Question 1

An agency relationship exists when one party delegates decision-making responsibility to a second party for compensation.

Accepted Answer

A) True 
 B)False

Question 2

CEO duality exists when a single individual is both the CEO and the chair of the board.

Accepted Answer

A) True 
 B)False

Question 3

Prints4U is a small printing firm in Minneapolis, MN.As is typical for a firm of this size, the managers own a __________ percentage of the firm.As a result, there is __________ separation between ownership and managerial control.

Accepted Answer

A)  small; less 
B)  small; greater 
C)  large; less 
D)  large; greater

Question 4

Explain why executive compensation is or is not effective as an internal governance mechanism.

Accepted Answer

The answer of Explain why executive compensation is or is...

Question 5

More intense application of governance mechanisms such as mandated by Sarbanes-Oxley and Dodd-Frank may cause firms to take on fewer risky projects and thus increase potential shareholder wealth.

Accepted Answer

A) True 
 B)False

Question 6

Both top executives and owners of the firm wish to diversify the firm to reduce risk.

Accepted Answer

A) True 
 B)False

Question 7

Executive compensation is considered an external corporate governance mechanism because it is determined in part by market forces.

Accepted Answer

A) True 
 B)False

Question 8

LeederTech is facing a hostile takeover.Its focus as a defense strategy has been to ensure some continuity.It has decided to pursue a strategy that will prevent an acquirer from replacing the entire board of directors immediately, even though this tends to have very low success and a negative or negligible effect on shareholder wealth.What strategy did LeederTech select?

Accepted Answer

A)  Capital structure change 
B)  Corporate charter amendment 
C)  Greenmail 
D)  Poison pill

Question 9

Which of the following statements about corporate governance is false?

Accepted Answer

A)  Governance is used to establish order between parties whose interests may be in conflict. 
B)  Corporate governance mechanisms sometimes fail to monitor and control top managers' decisions. 
C)  Corporate governance mechanisms can be in conflict with one another. 
D)  Corporate governance is best achieved with a board of directors with strong ties to management.

Question 10

Historically, __________ have been at the center of the German corporate governance system.

Accepted Answer

A)  banks 
B)  institutional shareholders 
C)  public pension funds 
D)  government agencies

Question 11

Xion Industries is a private firm, but it experiences both direct and indirect control from the government to influence the strategies it uses.In addition, it finds it advantageous to maintain political ties with the government in order to gain access to resources.Of the United States, Japan, China, and Germany, it is most likely that Xion is based in China.

Accepted Answer

A) True 
 B)False

Question 12

In recent years, the number of individuals who are large-block shareholders has declined and been replaced by institutional owners.

Accepted Answer

A) True 
 B)False

Question 13

Because activist pension funds are __________ in nature, they tend to take action when __________.

Accepted Answer

A)  reactive; a firm's performance, no matter the current level, could be improved 
B)  reactive; a firm is underperforming 
C)  proactive; a firm's performance is average or above-average 
D)  proactive; a firm is overperforming but undervalued

Question 14

A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist.This may lead to all of the following EXCEPT:

Accepted Answer

A)  high executive turnover. 
B)  increased diversification of the firm. 
C)  excessive management compensation. 
D)  a reduction in R&D expenditures.

Question 15

A major conflict of interest between top executives and owners is that top executives wish to diversify the firm in order to __________, whereas owners wish to diversify the firm in order to __________.

Accepted Answer

A)  generate free cash flows; reduce the risk of total firm failure 
B)  increase the price of the firm's stock; increase the dividends paid out from free cash flows 
C)  reduce the risk of total firm failure; reduce their total portfolio risk 
D)  reduce their employment risk; increase the company's value

Question 16

Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation?

Accepted Answer

A)  The decisions made by top-level managers are typically complex and nonroutine. 
B)  An executive's decisions often affect firm performance only over the long run. 
C)  A number of factors intervene between top-level management decisions and firm performance (e.g., unpredictable economic, social, or legal changes). 
D)  The compensation committee may not have comprehensive firm performance data.

Question 17

Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to:

Accepted Answer

A)  align financial institutions' actions with society's interests. 
B)  increase the number of foreign firms listing on U.S.stock exchanges. 
C)  require CEOs to attest to the accuracy of their companies' financial reports. 
D)  increase consumer protection in pharmaceutical products.

Question 18

What is corporate governance, and how is it used to monitor and control managers' decisions?

Accepted Answer

The answer of What is corporate governance, and how is...

Question 19

Ray and Gina own shares of stock in a number of different companies.None of their holdings are very large.Because they make their own investment decisions, they are not as dependent on the board of directors to represent their interests as the large-block shareholders are.

Accepted Answer

A) True 
 B)False

Question 20

Describe the market for corporate control and its implications for organizations.

Accepted Answer

The answer of Describe the market for corporate control and...

Exam 10: Corporate Governance

An agency relationship exists when one party delegates decision-making responsibility to a second party for compensation.

CEO duality exists when a single individual is both the CEO and the chair of the board.

Prints4U is a small printing firm in Minneapolis, MN.As is typical for a firm of this size, the managers own a percentage of the firm.As a result, there is separation between ownership and managerial control.

Explain why executive compensation is or is not effective as an internal governance mechanism.

More intense application of governance mechanisms such as mandated by Sarbanes-Oxley and Dodd-Frank may cause firms to take on fewer risky projects and thus increase potential shareholder wealth.

Both top executives and owners of the firm wish to diversify the firm to reduce risk.

Executive compensation is considered an external corporate governance mechanism because it is determined in part by market forces.

Which of the following statements about corporate governance is false?

Historically, __________ have been at the center of the German corporate governance system.

In recent years, the number of individuals who are large-block shareholders has declined and been replaced by institutional owners.

Because activist pension funds are in nature, they tend to take action when .

A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist.This may lead to all of the following EXCEPT:

A major conflict of interest between top executives and owners is that top executives wish to diversify the firm in order to , whereas owners wish to diversify the firm in order to .

Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation?

Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to:

What is corporate governance, and how is it used to monitor and control managers' decisions?

Ray and Gina own shares of stock in a number of different companies.None of their holdings are very large.Because they make their own investment decisions, they are not as dependent on the board of directors to represent their interests as the large-block shareholders are.

Describe the market for corporate control and its implications for organizations.