Question 1

In high-growth industries where companies' internally generated funds fall short of profitable investment opportunities,

Accepted Answer

A)  managers are less likely to waste funds in unprofitable projects.
B)  managers are more likely to waste funds in unprofitable projects. A

Question 2

The public corporation has a key weakness which is

Accepted Answer

A)  the conflicts of interest between bondholders and shareholders.
B)  the conflicts of interest between managers and bondholders.
C)  the conflicts of interest between stakeholders and shareholders.
D)  the conflicts of interest between managers and shareholders. D

Question 3

In what country do the three largest shareholders control,on average,about 60 percent of the shares of a public company?

Accepted Answer

A)  United States
B)  Canada
C)  Great Britain
D)  Italy D

Question 4

In Germany,the corporate board is

Accepted Answer

A)  legally charged with representing the interests of shareholders exclusively.
B)  legally charged with looking after the interests of stakeholders (e.g.,workers,creditors,etc.) in general,not just shareholders.
C)  legally charged as a supervisory board only.
D)  legally charged as a management board only.

Question 5

Tobin's Q is

Accepted Answer

A)  the ratio of the market value of company assets to the replacement costs of the assets.
B)  a means to find overvalued stocks: If Q is high it means that the cost to replace a firm's assets is greater than the value of its stock.
C)  the same as the price-to-book ratio.
D)  the ratio of the market value of company assets to the replacement costs of the assets,as well as a means to find overvalued stocks: If Q is high it means that the cost to replace a firm's assets is greater than the value of its stock.

Question 6

The key requirements of the Cadbury Code of Best Practice state that

Accepted Answer

A)  boards of directors should include at least three outside directors.
B)  the positions of CEO and chairman of the board should not reside in the same individual.
C)  compliance is mandatory for public corporations,optional for listed non-public corporations.
D)  boards of directors should include at least three outside directors and the positions of CEO and chairman of the board should not reside in the same individual.

Question 7

Suppose you are the CEO of company A,and you serve on the board of company B,while the CEO of B is on your board.

Accepted Answer

A)  This is a potential conflict of interest for both parties.
B)  This is normal and even a desirable situation since it allows for efficient information sharing between the firms.
C)  There is a potential conflict for the shareholders of the two firms.
D)  all of the options

Question 8

In a hostile takeover attempt,the bidder typically

Accepted Answer

A)  makes a tender offer to the target shareholders at a price substantially less than the prevailing share price.
B)  makes a tender offer to the target shareholders at the prevailing share price.
C)  makes a tender offer to the target shareholders at a price substantially exceeding the prevailing share price.
D)  seeks to merge with the target company with an exchange of shares.

Question 9

The central issue of corporate governance is

Accepted Answer

A)  how to protect creditors from managers and controlling shareholders.
B)  how to protect outside investors from the controlling insiders.
C)  how to alleviate the conflicts of interest between managers and shareholders.
D)  how to alleviate the conflicts of interest between shareholders and bondholders.

Question 10

In many countries,hostile takeovers are relatively rare.This is so partly because of

Accepted Answer

A)  the language barrier.
B)  concentrated ownership in these countries.
C)  cultural values and political environments disapproving hostile corporate takeovers.
D)  concentrated ownership in these countries,as well as cultural values and political environments disapproving hostile corporate takeovers.

Question 11

When company ownership is diffuse,

Accepted Answer

A)  a "free rider" problem encourages shareholder activism.
B)  the large number of shareholders ensures strong monitoring of managerial behavior because with a large enough group,there's almost always someone who will to incur the costs of monitoring management.
C)  most shareholders will have a strong enough incentive to incur the costs of monitoring management.
D)  a "free rider" problem discourages shareholder activism and few shareholders have a strong enough incentive to incur the costs of monitoring management.

Question 12

The Sarbanes-Oxley Act of 2002

Accepted Answer

A)  has had the consequence that many foreign firms have de-listed in the U.S.exchanges and listed their shares on the London Stock Exchange and other European exchanges.
B)  has increased the pace of foreign firms listing their shares in the U.S.
C)  has increased the pace of foreign firms listing their shares in the U.S.and has also had the consequence that many foreign firms have de-listed in the U.S.exchanges and listed their shares on the London Stock Exchange and other European exchanges.
D)  all of the options

Question 13

In many countries with concentrated ownership

Accepted Answer

A)  the conflicts of interest between shareholders and managers are worse than in countries with diffuse ownership of firms.
B)  the conflicts of interest are greater between large controlling shareholders and small outside shareholders than between managers and shareholders.
C)  the conflicts of interest are greater between managers and shareholders than between large controlling shareholders and small outside shareholders.
D)  corporate forms of business organization with concentrated ownership are rare.

Question 14

Corporate governance structure

Accepted Answer

A)  varies a great deal across countries.
B)  has become homogenized following the integration of capital markets.
C)  has become homogenized due to cross-listing of shares of many public corporations.
D)  none of the options

Question 15

While debt can reduce agency costs between shareholders and management,

Accepted Answer

A)  debt can create its own agency costs.
B)  this only happens at extreme levels of debt.
C)  this does not work for firms in mature industries with large cash reserves.
D)  none of the options

Question 16

The objective of corporate governance reform should be what?

Accepted Answer

A)  Strengthen the protection of outside investors from expropriation by managers.
B)  Strengthen the protection of outside investors from expropriation by controlling insiders.
C)  Strengthen the protection of outside investors from expropriation by managers and controlling insiders.
D)  none of the options

Question 17

Managerial entrenchment efforts are clear signs of the agency problem.They include

Accepted Answer

A)  anti-takeover defenses.
B)  poison pills.
C)  changes in the voting procedures to make it more difficult for the firm to be taken over.
D)  all of the options

Question 18

The key weakness of the public corporation is

Accepted Answer

A)  too many shareholders,which makes it difficult to make corporate decisions.
B)  relatively high corporate income tax rates.
C)  conflicts of interest between managers and shareholders.
D)  conflicts of interests between shareholders and bondholders.

Question 19

Since the passage of the Sarbanes-Oxley Act,

Accepted Answer

A)  some foreign firms have chosen to list their shares on the London Stock Exchange and other European exchanges,instead of U.S.exchanges,to avoid the costly compliance.
B)  the pace of foreign firms listing their shares in the U.S.has increased.
C)  the firms have passed this increased cost on to their customers.
D)  none of the options

Question 20

Financial development can contribute to economic growth in what way(s)?

Accepted Answer

A)  Financial development enhances savings.
B)  Financial development channels savings toward real investments in productive capacities.
C)  Financial development enhances the efficiency of investment allocation through the monitoring and signaling functions of capital markets.
D)  all of the options

Exam 4: Corporate Governance Around the World