Deck 7: Primary Stakeholders: Shareholders and Corporate Governance

Question 1

Which of the following is true regarding shareholders?

A)They invest their money in businesses hoping for a return on their investment
B)They are legal owners of business corporations
C)There are three main types of shareholders: individual, large and institutional shareholders
D)A and B
E)A, B and C

Answer 1

C

Question 2

Which of the following is NOT true regarding individual shareholders?

A)They include regular persons buying and selling shares of any company
B)Such transactions are usually done through a stockbroker
C)The transactions are typically held in brokerage accounts
D)They are typically grouped as blockholders and institutional shareholders
E)None of the above

Answer 2

D

Question 3

Large shareholders are:

A)Individual shareholders owning more than a 20% equity stake in a firm
B)Individual shareholders owning more than a 50% equity stake in a firm
C)Typically grouped as blockholders and institutional shareholders.
D)All of the above
E)None of the above

Answer 3

C

Question 4

Adverse selection is:

A)The misrepresentation by the CEO of his/her ability to do the work that he/she is being paid for.
B)A problem whereby the top management does not put in the right effort
C)A problem whereby the top management misuses the company resources for their own interests
D)All of the above
E)None of the above

Question 5

Moral hazard refers to

A)The legal entity that serves as a nexus for a set of contract among disparate individuals
B)Adverse selection
C)Misrepresentation by the CEO of his/her ability to do the work he/she is being paid for
D)One of the problems top managers face when they deal with shareholders
E)The ability of top managers to misuse company resources for their own interests

Question 6

The basic premise of agency theory is that

A)Shareholders and managers have similar interests that need to be managed
B)Managers always work in the interest of shareholders
C)Shareholders cannot control top managers
D)There is no conflict between shareholders and managers
E)The interests of shareholders may not necessarily coincide with the interests of top managers

Question 7

Corporate governance refers to the:

A)Conflict between managers and shareholders
B)System that controls and directs top managements' actions only
C)System that controls and directs companies' and top managements' actions
D)Political alliance between corporations and the government
E)None of the above

Question 8

Which of the following is true regarding the Board of Directors?

A)They are not a primary mechanism to monitor and control the agency problem
B)They have a duty of loyalty to their shareholders
C)They put their own interests ahead of the shareholders
D)They cannot control managers
E)None of the above

Question 9

A critical issue in board composition is:

A)The presence (or absence) of diversity
B)Board independence
C)Size
D)All of the above
E)None of the above

Question 10

Which of the following is NOT a critical aspect of the board of directors?

A)Board independence
B)Expertise
C)Size
D)Seniority
E)All of the above

Question 11

Which of the following are advantages of having a large board of directors?

A)Necessary to understand the industry the company is operating to have the ability to make decisions of strategic importance
B)Greater external linkages
C)Less moral hazard
D)Less adverse selection
E)None of the above

Question 12

Which of the following is NOT a corporate governance mechanism?

A)Ownership concentration
B)Executive Compensation
C)Dividend
D)Board of directors
E)All of the above

Question 13

Which of the following does not represent a form of blockholders?

A)Corporate blockholder
B)Family blockholder
C)State blockholder
D)State ownership
E)Private equity

Question 14

Blockholders are those shareholders that have more than ____ equity stake in a company.

A)Stocks awarded to the CEO who then has the ability to sell the stock at a future date.
B)0.5
C)0.05
D)0.2
E)1

Question 15

Stock options are:

A)A popular form of stock ownership
B)Stocks awarded to the CEO who does not have the ability to choose whether or not to sell the stock at a future date.
C)Awarded to the CEO and expire if not immediately exercised.
D)Usually exercised when the exercise price exceeds the market price.
E)Stocks that CEO's can sell at a future date

Question 16

Which of the following is true regarding the family blockholder?

A)The major challenge with regards to family ownership is the protection of majority shareholders.
B)Many European nations see a more dominant form of family ownership
C)When compared to the U.S., Germany and Italy are less likely to have family ownership
D)Both a.and b.
E)A, B and C

Question 17

A third form of blockholder ownership is _____________.

A)It is another form of firm ownership used for corporate governance
B)Local ownership
C)State ownership
D)None of the above
E)All of the above

Question 18

Which of the following is FALSE regarding private equity?

A)Includes business angel and venture capital
B)It refers to the various forms of private funding that are available to companies that are not necessarily publicly traded
C)The forms vary greatly depending on the stages the company is at.
D)May take the form of family blockholder
E)All of the above are true

Question 19

Business angels:

A)Venture capitalists who rely on informal monitoring methods
B)Do not invest their own money in the company
C)Tend to know the entrepreneur personally
D)Are more likely to be impatient investors who have a specific timeline determining when to take their investments out of a company
E)None of the above

Question 20

While business angels tend to rely on informal monitoring methods,

A)They are linked to having more outsiders on the board of directors.
B)Venture capitalists emphasize more formal contractual methods of monitoring
C)Venture capitalists don't rely on monitoring methods
D)None of the above
E)All of the above

Question 21

Which of the following is true regarding countries high in uncertainty avoidance?

A)Have larger boards
B)They tend to have boards where the CEO also acts as the chairperson of the board
C)More outsiders on the board provide the company with added expertise and capabilities to reduce risks and ambiguities.
D)All of the above
E)None of the above are true

Question 22

Research shows that countries that are more individualistic tend to:

A)Have board of directors with a higher percentage of outside directors
B)Have the CEO also act as chairperson of the board of directors
C)Have a larger percentage of outsiders on the board of directors
D)All of the above
E)None of the above

Question 23

Which of the following is NOT TRUE regarding countries with high masculinity?

A)Have higher percentage of outside directors
B)Have a consolidated CEO and chairperson position
C)Have a larger board of directors
D)Reflects the aggresiveness and ambition inherent in such countries
E)Have smaller board of directors

Question 24

Which of the following is not a shareholder right discussed as part of the future of corporate governance?

A)Shareholders have the right to purchase shares
B)Shareholders have the right to participate in key decisions related to new strategic directions of the company
C)Shareholders have the right to use the assets of a company
D)Shareholders have the right to nominate and elect board members
E)All of the above are shareholder rights

Question 25

Which of the following are reasons for board independence?

A)They are more likely to monitor management
B)They are more likley to represent shareholder interests
C)They are less likely to be connected with the current firm's top management
D)All of the above
E)None of the Above

Question 26

Which of the following are benefits of increasing diversity by adding more women to the board of directors for public companies?

A)Women tend to bring richer ideas to discussions
B)Women encourage and more innovative management
C)Women are more likley to carefully scrutinize management actions
D)Women bring divergent experiences that help better understand different consumers
E)All of the above

Question 27

Which of the following are disadvantages of a big board of directors?

A)More likely to engage in social loafing
B)Higher levels of conflict
C)Increase difficulty to communicate
D)All of the above
E)None of the above

Question 28

Which of the following types of ownership demonstrates significant government ownership:

A)State ownership
B)State blockholder
C)Family blockholder
D)Corporate blockholder
E)None of the above

Question 29

Which of the following are considered executive compensation?

A)Salary
B)Bonus
C)Stock option
D)Additional perks and benefits
E)All of the above

Question 30

What is agency theory? Discuss moral hazard and adverse selection in the context of agency theory.

Question 31

What is corporate governance? Briefly discuss two forms of corporate governance.

Question 32

What functions do board of directors play? Discuss some of the key aspects of a board of directors.

Question 33

What is ownership concentration? Briefly discuss the three forms of ownership concentration and the implications for companies.

Question 34

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.