firm, but it experiences both direct and indirect control from the government to influence the strategies it uses.In addition, it finds it advantageous to maintain political ties with the government in order to gain access to resources.Of the United States, Japan, China, and Germany, it is most likely that Xion is based in China.

In recent years, the number of individuals who are large-block shareholders has declined and been replaced by institutional owners.

Because activist pension funds are __________ in nature, they tend to take action when __________.

A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist.This may lead to all of the following EXCEPT:

A major conflict of interest between top executives and owners is that top executives wish to diversify the firm in order to __________, whereas owners wish to diversify the firm in order to __________.

Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation?

Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to:

What is corporate governance, and how is it used to monitor and control managers' decisions?

Ray and Gina own shares of stock in a number of different companies.None of their holdings are very large.Because they make their own investment decisions, they are not as dependent on the board of directors to represent their interests as the large-block shareholders are.

Describe the market for corporate control and its implications for organizations.