A BC D E
1 Which of the following is true regarding shareholders?
They invest their money in businesses hoping for a
return on their investment
They are legal owners of business corporations
There are three main types of shareholders: individual,
large and institutional shareholders
A and B A, B and C
2 Which of the following is NOT true regarding individual shareholders?
They include regular persons buying and selling
shares of any company
Such transactions are usually done through a stockbroker
The transactions are typically held in brokerage
accounts
They are typically grouped as blockholders and
institutional shareholders
None of the above
3 Large shareholders are:
Individual shareholders owning more than a 20%
equity stake in a firm
Individual shareholders owning more than a 50% equity
stake in a firm
Typically grouped as blockholders and institutional
shareholders.
All of the above None of the above
4 Adverse selection is:
The misrepresentation by the CEO of his/her ability to
do the work that he/she is being paid for.
A problem whereby the top management does not put in the
right effort
A problem whereby the top management misuses the
company resources for their own interests
All of the above None of the above
5 Moral hazard refers to
The legal entity that serves as a nexus for a set of
contract among disparate individuals
Adverse selection
Misrepresentation by the CEO of his/her ability to do
the work he/she is being paid for
One of the problems top managers face when
they deal with shareholders
The ability of top managers to misuse company
resources for their own interests
6 The basic premise of agency theory is that
Shareholders and managers have similar interests that
need to be managed
Managers always work in the interest of shareholders Shareholders cannot control top managers
There is no conflict between shareholders and
managers
The interests of shareholders may not necessarily
coincide with the interests of top managers
7 Corporate governance refers to the: Conflict between managers and shareholders
System that controls and directs top managements’ actions
only
System that controls and directs companies’ and top
managements’ actions
Political alliance between corporations and the
government
None of the above
8 Which of the following is true regarding the Board of Directors?
They are not a primary mechanism to monitor and
control the agency problem
They have a duty of loyalty to their shareholders They put their own interests ahead of the shareholders They cannot control managers None of the above
9 A critical issue in board composition is: The presence (or absence) of diversity Board independence Size All of the above None of the above
10 Which of the following is NOT a critical aspect of the board of directors? Board independence Expertise Size Seniority All of the above
11 Which of the following are advantages of having a large board of directors?
Necessary to understand the industry the company is
operating to have the ability to make decisions of
strategic importance
Greater external linkages Less moral hazard Less adverse selection None of the above
12 Which of the following is NOT a corporate governance mechanism? Ownership concentration Executive Compensation Dividend Board of directors All of the above
13 Which of the following does not represent a form of blockholders? Corporate blockholder Family blockholder State blockholder State ownership Private equity
14
Blockholders are those shareholders that have more than ____ equity stake in
a company.
Stocks awarded to the CEO who then has the ability to
sell the stock at a future date.
50% 5% 20% 100%
15 Stock options are: A popular form of stock ownership
Stocks awarded to the CEO who does not have the ability to
choose whether or not to sell the stock at a future date.
Awarded to the CEO and expire if not immediately
exercised.
Usually exercised when the exercise price
exceeds the market price.
Stocks that CEO’s can sell at a future date
16 Which of the following is true regarding the family blockholder?
The major challenge with regards to family ownership
is the protection of majority shareholders.
Many European nations see a more dominant form of family
ownership
When compared to the U.S., Germany and Italy are
less likely to have family ownership
Both a. and b. A, B and C
17 A third form of blockholder ownership is _____________.
It is another form of firm ownership used for corporate
governance
Local ownership State ownership None of the above All of the above
18 Which of the following is FALSE regarding private equity? Includes business angel and venture capital
It refers to the various forms of private funding that are
available to companies that are not necessarily publicly
traded
The forms vary greatly depending on the stages the
company is at.
May take the form of family blockholder All of the above are true
19 Business angels:
Venture capitalists who rely on informal monitoring
methods
Do not invest their own money in the company Tend to know the entrepreneur personally
Are more likely to be impatient investors who
have a specific timeline determining when to
take their investments out of a company
None of the above
20 While business angels tend to rely on informal monitoring methods,
They are linked to having more outsiders on the board
of directors.
Venture capitalists emphasize more formal contractual
methods of monitoring
Venture capitalists don’t rely on monitoring methods None of the above All of the above
21
Which of the following is true regarding countries high in uncertainty
avoidance?
Have larger boards
They tend to have boards where the CEO also acts as the
chairperson of the board
More outsiders on the board provide the company
with added expertise and capabilities to reduce risks
and ambiguities.
All of the above None of the above are true
22 Research shows that countries that are more individualistic tend to:
Have board of directors with a higher percentage of
outside directors
Have the CEO also act as chairperson of the board of
directors
Have a larger percentage of outsiders on the board of
directors
All of the above None of the above
23
Which of the following is NOT TRUE regarding countries with high
masculinity?
Have higher percentage of outside directors Have a consolidated CEO and chairperson position Have a larger board of directors
Reflects the aggresiveness and ambition inherent
in such countries
Have smaller board of directors
24
Which of the following is not a shareholder right discussed as part of the
future of corporate governance?
Shareholders have the right to purchase shares
Shareholders have the right to participate in key decisions
related to new strategic directions of the company
Shareholders have the right to use the assets of a
company
Shareholders have the right to nominate and
elect board members
All of the above are shareholder rights
25 Which of the following are reasons for board independence? They are more likely to monitor management They are more likley to represent shareholder interests
They are less likely to be connected with the current
firm‘s top management
All of the above None of the Above
26
Which of the following are benefits of increasing diversity by adding more
women to the board of directors for public companies?
Women tend to bring richer ideas to discussions Women encourage and more innovative management
Women are more likley to carefully scrutinize
management actions
Women bring divergent experiences that help
better understand different consumers
All of the above
27 Which of the following are disadvantages of a big board of directors? More likely to engage in social loafing Higher levels of conflict Increase difficulty to communicate All of the above None of the above
28
Which of the following types of ownership demonstrates significant
government ownership:
State ownership State blockholder Family blockholder Corporate blockholder None of the above
29 Which of the following are considered executive compensation? Salary Bonus Stock option Additional perks and benefits All of the above
Question
Question
What is agency theory? Discuss moral hazard and adverse selection in the context of agency theory.
What is corporate governance? Briefly discuss two forms of corporate governance.
What functions do board of directors play? Discuss some of the key aspects of a board of directors.
What is ownership concentration? Briefly discuss the three forms of ownership concentration and the implications for
companies.
Discuss how national culture dimensions such as uncertainty avoidance and masculinity affect corporate governance issues
such as the size of the board of directors and the percentage of outsiders on board of directors.