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Exam 25: Corporate Governance

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Question 21

True/False

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When the ownership of a corporation is widely held,no one shareholder has the incentive to bear the cost of monitoring the firm's managers.

A) True
B) False

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Question 22

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Which of the following is an example of an agency problem?

A) managers not working as diligently if they are not the sole owner of the business
B) the board of directors firing an incompetent manager
C) the manager owning a great deal of stock in the company
D) a corporate raider attempting to purchase the company
E) managers using cash to increase dividends

F) A) and B)
G) B) and D)

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Question 23

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What is the role of takeovers in corporate governance?

Directors who are employees,former employees,or family members of employees are called

What is a captured board?

Describe the "stakeholder" model of corporate governance.

________ is a person making a trade based on privileged information.

Which monitors of a firm,other than the board of directors,become experts in the firm and are in a position to detect irregularities first?

Describe the main requirements of the Sarbanes-Oxley Act of 2002.

Activist investors can only achieve their goals by putting their issues to a shareholder vote.

What are some of the negative effects of increasing the sensitivity of managerial pay to firm performance?

The Smith family has a 62% stake in A company and A company has a 34% stake in B company.Finally,B company has a 29% stake in C company.What percentage ownership does the Smith family have in C company?

The most extreme form of direct action that shareholders can take is

What is tunnelling?

Use the table for the question(s) below. The following are the week-ending stock prices that occurred during the quarter: -Billy,the CEO of Movin On Up Company,was granted stock options with an exercise price of $55.00 per share.Refer to the week-ending stock prices that occured during the quarter.If Movin On Up engaged in the practice of backdating,which of the following is the most likely exercise price for Billy's options?

What is the drawback of having more independent directors on the board?

Having a founder and top executive also be a major shareholder

The Smith family has a 55% stake in A company and A company has a 64% stake in B company.Finally,B company has a 51% stake in C company.What percentage ownership does the Smith family have in C company?

Academic studies have shown that greater managerial ownership is associated with greater value-reducing actions by managers.

The least costly solution to the conflict of interest problem is simply to monitor the firm's managers closely.