Chapter 14 – Stockholder Rights and Corporate Governance
1. (p. 317 – 318) The three types of stockholders that own shares of stock in U.S. corporations are
individuals, institutions, and government.
2. (p. 318) Since the 1960s, there has been phenomenal growth in the numbers of institutional
investors in the United States.
3. (p. 319) Investors always choose to invest in the stock of companies that pay high dividends.
4. (p. 320) A corporation’s stockholders have a right to inspect the company’s books for any
reason.
5. (p. 322) It is the responsibility of the board of directors and its audit committee to engage an
independent accounting firm to audit the financial statements prepared by management.
6. (p. 323) Eighty-four percent of large company boards now have an independent lead director,
a sharp decrease in the past decade.
Chapter 14 – Stockholder Rights and Corporate Governance
7. (p. 324) The Organization for Economic Cooperation and Development (OECD), representing
30 nations, issued a revised set of principles of corporate governance in 2004 to serve as a
benchmark for companies and policymakers worldwide.
8. (p. 325) Stock options represent the right to buy a company’s stock at a set price for a certain
period.
9. (p. 326) In 2005, the Securities and Exchange Commission approved new rules that for the
first time required companies to include the cost of stock options in their earnings.
10. (p. 329) Most boards now staff their compensation committees exclusively with outside
directors and permit them to hire their own consultants.
11. (p. 329) Shareholders must rely exclusively on the board of directors.
12. (p. 330) Institutional investors have little incentive to hold their shares and organize to
change management policy.
13. (p. 330) The activism of institutional shareholders has often worsened company
performance.
Chapter 14 – Stockholder Rights and Corporate Governance
14. (p. 335) In U.S. vs. O’Hagen, the court ruled that someone who traded on the basis of inside
information when he or she knew the information was confidential was guilty of
misappropriation.
15. (p. 337) Stockholders have become an increasingly powerful and vocal stakeholder group in
corporations.
16. (p. 317) Which of the following statements is not true about stockholders?
Difficulty: Easy
17. (p. 318) Which of the following is not true about institutional investors?
Chapter 14 – Stockholder Rights and Corporate Governance
18. (p. 318) Institutional investors are sometimes referred to as:
Difficulty: Easy
19. (p. 319) Investors may receive an economic benefit from the ownership of stock by
receiving:
Difficulty: Medium
20. (p. 319) In the mid- to late-1990s the stock market was a:
Difficulty: Easy
21. (p. 320) Which of the following is not a legal right of stockholders?
Chapter 14 – Stockholder Rights and Corporate Governance
22. (p. 320) Corporate governance involves the exercise of control over a company’s:
Difficulty: Easy
23. (p. 321) The directors of a company are a central factor in corporate governance because
they:
Difficulty: Medium
24. (p. 321) The paramount duty of the board of directors of a public corporation is to:
Difficulty: Medium
25. (p. 321) Which of the following is true about corporate boards?
Chapter 14 – Stockholder Rights and Corporate Governance
26. (p. 321) In 2007, median compensation for directors at the largest U.S. corporations was
(rounded to the nearest $10):
Difficulty: Medium
27. (p. 321) The board committee that administers and approves salaries and benefits of high-
level managers in a company is called the:
Difficulty: Easy
28. (p. 322) Which of the following is not a function of board committees?
Difficulty: Medium
29. (p. 322) What was a major contributor to the collapse of Enron in 2001?
Chapter 14 – Stockholder Rights and Corporate Governance
30. (p. 322) How are directors (members of corporate boards) selected?
Difficulty: Easy
31. (p. 323) Which of the following is a key feature of effective boards of directors?
Difficulty: Easy
32. (p. 324) Between 2002 and 2004, the proportion of global companies that formally evaluated
their board members:
Difficulty: Medium
33. (p. 325) The “agency problem” arises when:
Chapter 14 – Stockholder Rights and Corporate Governance
34. (p. 327) The main reason that American executives are paid so much is:
Difficulty: Medium
35. (p. 328) Which of the following arguments opposes the idea of high executive pay?
Difficulty: Easy
36. (p. 328) Which of the following is not an argument for high executive compensation?
Chapter 14 – Stockholder Rights and Corporate Governance
37. (p. 330) A reason for institutions becoming more assertive in promoting the interests of their
member investors is:
Difficulty: Medium
38. (p. 330) The activism of institutional investors in other countries has been spearheaded by:
Difficulty: Medium
39. (p. 331) The social objectives of investing in stocks include eliminating from investment
portfolios companies that:
Chapter 14 – Stockholder Rights and Corporate Governance
40. (p. 331) Which of the following is not an example of fulfilling social objectives through
stock ownership?
Difficulty: Hard
41. (p. 333) The mission of the Securities and Exchange Commission (SEC) is to:
Difficulty: Medium
42. (p. 333) Reports filed with the SEC provide information on a company’s:
Difficulty: Medium
43. (p. 334) In response to concerns about the lack of transparency in financial accounting,
Congress passed a new law called the:
Chapter 14 – Stockholder Rights and Corporate Governance
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44. (p. 334) The Securities and Exchange Commission outlaws:
Difficulty: Medium
45. (p. 335) Which of the following is not an instance of “insider trading”?
Difficulty: Medium
46. (p. 319 – 320) Identify and provide an example for each of the five major legal rights afforded
to stockholders.
47. (p. 323 – 324) What are the key features of effective boards of directors?
48. (p. 324) Describe a current trend in corporate governance, providing a real example.
Chapter 14 – Stockholder Rights and Corporate Governance
49. (p. 325 – 329) Do you think U.S. executives are compensated too highly? Why or why not?
50. (p. 329 – 330) Why have U.S. institutions become more active as investors? How has this trend
spread to other countries?
51. (p. 334 – 336) What is insider trading? Explain how the courts have defined this practice.
52. (p. 337) In your opinion, how is the relationship between the modern corporation and
shareholders changing? Explain and justify your argument.