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Student: ___________________________________________________________________________
1. 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.
True False
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.
5. The genius of public corporations stems from their capacity to allow efficient sharing or spreading
of risk among many investors, who can buy and sell their ownership shares on liquid stock
exchanges and let professional managers run the company on behalf of shareholders. This risk
sharing stems from
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.
10. In what country do the three largest shareholders control, on average, about 60 percent of the
shares of a public company?
A. United States
B. Canada
C. Great Britain
D. Italy
11. The public corporation
14. In theory,
A. managers are hired by the shareholders at the annual stockholders meeting. If the managers
turn in a bad year, new ones get hired.
B. shareholders hire the managers to oversee the board of directors.
C. managers are hired by the board of directors; the board is accountable to the shareholders.
D. none of the above
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.
A. is especially prevalent in such countries as the United States and the United Kingdom, where
corporate ownership is highly diffused.
B. is especially prevalent in such countries as the Italy and Mexico, where corporate ownership is
highly concentrated.
C. is a rational response to the agency problem.
D. none of the above
19. In the United States, managers are legally bound by the "duty of loyalty" to
20. In the United States, managers are bound by the "duty of loyalty" to serve the shareholders.
A. concentrated ownership of the company is more the exception than the rule.
B. diffused ownership of the company is more the exception than the rule.
C. partnerships are more important than corporations.
D. none of the above
A. would specify exactly what the manager will do under each of all possible future contingencies.
B. would be an expensive contract to write and a very expensive contract to monitor.
C. would eliminate any conflicts of interest (and managerial discretion).
D. all of the above
23. Why is it rational to make shareholders "weak" by giving control to the managers of the firm?
A. This may be rational when shareholders may be neither qualified nor interested in making
business decisions.
B. This may be rational since many shareholders find it easier to sell their shares in an
underperforming firm than to monitor the management.
C. This may be rational to the extent that managers are answerable to the board of directors.
D. All of the above are explanations for the separation of ownership and control.
25. 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
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.
28. Suppose in order to defraud the shareholders, a manager sets up an independent company that
he owns sells the main company's output to this company. He would be tempted to set the
transfer price
29. 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
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
31. Managerial entrenchment efforts are clear signs of the agency problem. They include
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
32. In high-growth industries where companies' internally generated funds fall short of profitable
investment opportunities,
A. 5% and 25%.
B. 15% and 50%.
C. 50% and 75%.
D. None of the above
A. LBOs involve managers or buyout partners acquiring controlling interests in public companies,
usually financed by heavy borrowing.
B. Concentrated ownership and high level of debt associated with LBOs are the mechanism for
solving the agency problem.
C. LBOs improve a company's free cash flow and this is the mechanism by which they can solve
the agency problem.
D. Both a and b
37. Tobin's Q is
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
38. It is important for society as a whole to solve the agency problem, since the agency problem
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.
43. In the United States, it is not uncommon for the same person to serve as both CEO and chairman
of the board.
A. This situation must not have much conflict of interest since it is common.
B. This situation has a built-in conflict of interest.
C. This is only legal if that individual owns a controlling number of shares in the firm.
D. None of the above
44. 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.
46. The board of directors may grant stock options to managers. These are
A. call options.
B. put options.
C. none of the above
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.
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.
A. can be an effective way to alleviate the agency problem between shareholders and managers.
B. is the norm in Great Britain.
C. tends to be an ineffective way to alleviate conflicts of interest between groups of shareholders.
D. none of the above
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
54. While debt can reduce agency costs between shareholders and management,
55. While debt can reduce agency costs between shareholders and management,
A. excessive debt may also induce the risk-averse managers to forgo profitable but risky
investment projects, causing an underinvestment problem.
B. with debt financing companies can misuse debt to finance corporate empire building.
C. both a and b
D. none of the above
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
57. Debt can reduce agency costs between shareholders and management, but
59. Benetton, an Italian clothier, is listed on the New York Stock Exchange.
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
60. In the United States and the United Kingdom, hostile takeovers
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.
61. In many countries hostile takeovers are relatively rare. This is so partly because of
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.
64. Suppose the managers of a company have driven the stock price down because they have spent
the investors' money on lavish perquisites like golf club memberships.
A. This situation may prompt a corporate raider to buy up the shares of the firm in a hostile
takeover.
B. If the hostile takeover is successful, the managers will probably lose their jobs in the ensuing
restructuring.
C. If the restructuring is successful, the corporate raider can sell his shares at a profit.
D. All of the above
66. English common law countries tend to provide a stronger protection of shareholder rights than
French civil law countries because
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
68. Studies show that the quality of law enforcement, as measured by the rule of law index, will tend
to be
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.
69. 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?
A. 50 percent
B. 10 percent
C. 20 percent
D. 6 percent
A. Italy.
B. the U.K.
C. the U.S.
D. Australia.
A. a shareholder controls a holding company that owns a controlling block of another company,
which in turn owns controlling interests in yet another company, and so on.
B. equity cross-holdings among a group of companies, such as keiretsu and chaebols can be
used to concentrate and leverage voting rights to acquire control.
C. a combination of these schemes may also be used to leverage control in a pyramidal
ownership structure.
73. What is the difference between control rights and cash flow rights?
A. Since all shareholders benefit only from pro-rata cash flows, control rights and cash flow rights
are the same thing.
B. Large investors may be able to derive private benefits from control, thus control rights can
exceed cash flow rights.
C. Cash flow rights are more important than control rights since the only reason to invest in
anything is to generate cash.
D. None of the above
74. The key to extracting private benefits of control that are not shared by other shareholders on a
pro rata basis is to
A. become a large shareholder and acquire control rights exceeding cash flow rights.
B. buy a large block of nonvoting shares.
C. sell your shares in a tender offer.
D. force the firm into bankruptcy.
75. The voting premium, defined as the total vote value (value of a vote times the number of votes)
as a proportion of the firm's equity market value is only about 2 percent in the United States and
36 percent in Mexico, suggesting that in Mexico,
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.
77. To formula to compute the value of the "block premium" is
A.
.
B.
.
C.
.
D.
.
A. is to measure the difference in value between non-voting shares and voting shares.
B. is to measure the value of the "block premium" the value difference between the price per
share paid for a control block of shares versus the exchange price of regular shares.
C. both a and b
81. Comparing the U.S. with the German and Japanese corporate governance systems,
84. In the U.S., corporate governance reform has included all of the following except:
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
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. all of the above
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
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.
93. The major components of the Sarbanes-Oxley Act include all of the following except
95. The Cadbury Code has not been legislated into law, and compliance with the code is voluntary.
A. However, the London Stock Exchange (LSE) 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
96. Following the adoption of the Cadbury Code of Best practice joint CEO/COB positions declined
A. joint CEO/COB (chief executive officer and chairman of the board) positions declined.
B. there has been a significant impact on the internal governance mechanisms of U.K.
companies.
C. CEOs have become more sensitive to company performance, strengthening managerial
accountability and weakening managerial entrenchment.
D. all of the above
98. Even though the compliance the Cadbury Code of Best Practice is voluntary,
A. the Cadbury Code has made a significant impact on the internal governance mechanisms of
U.K. companies.
B. the job security of U.K. chief executives has become more sensitive to the company
performance, strengthening managerial accountability and weakening its entrenchment.
C. joint CEO/COB (chief executive officer and chairman of the board) positions declined.
D. all of the above
99. The key requirements of the Cadbury Code of Best Practice state that
100.The key requirements of the Cadbury Code of Best Practice state that
1. 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.
TRUE
Eun - Chapter 04 #1
Topic: Capital Markets and Valuation
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.
Eun - Chapter 04 #2
Topic: Corporate Governance
6. In a public company with diffused ownership, the board of directors is entrusted with
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.
Eun - Chapter 04 #9
Topic: Governance of the Public Corporation: Key Issues
10. In what country do the three largest shareholders control, on average, about 60 percent of the
shares of a public company?
A. United States
B. Canada
C. Great Britain
D. Italy
Eun - Chapter 04 #10
Topic: Governance of the Public Corporation: Key Issues
14. In theory,
A. managers are hired by the shareholders at the annual stockholders meeting. If the
managers turn in a bad year, new ones get hired.
B. shareholders hire the managers to oversee the board of directors.
C. managers are hired by the board of directors; the board is accountable to the shareholders.
D. none of the above
Eun - Chapter 04 #14
Topic: Governance of the Public Corporation: Key Issues
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.
Eun - Chapter 04 #16
Topic: Governance of the Public Corporation: Key Issues
17. The public corporation has a key weakness:
A. is especially prevalent in such countries as the United States and the United Kingdom,
where corporate ownership is highly diffused.
B. is especially prevalent in such countries as the Italy and Mexico, where corporate
ownership is highly concentrated.
C. is a rational response to the agency problem.
D. none of the above
Eun - Chapter 04 #18
Topic: Governance of the Public Corporation: Key Issues
19. In the United States, managers are legally bound by the "duty of loyalty" to
20. In the United States, managers are bound by the "duty of loyalty" to serve the shareholders.
A. concentrated ownership of the company is more the exception than the rule.
B. diffused ownership of the company is more the exception than the rule.
C. partnerships are more important than corporations.
D. none of the above
Eun - Chapter 04 #21
Topic: Governance of the Public Corporation: Key Issues
A. would specify exactly what the manager will do under each of all possible future
contingencies.
B. would be an expensive contract to write and a very expensive contract to monitor.
C. would eliminate any conflicts of interest (and managerial discretion).
D. all of the above
Eun - Chapter 04 #22
Topic: The Agency Problem
23. Why is it rational to make shareholders "weak" by giving control to the managers of the firm?
A. This may be rational when shareholders may be neither qualified nor interested in making
business decisions.
B. This may be rational since many shareholders find it easier to sell their shares in an
underperforming firm than to monitor the management.
C. This may be rational to the extent that managers are answerable to the board of directors.
D. All of the above are explanations for the separation of ownership and control.
Eun - Chapter 04 #23
Topic: The Agency Problem
26. The agency problem refers to the possible conflicts of interest between
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.
Eun - Chapter 04 #26
Topic: The Agency Problem
28. Suppose in order to defraud the shareholders, a manager sets up an independent company
that he owns sells the main company's output to this company. He would be tempted to set the
transfer price
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
Eun - Chapter 04 #30
Topic: The Agency Problem
31. Managerial entrenchment efforts are clear signs of the agency problem. They include
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
Eun - Chapter 04 #31
Topic: The Agency Problem
32. In high-growth industries where companies' internally generated funds fall short of profitable
investment opportunities,
A. 5% and 25%.
B. 15% and 50%.
C. 50% and 75%.
D. None of the above
Eun - Chapter 04 #35
Topic: Remedies for the Agency Problem
37. Tobin's Q is
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
Eun - Chapter 04 #37
Topic: Remedies for the Agency Problem
38. It is important for society as a whole to solve the agency problem, since the agency problem
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.
Eun - Chapter 04 #42
Topic: Board of Directors
43. In the United States, it is not uncommon for the same person to serve as both CEO and
chairman of the board.
A. This situation must not have much conflict of interest since it is common.
B. This situation has a built-in conflict of interest.
C. This is only legal if that individual owns a controlling number of shares in the firm.
D. None of the above
Eun - Chapter 04 #43
Topic: Board of Directors
44. 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.
A. call options.
B. put options.
C. none of the above
Eun - Chapter 04 #46
Topic: Incentive Contracts
48. The board of directors may grant stock options to managers in order to
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.
Eun - Chapter 04 #50
Topic: Concentrated Ownership
A. can be an effective way to alleviate the agency problem between shareholders and
managers.
B. is the norm in Great Britain.
C. tends to be an ineffective way to alleviate conflicts of interest between groups of
shareholders.
D. none of the above
Eun - Chapter 04 #51
Topic: Concentrated Ownership
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
Eun - Chapter 04 #53
Topic: Accounting Transparency
54. While debt can reduce agency costs between shareholders and management,
55. While debt can reduce agency costs between shareholders and management,
A. excessive debt may also induce the risk-averse managers to forgo profitable but risky
investment projects, causing an underinvestment problem.
B. with debt financing companies can misuse debt to finance corporate empire building.
C. both a and b
D. none of the above
Eun - Chapter 04 #55
Topic: Debt
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
Eun - Chapter 04 #56
Topic: Debt
57. Debt can reduce agency costs between shareholders and management, but
59. Benetton, an Italian clothier, is listed on the New York Stock Exchange.
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
Eun - Chapter 04 #59
Topic: Overseas Stock Listings
60. In the United States and the United Kingdom, hostile takeovers
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.
Eun - Chapter 04 #60
Topic: Market for Corporate Control
61. In many countries hostile takeovers are relatively rare. This is so partly because of
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.
Eun - Chapter 04 #63
Topic: Market for Corporate Control
64. Suppose the managers of a company have driven the stock price down because they have
spent the investors' money on lavish perquisites like golf club memberships.
A. This situation may prompt a corporate raider to buy up the shares of the firm in a hostile
takeover.
B. If the hostile takeover is successful, the managers will probably lose their jobs in the
ensuing restructuring.
C. If the restructuring is successful, the corporate raider can sell his shares at a profit.
D. All of the above
Eun - Chapter 04 #64
Topic: Market for Corporate Control
67. Many companies issue shares with differential voting rights, deviating from the one-share one-
vote principle.
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
Eun - Chapter 04 #67
Topic: Law and Corporate Governance
68. Studies show that the quality of law enforcement, as measured by the rule of law index, will
tend to be
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.
Eun - Chapter 04 #68
Topic: Law and Corporate Governance
69. 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?
A. 50 percent
B. 10 percent
C. 20 percent
D. 6 percent
Eun - Chapter 04 #69
Topic: Consequences of Law
Topic: Ownership and Control Pattern
70. Concentrated corporate ownership is most prevalent in
A. Italy.
B. the U.K.
C. the U.S.
D. Australia.
Eun - Chapter 04 #70
Topic: Consequences of Law
Topic: Ownership and Control Pattern
73. What is the difference between control rights and cash flow rights?
A. Since all shareholders benefit only from pro-rata cash flows, control rights and cash flow
rights are the same thing.
B. Large investors may be able to derive private benefits from control, thus control rights can
exceed cash flow rights.
C. Cash flow rights are more important than control rights since the only reason to invest in
anything is to generate cash.
D. None of the above
Eun - Chapter 04 #73
Topic: Consequences of Law
Topic: Ownership and Control Pattern
74. The key to extracting private benefits of control that are not shared by other shareholders on a
pro rata basis is to
A. become a large shareholder and acquire control rights exceeding cash flow rights.
B. buy a large block of nonvoting shares.
C. sell your shares in a tender offer.
D. force the firm into bankruptcy.
Eun - Chapter 04 #74
Topic: Private Benefits of Control
75. The voting premium, defined as the total vote value (value of a vote times the number of
votes) as a proportion of the firm's equity market value is only about 2 percent in the United
States and 36 percent in Mexico, suggesting that in Mexico,
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.
Eun - Chapter 04 #76
Topic: Private Benefits of Control
A.
.
B.
.
C.
.
D.
.
Eun - Chapter 04 #77
Topic: Private Benefits of Control
78. One way to measure the value of private benefits of control
A. is to measure the difference in value between non-voting shares and voting shares.
B. is to measure the value of the "block premium" the value difference between the price per
share paid for a control block of shares versus the exchange price of regular shares.
C. both a and b
Eun - Chapter 04 #78
Topic: Private Benefits of Control
81. Comparing the U.S. with the German and Japanese corporate governance systems,
84. In the U.S., corporate governance reform has included all of the following except:
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
Eun - Chapter 04 #87
Topic: Objectives of Reform
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. all of the above
Eun - Chapter 04 #88
Topic: Objectives of Reform
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
Eun - Chapter 04 #89
Topic: Objectives of Reform
90. The major components of the Sarbanes-Oxley Act are:
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.
Eun - Chapter 04 #92
Topic: Objectives of Reform
93. The major components of the Sarbanes-Oxley Act include all of the following except
95. The Cadbury Code has not been legislated into law, and compliance with the code is
voluntary.
A. However, the London Stock Exchange (LSE) 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
Eun - Chapter 04 #95
Topic: The Cadbury Code of Best Practice
96. Following the adoption of the Cadbury Code of Best practice joint CEO/COB positions
declined
A. joint CEO/COB (chief executive officer and chairman of the board) positions declined.
B. there has been a significant impact on the internal governance mechanisms of U.K.
companies.
C. CEOs have become more sensitive to company performance, strengthening managerial
accountability and weakening managerial entrenchment.
D. all of the above
Eun - Chapter 04 #97
Topic: The Cadbury Code of Best Practice
98. Even though the compliance the Cadbury Code of Best Practice is voluntary,
A. the Cadbury Code has made a significant impact on the internal governance mechanisms
of U.K. companies.
B. the job security of U.K. chief executives has become more sensitive to the company
performance, strengthening managerial accountability and weakening its entrenchment.
C. joint CEO/COB (chief executive officer and chairman of the board) positions declined.
D. all of the above
Eun - Chapter 04 #98
Topic: The Cadbury Code of Best Practice
99. The key requirements of the Cadbury Code of Best Practice state that
100. The key requirements of the Cadbury Code of Best Practice state that
Category # of Questions
Eun - Chapter 04 100
Topic: Accounting Transparency 2
Topic: Board of Directors 6
Topic: Capital Markets and Valuation 3
Topic: Concentrated Ownership 2
Topic: Consequences of Law 5
Topic: Corporate Governance 3
Topic: Corporate Governance Reform 1
Topic: Debt 4
Topic: Governance of the Public Corporation: Key Issues 17
Topic: Incentive Contracts 4
Topic: International Finance in Practice: When Boards Are All in the Family 1
Topic: Law and Corporate Governance 4
Topic: Market for Corporate Control 5
Topic: Objectives of Reform 12
Topic: Overseas Stock Listings 2
Topic: Ownership and Control Pattern 5
Topic: Private Benefits of Control 5
Topic: Remedies for the Agency Problem 5
Topic: The Agency Problem 12
Topic: The Cadbury Code of Best Practice 7