Question 1

Tammy is a member of the Board of Directors of Moon Corporation.Her husband is the manager of a large division.What type of director is Tammy?

Accepted Answer

A)   inside director
B)   outside director
C)   grey director
D)   resident director
E)   unelected director

Question 2

The conflict of interest that arises when a shareholder who has a controlling interest in multiple firms moves profits away from companies in which he has relatively less cash flow rights toward firms in which he has relatively more cash flow rights is called

Accepted Answer

A)   expropriation.
B)   earnings management.
C)   tunnelling.
D)   profit mining.
E)   cash extraction. C

Question 3

Which of the following countries has employees appoint some board members?

Accepted Answer

A)   Canada
B)   the United States
C)   Turkey
D)   Germany
E)   Australia

Question 4

What is the cost of aligning managers' interests with those of shareholders?

Accepted Answer

Aligning the interests of shar...

Question 5

Why is monitoring the firm's managers more closely an imperfect solution to the conflict of interest problem?

Accepted Answer

The problem with monitoring is that it is costly.With widely held corporate ownership,no one shareholder has an incentive to bear this cost.Monitoring is also costly for the board of directors.Thus,there are limits on how much monitoring can be expected.

Question 6

Explain what it means for a firm to have dual class shares.

Accepted Answer

Dual class shares exist when a...

Question 7

The optimal level of sensitivity of a manager's compensation to the firm's performance depends on the manager's level of risk aversion.

Accepted Answer

A) True 
 B)False

Question 8

One of the most critical inputs to the monitoring process is accurate information.

Accepted Answer

A) True 
 B)False

Question 9

The Smith family has a 45% stake in A company and A company has a 75% stake in B company.Finally,B company has a 35% stake in C company.What percentage ownership does the Smith family have in C company?

Accepted Answer

A)   21%
B)   12%
C)   34%
D)   26%
E)   16%

Question 10

Directors who are not as directly connected to the firm but who have existing or potential business relationships with the firm are called

Accepted Answer

A)   grey directors.
B)   independent directors.
C)   advising directors.
D)   inside directors.
E)   unelected directors.

Question 11

Why is insider trading problematic?

Accepted Answer

A)   If insiders trade on their information, they cause unnecessary share price fluctuations that drive away outside investors.
B)   If insiders trade on their information, the firm is automatically fined and there will be a net loss in firm value.
C)   If insiders trade on their information, outside investors will benefit from the increase in the share price and thus there is a free rider problem.
D)   If insiders trade on their information, it increases the conflicts between shareholders and managers.
E)   If insiders trade on their information, their profits come at the expense of outside investors, making outside investors less willing to invest in corporations.

Question 12

Which monitors of a firm,other than the board of directors,are most likely to detect outright fraud?

Accepted Answer

A)   securities analysts
B)   lenders
C)   employees
D)   regulators
E)   shareholders

Question 13

What is a proxy contest?

Accepted Answer

A proxy contest takes place when shareho...

Question 14

The costs and benefits of a corporate governance structure

Accepted Answer

A)   are the same in all countries.
B)   are the same for all companies within a country.
C)   depend on cultural norms.
D)   are not important in maximizing shareholder wealth.
E)   are easily quantified.

Question 15

What is backdating?

Accepted Answer

Backdating is the practice of choosing t...

Question 16

What is corporate governance?

Accepted Answer

Corporate governance is the sy...

Question 17

According to the findings of researchers in the field,which of the following is most likely to be an effective board of directors?

Accepted Answer

A)   a small board with a large proportion of directors who are not employed by the company or other companies with which it does business
B)   a small board with a large proportion of directors who are employed by the company or another company that has a business relationship with the company
C)   a large board on which most directors have served a long time
D)   a large board on which most directors are employees
E)   a small board with a small proportion of outside directors A

Question 18

In the absence of monitoring,conflict of interest between managers and owners can be mitigated by closely aligning their interests through the managers' compensation policy.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following best describes a pyramid structure?

Accepted Answer

A)   an investor owns less than 50% of a company, and this company owns less than 50% of another company
B)   an investor owns more than 50% of a company, and this company owns less than 50% of another company
C)   an investor owns more than 50% of a company, and this company owns more than 50% of another company
D)   an investor owns less than 50% of a company, and this company owns more than 50% of another company
E)   an investor owns less than 50% of a company, and this company owns 100% of another company

Question 20

One way for families to gain control over firms,even when they do not own more than half the shares,is to issue

Accepted Answer

A)   dual class shares.
B)   more debt.
C)   more equity.
D)   restricted shares.
E)   commercial paper.

Exam 25: Corporate Governance

Tammy is a member of the Board of Directors of Moon Corporation.Her husband is the manager of a large division.What type of director is Tammy?

Correct AnswerverifiedShow Answer

The conflict of interest that arises when a shareholder who has a controlling interest in multiple firms moves profits away from companies in which he has relatively less cash flow rights toward firms in which he has relatively more cash flow rights is called

Correct AnswerverifiedC

Which of the following countries has employees appoint some board members?

Correct AnswerverifiedShow Answer

What is the cost of aligning managers' interests with those of shareholders?

Correct AnswerverifiedAligning the interests of shar...View AnswerShow Answer

Why is monitoring the firm's managers more closely an imperfect solution to the conflict of interest problem?

Correct AnswerverifiedThe problem with monitoring is that it is costly.With widely held corporate ownership,no one shareholder has an incentive to bear this cost.Monitoring is also costly for the board of directors.Thus,there are limits on how much monitoring can be expected.

Explain what it means for a firm to have dual class shares.

Correct AnswerverifiedDual class shares exist when a...View AnswerShow Answer

The optimal level of sensitivity of a manager's compensation to the firm's performance depends on the manager's level of risk aversion.

Correct AnswerverifiedShow Answer

One of the most critical inputs to the monitoring process is accurate information.

Correct AnswerverifiedShow Answer

The Smith family has a 45% stake in A company and A company has a 75% stake in B company.Finally,B company has a 35% stake in C company.What percentage ownership does the Smith family have in C company?

Correct AnswerverifiedShow Answer

Directors who are not as directly connected to the firm but who have existing or potential business relationships with the firm are called

Correct AnswerverifiedShow Answer

Why is insider trading problematic?

Correct AnswerverifiedShow Answer

Which monitors of a firm,other than the board of directors,are most likely to detect outright fraud?

Correct AnswerverifiedShow Answer

What is a proxy contest?

Correct AnswerverifiedA proxy contest takes place when shareho...View AnswerShow Answer

The costs and benefits of a corporate governance structure

Correct AnswerverifiedShow Answer

What is backdating?

Correct AnswerverifiedBackdating is the practice of choosing t...View AnswerShow Answer

What is corporate governance?

Correct AnswerverifiedCorporate governance is the sy...View AnswerShow Answer

According to the findings of researchers in the field,which of the following is most likely to be an effective board of directors?

Correct AnswerverifiedA

In the absence of monitoring,conflict of interest between managers and owners can be mitigated by closely aligning their interests through the managers' compensation policy.

Correct AnswerverifiedShow Answer

Which of the following best describes a pyramid structure?

Correct AnswerverifiedShow Answer

One way for families to gain control over firms,even when they do not own more than half the shares,is to issue

Correct AnswerverifiedShow Answer

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Aligning the interests of shar...
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The problem with monitoring is that it is costly.With widely held corporate ownership,no one shareholder has an incentive to bear this cost.Monitoring is also costly for the board of directors.Thus,there are limits on how much monitoring can be expected.

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Dual class shares exist when a...
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A proxy contest takes place when shareho...
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Backdating is the practice of choosing t...
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Corporate governance is the sy...
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A

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