Question 1

Which of the following statements regarding auditors is FALSE?

Accepted Answer

A) Most auditors have a longstanding relationship with their audit clients;this extended relationship and the auditors' desire to keep the lucrative auditing fees makes auditors less willing to challenge management. 
B) Most accounting firms have developed large and extremely profitable consulting divisions.Obviously,if an audit team refuses to accommodate a request by a client's management,that client will be less likely to choose the accounting firm's consulting division for its next consulting contract. 
C) Auditing firms are supposed to ensure that a company's financial statements accurately reflect the financial state of the firm. 
D) In the post Sarbanes-Oxley world,accounting firms are no longer allowed to offer both audit and non-audit services to the same firm. 
A) Most auditors have a longstanding relationship with their audit clients;this extended relationship and the auditors' desire to keep the lucrative auditing fees makes auditors less willing to challenge management. 
B) Most accounting firms have developed large and extremely profitable consulting divisions.Obviously,if an audit team refuses to accommodate a request by a client's management,that client will be less likely to choose the accounting firm's consulting division for its next consulting contract. 
C) Auditing firms are supposed to ensure that a company's financial statements accurately reflect the financial state of the firm. 
D) In the post Sarbanes-Oxley world,accounting firms are no longer allowed to offer both audit and non-audit services to the same firm. D

Question 2

Dual class shares are best defined as:

Accepted Answer

A) a process where a company issues both common and preferred stock to finance the company. 
B) a scenario in which companies have more than one class of shares and one class has superior voting rights over the other class. 
C) a scenario in which 51% of the shares are held by a holding company which is part of a pyramid structure. 
D) a process where a company issues shares in two separate countries each trading on a separate stock exchange. 
A) a process where a company issues both common and preferred stock to finance the company. 
B) a scenario in which companies have more than one class of shares and one class has superior voting rights over the other class. 
C) a scenario in which 51% of the shares are held by a holding company which is part of a pyramid structure. 
D) a process where a company issues shares in two separate countries each trading on a separate stock exchange. B

Question 3

Which of the following statements is FALSE?

Accepted Answer

A) The shareholders as a group elect a board of directors to monitor managers.The directors themselves,however,have the same conflict of interest-monitoring is costly and in many cases directors do not get significantly greater benefits than other shareholders from monitoring the managers closely. 
B) In principle,the board of directors hires the executive team,sets its compensation,approves major investments and acquisitions,and dismisses executives if necessary. 
C) In the United States,the board of directors has a clear fiduciary duty to protect the interests of both the owners of the firm (the shareholders)and the interests of other stakeholders in the firm (such as the employees). 
D) When the ownership of a corporation is widely held,no one shareholder has an incentive to bear the cost of monitoring,because she bears the full cost of monitoring but the benefit is divided among all shareholders. 
A) The shareholders as a group elect a board of directors to monitor managers.The directors themselves,however,have the same conflict of interest-monitoring is costly and in many cases directors do not get significantly greater benefits than other shareholders from monitoring the managers closely. 
B) In principle,the board of directors hires the executive team,sets its compensation,approves major investments and acquisitions,and dismisses executives if necessary. 
C) In the United States,the board of directors has a clear fiduciary duty to protect the interests of both the owners of the firm (the shareholders)and the interests of other stakeholders in the firm (such as the employees). 
D) When the ownership of a corporation is widely held,no one shareholder has an incentive to bear the cost of monitoring,because she bears the full cost of monitoring but the benefit is divided among all shareholders. C

Question 4

Which of the following statements is FALSE?

Accepted Answer

A) If managers have large ownership stakes,then shareholders are more likely to use compensation policies or a stronger board to create the desired incentives. 
B) If all else fails,the shareholders' last line of defense against expropriation by self-interested managers is direct action. 
C) A shareholder resolution could direct the board to take a specific action,such as discontinue investing in a particular line of business or country,or remove a poison pill. 
D) Any shareholder can submit a resolution that is put to a vote at the annual meeting. 
A) If managers have large ownership stakes,then shareholders are more likely to use compensation policies or a stronger board to create the desired incentives. 
B) If all else fails,the shareholders' last line of defense against expropriation by self-interested managers is direct action. 
C) A shareholder resolution could direct the board to take a specific action,such as discontinue investing in a particular line of business or country,or remove a poison pill. 
D) Any shareholder can submit a resolution that is put to a vote at the annual meeting.

Question 5

Which of the following is/are NOT corporate monitors?

Accepted Answer

A) Security analysts 
B) Lenders 
C) Securities and Exchange Commission 
D) All of the above are monitors. 
A) Security analysts 
B) Lenders 
C) Securities and Exchange Commission 
D) All of the above are monitors.

Question 6

Insider trading is best described as:

Accepted Answer

A) when a member of the management team makes a trade based upon privileged information. 
B) when a member of the management team makes a trade based upon public information. 
C) when any investor makes a trade based upon public information. 
D) when any investor makes a trade based upon privileged information. 
A) when a member of the management team makes a trade based upon privileged information. 
B) when a member of the management team makes a trade based upon public information. 
C) when any investor makes a trade based upon public information. 
D) when any investor makes a trade based upon privileged information.

Question 7

Which of the following statements is FALSE?

Accepted Answer

A) It is important to keep in mind that good governance is value enhancing and so,in principle,is something investors in the firm should strive for. 
B) Corporate governance is a system of checks and balances that trades off costs and benefits. 
C) Because good governance is based upon a basic set of principals,like those detailed in the Cadbury Commission's findings,one should expect all firms to display similar governance structures. 
D) The costs and benefits of a corporate governance system also depends on cultural norms. 
A) It is important to keep in mind that good governance is value enhancing and so,in principle,is something investors in the firm should strive for. 
B) Corporate governance is a system of checks and balances that trades off costs and benefits. 
C) Because good governance is based upon a basic set of principals,like those detailed in the Cadbury Commission's findings,one should expect all firms to display similar governance structures. 
D) The costs and benefits of a corporate governance system also depends on cultural norms.

Question 8

Directors who are not as directly connected to the firm but who have existing or potential business relationships with the firm are called:

Accepted Answer

A) gray directors. 
B) independent directors. 
C) advising directors. 
D) inside directors. 
A) gray directors. 
B) independent directors. 
C) advising directors. 
D) inside directors.

Question 9

What is the role of takeovers in corporate governance?

Accepted Answer

When internal governance systems such as

Question 10

What are some of the negative effects of increasing the sensitivity of managerial pay to firm performance?

Accepted Answer

Increasing the pay-for-performance sensi

Question 11

Which of the following statements is FALSE?

Accepted Answer

A) Increasing the pay-for-performance sensitivity comes with the added benefit of reducing manager's risk. 
B) Stock and option grants give managers a direct incentive to increase the stock price to make their stock or options as valuable as possible. 
C) By tying compensation to performance,the shareholders effectively give the manager an ownership stake in the firm. 
D) During the 1990s,most companies adopted compensation policies that more directly gave managers an ownership stake by including grants of stock or stock options to executives. 
A) Increasing the pay-for-performance sensitivity comes with the added benefit of reducing manager's risk. 
B) Stock and option grants give managers a direct incentive to increase the stock price to make their stock or options as valuable as possible. 
C) By tying compensation to performance,the shareholders effectively give the manager an ownership stake in the firm. 
D) During the 1990s,most companies adopted compensation policies that more directly gave managers an ownership stake by including grants of stock or stock options to executives.

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) The United States is somewhat of an exception,in that it focuses solely on maximizing shareholder welfare. 
B) A controlling family has many opportunities to expropriate minority shareholders in a pyramid structure. 
C) One way for families to gain control over firms even when they do not own more than half the shares is to issue dual class shares-a scenario in which companies have more than one class of shares and one class has superior voting rights over the other class. 
D) Researchers have claimed that the degree of investor protection was largely determined by the legal origin of the country-specifically,whether its legal system was based on British common law (less protection)or French,German,and Scandinavian civil law (more protection). 
A) The United States is somewhat of an exception,in that it focuses solely on maximizing shareholder welfare. 
B) A controlling family has many opportunities to expropriate minority shareholders in a pyramid structure. 
C) One way for families to gain control over firms even when they do not own more than half the shares is to issue dual class shares-a scenario in which companies have more than one class of shares and one class has superior voting rights over the other class. 
D) Researchers have claimed that the degree of investor protection was largely determined by the legal origin of the country-specifically,whether its legal system was based on British common law (less protection)or French,German,and Scandinavian civil law (more protection).

Question 13

Which of the following statements is FALSE?

Accepted Answer

A) Recently,shareholders have started organizing "no" votes.That is,when they are dissatisfied with a board,they simply refuse to vote to approve the slate of nominees for the board. 
B) One early study of proxy contests found that the announcement of a contest increased firm stock price by 8% on average,even if the challenge was eventually unsuccessful and the incumbents won reelection. 
C) Shareholders' only real role in governance is in electing the directors of the company. 
D) Perhaps the most extreme form of direct action that disgruntled shareholders can take is to hold a proxy contest and introduce a rival slate of directors for election to the board. 
A) Recently,shareholders have started organizing "no" votes.That is,when they are dissatisfied with a board,they simply refuse to vote to approve the slate of nominees for the board. 
B) One early study of proxy contests found that the announcement of a contest increased firm stock price by 8% on average,even if the challenge was eventually unsuccessful and the incumbents won reelection. 
C) Shareholders' only real role in governance is in electing the directors of the company. 
D) Perhaps the most extreme form of direct action that disgruntled shareholders can take is to hold a proxy contest and introduce a rival slate of directors for election to the board.

Question 14

Which of the following statements is FALSE?

Accepted Answer

A) When the CEO is also chairman of the board,the nominating letter offering a seat to a new director comes from her.This process merely serves to reinforce the sense that the outside directors owe their positions to the CEO and work for the CEO rather than for the shareholders. 
B) Over time,most of the independent directors will have been nominated by the CEO.Even though they have no business ties to the firm,they are still likely to be friends or at least acquaintances of the CEO. 
C) Researchers have found the surprisingly robust result that larger boards are associated with greater firm value and performance. 
D) The CEO can be expected to stack the board with directors who are less likely to challenge her. 
A) When the CEO is also chairman of the board,the nominating letter offering a seat to a new director comes from her.This process merely serves to reinforce the sense that the outside directors owe their positions to the CEO and work for the CEO rather than for the shareholders. 
B) Over time,most of the independent directors will have been nominated by the CEO.Even though they have no business ties to the firm,they are still likely to be friends or at least acquaintances of the CEO. 
C) Researchers have found the surprisingly robust result that larger boards are associated with greater firm value and performance. 
D) The CEO can be expected to stack the board with directors who are less likely to challenge her.

Question 15

How does a pyramid structure work?

Accepted Answer

In a pyramid structure,a family first cr

Question 16

While the Sarbanes-Oxley Act (SOX)contains many provisions,the overall intent of the legislation was to improve the accuracy of information given to both boards and to shareholders.SOX attempted to achieve this goal in all of the following ways EXCEPT:

Accepted Answer

A) overhauling incentives and independence in the auditing process. 
B) mandating the separation of the positions of CEO and Chairman of the Board. 
C) stiffening penalties for providing false information. 
D) forcing companies to validate their internal financial control processes. 
A) overhauling incentives and independence in the auditing process. 
B) mandating the separation of the positions of CEO and Chairman of the Board. 
C) stiffening penalties for providing false information. 
D) forcing companies to validate their internal financial control processes.

Question 17

Which of the following statements is FALSE?

Accepted Answer

A) In addition to the evidence that board independence matters for major activities such as firing CEOs and making corporate acquisitions,researchers have found a strong connection between board structure and firm performance. 
B) Theoretical and empirical research support the notion that the longer a CEO has served,especially when that person is also chairman of the board,the more likely the board is to become captured. 
C) Most firms that have just gone public either as young companies or as older firms returning to public status after a leveraged buyout (LBO)choose to start with smaller boards. 
D) Boards tend to grow over time as members are added for various reasons.For example,boards are often expanded by one or two seats after an acquisition to accommodate the target CEO and perhaps one other target director. 
A) In addition to the evidence that board independence matters for major activities such as firing CEOs and making corporate acquisitions,researchers have found a strong connection between board structure and firm performance. 
B) Theoretical and empirical research support the notion that the longer a CEO has served,especially when that person is also chairman of the board,the more likely the board is to become captured. 
C) Most firms that have just gone public either as young companies or as older firms returning to public status after a leveraged buyout (LBO)choose to start with smaller boards. 
D) Boards tend to grow over time as members are added for various reasons.For example,boards are often expanded by one or two seats after an acquisition to accommodate the target CEO and perhaps one other target director.

Question 18

A board of directors is said to be captured when:

Accepted Answer

A) a majority of the directors are independent directors. 
B) a majority of the directors are outside directors. 
C) its monitoring duties have been compromised by connections or perceived loyalties to management. 
D) when the CEO also serves as chairman of the board of directors. 
A) a majority of the directors are independent directors. 
B) a majority of the directors are outside directors. 
C) its monitoring duties have been compromised by connections or perceived loyalties to management. 
D) when the CEO also serves as chairman of the board of directors.

Question 19

Directors who are employees,former employees,or family members of employees are called:

Accepted Answer

A) managing directors. 
B) independent directors. 
C) inside directors. 
D) gray directors. 
A) managing directors. 
B) independent directors. 
C) inside directors. 
D) gray directors.

Question 20

Corporate governance is best defined as:

Accepted Answer

A) the system of laws and regulations that control corporations. 
B) the system of controls,regulations,and incentives designed to prevent fraud and minimize conflicts of interest. 
C) the system that determines who controls and runs a corporation. 
D) the system that minimizes agency costs between bondholders and stockholders. 
A) the system of laws and regulations that control corporations. 
B) the system of controls,regulations,and incentives designed to prevent fraud and minimize conflicts of interest. 
C) the system that determines who controls and runs a corporation. 
D) the system that minimizes agency costs between bondholders and stockholders.

Exam 29: Corporate Governance

Which of the following statements regarding auditors is FALSE?

Dual class shares are best defined as:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following is/are NOT corporate monitors?

Insider trading is best described as:

Which of the following statements is FALSE?

Directors who are not as directly connected to the firm but who have existing or potential business relationships with the firm are called:

What is the role of takeovers in corporate governance?

What are some of the negative effects of increasing the sensitivity of managerial pay to firm performance?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

How does a pyramid structure work?

While the Sarbanes-Oxley Act (SOX)contains many provisions,the overall intent of the legislation was to improve the accuracy of information given to both boards and to shareholders.SOX attempted to achieve this goal in all of the following ways EXCEPT:

Which of the following statements is FALSE?

A board of directors is said to be captured when:

Directors who are employees,former employees,or family members of employees are called:

Corporate governance is best defined as:

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Financial Options

Option Valuation

Real Options

Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Risk Management

International Corporate Finance

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