Question 1

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 principles, 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 depend 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 principles, 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 depend on cultural norms. C

Question 2

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. B

Question 3

Which of the following statements is false?

Accepted Answer

A)  Increasing the pay-for-performance sensitivity comes with the added benefit of reducing managers' 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 managers' 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

Question 4

Which of the following statements is false?

Accepted Answer

A)  The Canadian rules require firms to report option grants within ten 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)  The Canadian rules require firms to report option grants within ten 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 5

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 6

A variety of pyramid structures are quite common in Canada and ________.

Accepted Answer

A)  other countries including the United States 
B)  other countries except the United States 
C)  the United States and not the European countries 
D)  other Asian countries except Japan 
A)  other countries including the United States 
B)  other countries except the United States 
C)  the United States and not the European countries 
D)  other Asian countries except Japan

Question 7

________ is perhaps the most important reason for the success of the corporate organizational form.

Accepted Answer

A)  The separation of ownership and planning 
B)  The separation of ownership and organizing 
C)  The separation of ownership and leadership 
D)  The separation of ownership and control 
A)  The separation of ownership and planning 
B)  The separation of ownership and organizing 
C)  The separation of ownership and leadership 
D)  The separation of ownership and control

Question 8

Canadian rules require firms to report option grants within ________ of the end of the month the options were ________ ; this rule is similar to the prior rules in the U.S.and allows more time for backdating should the share price increase during the time since the option grant.

Accepted Answer

A)  ten days; exercised 
B)  ten days; granted 
C)  fifteen days; granted 
D)  fifteen days; exercised 
A)  ten days; exercised 
B)  ten days; granted 
C)  fifteen days; granted 
D)  fifteen days; exercised

Question 9

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 10

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 11

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 12

The Canada Corporations Act of 1970 introduced the first federal provisions regarding insider trading,and this was carried over into ________ which continues in force today.

Accepted Answer

A)  the Generally Accepted Accounting Principles 
B)  the Corporation Law of Canada 
C)  the Canada Business Corporations Act 
D)  the International Financial Reporting Standards 
A)  the Generally Accepted Accounting Principles 
B)  the Corporation Law of Canada 
C)  the Canada Business Corporations Act 
D)  the International Financial Reporting Standards

Question 13

What is the role of takeovers in corporate governance?

Accepted Answer

When internal governance systems such as

Question 14

Which of the following statements is false?

Accepted Answer

A)  The relationship between managerial ownership and firm value is unlikely to be the same for every firm, or even for different executives of the same firm. 
B)  Even with the risk benefits of separating ownership and control, there are still examples of corporations in which the top managers have substantial ownership interests. 
C)  Academic studies do not support the notion that greater managerial ownership is associated with fewer value-reducing actions by managers. 
D)  While increasing managerial ownership may reduce perquisite consumption, it also makes managers harder to fire-thus reducing the incentive effect of the threat of dismissal. 
A)  The relationship between managerial ownership and firm value is unlikely to be the same for every firm, or even for different executives of the same firm. 
B)  Even with the risk benefits of separating ownership and control, there are still examples of corporations in which the top managers have substantial ownership interests. 
C)  Academic studies do not support the notion that greater managerial ownership is associated with fewer value-reducing actions by managers. 
D)  While increasing managerial ownership may reduce perquisite consumption, it also makes managers harder to fire-thus reducing the incentive effect of the threat of dismissal.

Question 15

In Canada and Europe,many corporations are run by families that own controlling blocks of shares.The central conflict is between what are called ________ and ________.

Accepted Answer

A)  controlling shareholders; minority shareholders 
B)  controlling stakeholders; minority stakeholders 
C)  controlling investors; minority investors 
D)  controlling creditors; minority creditors 
A)  controlling shareholders; minority shareholders 
B)  controlling stakeholders; minority stakeholders 
C)  controlling investors; minority investors 
D)  controlling creditors; minority creditors

Question 16

Which of the following statements is false?

Accepted Answer

A)  When the CEO is also chairperson 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 chairperson 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 17

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 18

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 19

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 20

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)  that the auditor must personally attest to the accuracy of the financial statements presented to shareholders and must 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)  that the auditor must personally attest to the accuracy of the financial statements presented to shareholders and must sign a statement to that effect.

Exam 29: Corporate Governance

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?

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

A variety of pyramid structures are quite common in Canada and ________.

________ is perhaps the most important reason for the success of the corporate organizational form.

Canadian rules require firms to report option grants within ________ of the end of the month the options were ________ ; this rule is similar to the prior rules in the U.S.and allows more time for backdating should the share price increase during the time since the option grant.

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?

The Canada Corporations Act of 1970 introduced the first federal provisions regarding insider trading,and this was carried over into ________ which continues in force today.

What is the role of takeovers in corporate governance?

Which of the following statements is false?

In Canada and Europe,many corporations are run by families that own controlling blocks of shares.The central conflict is between what are called ________ and ________.

Which of the following statements is false?

Which of the following statements is false?

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?

The Sarbanes-Oxley Act requires all of the following EXCEPT

The Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Optimal Portfolio Choice and the Capital Asset Pricing Model

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

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 Modelling: a Case Study

The Mechanics of Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Risk Management

International Corporate Finance

Filters

Canadian rules require firms to report option grants within of the end of the month the options were ; this rule is similar to the prior rules in the U.S.and allows more time for backdating should the share price increase during the time since the option grant.

In Canada and Europe,many corporations are run by families that own controlling blocks of shares.The central conflict is between what are called and .