Question 1

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 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. C

Question 3

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 C

Question 4

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 5

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 6

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 7

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 nonaudit 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 nonaudit services to the same firm.

Question 8

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 9

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 10

How does a pyramid structure work?

Accepted Answer

In a pyramid structure, a family first c

Question 11

The Sarbanes-Oxley Act requires all of the following EXCEPT ________.

Accepted Answer

A)  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)  senior management and the boards of public companies to 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 to sign a statement to that effect 
A)  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)  senior management and the boards of public companies to 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 to sign a statement to that effect

Question 12

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 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

Billy, the CEO of Movin On Up Company, was granted stock options with an exercise price of $62.04 per share. The following are the week-ending stock prices that occurred during the quarter:   What is the most likely date on which the stock options were awarded?

Accepted Answer

A)  13-Sep-05 
B)  11-Oct-05 
C)  13-Dec-05 
D)  not enough information to answer the question 
A)  13-Sep-05 
B)  11-Oct-05 
C)  13-Dec-05 
D)  not enough information to answer the question

Question 15

Describe the "stakeholder" model of corporate governance.

Accepted Answer

The agency costs and the ways to control

Question 16

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 17

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.

Question 18

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 19

Billy, the CEO of Movin On Up Company, was granted stock options with an exercise price of $55.00 per share. The following are the week-ending stock prices that occurred during the quarter:   If Movin On Up engaged in the practice of backdating, which of the following is the most likely exercise price for Billy's options?

Accepted Answer

A)  $65.52 
B)  $67.50 
C)  $65.00 
D)  $56.82 
A)  $65.52 
B)  $67.50 
C)  $65.00 
D)  $56.82

Question 20

What is corporate governance?

Accepted Answer

Corporate governance is the sy

Exam 26: Corporate Governance

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Directors who are employees, former employees, or family members of employees are called ________.

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 regarding auditors is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

How does a pyramid structure work?

The Sarbanes-Oxley Act requires all of the following EXCEPT ________.

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?

Billy, the CEO of Movin On Up Company, was granted stock options with an exercise price of $62.04 per share. The following are the week-ending stock prices that occurred during the quarter: What is the most likely date on which the stock options were awarded?

Describe the "stakeholder" model of corporate governance.

Which of the following statements is FALSE?

Which of the following statements is FALSE?

Which of the following statements is FALSE?

What is corporate governance?

Corporate Finance and the Financial Manager

Introduction to Financial Statement Analysis

Time Value of Money: an Introduction

Time Value of Money: Valuing Cash Flow Streams

Interest Rates

Bonds

Stock Valuation

Investment Decision Rules

Fundamentals of Capital Budgeting

Stock Valuation: a Second Look

Risk and Return in Capital Markets

Systematic Risk and the Equity Risk Premium

The Cost of Capital

Raising Equity Capital

Debt Financing

Capital Structure

Payout Policy

Financial Modeling and Pro Forma Analysis

Working Capital Management

Short-Term Financial Planning

Option Applications and Corporate Finance

Mergers and Acquisitions

International Corporate Finance

Leasing

Insurance and Risk Management

Filters