Question 1

Studies show that the quality of law enforcement,as measured by the rule of law index,will tend to be

Accepted Answer

A)  higher in French civil law countries than in English common law countries.
B)  higher in English common law countries than in Scandinavian civil law countries.
C)  highest in Scandinavian civil law countries and German civil law countries.
D)  highest in English common law countries.

Question 2

Self-interested managers may be tempted to

Accepted Answer

A)  indulge in expensive perquisites at company expense.
B)  adopt antitakeover measures for their company to ensure their personal job security.
C)  waste company funds by undertaking unprofitable projects that benefit themselves but not shareholders.
D)  all of the above are potential abuses that self-interested managers may be tempted to visit upon shareholders.

Question 3

When managerial self-dealings are excessive and left unchecked,

Accepted Answer

A)  they can have serious negative effects on share values.
B)  they can impede the proper functions of capital markets.
C)  they can impede such measures as GDP growth.
D)  all of the above

Question 4

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 5

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 6

Corporate governance can be defined as

Accepted Answer

A)  the economic, legal, and institutional framework in which corporate control and cash flow rights are distributed among shareholders, managers and other stakeholders of the company.
B)  the general framework in which company management is selected and monitored.
C)  the rules and regulations adopted by boards of directors specifying how to manage companies.
D)  the government-imposed rules and regulations affecting corporate management.

Question 7

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 8

Why do managers tend to retain free cash flow?

Accepted Answer

A)  Managers are in the best position to decide the best use of those funds.
B)  These funds are needed for undertaking profitable projects and the issue costs are less than new issues of stocks or bonds.
C)  Managers may not be acting in the shareholders best interest, and for a variety of reasons, want to use the free cash flow.
D)  None of the above

Question 9

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)  Both a and b are correct

Question 10

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 above

Question 11

The major components of the Sarbanes-Oxley Act include all of the following except

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)  shareholder voting rights reform-"one share one vote" is now the law of the land.
D)  executive responsibility-CEOs and CFOs must sign off on the company's financial statements.

Question 12

Since the passage of the Sarbanes-Oxley Act,

Accepted Answer

A)  some foreign firms choose 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.

Question 13

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

Accepted Answer

A)  the compensation, nominating, and audit committees to be entirely composed of independent directors.
B)  the positions of CEO and chairman of the board should not reside in the same individual.
C)  listed companies to have boards of directors with a majority of independents.
D)  none of the above

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 above

Question 15

Concentrated corporate ownership is most prevalent in

Accepted Answer

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

Question 16

The board of directors may grant stock options to managers in order to

Accepted Answer

A)  save executive compensation costs.
B)  use as a substitute for bonus.
C)  align the interest of managers with that of shareholders.
D)  none of the above

Question 17

Concentrated ownership of a public company

Accepted Answer

A)  is normal in the United States, following the well-publicized scandals of recent years.
B)  is relatively rare in the United States and common in many other parts of the world.
C)  leads to a free-rider problem with the minority shareholders relying on the majority.shareholders to assume an undue burden in monitoring the management.
D)  is the norm in Great Britain.

Question 18

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 19

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 20

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

Exam 4: Corporate Governance Around the World

Why do managers tend to retain free cash flow?

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Since the passage of the Sarbanes-Oxley Act,

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When managerial self-dealings are excessive and left unchecked,

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The board of directors may grant stock options to managers in order to

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Corporate governance structure

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

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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

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Concentrated corporate ownership is most prevalent in

Correct AnswerverifiedShow Answer

Self-interested managers may be tempted to

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In the United States and the United Kingdom,hostile takeovers

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The major components of the Sarbanes-Oxley Act include all of the following except

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Tobin's Q is

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

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Studies show that the quality of law enforcement,as measured by the rule of law index,will tend to be

Correct AnswerverifiedShow Answer

Concentrated ownership of a public company

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The central issue of corporate governance is

Correct AnswerverifiedShow Answer

Corporate governance can be defined as

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

In many countries with concentrated ownership

Correct AnswerverifiedShow Answer

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