Question 1

Canadian courts have sometimes interpreted "the corporation" to include ________ in addition to ________ (for example,bondholders).

Accepted Answer

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

Question 2

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)  Likely 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)  Likely 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 3

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 4

In Canada,________,Section 122.1.a,defines the board's duty to act in the best interests of ________.

Accepted Answer

A)  the Canada Business Corporations Act (CBC
A) ; the corporation 
B)  the Canada Business Corporations Act (CBC
A) ; the stakeholders 
C)  the Companies Creditors Arrangement Act (CCA
A) ; the corporation 
D)  the Companies Creditors Arrangement Act (CCA
A) ; the stakeholders 
A)  the Canada Business Corporations Act (CBC
A) ; the corporation 
B)  the Canada Business Corporations Act (CBC
A) ; the stakeholders 
C)  the Companies Creditors Arrangement Act (CCA
A) ; the corporation 
D)  the Companies Creditors Arrangement Act (CCA
A) ; the stakeholders

Question 5

Which of the following statements is false?

Accepted Answer

A)  The Cadbury Commission stiffened the criminal penalties for providing false information to shareholders. 
B)  The Exchange Acts of 1933 and 1934, among other things, established the Securities and Exchange Commission (SE
C)  and prohibited trading on private information gained as an insider of a firm. 
C)  Many of the problems at Enron, WorldCom, and elsewhere were kept hidden from boards and shareholders until it was too late. In the wake of these scandals, many people felt that the accounting statements of these companies, while often remaining true to the letter of GAAP, did not present an accurate picture of the financial health of a company. 
D)  While one study found that those firms that separated the position of CEO and chairman performed better, another found no relation between the independence of key board committees and firm performance in the post-Cadbury era. 
A)  The Cadbury Commission stiffened the criminal penalties for providing false information to shareholders. 
B)  The Exchange Acts of 1933 and 1934, among other things, established the Securities and Exchange Commission (SE
C)  and prohibited trading on private information gained as an insider of a firm. 
C)  Many of the problems at Enron, WorldCom, and elsewhere were kept hidden from boards and shareholders until it was too late. In the wake of these scandals, many people felt that the accounting statements of these companies, while often remaining true to the letter of GAAP, did not present an accurate picture of the financial health of a company. 
D)  While one study found that those firms that separated the position of CEO and chairman performed better, another found no relation between the independence of key board committees and firm performance in the post-Cadbury era.

Question 6

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.

Question 7

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 8

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 maximize 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 maximize 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 9

Which of the following statements is false?

Accepted Answer

A)  Controlling shareholders pay for their control rights because the firm effectively faces a higher cost of equity for outside capital. 
B)  Most countries follow what is called the stakeholder model, giving explicit consideration to other stakeholders-in particular, rank-and-file employees. 
C)  In a pyramid structure, a family first creates a company in which it owns more than 50% of the shares and therefore has a controlling interest. 
D)  A conflict of interest arises because the family has an incentive to try to move profits (and hence dividends) down the pyramid-that is, toward companies in which it has few cash flow rights and away from firms in which it has more cash flow rights. 
A)  Controlling shareholders pay for their control rights because the firm effectively faces a higher cost of equity for outside capital. 
B)  Most countries follow what is called the stakeholder model, giving explicit consideration to other stakeholders-in particular, rank-and-file employees. 
C)  In a pyramid structure, a family first creates a company in which it owns more than 50% of the shares and therefore has a controlling interest. 
D)  A conflict of interest arises because the family has an incentive to try to move profits (and hence dividends) down the pyramid-that is, toward companies in which it has few cash flow rights and away from firms in which it has more cash flow rights.

Question 10

________ was amended in 2004 to create tougher insider trading laws and penalties.

Accepted Answer

A)  The Corporation Law of Canada 
B)  The Criminal Code of Canada 
C)  The Generally Accepted Accounting Principles 
D)  The Canada Business Corporations Act 
A)  The Corporation Law of Canada 
B)  The Criminal Code of Canada 
C)  The Generally Accepted Accounting Principles 
D)  The Canada Business Corporations Act

Question 11

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 Canada, 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 he or 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 Canada, 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 he or she bears the full cost of monitoring but the benefit is divided among all shareholders.

Question 12

What is corporate governance?

Accepted Answer

Corporate governance is the sy

Question 13

Describe the "stakeholder" model of corporate governance.

Accepted Answer

The agency costs and the ways to control

Question 14

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 discontinuing investment in a particular line of business or country, or removing 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 discontinuing investment in a particular line of business or country, or removing a poison pill. 
D)  Any shareholder can submit a resolution that is put to a vote at the annual meeting.

Question 15

What is the difference between inside,gray,and outside directors?

Accepted Answer

Inside directors are employees,former em

Question 16

In Canada,insider trading laws exist at ________.

Accepted Answer

A)  both the provincial and federal levels 
B)  both the provincial and municipal levels 
C)  the provincial level 
D)  the federal level 
A)  both the provincial and federal levels 
B)  both the provincial and municipal levels 
C)  the provincial level 
D)  the federal level

Question 17

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 in 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 in 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 18

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 19

Which of the following statements is false?

Accepted Answer

A)  Researchers have hypothesized that boards with a majority of outside directors are better monitors of managerial effort and actions. 
B)  Studies have found that firms with independent boards make fewer value-creating acquisitions but are more likely to act in shareholders' interests if targeted in an acquisition. 
C)  One early study showed that a board was more likely to fire the firm's CEO for poor performance if the board had a majority of outside directors. 
D)  Although the firm's stock price increases on the announcement of its addition of an independent board member, the increased firm value appears to come from the potential for the board to make better decisions on acquisitions and CEO turnover rather than from improvements in the firm's operating performance. 
A)  Researchers have hypothesized that boards with a majority of outside directors are better monitors of managerial effort and actions. 
B)  Studies have found that firms with independent boards make fewer value-creating acquisitions but are more likely to act in shareholders' interests if targeted in an acquisition. 
C)  One early study showed that a board was more likely to fire the firm's CEO for poor performance if the board had a majority of outside directors. 
D)  Although the firm's stock price increases on the announcement of its addition of an independent board member, the increased firm value appears to come from the potential for the board to make better decisions on acquisitions and CEO turnover rather than from improvements in the firm's operating performance.

Question 20

How does a pyramid structure work?

Accepted Answer

In a pyramid structure,a family first cr

Exam 29: Corporate Governance

Canadian courts have sometimes interpreted "the corporation" to include ________ in addition to ________ (for example,bondholders).

Which of the following statements is false?

Which of the following statements regarding auditors is false?

In Canada,________,Section 122.1.a,defines the board's duty to act in the best interests of ________.

Which of the following statements is false?

Which of the following statements regarding auditors is false?

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?

________ was amended in 2004 to create tougher insider trading laws and penalties.

Which of the following statements is false?

What is corporate governance?

Describe the "stakeholder" model of corporate governance.

Which of the following statements is false?

What is the difference between inside,gray,and outside directors?

In Canada,insider trading laws exist at ________.

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?

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 courts have sometimes interpreted "the corporation" to include in addition to (for example,bondholders).

In Canada,,Section 122.1.a,defines the board's duty to act in the best interests of .