Question 1

One way to measure the value of private benefits of control

Accepted Answer

A) is to measure the difference in value between non-voting shares and voting shares. 
B) is to measure the value of the "block premium" the value difference between the price per share paid for a control block of shares versus the exchange price of regular shares. 
C) both a) and b) 
A) is to measure the difference in value between non-voting shares and voting shares. 
B) is to measure the value of the "block premium" the value difference between the price per share paid for a control block of shares versus the exchange price of regular shares. 
C) both a) and b) C

Question 2

The key to extracting private benefits of control that are not shared by other shareholders on a pro rata basis is to

Accepted Answer

A) become a large shareholder and acquire control rights exceeding cash flow rights. 
B) buy a large block of nonvoting shares. 
C) sell your shares in a tender offer. 
D) force the firm into bankruptcy. 
A) become a large shareholder and acquire control rights exceeding cash flow rights. 
B) buy a large block of nonvoting shares. 
C) sell your shares in a tender offer. 
D) force the firm into bankruptcy. A

Question 3

Studies show that the quality of law enforcement,as measured by the rule of law index,will tend to be

Accepted Answer

A) higher in French civil law countries than in English common law countries. 
B) higher in English common law countries than in Scandinavian civil law countries. 
C) highest in Scandinavian civil law countries and German civil law countries. 
D) highest in English common law countries. 
A) higher in French civil law countries than in English common law countries. 
B) higher in English common law countries than in Scandinavian civil law countries. 
C) highest in Scandinavian civil law countries and German civil law countries. 
D) highest in English common law countries. C

Question 4

If an incentive contract specifies certain accounting performance

Accepted Answer

A) that accounting number will likely be the focus of managers. 
B) managers will set aside the accounting goal if it conflicts with the goal of maximizing shareholder wealth. 
C) managers will be unable to manipulate the GAAP, so shareholders can be confident of having their wealth maximized. 
A) that accounting number will likely be the focus of managers. 
B) managers will set aside the accounting goal if it conflicts with the goal of maximizing shareholder wealth. 
C) managers will be unable to manipulate the GAAP, so shareholders can be confident of having their wealth maximized.

Question 5

In the United States,managers are bound by the "duty of loyalty" to serve the shareholders.

Accepted Answer

A) This is an ethical, not legal, obligation. 
B) This is a legal obligation. 
C) This is only a moral obligation; there are no penalties. 
A) This is an ethical, not legal, obligation. 
B) This is a legal obligation. 
C) This is only a moral obligation; there are no penalties.

Question 6

In countries with concentrated ownership

Accepted Answer

A) hostile takeovers are quite rare. 
B) hostile takeovers are quite common. 
A) hostile takeovers are quite rare. 
B) hostile takeovers are quite common.

Question 7

When company ownership is diffuse,

Accepted Answer

A) a "free rider" problem discourages shareholder activism. 
B) the large number of shareholders ensures strong monitoring of managerial behavior because with a large enough group, there's almost always someone who will to incur the costs of monitoring management. 
C) few shareholders have a strong enough incentive to incur the costs of monitoring management. 
D) both a) and c) are correct 
A) a "free rider" problem discourages shareholder activism. 
B) the large number of shareholders ensures strong monitoring of managerial behavior because with a large enough group, there's almost always someone who will to incur the costs of monitoring management. 
C) few shareholders have a strong enough incentive to incur the costs of monitoring management. 
D) both a) and c) are correct

Question 8

The public corporation has a key weakness:

Accepted Answer

A) the conflicts of interest between bondholders and shareholders. 
B) the conflicts of interest between managers and bondholders. 
C) the conflicts of interest between stakeholders and shareholders. 
D) the conflicts of interest between managers and shareholders. 
A) the conflicts of interest between bondholders and shareholders. 
B) the conflicts of interest between managers and bondholders. 
C) the conflicts of interest between stakeholders and shareholders. 
D) the conflicts of interest between managers and shareholders.

Question 9

Private benefits of corporate control will tend to be higher in

Accepted Answer

A) French civil law countries than in English common law countries. 
B) English common law countries than in French civil law countries. 
C) French civil law countries than in Scandinavian civil law countries. 
D) English common law countries than in German civil law countries. 
A) French civil law countries than in English common law countries. 
B) English common law countries than in French civil law countries. 
C) French civil law countries than in Scandinavian civil law countries. 
D) English common law countries than in German civil law countries.

Question 10

Why is it rational to make shareholders "weak" by giving control to the managers of the firm?

Accepted Answer

A) This may be rational when shareholders may be neither qualified nor interested in making business decisions. 
B) This may be rational since many shareholders find it easier to sell their shares in an underperforming firm than to monitor the management. 
C) This may be rational to the extent that managers are answerable to the board of directors. 
D) All of the above are explanations for the separation of ownership and control. 
A) This may be rational when shareholders may be neither qualified nor interested in making business decisions. 
B) This may be rational since many shareholders find it easier to sell their shares in an underperforming firm than to monitor the management. 
C) This may be rational to the extent that managers are answerable to the board of directors. 
D) All of the above are explanations for the separation of ownership and control.

Question 11

The central issue of corporate governance is

Accepted Answer

A) how to protect creditors from managers and controlling shareholders. 
B) how to protect outside investors from the controlling insiders. 
C) how to alleviate the conflicts of interest between managers and shareholders. 
D) how to alleviate the conflicts of interest between shareholders and bondholders. 
A) how to protect creditors from managers and controlling shareholders. 
B) how to protect outside investors from the controlling insiders. 
C) how to alleviate the conflicts of interest between managers and shareholders. 
D) how to alleviate the conflicts of interest between shareholders and bondholders.

Question 12

In the reality of corporate governance at the turn of this century,

Accepted Answer

A) boards of directors are often dominated by management-friendly insiders. 
B) a typical board of directors often has relatively few outside directors who can independently and objectively monitor the management. 
C) managers of one firm often sit on the boards of other firms, whose managers are on the board of the first firm.Due to the interlocking nature of these boards, there can exist a culture of "I'll overlook your problems if you overlook mine." 
D) all of the above have been true to a greater or lesser extent in the recent past. 
A) boards of directors are often dominated by management-friendly insiders. 
B) a typical board of directors often has relatively few outside directors who can independently and objectively monitor the management. 
C) managers of one firm often sit on the boards of other firms, whose managers are on the board of the first firm.Due to the interlocking nature of these boards, there can exist a culture of "I'll overlook your problems if you overlook mine." 
D) all of the above have been true to a greater or lesser extent in the recent past.

Question 13

The Sarbanes-Oxley Act of 2002

Accepted Answer

A) applies to all U.S.firms. 
B) applies to listed companies. 
C) applies to issuers whose securities are traded on an over-the-counter bulletin board. 
D) all of the above. 
A) applies to all U.S.firms. 
B) applies to listed companies. 
C) applies to issuers whose securities are traded on an over-the-counter bulletin board. 
D) all of the above.

Question 14

While debt can reduce agency costs between shareholders and management,

Accepted Answer

A) debt can create its own agency costs. 
B) this only happens at extreme levels of debt. 
C) this does not work for firms in mature industries with large cash reserves. 
D) none of the above are true 
A) debt can create its own agency costs. 
B) this only happens at extreme levels of debt. 
C) this does not work for firms in mature industries with large cash reserves. 
D) none of the above are true

Question 15

The key requirements of the Cadbury Code of Best Practice state that

Accepted Answer

A) boards of directors should include at least three outside directors. 
B) the positions of CEO and chairman of the board should not reside in the same individual. 
C) compliance is mandatory for public corporations, optional for listed non-public corporations. 
D) both a) and b) 
A) boards of directors should include at least three outside directors. 
B) the positions of CEO and chairman of the board should not reside in the same individual. 
C) compliance is mandatory for public corporations, optional for listed non-public corporations. 
D) both a) and b)

Question 16

English common law countries tend to provide a stronger protection of shareholder rights than French civil law countries because

Accepted Answer

A) the former countries tend to be more democratic than the latter. 
B) the former countries tend to protect property rights better than the latter. 
C) the former countries tend to have more separation of power than the latter. 
D) all of the above 
A) the former countries tend to be more democratic than the latter. 
B) the former countries tend to protect property rights better than the latter. 
C) the former countries tend to have more separation of power than the latter. 
D) all of the above

Question 17

What is the difference between control rights and cash flow rights?

Accepted Answer

A) Since all shareholders benefit only from pro-rata cash flows, control rights and cash flow rights are the same thing. 
B) Large investors may be able to derive private benefits from control, thus control rights can exceed cash flow rights. 
C) Cash flow rights are more important than control rights since the only reason to invest in anything is to generate cash. 
D) None of the above 
A) Since all shareholders benefit only from pro-rata cash flows, control rights and cash flow rights are the same thing. 
B) Large investors may be able to derive private benefits from control, thus control rights can exceed cash flow rights. 
C) Cash flow rights are more important than control rights since the only reason to invest in anything is to generate cash. 
D) None of the above

Question 18

The formula to compute the value of the "block premium" is

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 19

The genius of public corporations stems from their capacity to allow efficient sharing or spreading of risk among many investors,who can buy and sell their ownership shares on liquid stock exchanges and let professional managers run the company on behalf of shareholders.This risk sharing stems from

Accepted Answer

A) the liquidity of the shares. 
B) the limited liability of shareholders. 
C) the limited liability of bondholders. 
D) the limited ability of shareholders. 
A) the liquidity of the shares. 
B) the limited liability of shareholders. 
C) the limited liability of bondholders. 
D) the limited ability of shareholders.

Question 20

Which of the following is true regarding leveraged buy-outs (LBOs)?

Accepted Answer

A) LBOs involve managers or buyout partners acquiring controlling interests in public companies, usually financed by heavy borrowing. 
B) Concentrated ownership and high level of debt associated with LBOs are the mechanism for solving the agency problem. 
C) LBOs improve a company's free cash flow and this is the mechanism by which they can solve the agency problem. 
D) Both a) and b) 
A) LBOs involve managers or buyout partners acquiring controlling interests in public companies, usually financed by heavy borrowing. 
B) Concentrated ownership and high level of debt associated with LBOs are the mechanism for solving the agency problem. 
C) LBOs improve a company's free cash flow and this is the mechanism by which they can solve the agency problem. 
D) Both a) and b)

Exam 4: Corporate Governance Around the World

One way to measure the value of private benefits of control

The key to extracting private benefits of control that are not shared by other shareholders on a pro rata basis is to

Studies show that the quality of law enforcement,as measured by the rule of law index,will tend to be

If an incentive contract specifies certain accounting performance

In the United States,managers are bound by the "duty of loyalty" to serve the shareholders.

In countries with concentrated ownership

When company ownership is diffuse,

The public corporation has a key weakness:

Private benefits of corporate control will tend to be higher in

Why is it rational to make shareholders "weak" by giving control to the managers of the firm?

The central issue of corporate governance is

In the reality of corporate governance at the turn of this century,

The Sarbanes-Oxley Act of 2002

While debt can reduce agency costs between shareholders and management,

The key requirements of the Cadbury Code of Best Practice state that

English common law countries tend to provide a stronger protection of shareholder rights than French civil law countries because

What is the difference between control rights and cash flow rights?

The formula to compute the value of the "block premium" is

The genius of public corporations stems from their capacity to allow efficient sharing or spreading of risk among many investors,who can buy and sell their ownership shares on liquid stock exchanges and let professional managers run the company on behalf of shareholders.This risk sharing stems from

Which of the following is true regarding leveraged buy-outs (LBOs)?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

Management of Translation Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

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