Question 1

The key strengths of the public corporation is/are

Accepted Answer

A)  their capacity to allow efficient risk sharing among many investors.
B)  their capacity to raise large amounts of funds at relatively low cost.
C)  their capacity to consolidate decision-making.
D)  all of the above

Question 2

It is important for society as a whole to solve the agency problem,since the agency problem

Accepted Answer

A)  leads to waste of scarce resources.
B)  hampers capital market functions.
C)  retards economic growth.
D)  all of the above

Question 3

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.

Question 4

The investors supply funds to the company but are not involved in the company's daily decision making.As a result,many public companies come to have

Accepted Answer

A)  strong shareholders and weak managers.
B)  strong managers and weak shareholders.
C)  strong managers and strong shareholders.
D)  weak managers and weak shareholders.

Question 5

The cost of compliance with the Sarbanes-Oxley Act

Accepted Answer

A)  is a small amount, since most firms were playing by rules to begin with.
B)  disproportionately affects small firms.
C)  is paid for with tax credits for firms found to be in compliance.
D)  both a)  and c)

Question 6

In the United States,it is well documented that

Accepted Answer

A)  boards dominated by their chief executives are prone to trouble.
B)  public scrutiny can help improve corporate governance.
C)  as public firms improve their corporate governance, the stock price goes up.
D)  all of the above

Question 7

Countries with strong shareholder protection tend to have more valuable stock markets and more companies listed on stock exchanges per capita than countries with weak protection.

Accepted Answer

A) True 
 B)False

Question 8

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)  Both a)  and b) 
D)  None of the above

Question 9

The strongest protection for investors is provided by

Accepted Answer

A)  English common law countries, such as Canada, the United States, and the U.K.
B)  French civil law countries, such as Belgium, Italy, and Mexico.
C)  a weak board of directors.
D)  socialized firms.

Question 10

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 11

The key requirements of the Sarbanes-Oxley Act 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)  none of the above

Question 12

The agency problem tends

Accepted Answer

A)  to be more serious in firms with free cash flows.
B)  to be more serious in firms with excessive amounts of excess cash.
C)  to be less serious in firms with few numbers of shareholders.
D)  all of the above

Question 13

Unless investors can derive significant private benefits of control,

Accepted Answer

A)  they will pay small premiums for voting shares over nonvoting shares.
B)  they will pay moderate premiums for voting shares over nonvoting shares.
C)  they will pay substantial premiums for voting shares over nonvoting shares.
D)  they will not pay substantial premiums for voting shares over nonvoting shares.

Question 14

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)  a)  and b)  are both true
D)  all of the above

Question 15

In the United Kingdom,the majority of public companies

Accepted Answer

A)  voluntarily abide by the Code of Best Practice on corporate governance.
B)  are compelled by law to abide by the Code of Best Practice on corporate governance.
C)  do not abide by the Code of Best Practice on corporate governance.

Question 16

Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

Accepted Answer

A)  by moving to a better county.
B)  by listing their stocks in countries with strong investor protection.
C)  by voluntarily complying with the provisions of the U.S.Sarbanes-Oxley Act.
D)  having a press conference and promising to be nice to their investors.

Question 17

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 18

The Cadbury Code has not been legislated into law,and compliance with the code is voluntary.

Accepted Answer

A)  However, the London Stock Exchange (LS
E)   currently requires that each listed company show whether the company is in compliance with the code and explain why if it is not.
B)  This "comply or explain" approach has apparently persuaded many companies to comply rather than explain.
C)  Currently, 90 percent of all LSE-listed companies have adopted the Cadbury Code.
D)  All of the above

Question 19

For firms with free cash flows,

Accepted Answer

A)  debt can be a stronger mechanism than stocks for credibly bonding managers to release cash flows to investors.
B)  equity dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors.
C)  preferred stock dividends can be a stronger mechanism than bonds for credibly bonding managers to release cash flows to investors.
D)  none of the above

Question 20

In the U.S.,the chief role of the board of directors is

Accepted Answer

A)  to hire the management team.
B)  to decide on the annual capital budget.
C)  to design an effective incentive compatible compensation scheme for themselves.
D)  none of the above

Exam 4: Corporate Governance Around the World

The cost of compliance with the Sarbanes-Oxley Act

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

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Countries with strong shareholder protection tend to have more valuable stock markets and more companies listed on stock exchanges per capita than countries with weak protection.

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The agency problem tends

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The key requirements of the Sarbanes-Oxley Act state that

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The Cadbury Code has not been legislated into law,and compliance with the code is voluntary.

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The Sarbanes-Oxley Act of 2002

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In the United Kingdom,the majority of public companies

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Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and management

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The strongest protection for investors is provided by

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Unless investors can derive significant private benefits of control,

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It is important for society as a whole to solve the agency problem,since the agency problem

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The key strengths of the public corporation is/are

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For firms with free cash flows,

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The objective of corporate governance reform should be what?

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In the United States,it is well documented that

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In a hostile takeover attempt,the bidder typically

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The investors supply funds to the company but are not involved in the company's daily decision making.As a result,many public companies come to have

Correct AnswerverifiedShow Answer

In the U.S.,the chief role of the board of directors is

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In many countries with concentrated ownership

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