Question 1

Unless investors can derive significant private benefits of control,

Accepted Answer

A) they will pay small premiums for voting shares over nonvoting shares. 
B) they will pay moderate premiums for voting shares over nonvoting shares. 
C) they will pay substantial premiums for voting shares over nonvoting shares. 
D) they will not pay substantial premiums for voting shares over nonvoting shares. 
A) they will pay small premiums for voting shares over nonvoting shares. 
B) they will pay moderate premiums for voting shares over nonvoting shares. 
C) they will pay substantial premiums for voting shares over nonvoting shares. 
D) they will not pay substantial premiums for voting shares over nonvoting shares.

Question 2

Many companies issue shares with differential voting rights,deviating from the one-share one-vote principle.

Accepted Answer

A) By accumulating superior voting shares,investors can acquire cash flow rights exceeding control rights. 
B) The price of the voting shares is usually twice the price of the voting shares. 
C) By accumulating superior voting shares,investors can acquire control rights exceeding cash flow rights. 
D) none of the options 
A) By accumulating superior voting shares,investors can acquire cash flow rights exceeding control rights. 
B) The price of the voting shares is usually twice the price of the voting shares. 
C) By accumulating superior voting shares,investors can acquire control rights exceeding cash flow rights. 
D) none of the options

Question 3

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 options 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 options are explanations for the separation of ownership and control.

Question 4

Free cash flow refers to

Accepted Answer

A) a firm's cash reserve in excess of tax obligation. 
B) a firm's funds in excess of what's needed for undertaking all profitable projects. 
C) a firm's cash reserve in excess of interest and tax payments. 
D) a firm's income tax refund that is due to interest payments on borrowing. 
A) a firm's cash reserve in excess of tax obligation. 
B) a firm's funds in excess of what's needed for undertaking all profitable projects. 
C) a firm's cash reserve in excess of interest and tax payments. 
D) a firm's income tax refund that is due to interest payments on borrowing.

Question 5

One of the objectives of corporate governance reform is to,

Accepted Answer

A) introduce expensive and burdensome accounting reforms. 
B) strengthen the protection of outside investors from expropriation by managers and controlling insiders. 
C) provide taxpayer financing for corporate raiders to strengthen the discipline of the marketplace. 
D) none of the options 
A) introduce expensive and burdensome accounting reforms. 
B) strengthen the protection of outside investors from expropriation by managers and controlling insiders. 
C) provide taxpayer financing for corporate raiders to strengthen the discipline of the marketplace. 
D) none of the options

Question 6

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.

Question 7

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 options 
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 options

Question 8

The voting premium,defined as the total vote value (value of a vote times the number of votes)as a proportion of the firm's equity market value is only about 2 percent in the United States and 36 percent in Mexico,suggesting that in Mexico,

Accepted Answer

A) dominant shareholders extract substantial private benefits of control. 
B) dominant shareholders overpay and thus fail to extract substantial private benefits. 
C) minority shareholders share in the private benefits of control. 
D) none of the options 
A) dominant shareholders extract substantial private benefits of control. 
B) dominant shareholders overpay and thus fail to extract substantial private benefits. 
C) minority shareholders share in the private benefits of control. 
D) none of the options

Question 9

Self-interested managers may be tempted to

Accepted Answer

A) indulge in expensive perquisites at company expense. 
B) adopt anti-takeover measures for their company to ensure their personal job security. 
C) waste company funds by undertaking unprofitable projects that benefit themselves but not shareholders. 
D) All of the options are potential abuses that self-interested managers may be tempted to visit upon shareholders. 
A) indulge in expensive perquisites at company expense. 
B) adopt anti-takeover measures for their company to ensure their personal job security. 
C) waste company funds by undertaking unprofitable projects that benefit themselves but not shareholders. 
D) All of the options are potential abuses that self-interested managers may be tempted to visit upon shareholders.

Question 10

In the United States and the United Kingdom,hostile takeovers

Accepted Answer

A) are illegal. 
B) can serve as a drastic corporate governance mechanism of the last resort. 
C) reinforce the notion that managers can take their control of the company for granted. 
D) require management approval. 
A) are illegal. 
B) can serve as a drastic corporate governance mechanism of the last resort. 
C) reinforce the notion that managers can take their control of the company for granted. 
D) require management approval.

Question 11

In the U.S.,corporate governance reform has included all of the following except

Accepted Answer

A) strengthen the independence of boards of directors. 
B) enhancing the transparency and disclosure of financial statements. 
C) energizing the regulatory and monitoring functions of the SEC. 
D) requiring auditors to sit on the boards of directors. 
A) strengthen the independence of boards of directors. 
B) enhancing the transparency and disclosure of financial statements. 
C) energizing the regulatory and monitoring functions of the SEC. 
D) requiring auditors to sit on the boards of directors.

Question 12

The investors supply funds to the company but are not involved in the company's daily decision making.As a result,many public companies come to have

Accepted Answer

A) strong shareholders and weak managers. 
B) strong managers and weak shareholders. 
C) strong managers and strong shareholders. 
D) weak managers and weak shareholders. 
A) strong shareholders and weak managers. 
B) strong managers and weak shareholders. 
C) strong managers and strong shareholders. 
D) weak managers and weak shareholders.

Question 13

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. 
D) none of the options 
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. 
D) none of the options

Question 14

In a public company with diffused ownership,the board of directors is entrusted with

Accepted Answer

A) monitoring the auditors and safeguarding the interests of shareholders. 
B) monitoring the shareholders and safeguarding the interests of management. 
C) monitoring the management and safeguarding the interests of shareholders. 
D) none of the options 
A) monitoring the auditors and safeguarding the interests of shareholders. 
B) monitoring the shareholders and safeguarding the interests of management. 
C) monitoring the management and safeguarding the interests of shareholders. 
D) none of the options

Question 15

In the United States,

Accepted Answer

A) boards of directors are legally responsible for representing the interests of the shareholders. 
B) due to the diffused ownership structure of the public company,management often gets to choose board members who are likely to be friendly to management. 
C) there is a correlation between underperforming firms and boards of directors who are not fully independent. 
D) all of the options 
A) boards of directors are legally responsible for representing the interests of the shareholders. 
B) due to the diffused ownership structure of the public company,management often gets to choose board members who are likely to be friendly to management. 
C) there is a correlation between underperforming firms and boards of directors who are not fully independent. 
D) all of the options

Question 16

When managerial self-dealings are excessive and left unchecked,

Accepted Answer

A) they can have serious negative effects on share values. 
B) they can impede the proper functions of capital markets. 
C) they can impede such measures as GDP growth. 
D) all of the options 
A) they can have serious negative effects on share values. 
B) they can impede the proper functions of capital markets. 
C) they can impede such measures as GDP growth. 
D) all of the options

Question 17

The goal of greater accounting transparency

Accepted Answer

A) is to impose more rules and harsher penalties for their violation. 
B) is to reduce the information asymmetry between corporate insiders and the public. 
C) is to discourage managerial self-dealings. 
D) is to reduce the information asymmetry between corporate insiders and the public,as well as discourage managerial self-dealings. 
A) is to impose more rules and harsher penalties for their violation. 
B) is to reduce the information asymmetry between corporate insiders and the public. 
C) is to discourage managerial self-dealings. 
D) is to reduce the information asymmetry between corporate insiders and the public,as well as discourage managerial self-dealings.

Question 18

In the United States,managers are legally bound by the "duty of loyalty" to

Accepted Answer

A) the board of directors. 
B) the shareholders. 
C) the bondholders. 
D) the government. 
A) the board of directors. 
B) the shareholders. 
C) the bondholders. 
D) the government.

Question 19

The major components of the Sarbanes-Oxley Act are

Accepted Answer

A) accounting regulation: The creation of a public accounting oversight board charged with overseeing the auditing of public companies,and restricting the consulting services that auditors can provide to clients. 
B) audit committee: The company should appoint independent "financial experts" to its audit committee. 
C) internal control assessment: Public companies and their auditors should assess the effectiveness of internal control of financial record keeping and fraud prevention. 
D) executive responsibility: Chief executive and finance officers (CEO and CFO)must sign off on the company's quarterly and annual financial statements.If fraud causes an overstatement of earnings,these officers must return any bonuses. 
E) all of the options 
A) accounting regulation: The creation of a public accounting oversight board charged with overseeing the auditing of public companies,and restricting the consulting services that auditors can provide to clients. 
B) audit committee: The company should appoint independent "financial experts" to its audit committee. 
C) internal control assessment: Public companies and their auditors should assess the effectiveness of internal control of financial record keeping and fraud prevention. 
D) executive responsibility: Chief executive and finance officers (CEO and CFO)must sign off on the company's quarterly and annual financial statements.If fraud causes an overstatement of earnings,these officers must return any bonuses. 
E) all of the options

Question 20

The strongest protection for investors is provided by

Accepted Answer

A) English common law countries,such as Canada,the United States,and the U.K. 
B) French civil law countries,such as Belgium,Italy,and Mexico. 
C) a weak board of directors. 
D) socialized firms. 
A) English common law countries,such as Canada,the United States,and the U.K. 
B) French civil law countries,such as Belgium,Italy,and Mexico. 
C) a weak board of directors. 
D) socialized firms.

Exam 4: Corporate Governance Around the World

Unless investors can derive significant private benefits of control,

Many companies issue shares with differential voting rights,deviating from the one-share one-vote principle.

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

Free cash flow refers to

One of the objectives of corporate governance reform is to,

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

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

The voting premium,defined as the total vote value (value of a vote times the number of votes)as a proportion of the firm's equity market value is only about 2 percent in the United States and 36 percent in Mexico,suggesting that in Mexico,

Self-interested managers may be tempted to

In the United States and the United Kingdom,hostile takeovers

In the U.S.,corporate governance reform has included all of the following except

The investors supply funds to the company but are not involved in the company's daily decision making.As a result,many public companies come to have

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

In a public company with diffused ownership,the board of directors is entrusted with

In the United States,

When managerial self-dealings are excessive and left unchecked,

The goal of greater accounting transparency

In the United States,managers are legally bound by the "duty of loyalty" to

The major components of the Sarbanes-Oxley Act are

The strongest protection for investors is provided by

International Monetary System

Globalization and the Multinational Firm

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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