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Fundamentals of Multinational Finance, 6e (Moffett et al.)
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
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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) "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
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8) 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.
9) 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.
10) 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.
11) 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
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12) 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.
13) 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.
14) 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.
15) 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
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16) 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
17) 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.
18) 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
19) 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
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20) 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.
21) 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.
22) With shareholder wealth maximization as the manager's goal, capital may be termed:
A) impatient.
B) patient.
C) borrowed.
D) bought.
23) 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%
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24) 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%
25) 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.
26) State Owned Enterprises (SOEs) by their very name cannot be traded on stock exchanges
because they are government owned.
27) According to recent research, family-owned firms in some highly-developed economies
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28) According to recent research, family-owned firms in some highly-developed economies
29) According to the authors, dual classes of voting stock are the norm in non-Anglo-American
30) In recent years the trend has been for markets to increasing focus on the shareholder wealth
form of wealth maximization.
31) Non-Anglo-American markets are dominated by the "one-vote-one-share" rule.
32) The stakeholder capitalism model (SCM) holds that total risk (operational and financial) is
more important than just systematic risk.
33) In recent years the trend has been for markets to increasing focus on the global stakeholders.
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34) Patient Capitalism is characterized by short-term focus by both management and investors.
36) The stakeholder capitalism model does not assume that equity markets are either efficient or
37) The stakeholder capitalism model assumes that only systematic risk "counts" or is a prime
concern for management.
38) Dividend yield is the change in the share price of stock as traded in the public equity
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Copyright © 2018 Pearson Education, Inc.
39) The goal of all international corporations is to maximize shareholder wealth.
Answer: FALSE
Diff: 1
L.O.: 4.1 Who Owns the Business?
Skill: Conceptual
AACSB: Application of knowledge
40) Systematic risk can be eliminated through portfolio diversification.
41) A recent study shows that privately held firms use less financial leverage and enjoy lower
42) In the stakeholder capitalism model (SCM) the assumption of market efficiency is absolutely
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43) Describe the management objectives of a firm governed by the shareholder wealth
maximization model and one governed by the stakeholder wealth maximization model. Give an
example of how these two models may lead to different decision-making by executive
management.
44) Define patient and impatient capitalism and discuss how each may lead to different decision-
making in the shareholder wealth maximization model.
45) What are the most important distinctions that make state owned enterprises (SOEs) different
from other forms of government organizations?
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46) 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.
4.2 Publicly Traded versus Privately Held: The Global Shift
1) The number of publicly traded firms:
A) peaked in the U.S. in 1996.
B) peaked worldwide in 1996.
C) increased significantly in 2009 as a result of the international financial crisis.
D) all of the above
2) Which of the following is NOT a source of new stock exchange listing additions?
A) initial public offerings
B) movements of share listings from one exchange to another
C) spinouts from larger firms
D) all of the above are sources
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3) Which of the following is NOT a delisting category?
A) forced delistings
B) mergers
C) acquisitions
D) all of the above are categories of delistings
4) U.S. listings of publicly traded firms as a percentage of worldwide listings of such firms
INCREASED from 11% in 1996 to approximately 33% in 2010.
5) Companies that are delisted cease to trade.
6) Since movements between exchanges typically are a zero sum within a country, and spinouts
and bulletin board movements are few in number, real growth in listings comes from IPOs.
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7) The decline of share listings in the United States has led to considerable debate over whether
these trends represent a fundamental global business shift away from the publicly traded
corporate form, or something that is more U.S.-centric combined with the economic times.
Develop an argument to why the decline happened.
4.3 Corporate Governance
1) Which of the following broad topics is NOT identified as an area to be established as good
corporate governance practice by the Organization for Economic Cooperation and Development
(OECD)?
A) protect the rights of shareholders
B) disclosure and transparency
C) the proper role of stakeholders in the governance of the firm
D) All of the above should be a concern of good corporate governance.
2) The relationship among stakeholders used to determine and control the strategic direction and
performance of an organization is termed:
A) corporate governance.
B) Anglo-American activism.
C) capital structure.
D) working capital management.
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3) When discussing the structure of corporate governance, the authors distinguish between
internal and external factors. ________ is an example of an internal factor, and ________ is an
example of an external factor.
A) Equity markets; executive management
B) Debt markets; board of directors
C) Executive management; auditors
D) Auditors; regulators
4) Which of the following is NOT commonly associated with a government affiliated form of
corporate governance regime?
A) no minority influence
B) lack of transparency
C) state ownership of enterprise
D) All are associated with this type of corporate governance regime.
5) Generally speaking, which of the following is NOT considered an important factor in the
composition and control of corporate boards of directors?
A) the number of insider vs outside directors
B) the total number of directors on the board
C) the composition of the compensation committee
D) All of the above are important factors of board composition.
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6) Signed into law on July 30, 2002, the ________ Act requires CEOs of publicly traded
companies to vouch for the veracity of the firm's published financial statements.
A) Smoot-Hawley
B) Humphrey-Hawkins
C) McCain-Merrill
D) Sarbanes-Oxley
7) The Sarbanes-Oxley Act, passed by the U.S. Congress in July 2002, was designed to:
A) reinstitute heavy tariffs on international trade.
B) reform corporate governance.
C) limit the Federal Reserve Board's ability to engage in the buying and selling of gold.
D) limit trade with countries deemed lenient on terrorism.
8) Anglo-American markets is a term used to describe business markets in:
A) North, Central, and South America.
B) the United States, Canada, and Western Europe.
C) the United States, United Kingdom, Canada, Australia and New Zealand.
D) the United States, France, Britain, and Germany.
9) The deliberation of the of the process demonstrated in the European-Japanese system of
corporate governance has sometimes been termed:
A) socialism.
B) impatient capital.
C) patient capital.
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10) Which of the following is NOT an important concept when distinguishing between
international and domestic financial management?
A) corporate governance
B) culture, history, and institutions
C) political risk
D) All of the above are important distinguishing concepts.
11) The Board of Directors:
A) consists exclusively of the officers of the corporation.
B) is the legal body which is accountable for the governance of the corporation.
C) are not subject to the external forces of the marketplace.
D) is appointed by the Securities and Exchange Commission (SEC).
12) Which of the following is NOT a possible and appropriate response by shareholders
dissatisfied with existing firm management of a publicly traded firm?
A) Shareholders could sell their shares of stock.
B) Shareholders could remain quietly disgruntled.
C) Shareholders, perhaps with the help of others, could attempt to initiate a takeover.
D) All of these responses may be possible and appropriate.
13) Regarding comparative corporate governance regimes: Bank-based regimes characterized by
government influence in bank lending and a lack of transparency is often found in countries such
as Korea and Germany.
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14) Investor protection is typically better in countries with codified civil law (the Code
Napoleon) than in countries with a legal system based in English common law.
15) The relatively low cost of compliance with the Sarbanes-Oxley Act (SOX) has been a
surprising benefit of the act.
16) Having Anglo-Americans as members of the board of directors of a non-Anglo-American
firm signals poor corporate governance in the firm.
17) Although there are many different cultural and legal approaches used in corporate
governance worldwide, there is a growing consensus on what constitutes good corporate
governance. List and explain at least three standardized common principles of good corporate
governance.
