Question 1

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 2

In theory,

Accepted Answer

A) managers are hired by the shareholders at the annual stockholders meeting. If the managers turn in a bad year, new ones get hired. 
B) shareholders hire the managers to oversee the board of directors. 
C) managers are hired by the board of directors; the board is accountable to the shareholders. 
D) none of the above 
A) managers are hired by the shareholders at the annual stockholders meeting. If the managers turn in a bad year, new ones get hired. 
B) shareholders hire the managers to oversee the board of directors. 
C) managers are hired by the board of directors; the board is accountable to the shareholders. 
D) none of the above

Question 3

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 above are true, in the United States. 
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 above are true, in the United States.

Question 4

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

Question 5

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 above 
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 above

Question 6

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.

Question 7

In what country do the three largest shareholders control, on average, about 60 percent of the shares of a public company?

Accepted Answer

A) United States 
B) Canada 
C) Great Britain 
D) Italy 
A) United States 
B) Canada 
C) Great Britain 
D) Italy

Question 8

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 9

In the U.S., the chief role of the board of directors is

Accepted Answer

A) to hire the management team. 
B) to decide on the annual capital budget. 
C) to design an effective incentive compatible compensation scheme for themselves. 
D) none of the above 
A) to hire the management team. 
B) to decide on the annual capital budget. 
C) to design an effective incentive compatible compensation scheme for themselves. 
D) none of the above

Question 10

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 11

For firms with free cash flows,

Accepted Answer

A) debt can be a stronger mechanism than stocks for credibly bonding managers to release cash flows to investors. 
B) equity dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. 
C) preferred stock dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. 
D) none of the above 
A) debt can be a stronger mechanism than stocks for credibly bonding managers to release cash flows to investors. 
B) equity dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. 
C) preferred stock dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors. 
D) none of the above

Question 12

The key requirements of the Sarbanes-Oxley Act 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) none of the above. 
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) none of the above.

Question 13

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 14

Debt can reduce agency costs between shareholders and management, but

Accepted Answer

A) only if the firm is totally up to its eyeballs in debt. 
B) only to the extent that the firm can commit all of its free cash flow. 
C) excessive debt can create its own agency conflicts. 
D) debt is best used as a corporate governance mechanism by young companies with limited cash reserves. 
A) only if the firm is totally up to its eyeballs in debt. 
B) only to the extent that the firm can commit all of its free cash flow. 
C) excessive debt can create its own agency conflicts. 
D) debt is best used as a corporate governance mechanism by young companies with limited cash reserves.

Question 15

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 above 
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 above

Question 16

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 17

Suppose the managers of a company have driven the stock price down because they have spent the investors' money on lavish perquisites like golf club memberships.

Accepted Answer

A) This situation may prompt a corporate raider to buy up the shares of the firm in a hostile takeover. 
B) If the hostile takeover is successful, the managers will probably lose their jobs in the ensuing restructuring. 
C) If the restructuring is successful, the corporate raider can sell his shares at a profit. 
D) All of the above 
A) This situation may prompt a corporate raider to buy up the shares of the firm in a hostile takeover. 
B) If the hostile takeover is successful, the managers will probably lose their jobs in the ensuing restructuring. 
C) If the restructuring is successful, the corporate raider can sell his shares at a profit. 
D) All of the above

Question 18

In the United States, it is well documented that

Accepted Answer

A) boards dominated by their chief executives are prone to trouble. 
B) public scrutiny can help improve corporate governance. 
C) as public firms improve their corporate governance, the stock price goes up. 
D) all of the above 
A) boards dominated by their chief executives are prone to trouble. 
B) public scrutiny can help improve corporate governance. 
C) as public firms improve their corporate governance, the stock price goes up. 
D) all of the above

Question 19

Concentrated corporate ownership is most prevalent in

Accepted Answer

A) Italy. 
B) the U.K. 
C) the U.S. 
D) Australia. 
A) Italy. 
B) the U.K. 
C) the U.S. 
D) Australia.

Question 20

When designing an incentive contract,

Accepted Answer

A) it is important for the board of directors to set up an independent compensation committee that can carefully design the contract and diligently monitor manager's actions. 
B) senior executives can be trusted to not abuse incentive contracts by artificially manipulating accounting numbers since the auditors should look in to that. 
C) the presence of any incentive is enough, whether it is accounting based or stock-price based. 
D) the board of directors should always give the managers a "heads I win, tails you lose" type of option. 
A) it is important for the board of directors to set up an independent compensation committee that can carefully design the contract and diligently monitor manager's actions. 
B) senior executives can be trusted to not abuse incentive contracts by artificially manipulating accounting numbers since the auditors should look in to that. 
C) the presence of any incentive is enough, whether it is accounting based or stock-price based. 
D) the board of directors should always give the managers a "heads I win, tails you lose" type of option.

When company ownership is diffuse,

In theory,

In the United States

One way to measure the value of private benefits of control

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

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

In what country do the three largest shareholders control, on average, about 60 percent of the shares of a public company?

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 U.S., the chief role of the board of directors is

For firms with free cash flows,

The key requirements of the Sarbanes-Oxley Act state that

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

Debt can reduce agency costs between shareholders and management, but

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,

Private benefits of corporate control will tend to be higher in

Suppose the managers of a company have driven the stock price down because they have spent the investors' money on lavish perquisites like golf club memberships.

In the United States, it is well documented that

Concentrated corporate ownership is most prevalent in

When designing an incentive contract,

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

Filters

Exam 4: Corporate Governance Around the World

When company ownership is diffuse,

In theory,

In the United States

One way to measure the value of private benefits of control

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

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

In what country do the three largest shareholders control, on average, about 60 percent of the shares of a public company?

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 U.S., the chief role of the board of directors is

For firms with free cash flows,

The key requirements of the Sarbanes-Oxley Act state that

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

Debt can reduce agency costs between shareholders and management, but

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,

Private benefits of corporate control will tend to be higher in

Suppose the managers of a company have driven the stock price down because they have spent the investors' money on lavish perquisites like golf club memberships.

In the United States, it is well documented that

Concentrated corporate ownership is most prevalent in

When designing an incentive contract,

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

Filters