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Indicate whether the statement is true or false.
1. Awareness by top managers of the existence of external investors in the form of individuals (e.g., Carl Icahn) and
groups (e.g., hedge funds) often positively influences them to align their interests with shareholders.
a.
True
b.
False
2. While the implementation of the Sarbanes-Oxley Act in 2002 has been controversial to some, most believe that it has
had positive results in terms of protecting stakeholders and certain stockholder interests.
a.
True
b.
False
3. In the United States, the members of the Board of Directors are a firm’s key stakeholders and a company’s legal owners.
a.
True
b.
False
4. In the modern U.S. corporation, the ownership and managerial control of the firm are separated.
a.
True
b.
False
5. Generally, the Board of Directors can be classified as insiders, unrelated insiders, outsiders, and unrelated outsiders.
a.
True
b.
False
6. Executive compensation is a governance mechanism that seeks to align the interests of managers and owners through
salaries, bonuses, and long-term incentive compensation such as stock awards and options.
a.
True
b.
False
7. A Board composed primarily of outside directors will have better insights as to the firms intended strategic initiatives,
the reasons for the initiatives, and the outcomes expected from them than will inside directors.
a.
True
b.
False
8. Research evidence suggests that ownership concentration is associated with lower levels of firm diversification, which
conforms to the interests of stockholders.
a.
True
b.
False
9. Long-term incentives facilitate a Board of Directors’ pay-related decisions designed to avoid potential agency problems
by linking managerial compensation to the wealth of common shareholders.
a.
True
b.
False
10. Amelia Smith is the sole owner of the successful restaurant chain, Amelia’s Café. Ms. Smith has taken a no-interest
loan from the company in order to build a luxurious seaside house for herself in Carmel, California. This constitutes a
classic agency problem.
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a.
True
b.
False
11. Scandals at Enron, WorldCom, and HealthSouth illustrate the negative effects of poor ethical behavior on a firm’s
efforts to satisfy stakeholders.
a.
True
b.
False
12. Ownership of many modern corporations is now concentrated in the hands of institutional investors rather than
individual stockholders.
a.
True
b.
False
13. Failures of corporate internal controls and inadequate internal control systems allowed unethical executives at such
companies as Enron and WorldCom to act in their own self-interest.
a.
True
b.
False
14. The market for corporate control may not be as efficient as a governance device as theory suggests because takeover
targets are not always low performers with weak governance.
a.
True
b.
False
15. The top management of RavenCrest, Inc. have significant stock options in RavenCrest. They are therefore more likely
to gain in making an agreement to be acquired, especially if they have golden parachutes.
a.
True
b.
False
16. A powerful CEO would oppose the appointment of a lead director on the Board of Directors.
a.
True
b.
False
17. For top-level managers, Board acceptance of the acquiring firm’s offer usually leads to job loss because the acquiring
firm wants new leadership. If the offer is refused, however, the job loss risk is minimal.
a.
True
b.
False
18. DDD MetalWorks plans to go public in the next 2 years. In order to be listed on the New York Stock Exchange, the
firm will need to restructure its present Board of Directors, which is made up of a majority outside independent directors
to a Board of Directors that is dominated by insiders and related outsiders.
a.
True
b.
False
19. When the option strike prices in an executive stock option-based compensation plan have been lowered it is usually a
defense to a hostile takeover.
a.
True
b.
False
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20. Critics advocate reforms to ensure that independent outside directors represent a significant majority of the total
membership of the Board. But outsider-dominated Boards may emphasize the use of financial as opposed to strategic
controls. The risk of reliance on financial controls is that they may encourage managers to make decisions to maximize
their interests and reduce their employment risk.
a.
True
b.
False
21. Large-block shareholders typically own at least 5 percent of a corporation’s issued shares.
a.
True
b.
False
22. Foreign investors are playing a relatively minor role in the governance of firms in many countries.
a.
True
b.
False
23. Ethically responsible companies design and use governance mechanisms that will at least minimally satisfy
stakeholders’ interests.
a.
True
b.
False
24. In modern corporations—especially those in the United States and United Kingdom—a primary objective of corporate
governance is to ensure that the interests of top-level managers are aligned with the interests of shareholders.
a.
True
b.
False
25. The separation of the positions of CEO and chairperson of the Board of Directors reduces the power of the CEO over
firm governance practices.
a.
True
b.
False
26. Boards with many members from the firm’s top management team tend to have weak monitoring and control systems
for managerial decisions.
a.
True
b.
False
27. A top-level manager’s reputation is a dependable predictor of his/her future behavior.
a.
True
b.
False
28. The way that U.S. corporate Boards of Directors are presently structured, they have little influence on the unethical
behavior of top management.
a.
True
b.
False
29. Individual shareholders with small ownership percentages are less dependent on the Board of Directors to represent
their interests than are large block shareholders.
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a.
True
b.
False
30. One of the changes to enhance the effectiveness of the Board of Directors is the creation of a “lead director” role that
has strong powers with regard to the Board agenda and oversight of non-management Board member activities.
a.
True
b.
False
31. Managers in firms that have been subjects of hostile takeovers usually find that their value to the new firm has been
enhanced because of their in-depth insider knowledge.
a.
True
b.
False
32. As globalization grows, adequate corporate governance is becoming an important requirement for doing business with
a foreign firms and in foreign countries.
a.
True
b.
False
33. Stock option repricing where the strike price value of the option has been lowered from its original position sometimes
happens when firm performance is poor.
a.
True
b.
False
34. An agency relationship exists when one or more persons (the principal or principals) hire another person or persons
(the agent or agents) as decision-making specialists to perform a service.
a.
True
b.
False
35. An advantage of severance packages is that they may encourage top-level managers to accept takeover bids that are
attractive to shareholders.
a.
True
b.
False
36. Executive compensation is considered an external corporate governance mechanism because it determined in part by
market forces.
a.
True
b.
False
37. Corporate governance mechanisms are designed to ensure that top managers make strategic decisions that best serve
the interests of the entire group of stakeholders.
a.
True
b.
False
38. Recent emphasis on corporate governance stems mainly from the failure of corporate governance mechanisms to
adequately monitor and control top-level managers’ decisions.
a.
True
b.
False
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39. In recent years, the number of individuals who are large-block shareholders have declined and been replaced by
institutional owners such as mutual funds and pension funds.
a.
True
b.
False
40. In the United States, the primary goal of a firm is to maximize profits to provide a financial gain to shareholders.
a.
True
b.
False
41. The three internal corporate governance mechanisms are ownership concentration, Board of Directors, and the market
for corporate control.
a.
True
b.
False
42. Large German firms must include employees, union members, and shareholders in the formal governance structure.
a.
True
b.
False
43. The Dodd-Frank Wall Street Reform and Consumer Protection Act contains provisions related to consumer protection,
systemic risk oversight, capital requirements for banks, but not for executive compensation.
a.
True
b.
False
44. The separation of ownership and control is the most effective means used by firms to prevent managerial opportunism.
a.
True
b.
False
45. Because top management decisions are usually complex and nonroutine, determining the quality of executive
performance is beyond the power of Boards of Directors.
a.
True
b.
False
46. Agency costs include incentives for executives, monitoring, enforcement costs, and any individual financial losses
incurred by principals.
a.
True
b.
False
47. Corporate governance involves oversight in areas where owners, managers, and members of Boards of Directors may
have conflicts of interest.
a.
True
b.
False
48. Hedge funds, as part of the market for corporate control, identifies a firm that is underperforming and then invests in it
with the goal of improving that firm’s performance.
a.
True
b.
False
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49. Institutional owners, despite their size, are usually unable to discipline ineffective top managers and cannot influence a
firm’s choice of strategies and overall strategic direction.
a.
True
b.
False
50. If a stakeholder is dissatisfied with a firm, it will withdraw its support and give it to another firm.
a.
True
b.
False
51. In general, when governance mechanisms are strong, managers have free rein in their decisions.
a.
True
b.
False
52. Both top executives and owners of the firm wish to diversify the firm to reduce risk.
a.
True
b.
False
53. The market for corporate control is composed of individuals and firms that buy ownership positions or take over
potentially undervalued corporations and make changes to those corporations, including the replacement of the top
managers.
a.
True
b.
False
54. Attitudes toward corporate governance in Japan are affected by the concepts of obligation, family, and consensus.
a.
True
b.
False
55. The increased use of the market for corporate control has decreased the sophistication and variety of managerial
defense tactics that are used in takeovers.
a.
True
b.
False
56. As a rule, shareholders prefer more product diversification than do managers because shareholders wish to reduce risk
and maximize wealth.
a.
True
b.
False
57. Research suggests that institutional activism may not have a strong direct effect on firm performance but may
indirectly influence the targeted firm’s strategic decisions, including those concerned with international diversification and
innovation.
a.
True
b.
False
58. Corporate governance is the set of mechanisms used to manage the relationship among stakeholders and to determine
and control the strategic direction and performance of an organization.
a.
True
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b.
False
59. Because of recent ineffective performance, Boards of Directors are experiencing increasing pressure from
shareholders, lawmakers, and regulators to be more effective in preventing managers from acting in their own interest.
a.
True
b.
False
60. More intense application of governance mechanisms such as mandated by Sarbanes Oxley and Dodd-Frank may cause
firms to take on fewer risky projects and thus increase potential shareholder wealth.
a.
True
b.
False
61. The performance of individual Board members and entire Boards are being evaluated more formally and with greater
intensity than in years past.
a.
True
b.
False
62. Well-designed stock option-based compensation plans should have the option strike prices substantially lower than the
current stock prices.
a.
True
b.
False
63. The primary role of the Board of Directors is to monitor and control top-level executives to protect owners’ interests.
a.
True
b.
False
64. Corporate governance is a means to establish harmony between parties (the firm’s owners and its top-level managers)
whose interests may conflict.
a.
True
b.
False
65. The use of executive compensation as a governance mechanism is more challenging to firms implementing
international strategies than those strictly operating domestically.
a.
True
b.
False
66. In a large number of family owned firms, ownership and managerial control are not separated.
a.
True
b.
False
67. The Dodd-Frank Wall Street Reform and Consumer Protection Act is the most sweeping set of financial and
regulatory reforms in the United States since the Great Depression.
a.
True
b.
False
68. The most effective defense against a hostile takeover is the poison pill strategy.
a.
True
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b.
False
Indicate the answer choice that best completes the statement or answers the question.
69. Which of the following is FALSE about corporate governance in China?
a.
The Chinese governance system may be tilting toward the Western model.
b.
With increasing frequency, the compensation of top executives of Chinese companies is closely related to
prior and current financial performance of the firm.
c.
The state still uses direct and/or indirect controls to influence the strategies employed by most firms.
d.
Firms with higher state ownership tend to have lower market value and more volatility in those values over
time.
70. The CEO and Chairman of the Board of Directors Alta Corp. is dismayed by a lack of effort and insights his directors
provide during Board meetings. The directors are all outsiders, experienced, and run their own successful firms. The
CEO/chair genuinely seeks their greater involvement. What would you recommend?
a.
Requiring that the directors own stock in the company.
b.
Establishing a formal process to evaluate the Board’s performance.
c.
Electing a lead director.
d.
All of these options are correct.
71. As ownership of the corporation is diffused, shareholders’ ability to monitor managerial decisions:
a.
increases.
b.
decreases.
c.
remains constant.
d.
is eliminated.
72. The ownership of major blocks of stock by institutional investors have resulted in all of the following EXCEPT:
a.
making CEOs more accountable for their performance.
b.
challenges to the decisions of Boards.
c.
focusing attention on ineffective Boards of Directors.
d.
a direct effect on firm performance.
73. In the United States, a firm’s key stakeholder(s) is(are) the:
a.
government.
b.
executives.
c.
shareholders.
d.
customers.
74. Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long been the major power at L-EVA. A
majority of the directors are concerned that while Mr. Leagreet has been responsible for the firm’s earning above-average
returns, he has been displaying a tendency toward personal extravagance at the firm’s expense. In order to limit Mr.
Leagreet’s power, the Board of Directors plans to:
a.
elect an insider as the lead director.
b.
appoint another individual as chairperson of the Board of Directors.
c.
require Mr. Leagreet to personally certify the firm’s financial reports.
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d.
reduce the size of the stock option package provided to Mr. Leagreet.
75. The separation between firm ownership and management creates a(n) ____ relationship.
a.
governance
b.
control
c.
agency
d.
dependent
76. In Japan, the principal source of the active monitoring of large companies comes from:
a.
Boards of Directors.
b.
stock brokerage companies.
c.
the government.
d.
banks.
77. A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in
order to ____, whereas owners wish to diversify the firm to ____.
a.
generate free cash flows; reduce the risk of total firm failure
b.
increase the price of the firm’s stock; increase the dividends paid out from free cash flows
c.
reduce the risk of total firm failure; reduce their total portfolio risk
d.
reduce their employment risk; increase the company’s value
78. The CEO of Skyco, a publicly-traded company that has been earning below-average returns, has been publicly
criticized by shareholders for persuading the Board of Directors to give her interest-free loans, for having the company
purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive
stock options. The CEO’s behavior may be indication of:
a.
reasonably compensating a CEO.
b.
a weak Board of Directors.
c.
the laxity of institutional investors.
d.
the difference in risk propensity between owners and managers.
79. The market for corporate control serves as a means of governance when:
a.
the firm is overpriced in the market.
b.
internal controls have failed.
c.
the corporation has greatly exceeded performance expectations.
d.
the top management team’s interests and the owners’ interests are aligned.
80. Several members of the Board of Directors of American Textile Products (ATP) have proposed creating the position
of lead director. What circumstances would most likely have initiated this proposal?
a.
ATP has been the initiator of several hostile takeovers in the last 2 years.
b.
The Board has been successful in reducing the percentage of CEO pay that is composed of stock options.
c.
The CEO/chairperson of the Board has been suspected of opportunistic behavior.
d.
The firm is traded on the New York Stock Exchange and must change its corporate governance to comply with
the NYSE’s new rules.
81. An agency relationship exists when one party delegates:
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a.
decision-making responsibility to a second party.
b.
financial responsibility to employees.
c.
strategy implementation actions to functional managers.
d.
ownership of a company to a second party.
82. The Board of Directors of CyberScope, Inc., is designing a stock option plan for its CEO that will motivate the CEO
to increase the market value of the firm. Consequently, the Board is:
a.
setting the option strike price substantially higher than the current stock price.
b.
insuring that the strike price value of the options can be lowered if the organizational environment becomes
more risky.
c.
having the stock option plan designed by insiders on the Board of Directors who are familiar with day-to-day
operations of the firm.
d.
consulting accounting advisors to make sure that the plan transfers wealth to the CEO without immediately
appearing on the balance sheet of CyberScope.
83. Managers may decide to invest ____ in products that are not associated with the firm’s current lines of business to
increase the firm’s level of diversification and decrease their employment risk.
a.
unsubstantial profits
b.
free cash flows
c.
marginal profits
d.
frozen assets
84. Executive compensation is a governance mechanism that seeks to align managers’ and owners’ interests through all of
the following EXCEPT:
a.
bonuses.
b.
long-term incentives such as stock options.
c.
salary.
d.
penalties for inadequate firm performance.
85. Japanese keiretsu are:
a.
management structures related to total quality management systems.
b.
company unions, which are a type of governance system.
c.
the banks owing the largest shares of stock in the firm.
d.
a system of cross-shareholding among firms.
86. Corporate governance is important to nations because:
a.
shareholders want large stock returns.
b.
firms seek to invest in nations with national governance standards that are acceptable to them.
c.
company Boards have lobbied for strong governance.
d.
the United States requires that other nations adopt its governance practices.
87. The repurchase at a premium of the target firm’s shares that were acquired by the aggressor firm in a hostile takeover
in exchange for an agreement that the aggressor will no longer target the company for takeover is called:
a.
greenmail.
b.
a standstill agreement.
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c.
crossing the palm with silver.
d.
a poison pill.
88. Historically, ____ have been at the center of German corporate governance structure.
a.
banks
b.
institutional shareholders
c.
public pension funds
d.
government agencies
89. Which of the following statements is about corporate governance in Germany is FALSE?
a.
The Vorstand (management Board) of a German corporation makes decisions about strategy and management.
b.
The Vorstand is elected by the firm’s employees.
c.
Employees, union members, and shareholders appoint members to the Aufsichsrat (the supervisory tier of the
Board).
d.
Large institutional investors such as pension funds, and insurance companies are relatively insignificant
owners of corporate stock.
90. Corporate governance revolves around the relationship between which two parties?
a.
Shareholders and the Board of Directors
b.
Shareholders and managers
c.
The Board of Directors and managers
d.
None of the the above
91. Corporate governance is all of the following EXCEPT:
a.
mechanisms used to determine and control the strategic direction and performance of organizations.
b.
a means to establish and maintain harmony between owners and top managers whose interests may conflict.
c.
ensuring that top managers’ interests are aligned with the interests of stockholders.
d.
resolve conflicts among corporate employees.
92. Generally, a Board member who is a source of information about a firm’s day-to-day activities is classified as a(n)
____ director.
a.
lead independent
b.
inside
c.
related
d.
encumbered
93. Managers in the United States receive ____ compensation than managers in the rest of the world.
a.
equivalent
b.
higher
c.
lower
d.
more variable
94. Which of the following reasons would NOT explain the difficulty of determining appropriate executive
compensation?
a.
The decisions made by top-level managers are typically complex and non-routine.
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b.
An executive’s decisions often affect firm performance only over the long run.
c.
A number of factors intervene between top-level management decisions and firm performance (e.g.,
unpredictable economic, social, or legal changes).
d.
The compensation committee may not have comprehensive firm performance data.
95. Agency costs reflect all of the following EXCEPT ____ costs.
a.
monitoring
b.
enforcement
c.
opportunity
d.
incentive
96. The Board of Directors of CamCell, Inc., wishes to design a CEO compensation plan that will align the personal
interests of the CEO with the interests of the shareholders in long-term firm performance. The Board wishes the CEO to
take more short-term risks in order to achieve potentially higher long-term returns. Consequently, the Board has decided
on an incentive plan that involves payout based on the firm’s performance five years in the future. CamCell is presently
searching for a new CEO. Which of the following statements is true?
a.
This plan will be very attractive in luring candidates for the CEO position.
b.
CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake
under this plan.
c.
Institutional investors disapprove of long-term executive incentive plans and they may sell their blocks of
stock in CamCell.
d.
This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CamCell’s long-term
profitability.
97. All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile takeover
EXCEPT:
a.
defense tactics are usually beneficial for the executives of the target firm.
b.
defense tactics are opposed by institutional investors.
c.
defense tactics vary in their effectiveness as a defense to takeovers.
d.
defense tactics make the costs of a takeover lower.
98. In contrast to managers’ desires, shareholders usually prefer that free cash flows be:
a.
used to diversify the firm.
b.
returned to them as dividends.
c.
used to reduce corporate debt.
d.
re-invested in additional corporate assets.
99. ____ is an important influence in Japanese corporate governance structures.
a.
Innovation
b.
Consensus
c.
Competition
d.
Individualism
100. The longer the focus of managerial incentive compensation, the greater the ____ top-level managers.
a.
earnings potential for
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b.
risks borne by
c.
incentives for
d.
potential tax burden for
101. Usually, large-block shareholders are considered to be those shareholders with at least ____ percent of the firm’s
stock.
a.
5
b.
25
c.
50
d.
75
102. James Abercrombie has a thriving consulting firm specializing in training Boards of Directors in decision-making
skills. Mr. Abercrombie has had striking success in reducing conflict and hostility among directors and allowing Boards to
develop more cohesiveness. Mr. Abercrombie is considering expanding his consulting practice overseas. Which of the
following statements is most likely to be TRUE?
a.
Mr. Abercrombie will have a large market in Japan because the culture highly values consensus decision
making.
b.
Japanese firms will have little interest in Mr. Abercrombie’s specialty because these skills are already practiced
at a high level.
c.
German firms will not be interested in Mr. Abercrombie’s services because the German system of decision
making is based on authority and few conflicts emerge.
d.
Mr. Abercrombie should find significant need for his services in companies in transitional economies.
103. Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary
change many Boards of Directors have initiated?
a.
Moving toward having directors from different backgrounds
b.
Strengthening the internal management and accounting control systems
c.
Compensating directors with stock options rather than with fixed remuneration
d.
Establishing and using formal processes to evaluate the Board’s performance
104. Which of the following is NOT an internal governance mechanism?
a.
The board of directors
b.
Ownership concentration
c.
Executive compensation
d.
The market for corporate control
105. Amos Ball, Inc., is a printing company in Iowa that has been family owned and managed for three generations.
Which of the following statements is most likely to be TRUE?
a.
Agency costs at Amos Ball are high.
b.
If research findings are valid, Amos Ball, Inc., will perform better if a family member is CEO than if an
outsider is CEO.
c.
At Amos Ball, the opportunity for managerial opportunism is high.
d.
The functions of risk-bearing and decision making are separate at Amos Ball.
106. If the market for corporate control were efficient as a governance device, then only ____ would be targets for
takeovers.
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a.
firms with unethical top executives
b.
firms earning above-average returns
c.
poorly performing firms
d.
over-valued firms
107. The market for corporate control may not be as efficient as previously thought as recent findings suggest that those
firms targeted for takeover by active corporate raiders are:
a.
usually on the verge of bankruptcy.
b.
typically under-performing their industry.
c.
often performing above their industry averages.
d.
always outperforming their industry.
108. The New York Stock Exchange requires that the audit committee be:
a.
available to comment to external analysts.
b.
headed by outside directors.
c.
liable for any illegal actions by the top management team.
d.
made up of CPAs with auditing experience.
109. Research suggests that Boards of Directors perform better if:
a.
the CEO is also the chairperson of the Board of Directors.
b.
the Bard includes employees as voting members.
c.
the Board is homogenous in composition.
d.
outside directors own significant equity in the organization.
110. One means that is considered to improve the effectiveness of outside directors is:
a.
mandating that all outside directors be drawn from government or academia rather than industry.
b.
requiring that outside directors be former executives of the firm.
c.
requiring outside directors to own significant equity stakes in the firm.
d.
requiring that outside directors act objectively and have no ownership interest in the firm.
111. Compared to managers, shareholders prefer:
a.
safer strategies with greater diversification for the firm.
b.
riskier strategies with more focused diversification for the firm.
c.
safer strategies with more focused diversification for the firm.
d.
riskier strategies with greater diversification for the firm.
112. Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to 3 years’ salary because DictionAry
has been bought in a hostile takeover by its main competitor. Ambrose received:
a.
a golden parachute.
b.
a poison pill.
c.
greenmail.
d.
a silver handshake.
113. All of the following are areas covered by the Dodd-Frank Wall Street Reform and Consumer Protection Act
EXCEPT:
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a.
consumer protection.
b.
CEO compensation.
c.
regulation of derivatives.
d.
retirement accounts.
114. Managerial employment risk is the:
a.
risk that managers will behave opportunistically.
b.
risk undertaken by managers to earn stock options.
c.
managers’ risk of job loss, loss of compensation, and/or loss of reputation.
d.
risk managers will not find a new top management position if they should be dismissed.
115. Research suggests that the activism of institutional investors such as TIAA-CREF and CalPERS:
a.
increases shareholder value significantly.
b.
may not have a direct effect on firm performance.
c.
is so aggressive that Boards of Directors have become overly cautious.
d.
has weakened the effect of other governance mechanisms.
116. A hostile takeover defense wherein the target firm makes its stock less attractive to a potential acquirer is called:
a.
greenmail.
b.
a standstill agreement.
c.
crossing the palm with silver.
d.
a poison pill.
117. Institutional owners are:
a.
shareholders in the large institutional firms listed on the New York Stock Exchange.
b.
banks and other lending institutions that have provided major financing to the firm.
c.
financial institutions such as mutual funds and pension funds that control large-block shareholder positions.
d.
prevented by the Sarbanes-Oxley Act from owning more than 50 percent of the stock of any one firm.
118. All of the following are consequences of the Sarbanes-Oxley Act EXCEPT:
a.
a decrease in foreign firms listing on U.S. stock exchanges.
b.
internal auditing scrutiny has improved and there is greater trust in financial reporting.
c.
an increased number of IPOs (initial public offerings) are expected.
d.
Section 404 creates excessive costs for firms.
119. Boards of Directors are now becoming more involved in:
a.
the strategic decision-making process.
b.
selecting new CEOs.
c.
the firm’s tax issues.
d.
governmental relations.
120. Monitoring by shareholders is usually accomplished through:
a.
management consultants.
b.
government auditors.
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c.
the firm’s top managers.
d.
the Board of Directors.
121. German executives are not dedicated to the maximization of shareholder value to the degree that is the case for
executives in the UK and United States largely because:
a.
the roles of CEO and chairperson of the Board of Directors are usually combined.
b.
large institutional investors control large blocks of stock.
c.
private shareholders and large institutional investors rarely have large ownership positions in firms.
d.
of the focus on stewardship-management in German firms rather than the financial performance focus of U.S.
firms.
122. The interests of multinational corporations’ shareholders may be best served when there is:
a.
a uniform compensation plan for all corporate executives, United States and foreign alike.
b.
executive compensation that is primarily based on long-term performance.
c.
elevation of foreign executive compensation to U.S. levels.
d.
a variety of compensation plans for executives of foreign subsidiaries.
123. Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to:
a.
align financial institutions’ actions with society’s interests.
b.
increase the number of foreign firms listing on U.S. stock exchanges.
c.
require CEOs to attest to the accuracy of their companies’ financial reports.
d.
increase consumer protection in pharmaceutical products.
124. Complete the following: In small firms, managers often own a ____ percentage of the firm, which means there is
____ separation between ownership and managerial control.
a.
small; small
b.
small; large
c.
large; small
d.
large; large
125. A virtually exclusive reliance on financial controls may occur when outsider-dominated Boards exist. This may lead
to all of the following EXCEPT:
a.
high executive turnover.
b.
increased diversification of the firm.
c.
excessive management compensation.
d.
reduction in R&D expenditure.
126. Agricultural Chemicals, Inc., was the target of a hostile takeover 6 months ago. The CEO and the top executives
successfully fended off the takeover and are concentrating on strategies to improve the performance of the firm. Which of
the following is most likely to be TRUE?
a.
Hostile takeover attempts are so common that they do not reflect negatively on the firm’s performance. They
are more a function of general market conditions.
b.
The fact that a hostile takeover has occurred is proof that the firm was under-performing.
c.
Research shows that once a hostile takeover has been defeated, the firm is safe from other hostile takeover
attempts for many years.
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d.
The CEO and top executives should not consider their jobs secure.
127. Which of the following is a FALSE statement about corporate governance?
a.
Governance is used to establish order between parties whose interests may be in conflict.
b.
Corporate governance mechanisms sometimes fail to monitor and control top managers’ decisions.
c.
Corporate governance mechanisms can be in conflict with one another.
d.
Corporate governance is best achieved with a Board of Directors with strong ties to management.
128. The governance mechanism most closely connected with deterring unethical behaviors by holding top management
accountable for the corporate culture is:
a.
ownership concentration.
b.
the market for corporate control.
c.
executive compensation systems.
d.
the Board of Directors.
129. Which of the following is TRUE of trends in Japan’s corporate governance structure?
a.
Compensation of CEOs in both private and public companies is being tied more closely to observable
performance goals.
b.
Increased regulation in the financial sector has increased the cost of mounting hostile takeovers.
c.
Banks’ influence over corporations is increasing.
d.
The gap in compensation between CEOs in public and private companies is increasing.
130. The top management team at Sierra Infusion is concerned about the declining performance of firms in their industry.
The team members are becoming concerned about the security of their jobs at Sierra Infusion. At a meeting over dinner,
the top management team agrees to go to the Board of Directors with a proposal for:
a.
increased diversification of Sierra Infusion.
b.
the addition of outside directors to the Board.
c.
increased shareholder participation in decision making.
d.
greater concentration on Sierra’s core industry.
131. Ownership concentration is determined by both:
a.
the number of stockholders and the parties they represent.
b.
the number of stockholders and total percentage of shares they own.
c.
the number of outside directors and the parties they represent.
d.
the number of outside directors and total percentage of shares they own.
132. In the United States, the fundamental goal of business is to:
a.
ensure customer satisfaction.
b.
maximize shareholder wealth.
c.
provide job security.
d.
generate profits.
133. Product diversification provides two benefits to managers that do not accrue to shareholders: ____ and ____.
a.
greater experience in a wider range of industries; lessening of managerial employment risk
b.
the manager frequently invests in the acquired firm, which allows him or her extensive profits; the manager
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can frequently buy excess assets divested by the acquired firm
c.
the manager’s supervisory needs are lowered; the manager is allowed greater time to oversee a wider range of
activities
d.
the opportunity for higher compensation through firm growth; a reduction in managerial employment risk
134. International Food Services (IFS) has a contract with the Marines to supply meals for its troops in Afghanistan and
other foreign assignments. As a means of increasing profits, IFS has used substandard ingredients in these meals and has
consistently lied about this practice during quality investigations by the Marines. Who is ultimately responsible for the
corporate climate that resulted in this wrongdoing?
a.
The director of food service for IFS
b.
The Board of Directors of IFS
c.
The employees directly involved in the wrongdoing
d.
The head of contract services for the Marines
135. Define the agency relationship and managerial opportunism and discuss their strategic implications.
136. Describe the market for corporate control and its implications for organizations.
137. How does corporate governance foster ethical strategic decisions and how important is this to top-level executives?
138. Discuss the difficulties in establishing performance-based compensation plans for executives.
139. Define the three internal corporate governance mechanisms and how they may be used to control and monitor
managerial decisions.
140. Discuss the effect of the separation of ownership and control in the modern corporation.
141. Briefly compare and contrast corporate governance in the United States, Germany, and Japan, and China.
142. What is corporate governance and how is it used to monitor and control managers’ decisions?
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