Question 1

Describe the "stakeholder" model of corporate governance.

Accepted Answer

The agency costs and the ways to control

Question 2

Which of the following statements is FALSE?

Accepted Answer

A) The incentives come from owning stock in the company and from compensation that is sensitive to performance. 
B) The role of the corporate governance system is to mitigate the conflict of interest that results from the combination of ownership and control without unduly burdening managers with the risk of the firm. 
C) Punishment comes when a board fires a manager for poor performance or fraud,or when,upon failure of the board to act,shareholders or raiders launch control contests to replace the board and management. 
D) The corporate governance system attempts to align interests by providing incentives for taking the right action and punishments for taking the wrong action. 
A) The incentives come from owning stock in the company and from compensation that is sensitive to performance. 
B) The role of the corporate governance system is to mitigate the conflict of interest that results from the combination of ownership and control without unduly burdening managers with the risk of the firm. 
C) Punishment comes when a board fires a manager for poor performance or fraud,or when,upon failure of the board to act,shareholders or raiders launch control contests to replace the board and management. 
D) The corporate governance system attempts to align interests by providing incentives for taking the right action and punishments for taking the wrong action.

Question 3

The Sarbanes-Oxley Act:

Accepted Answer

A) prohibits insiders with a fiduciary duty to their shareholders from trading on material non-public information in that stock. 
B) prohibits anyone with nonpublic information about a pending or ongoing tender offer from trading on that information. 
C) overhauls incentive and independence in the auditing process. 
D) requires corporations to consider all stakeholders in corporate governance decisions. 
A) prohibits insiders with a fiduciary duty to their shareholders from trading on material non-public information in that stock. 
B) prohibits anyone with nonpublic information about a pending or ongoing tender offer from trading on that information. 
C) overhauls incentive and independence in the auditing process. 
D) requires corporations to consider all stakeholders in corporate governance decisions.

Question 4

Describe the main requirements of the Sarbanes-Oxley Act of 2002.

Accepted Answer

1.Strict limits on the amount of non-aud

Question 5

Which of the following statements is FALSE?

Accepted Answer

A) Backdating refers to the practice of choosing the grant date of a stock option retroactively,so that the date of the grant would coincide with a date when the stock price was at its low for the quarter or for the year. 
B) Unless it is reported in a timely manner to the IRS and to shareholders,and reflected in the firm's financial statements,backdating is illegal. 
C) The use of backdating suggests that some executive stock option compensation may not truly have been earned as the result of good future performance of the firm. 
D) By backdating the option the executive receives a stock option that is already out-of-the-money,with a strike price equal to the higher price on the supposed grant date. 
A) Backdating refers to the practice of choosing the grant date of a stock option retroactively,so that the date of the grant would coincide with a date when the stock price was at its low for the quarter or for the year. 
B) Unless it is reported in a timely manner to the IRS and to shareholders,and reflected in the firm's financial statements,backdating is illegal. 
C) The use of backdating suggests that some executive stock option compensation may not truly have been earned as the result of good future performance of the firm. 
D) By backdating the option the executive receives a stock option that is already out-of-the-money,with a strike price equal to the higher price on the supposed grant date.

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) New SEC rules require firms to report option grants within two days of the grant date,which may help prevent further abuses. 
B) Studies have found evidence that the practice of timing the release of information to maximize the value of CEO stock options is widespread. 
C) Managers have an incentive to manipulate the release of financial forecasts so that good news comes out before options are granted and bad news is delayed until after the options are granted. 
D) The factor contributing most to the climb in CEO total compensation for the 1990s was the sharp increase in the value of stock and options granted each year. 
A) New SEC rules require firms to report option grants within two days of the grant date,which may help prevent further abuses. 
B) Studies have found evidence that the practice of timing the release of information to maximize the value of CEO stock options is widespread. 
C) Managers have an incentive to manipulate the release of financial forecasts so that good news comes out before options are granted and bad news is delayed until after the options are granted. 
D) The factor contributing most to the climb in CEO total compensation for the 1990s was the sharp increase in the value of stock and options granted each year.

Question 7

Which of the following statements is FALSE?

Accepted Answer

A) In many other countries,the central conflict is between what are called "controlling shareholders" and "minority shareholders." 
B) Controlling shareholders can make decisions that benefit them disproportionately relative to the minority shareholders,such as employing family members rather than the most talented managers or establishing contracts favorable to other family controlled firms. 
C) As recent events and corporate scandals have shown,investor protection in the United States is generally seen as substandard when compared to the developed economies in the world. 
D) Much of the focus in the United States is on the agency conflict between shareholders,who own the majority of a firm but are a dispersed group,and managers,who own little of the firm and must be monitored. 
A) In many other countries,the central conflict is between what are called "controlling shareholders" and "minority shareholders." 
B) Controlling shareholders can make decisions that benefit them disproportionately relative to the minority shareholders,such as employing family members rather than the most talented managers or establishing contracts favorable to other family controlled firms. 
C) As recent events and corporate scandals have shown,investor protection in the United States is generally seen as substandard when compared to the developed economies in the world. 
D) Much of the focus in the United States is on the agency conflict between shareholders,who own the majority of a firm but are a dispersed group,and managers,who own little of the firm and must be monitored.

Question 8

Directors who are not employees,former employees,or family members of employees and who do not have existing or potential business relationships with the firm are called:

Accepted Answer

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

Question 9

Which of the following statements is FALSE?

Accepted Answer

A) An active takeover market is part of the system through which the threat of dismissal is maintained. 
B) When internal governance systems such as ownership,compensation,board oversight,and shareholder activism fail,the one remaining way to remove poorly performing managers is by mounting a hostile takeover. 
C) Because hostile takeovers and internal governance systems are substitute mechanisms,researchers have found that boards are less likely to fire managers for poor performance during active takeover markets than they are during lulls in takeover activity. 
D) The effectiveness of the corporate governance structure of a firm depends on how well protected its managers are from removal in a hostile takeover. 
A) An active takeover market is part of the system through which the threat of dismissal is maintained. 
B) When internal governance systems such as ownership,compensation,board oversight,and shareholder activism fail,the one remaining way to remove poorly performing managers is by mounting a hostile takeover. 
C) Because hostile takeovers and internal governance systems are substitute mechanisms,researchers have found that boards are less likely to fire managers for poor performance during active takeover markets than they are during lulls in takeover activity. 
D) The effectiveness of the corporate governance structure of a firm depends on how well protected its managers are from removal in a hostile takeover.

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) The substantial use of stock and option grants in the 1990s greatly increased managers' pay-for-performance sensitivity. 
B) The optimal level of sensitivity of managers' compensation to the performance of their firms depends on the managers' level of risk aversion,which is hard to measure. 
C) While decreasing managers' risk exposure,increasing the sensitivity of managerial pay and wealth to firm performance does have some negative effects. 
D) In the absence of monitoring,the other way the conflict of interest between managers and owners can be mitigated is by closely aligning their interests through the managers' compensation policy. 
A) The substantial use of stock and option grants in the 1990s greatly increased managers' pay-for-performance sensitivity. 
B) The optimal level of sensitivity of managers' compensation to the performance of their firms depends on the managers' level of risk aversion,which is hard to measure. 
C) While decreasing managers' risk exposure,increasing the sensitivity of managerial pay and wealth to firm performance does have some negative effects. 
D) In the absence of monitoring,the other way the conflict of interest between managers and owners can be mitigated is by closely aligning their interests through the managers' compensation policy.

Question 11

The Sarbanes-Oxley Act requires all of the following EXCEPT:

Accepted Answer

A) that audit partners rotate every five years to limit the likelihood that auditing relationships become too cozy over long periods of time. 
B) strict limits on the amount of non-audit fees (consulting or otherwise)that an accounting firm can earn from the same firm that it audits. 
C) that senior management and the boards of public companies be comfortable enough with the process through which funds are allocated and controlled,and outcomes monitored throughout the firm,to be willing to attest to their effectiveness and validity. 
D) the auditor must personally attest to the accuracy of the financial statements presented to shareholders and sign a statement to that effect. 
A) that audit partners rotate every five years to limit the likelihood that auditing relationships become too cozy over long periods of time. 
B) strict limits on the amount of non-audit fees (consulting or otherwise)that an accounting firm can earn from the same firm that it audits. 
C) that senior management and the boards of public companies be comfortable enough with the process through which funds are allocated and controlled,and outcomes monitored throughout the firm,to be willing to attest to their effectiveness and validity. 
D) the auditor must personally attest to the accuracy of the financial statements presented to shareholders and sign a statement to that effect.

Question 12

Which of the following is NOT a direct action that can be taken by shareholders?

Accepted Answer

A) Submitting shareholder resolutions directing the board to take specific actions 
B) Withholding votes for the board of directors candidates 
C) Initiating a proxy contest 
D) Voting to remove the management team 
A) Submitting shareholder resolutions directing the board to take specific actions 
B) Withholding votes for the board of directors candidates 
C) Initiating a proxy contest 
D) Voting to remove the management team

Question 13

Which of the following was NOT a finding of the Cadbury Commission?

Accepted Answer

A) Audit and compensation committees should be made up entirely of independent directors or,at least,have a majority of them. 
B) Auditors should be rotated,and there should be fuller disclosure of non-audit work. 
C) The CEO should not be chairman of the board,and at the very least there should be a lead independent director with similar agenda-setting powers. 
D) The CEO and the CFO should personally attest to the accuracy of the financial statements presented to shareholders. 
A) Audit and compensation committees should be made up entirely of independent directors or,at least,have a majority of them. 
B) Auditors should be rotated,and there should be fuller disclosure of non-audit work. 
C) The CEO should not be chairman of the board,and at the very least there should be a lead independent director with similar agenda-setting powers. 
D) The CEO and the CFO should personally attest to the accuracy of the financial statements presented to shareholders.

Question 14

Which of the following statements is FALSE?

Accepted Answer

A) The conflict of interest between managers and investors derives from the separation of ownership and control in a corporation. 
B) Any discussion of corporate controls-the system of controls,regulations,and incentives designed to prevent fraud-is a story of conflicts of interest and attempts to minimize them. 
C) Once control and ownership are separated a conflict of interest arises between the owners and the people in control of a corporation. 
D) The separation of ownership and control is perhaps the most important reason for the success of the corporate organizational form.Because any investor can hold an ownership stake in a corporation,investors are able to diversify and thus,with no costs,reduce their risk exposures. 
A) The conflict of interest between managers and investors derives from the separation of ownership and control in a corporation. 
B) Any discussion of corporate controls-the system of controls,regulations,and incentives designed to prevent fraud-is a story of conflicts of interest and attempts to minimize them. 
C) Once control and ownership are separated a conflict of interest arises between the owners and the people in control of a corporation. 
D) The separation of ownership and control is perhaps the most important reason for the success of the corporate organizational form.Because any investor can hold an ownership stake in a corporation,investors are able to diversify and thus,with no costs,reduce their risk exposures.

Question 15

Which of the following statements is FALSE?

Accepted Answer

A) One study found that firms with fewer restrictions on shareholder power performed worse than firms with more restrictions during the 1990s. 
B) Some large public pension funds,such as CalPERS (the California Public Employees Retirement System),take an activist role in corporate governance. 
C) In 2004 with the Walt Disney Company,major shareholders were dissatisfied with the recent performance of Disney under long-time CEO and Chairman,Michael Eisner.They began an organized campaign to convince the majority of Disney shareholders to withhold their approval of the reelection of Eisner as director and chairman of the board. 
D) Given the importance of shareholder action in corporate governance,researchers and large investors alike have become increasingly interested in measuring the balance of power between shareholders and managers in a firm. 
A) One study found that firms with fewer restrictions on shareholder power performed worse than firms with more restrictions during the 1990s. 
B) Some large public pension funds,such as CalPERS (the California Public Employees Retirement System),take an activist role in corporate governance. 
C) In 2004 with the Walt Disney Company,major shareholders were dissatisfied with the recent performance of Disney under long-time CEO and Chairman,Michael Eisner.They began an organized campaign to convince the majority of Disney shareholders to withhold their approval of the reelection of Eisner as director and chairman of the board. 
D) Given the importance of shareholder action in corporate governance,researchers and large investors alike have become increasingly interested in measuring the balance of power between shareholders and managers in a firm.

Question 16

Regarding board size,researchers have found that:

Accepted Answer

A) smaller boards are associated with greater firm value and performance,since small groups make better decisions than larger groups. 
B) smaller boards are associated with lower firm value and performance,since small groups are more likely to be compromised by connections to management. 
C) larger boards are associated with greater firm value and performance,since larger boards tend to have directors with a more diverse range of backgrounds and talents. 
D) larger boards are associated with lower firm value and performance,since larger groups are more likely to be compromised by connections to management. 
A) smaller boards are associated with greater firm value and performance,since small groups make better decisions than larger groups. 
B) smaller boards are associated with lower firm value and performance,since small groups are more likely to be compromised by connections to management. 
C) larger boards are associated with greater firm value and performance,since larger boards tend to have directors with a more diverse range of backgrounds and talents. 
D) larger boards are associated with lower firm value and performance,since larger groups are more likely to be compromised by connections to management.

Question 17

Backdating refers to:

Accepted Answer

A) choosing the strike price of a stock option retroactively. 
B) choosing the exercise date of the stock option retroactively. 
C) choosing the share conversion ratio retroactively. 
D) choosing the grant date of a stock option retroactively. 
A) choosing the strike price of a stock option retroactively. 
B) choosing the exercise date of the stock option retroactively. 
C) choosing the share conversion ratio retroactively. 
D) choosing the grant date of a stock option retroactively.

Question 18

Which of the following statements regarding auditors is FALSE?

Accepted Answer

A) The Sarbanes-Oxley Act called on the SEC to force companies to have audit committees that are dominated by outside directors and required that at least one outside director have a financial background. 
B) Whether information is material has been defined in the courts as referring to whether the information would have been a significant factor in an investor's decision about the value of the security. 
C) CEOs and CFOs must return bonuses or profits from the sale of stock or the exercise of options during any period covered by statements that are later restated. 
D) The law is especially strict with regard to takeover announcements,prohibiting any insider with nonpublic information about a pending or ongoing tender offer from trading on that information or revealing it to someone who is likely to trade on it. 
A) The Sarbanes-Oxley Act called on the SEC to force companies to have audit committees that are dominated by outside directors and required that at least one outside director have a financial background. 
B) Whether information is material has been defined in the courts as referring to whether the information would have been a significant factor in an investor's decision about the value of the security. 
C) CEOs and CFOs must return bonuses or profits from the sale of stock or the exercise of options during any period covered by statements that are later restated. 
D) The law is especially strict with regard to takeover announcements,prohibiting any insider with nonpublic information about a pending or ongoing tender offer from trading on that information or revealing it to someone who is likely to trade on it.

Question 19

Which of the following statements is FALSE?

Accepted Answer

A) A board is said to be classified when its monitoring duties have been compromised by connections or perceived loyalties to management. 
B) Even the most active independent directors spend only one or two days per month on firm business,and many independent directors sit on multiple boards,further dividing their attention. 
C) On a board composed of insider,gray,and independent directors,the role of the independent director is really that of a watchdog. 
D) Because independent directors' personal wealth is likely to be less sensitive to performance than that of insider and gray directors,they have less incentive to closely monitor the firm. 
A) A board is said to be classified when its monitoring duties have been compromised by connections or perceived loyalties to management. 
B) Even the most active independent directors spend only one or two days per month on firm business,and many independent directors sit on multiple boards,further dividing their attention. 
C) On a board composed of insider,gray,and independent directors,the role of the independent director is really that of a watchdog. 
D) Because independent directors' personal wealth is likely to be less sensitive to performance than that of insider and gray directors,they have less incentive to closely monitor the firm.

Question 20

What is corporate governance?

Accepted Answer

Corporate governance is the sy

Exam 29: Corporate Governance

Describe the "stakeholder" model of corporate governance.

Which of the following statements is FALSE?

The Sarbanes-Oxley Act:

Describe the main requirements of the Sarbanes-Oxley Act of 2002.

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Directors who are not employees,former employees,or family members of employees and who do not have existing or potential business relationships with the firm are called:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

The Sarbanes-Oxley Act requires all of the following EXCEPT:

Which of the following is NOT a direct action that can be taken by shareholders?

Which of the following was NOT a finding of the Cadbury Commission?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Regarding board size,researchers have found that:

Backdating refers to:

Which of the following statements regarding auditors is FALSE?

Which of the following statements is FALSE?

What is corporate governance?

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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