Deck 8: Incentivizing Managers and Disciplining of Badly Performing Managers

Question 1

Which one of the following statements as to the theoretical impact of competition on managerial performance and firm value is true?

A)Competition always increases managerial performance.
B)Competition may reduce as well as increase managers' incentives to work hard.
C)The positive income effect dominates only under certain, specific conditions.
D)Both B and C are correct.

Answer 1

D

Question 2

Studies analysing the impact of managerial ownership on firm value have found ...

A)evidence that managerial ownership increases firm value, but only when the latter is assumed to be exogenous.
B)consistent evidence that managerial ownership increases firm value.
C)that managerial ownership destroys firm value.
D)None of the above.

Answer 2

A

Question 3

Dividends may fulfil a corporate governance role.

A)Forcing managers to pay out high dividends reduces the free-cash-flow problem.
B)Forcing managers to pay out high dividends is one way of addressing the principal-agent problem.
C)Dividends have been shown to be less flexible in the UK and the USA compared to Germany.
D)All of the above are correct.

Answer 3

D

Question 4

The empirical evidence on institutional investors suggests the following:

A)They are always passive.
B)They are typically active investors.
C)They tend to be mostly passive, but some of them act behind the scenes.
D)None of the above.

Question 5

Which one of the following statements is correct?

A)Proxy contests in the USA tend to result in an increase in the targeted firm's stock price.
B)Proxy contests in the Europe normally cause a drop in the stock price of the targeted firm.
C)While their outcome is not binding for the management, proxy contests in the USA are more likely to earn shareholder approval than in Europe.
D)All of the above.

Question 6

Which one of the following statements is correct?

A)Only proxy votes exercised by banks seem to have a positive effect on firm performance.
B)Bank ownership of equity has been show generally to have a negative effect on firm performance.
C)The empirical evidence is as yet inconclusive about the effects of bank ownership on firm performance.
D)None of the above.

Question 7

Which one of the following statements is correct?

A)Managerial compensation has been shown to be sensitive to firm size.
B)The components of managerial compensation as well as their importance vary across countries.
C)Managerial compensation has been shown to be sensitive to firm performance.
D)All of the above.

Question 8

Empirical studies suggest that targets of hostile takeovers ...

A)are more likely to be continental European companies rather than UK and US companies.
B)have weaker pre-acquisition performance than targets of friendly takeovers and non-acquired firms.
C)have better pre-acquisition performance than targets of friendly takeovers and non-acquired firms.
D)do not differ in terms of their pre-acquisition performance when compared to targets of friendly takeovers and non-acquired firms.