Question 1

Several studies document the empirical link between

Accepted Answer

A) weak investor protection and GDP growth. 
B) financial development and economic growth. 
C) growth in GDP and concentrated ownership. 
D) none of the above

Question 2

In the United States

Accepted Answer

A) boards of directors are legally responsible for representing the interests of the shareholders. 
B) due to the diffused ownership structure of the public company, management often gets to choose board members who are likely to be friendly to management. 
C) there is a correlation between underperforming firms and boards of directors who are not fully independent. 
D) all of the above are true, in the United States.

Question 3

Suppose Mr.Lee and his relatives hold 30% of shares outstanding of Samsung Life,which in turn holds 20% of Samsung Electronics.What is the cash flow right of the Lee family in Samsung Electronics?

Accepted Answer

A) 50 percent 
B) 10 percent 
C) 20 percent 
D) 6 percent

Question 4

In a public company with diffused ownership,the board of directors is entrusted with

Accepted Answer

A) monitoring the auditors and safeguarding the interests of shareholders. 
B) monitoring the shareholders and safeguarding the interests of management. 
C) monitoring the management and safeguarding the interests of shareholders. 
D) none of the above

Question 5

Suppose in order to defraud the shareholders,a manager sets up an independent company that he owns buys one of the main company's inputs of production from this company.He would be tempted to set the transfer price

Accepted Answer

A) below market prices. 
B) above market prices. 
C) at the market price. 
D) in accordance with GAAP.

Question 6

In the graph at right,for Fortune 500 companies,X,Y are

Accepted Answer

A) 5% and 25%. 
B) 15% and 50%. 
C) 50% and 75%. 
D) None of the above

Question 7

After a hostile takeover

Accepted Answer

A) the existing management team is usually fired. 
B) the existing management team is usually retained at a higher wage. 
C) the target company usually mounts a takeover defense.

Question 8

The board of directors may grant stock options to managers.These are

Accepted Answer

A) call options. 
B) put options. 
C) none of the above

Question 9

The Sarbanes-Oxley Act of 2002 stipulates that

Accepted Answer

A) a public accounting oversight board be created. 
B) the company should appoint independent financial experts to its audit committee. 
C) CEO and CFO sign off the company's financial statements. 
D) all of the above

Question 10

In the United States and the United Kingdom,hostile takeovers

Accepted Answer

A) are illegal. 
B) can serve as a drastic corporate governance mechanism of the last resort. 
C) reinforce the notion that managers can take their control of the company for granted. 
D) require management approval.

Question 11

Many companies issue shares with differential voting rights,deviating from the one-share one-vote principle.

Accepted Answer

A) By accumulating superior voting shares, investors can acquire cash flow rights exceeding control rights. 
B) The price of the voting shares is usually twice the price of the voting shares. 
C) By accumulating superior voting shares, investors can acquire control rights exceeding cash flow rights. 
D) None of the above

Question 12

Accounting Transparency

Accepted Answer

A) can only be achieved when managers commit to serving on their own audit committee. 
B) occurs when the accounting department has translucent cubicles for their workers. 
C) promises to reduce the information asymmetry between corporate insiders and the public. 
D) none of the above

Question 13

Concentrated corporate ownership is most prevalent in

Accepted Answer

A) Italy. 
B) The U.K. 
C) The U.S. 
D) Australia.

Question 14

The goal of a greater accounting transparency

Accepted Answer

A) is to impose more rules and harsher penalties for their violation. 
B) is to reduce the information asymmetry between corporate insiders and the public. 
C) is to discourage managerial self-dealings. 
D) answers b) and c)

Question 15

Comparing the U.S.with the German and Japanese corporate governance systems,

Accepted Answer

A) the U.S.system is "market centered". 
B) the German and Japanese systems are "bank centered". 
C) it seems fair to say that no country has a perfect system. 
D) all of the above.

Question 16

The agency problem refers to the possible conflicts of interest between

Accepted Answer

A) self-interested managers as principals and shareholders of the firm who are the agents. 
B) altruistic managers as agents and shareholders of the firm who are the principals. 
C) self-interested managers as agents and shareholders of the firm who are the principals. 
D) dutiful managers as principals and shareholders of the firm who are the agents.

Question 17

Benetton,an Italian clothier,is listed on the New York Stock Exchange.

Accepted Answer

A) This decision provides their shareholders with a higher degree of protection than is available in Italy. 
B) This decision can be a signal of the company's commitment to shareholder rights. 
C) This may make investors both in Italy and abroad more willing to provide capital and to increase the value of the pre-existing shares. 
D) All of the above

Question 18

When designing an incentive contract,

Accepted Answer

A) it is important for the board of directors to set up an independent compensation committee that can carefully design the contract and diligently monitor manager's actions. 
B) senior executives can be trusted to not abuse incentive contracts by artificially manipulating accounting numbers since the auditors should look in to that. 
C) the presence of any incentive is enough, whether it is accounting based or stock-price based. 
D) the board of directors should always give the managers a "heads I win, tails you lose" type of option.

Question 19

The Cadbury Code of Best Practice

Accepted Answer

A) is the U.N.equivalent of the Sarbanes-Oxley Act. 
B) is voluntary, but firms that fail to comply must explain why they choose not to comply. 
C) has the force of law, like the Sarbanes-Oxley Act. 
D) none of the above

Question 20

The major components of the Sarbanes-Oxley Act are:

Accepted Answer

A) accounting regulation-The creation of a public accounting oversight board charged with overseeing the auditing of public companies, and restricting the consulting services that auditors can provide to clients. 
B) audit committee-The company should appoint independent "financial experts" to its audit committee. 
C) internal control assessment-Public companies and their auditors should assess the effectiveness of internal control of financial record keeping and fraud prevention. 
D) executive responsibility-Chief executive and finance officers (CEO and CFO) must sign off on the company's quarterly and annual financial statements.If fraud causes an overstatement of earnings, these officers must return any bonuses. 
E) all of the above

Exam 4: Corporate Governance Around the World