Question 1

Blockholders:

Accepted Answer

A)  participate more than small shareholders in the governance process because they internalize more of the benefits. 
B)  add value to the corporation when they extract private benefits. 
C)  are superior to institutional investors in their ability to reduce agency costs. 
D)  should not be managers of the firm. 
A)  participate more than small shareholders in the governance process because they internalize more of the benefits. 
B)  add value to the corporation when they extract private benefits. 
C)  are superior to institutional investors in their ability to reduce agency costs. 
D)  should not be managers of the firm. A

Question 2

Adolph Berle and Gardiner Means argued that widely held corporations will be run inefficiently by professional managers. Yet large, publicly-traded corporations continue to produce the bulk of the free world's output. The widely held corporation survives because:

Accepted Answer

A)  it can raise capital from diversified investors. 
B)  ownership and control are separated. 
C)  government taxes large corporations at low rates. 
D)  its size insulates it from market competition. 
A)  it can raise capital from diversified investors. 
B)  ownership and control are separated. 
C)  government taxes large corporations at low rates. 
D)  its size insulates it from market competition. A

Question 3

For-profit companies have the advantage of designing wealth-based incentives for executives and the:

Accepted Answer

A)  ability to gain donations. 
B)  ability to raise equity capital. 
C)  legal right to borrow money. 
D)  right to provide medical services. 
A)  ability to gain donations. 
B)  ability to raise equity capital. 
C)  legal right to borrow money. 
D)  right to provide medical services. B

Question 4

What is managerial power theory and what are its implications?

Accepted Answer

According to this theory (1) the typical

Question 5

Based on a historical perspective, we can say that the architecture of:

Accepted Answer

A)  publicly traded corporations will continue with their current state and become stagnant. 
B)  publicly traded corporations will become highly vulnerable to fraud and scandals. 
C)  publicly traded corporations will soon become too powerful and unmanageable. 
D)  publicly traded corporations will continue to evolve and change over time. 
A)  publicly traded corporations will continue with their current state and become stagnant. 
B)  publicly traded corporations will become highly vulnerable to fraud and scandals. 
C)  publicly traded corporations will soon become too powerful and unmanageable. 
D)  publicly traded corporations will continue to evolve and change over time.

Question 6

A number of hospitals have converted from nonprofit to for-profit status. What are the benefits to this conversion? What impact might conversion to C corporation status have on hospital/community relations?

Accepted Answer

For profit hospitals can raise capital b

Question 7

The S corporation is:

Accepted Answer

A)  identical to the C corporation. 
B)  identical to the proprietorship or the general partnership. 
C)  designed to provide limited liability to small closely-held companies. 
D)  too complex a business structure to be attractive to small businesses. 
A)  identical to the C corporation. 
B)  identical to the proprietorship or the general partnership. 
C)  designed to provide limited liability to small closely-held companies. 
D)  too complex a business structure to be attractive to small businesses.

Question 8

The incentive problem within the modern corporation is that the:

Accepted Answer

A)  corporate managers have stronger incentives to rather quickly transfer control of the firm to less informed management teams. 
B)  corporate managers have weaker incentives to transfer control of the firm to less informed management teams. 
C)  corporate managers have stronger incentives to rather quickly transfer control of the firm to more informed management teams. 
D)  corporate managers have weaker incentives to transfer control of the firm to more informed management teams. 
A)  corporate managers have stronger incentives to rather quickly transfer control of the firm to less informed management teams. 
B)  corporate managers have weaker incentives to transfer control of the firm to less informed management teams. 
C)  corporate managers have stronger incentives to rather quickly transfer control of the firm to more informed management teams. 
D)  corporate managers have weaker incentives to transfer control of the firm to more informed management teams.

Question 9

Corporate governance describes:

Accepted Answer

A)  government control of the top management. 
B)  organizational architecture at the bottom-level of the organization. 
C)  organizational architecture at the middle-management level of the organization. 
D)  organizational architecture at the top of the organization. 
A)  government control of the top management. 
B)  organizational architecture at the bottom-level of the organization. 
C)  organizational architecture at the middle-management level of the organization. 
D)  organizational architecture at the top of the organization.

Question 10

The external control(s) to manage executive behavior are:

Accepted Answer

A)  the market for lemons. 
B)  the managerial labor market. 
C)  the labor market. 
D)  the stock market. 
A)  the market for lemons. 
B)  the managerial labor market. 
C)  the labor market. 
D)  the stock market.

Question 11

For the C corporation, the ownership of the residual profits is vested in the:

Accepted Answer

A)  proprietor. 
B)  partner. 
C)  the top executives. 
D)  shareholders. 
A)  proprietor. 
B)  partner. 
C)  the top executives. 
D)  shareholders.

Question 12

Shareholders:

Accepted Answer

A)  are the ultimate owners and have major decision authority in the management of the firm. 
B)  are not the ultimate owners, yet have major decision authority in the management of the firm. 
C)  are not the ultimate owners and have no major decision authority in the management of the firm. 
D)  are the ultimate owners but have no major decision authority in the management of the firm. 
A)  are the ultimate owners and have major decision authority in the management of the firm. 
B)  are not the ultimate owners, yet have major decision authority in the management of the firm. 
C)  are not the ultimate owners and have no major decision authority in the management of the firm. 
D)  are the ultimate owners but have no major decision authority in the management of the firm.

Question 13

A widely held corporation is one in which:

Accepted Answer

A)  no one owner controls more than 5% of the shares. 
B)  no one owner controls more than 15% of the shares. 
C)  no one owner controls more than 20% of the shares. 
D)  no one owner controls more than 10% of the shares. 
A)  no one owner controls more than 5% of the shares. 
B)  no one owner controls more than 15% of the shares. 
C)  no one owner controls more than 20% of the shares. 
D)  no one owner controls more than 10% of the shares.

Question 14

Shareholder voting rights should:

Accepted Answer

A)  not be granted to management because of the agency problem. 
B)  be assigned only to small shareholders. 
C)  not be assigned to a founder who values control. 
D)  be assigned to those with residual-claim rights. 
A)  not be granted to management because of the agency problem. 
B)  be assigned only to small shareholders. 
C)  not be assigned to a founder who values control. 
D)  be assigned to those with residual-claim rights.

Question 15

Bebchuk and Fried's managerial power theory states that:

Accepted Answer

A)  the typical corporate board is not captured by managers. 
B)  all firms have about the same quality of governance. 
C)  product, labor, and takeover markets help limit executive pay but do not work perfectly. 
D)  managers want performance-based pay. 
A)  the typical corporate board is not captured by managers. 
B)  all firms have about the same quality of governance. 
C)  product, labor, and takeover markets help limit executive pay but do not work perfectly. 
D)  managers want performance-based pay.

Question 16

The lessons from Economic Darwinism are:

Accepted Answer

A)  publicly held corporations have evolved unsuccessfully through the competitive process and are not going to be here to stay and flourish. 
B)  publicly held corporations have evolved successfully through the competitive process but they are not here to stay and flourish. 
C)  publicly held corporations have evolved unsuccessfully through the competitive process but will be here to stay and flourish. 
D)  publicly held corporations have evolved successfully through the competitive process and are here to stay and flourish. 
A)  publicly held corporations have evolved unsuccessfully through the competitive process and are not going to be here to stay and flourish. 
B)  publicly held corporations have evolved successfully through the competitive process but they are not here to stay and flourish. 
C)  publicly held corporations have evolved unsuccessfully through the competitive process but will be here to stay and flourish. 
D)  publicly held corporations have evolved successfully through the competitive process and are here to stay and flourish.

Question 17

Which one of the following is implicit in applying "Economic Darwinism"?

Accepted Answer

A)  Because X has been here, X is best, and hence has been replaced by something else. 
B)  Because X has been here, X is best, but it should be replaced by something else. 
C)  Because X has been here, X is worst, and it should replaced by something else. 
D)  Because X has been here, X is best, else it would have been replaced by something else. 
A)  Because X has been here, X is best, and hence has been replaced by something else. 
B)  Because X has been here, X is best, but it should be replaced by something else. 
C)  Because X has been here, X is worst, and it should replaced by something else. 
D)  Because X has been here, X is best, else it would have been replaced by something else.

Question 18

The incentive problem within the modern corporation is that the:

Accepted Answer

A)  decision makers have stronger incentives to use assets productively than in small business where there is big separation of ownership and control. 
B)  decision makers have weaker incentives to use assets productively than in small business where there is a big separation of ownership and control. 
C)  decision makers have stronger incentives to use assets productively than in small business where there is no separation of ownership and control. 
D)  decision makers have weaker incentives to use assets productively than in small business where there is no separation of ownership and control. 
A)  decision makers have stronger incentives to use assets productively than in small business where there is big separation of ownership and control. 
B)  decision makers have weaker incentives to use assets productively than in small business where there is a big separation of ownership and control. 
C)  decision makers have stronger incentives to use assets productively than in small business where there is no separation of ownership and control. 
D)  decision makers have weaker incentives to use assets productively than in small business where there is no separation of ownership and control.

Question 19

The Sarbanes-Oxley Act of 2002 attempts to reduce corporate fraud among top-level executives. Comment on the strengths and weaknesses of this act.

Accepted Answer

To reduce fraudulent activity in firms,

Question 20

The Wall Street Journal ("Boards Tie CEO Pay More Tightly to Performance," 2/21/06, p. A1) reports an increase in the number of major U.S. corporations that tie the CEO's stock options to performance targets. Comment on the wisdom of this trend, given the separation of ownership and control in U.S. corporations.

Accepted Answer

The separation of ownership and control

Exam 18: Corporate Governance

Blockholders:

Adolph Berle and Gardiner Means argued that widely held corporations will be run inefficiently by professional managers. Yet large, publicly-traded corporations continue to produce the bulk of the free world's output. The widely held corporation survives because:

For-profit companies have the advantage of designing wealth-based incentives for executives and the:

What is managerial power theory and what are its implications?

Based on a historical perspective, we can say that the architecture of:

A number of hospitals have converted from nonprofit to for-profit status. What are the benefits to this conversion? What impact might conversion to C corporation status have on hospital/community relations?

The S corporation is:

The incentive problem within the modern corporation is that the:

Corporate governance describes:

The external control(s) to manage executive behavior are:

For the C corporation, the ownership of the residual profits is vested in the:

Shareholders:

A widely held corporation is one in which:

Shareholder voting rights should:

Bebchuk and Fried's managerial power theory states that:

The lessons from Economic Darwinism are:

Which one of the following is implicit in applying "Economic Darwinism"?

The incentive problem within the modern corporation is that the:

The Sarbanes-Oxley Act of 2002 attempts to reduce corporate fraud among top-level executives. Comment on the strengths and weaknesses of this act.

Introduction

Economists View of Behavior

Markets, Organizations, and the Role of Knowledge

Demand

Production and Cost

Market Structure

Pricing With Market Power

Economics of Strategy: Creating and Capturing Value

Economics of Strategy: Game Theory

Incentive Conflicts and Contracts

Organizational Architecture

Decision Rights: The Level of Empowerment

Decision Rights: Bundling Tasks Into Jobs and Subunits

Attracting and Retaining Qualified Employees

Incentive Compensation

Individual Performance Evaluation

Divisional Performance Evaluation

Vertical Integration and Outsourcing

Leadership: Motivating Change Within Organizations

Understanding the Business Environment: The Economics of Regulation

Ethics and Organizational Architecture

Organizational Architecture and the Process of Management Innovation

Filters