Multinational Business Finance, 14e (Eiteman)
Chapter 4 Financial Goals and Corporate Governance
4.1 Who Owns the Business?
1) Foreign stock markets are frequently characterized by controlling shareholders for the
individual publicly traded firms. Which of the following is NOT identified by the authors as
typical controlling shareholders?
A) the government (for example, privatized utilities)
B) institutions (such as banks in Germany)
C) family (such as in France)
D) All of the above were identified by the authors as controlling shareholders.
2) Which of the following is NOT typically associated with the public ownership of business
organizations?
A) the state
B) the government
C) families
D) civil society
3) Which of the following is NOT typically associated with the private ownership of business
organizations?
A) the government
B) families
C) individuals
D) publicly traded, widely-held organizations
4) State Owned Enterprises (SOEs):
A) are a form of public ownership.
B) are created for commercial activities rather than civil or social activities.
C) are the dominant form of business organization in some countries.
D) are all of the above.
5) The problems that may arise due to the separation of ownership and management in large
business organizations is know as:
A) separation anxiety.
B) the agency problem.
C) corporate disconnect theory.
D) none of the above
6) Privatization is a term used to describe:
A) firms that are purchased by the government.
B) government operations that are purchased by corporations and other investors.
C) firms that do not use publicly available debt.
D) non-public meetings held by members of interlocking directorates.
7) In the U.S. and U.K. stock markets are characterized by ownership of firms concentrated in
the hands of a few controlling shareholders. In contrast, the rest of the world tends to have more
widespread ownership of shares.
8) State Owned Enterprises (SOEs) by their very name cannot be traded on stock exchanges
because they are government owned.
9) According to recent research, family-owned firms in some highly-developed economies
typically outperform publicly-owned firms.
10) According to recent research, family-owned firms in some highly-developed economies
typically outperform publicly-owned firms.
11) According to the authors, dual classes of voting stock are the norm in non-Anglo-American
markets.
12) One of the most challenging issues in the financial management of the enterprise is the
possible separation of ownership from management resulting in the so-called principal agent
problem. Define the agency problem, explain possible ways to alleviate the agency problem and
discuss differences in across global markets.
1) “Maximize corporate wealth”:
A) is the primary objective of the non-Anglo-American model of management.
B) as a management objective treats shareholders on a par with other corporate stakeholders such
as creditors, labor, and local community.
C) has a broader definition than just financial wealth.
D) all of the above
2) The Shareholder Wealth Maximization Model (SWM):
A) combines the interests and inputs of shareholders, creditors, management, employees, and
society.
B) is being usurped by the Stakeholder Capitalism Model as those types of MNEs dominate their
global industry segments.
C) clearly places shareholders as the primary stakeholder.
D) is the dominant form of corporate management in the European-Japanese governance system.
3) The Stakeholder Capitalism Model (SCM):
A) clearly places shareholders as the primary stakeholder.
B) combines the interests and inputs of shareholders, creditors, management, employees, and
society.
C) has financial profit as its goal and is often termed impatient capital.
D) is the Anglo-American model of corporate governance.
4) In the Anglo-American model of corporate governance, the primary goal of management is to:
A) maximize the wealth of all stakeholders.
B) maximize shareholder wealth.
C) minimize costs.
D) minimize risk.
5) In finance, an efficient market is one in which:
A) prices are assumed to be correct.
B) prices adjust quickly and accurately to new information.
C) prices are the best allocators of capital in the macro economy.
D) all of the above
6) Systematic risk can be defined as:
A) the total risk to the firm.
B) the risk of the individual security.
C) the risk of the market in general.
D) the risk that can be systematically diversified away.
7) Unsystematic risk can be defined as:
A) the total risk to the firm.
B) the risk of the individual security.
C) the added risk that a firm’s shares bring to a diversified portfolio.
D) the risk of the market in general.
8) The study of how shareholders can motivate management to accept the prescriptions of the
shareholder wealth maximization model is called:
A) market efficiency.
B) the SWM model.
C) agency theory.
D) the SCM model.
9) Under the Shareholder Wealth Maximization Model (SWM) of corporate governance, poor
firm performance is likely to be faced with all but which of the following?
A) sale of shares by disgruntled current shareholders
B) shareholder activism to attempt a change in current management
C) as a maximum threat, initiation of a corporate takeover
D) prison time for executive management
10) Which of the following is a reason why managers act to maximize shareholder wealth in
Anglo-American markets?
A) the use of stock options to align the goals of shareholders and managers
B) the market for corporate control that allows for outside takeover of the firm
C) performance based compensation for executive management
D) all of the above
11) Which of the following is NOT true regarding the stakeholder capitalism model?
A) Banks and other financial institutions are less important creditors than securities markets.
B) Labor unions are more powerful than in the Anglo-American markets.
C) Governments interfere more in the marketplace to protect important stakeholder groups.
D) All of the above are TRUE.
12) The stakeholder capitalism model:
A) typically avoids the flaw of impatient capital.
B) tries to meet the desires of multiple stakeholders.
C) may leave management without a clear signal about tradeoffs among the several stakeholders.
D) all of the above
13) Which of the following is generally NOT considered to be a viable operational goal for a
firm?
A) maintaining a strong local currency
B) maximization of after-tax income
C) minimization of the firm’s effective global tax burden
D) correct positioning of the firm’s income, cash flows and available funds as to country and
currency
14) Which of the following operational goals for the international firm may be incompatible with
the others?
A) maintaining a strong local currency
B) maximization of after-tax income
C) minimization of the firm’s effective global tax burden
D) Each of these goals may be incompatible with one or more of the others.
15) The primary operational goal for the firm is to:
A) maximize after-tax profits in each country where the firm is operating.
B) minimize the total financial risk to the firm.
C) maximize the consolidated after-tax profits of the firm.
D) maximize the total risk to the firm.
16) With shareholder wealth maximization as the manager’s goal, capital may be termed:
A) impatient.
B) patient.
C) borrowed.
D) bought.
17) If share price rises from $12 to $15 per share, and pays a dividend of $1 per share, what was
the rate of return to shareholders?
A) 26.67%
B) -13.33%
C) 33.33%
D) 16.67%
18) PolyProduction Inc. has two classes of common stock. Class A has 5 million shares with 10
votes per share. Class B has 5 million shares with 1 vote per share. If the dividends per share are
equal for both class A and B stock, then Class A shareholders have ________ of the votes and
________ of the dividends.
A) 90.91%; 90.91%
B) 90.91%; 50.00%
C) 50.00%; 50.00%
D) 83.33%; 33.33%
19) In recent years the trend has been for markets to increasing focus on the shareholder wealth
form of wealth maximization.
20) Non-Anglo-American markets are dominated by the “one-vote-one-share” rule.
21) The stakeholder capitalism model (SCM) holds that total risk (operational and financial) is
more important than just systematic risk.
22) In recent years the trend has been for markets to increasing focus on the global stakeholders.