Deck 16: Financing and Governing the Corporation Globally

Question 1

Other than families,the state is another major owner of firms around the world.

Answer 1

True

Question 2

In the principal-agent relationship,principals are managers to whom authority is delegated.

Answer 2

False

Question 3

One of the leading indicators of concentrated family ownership and control is the appointment of family members as board chairman,CEO,and other TMT members.

Answer 3

True

Question 4

Principal-agent conflicts result in agency costs.

Question 5

For equity,the cost of capital is the interest.

Question 6

Agency relationship refers to the relationship between different shareholders.

Question 7

Tunneling is a legal method of solving principal-principal conflicts.

Question 8

Owners,managers,and boards of directors are collectively known as the "tripod" of corporate governance.

Question 9

Shareholders purchase stock both for dividends and for the growth potential of the stock.

Question 10

Ranging from entrepreneurial start-ups to multinational enterprises (MNEs),all firms need to raise capital.

Question 11

The board of directors oversees and ratifies strategic decisions and evaluates,rewards,and,if necessary,penalizes top managers.

Question 12

Information asymmetries exist between principals and agents.

Question 13

The amount of dividend a firm pays its shareholders is always fixed.

Question 14

The New York Stock Exchange (NYSE)and NASDAQ have a lot of non-US firms listed.This is an example of cross-listing.

Question 15

In firms with separation of ownership and control,ownership is concentrated with a few owners.

Question 16

In the principal-agent relationship,agents are owners who delegate authority.

Question 17

The vast majority of large firms throughout continental Europe,Asia,Latin America,and Africa feature concentrated family ownership and control.

Question 18

Family ownership and control may lead to the selection of less-qualified managers.

Question 19

In state-owned enterprises,citizens have the rights to enjoy dividends generated from SOEs.

Question 20

Companies with diffused ownership have a separation of ownership and control.

Question 21

Since the 1980s,American managers have become much more focused on stock prices,resulting in "shareholder capitalism."

Question 22

Inside directors are more independent and can better safeguard shareholder interests.

Question 23

The owners of a firm are often known as _____.

A) executers
B) acquirers
C) brokers
D) shareholders

Question 24

The board of directors' effectiveness in serving the control function stems from their independence,deterrence,and norms.

Question 25

_____ refers to the stock in a firm (usually expressed in shares),which represents the owners' rights.

A) Equity
B) Debt
C) Bond
D) Reserve

Question 26

Market for private equity is also known as the takeover market.

Question 27

A voice-based mechanism indicates that shareholders no longer have patience and are willing to "exit" by selling their shares.

Question 28

_____ is the relationship among various participants in determining the direction and performance of corporations.

A) Corporate citizenship
B) Corporate social responsibility
C) Corporate conscience
D) Corporate governance

Question 29

Voice-based governance mechanisms are external mechanisms.

Question 30

The market for corporate control enables the "wholesale" removal of entrenched managers.

Question 31

From a corporate governance perspective,the market for corporate control complements product market competition and the market for private equity.

Question 32

The institution-based view argues that among a number of firms governed by the same set of rules,some excel more than others because of differences in firm-specific capabilities that leverage advantage in corporate governance.

Question 33

_____ refers to a loan that the firm needs to pay back at a given time with interest.

A) Mutual fund
B) Debt
C) Equity
D) Unit trust

Question 34

Managers need to develop firm-specific capabilities to differentiate a firm on governance dimensions and corporate finance.

Question 35

The minimization of principal-agent conflicts through concentration of ownership and control,unfortunately,introduces more principal-principal conflicts.

Question 36

Managerial human capital refers to some of the most valuable,rare,and hard-to-imitate skills and abilities acquired by top managers and directors.

Question 37

Private equity utilizes the stock market,as opposed to the bond market,to discipline managers.

Question 38

The Anglo-American and the continental European-Japanese systems are the two primary corporate governance families in the world.

Question 39

Loan issued by the firm is called a(n)_____.

A) option
B) unit trust
C) dividend
D) bond

Question 40

In the context of internal governance mechanisms,if accounting-based measures are adopted,stock prices obviously are subject to too many forces beyond the manager's control.

Question 41

A form of corporate theft that diverts resources from the firm for personal or family use is called _____.

A) tunneling
B) swapping
C) flipping
D) paging

Question 42

Which of the following statements about the board of directors is untrue?

A) Boards advise the CEO.
B) Boards carry out resource acquisition for the focal firm.
C) Affiliated directors are independent directors.
D) Boards' effectiveness stems from norms.

Question 43

In the context of governance mechanisms,_____ mechanism refers to shareholders' willingness to work with managers,usually through the board.

A) exit-based
B) voice-based
C) private equity-based
D) corporate control-based

Question 44

____ are persons to whom authority is delegated.

A) Agents
B) Principals
C) Shareholders
D) Acquirers

Question 45

Activities that enrich controlling shareholders at the expense of minority shareholders are referred to as _____.

A) amortization
B) accretion
C) backwardation
D) expropriation

Question 46

A member of the board who is a top executive of the firm is called a(n)_____.

A) outside director
B) executive manager
C) inside director
D) co-manager

Question 47

The costs associated with principal-agent relationships are called _____.

A) principal costs
B) opportunity costs
C) agency costs
D) actual costs

Question 48

Executives on the top management team (TMT)are led by the _____.

A) chief executive officer (CEO)
B) chief financial officer (CFO)
C) board of directors
D) chief operating officer (COO)

Question 49

The basic laws in supply and demand suggest that in general,the larger the pool of capital providers:

A) the lower the cost of capital.
B) the higher the rate of return.
C) the more likely a firm will default on loan obligations.
D) the higher the ROI for investors.

Question 50

Which of the following statement concerning principal-agent versus principal-principal conflicts is true?

A) Formal institutional protection is often lacking in principal-agent conflicts.
B) Courts are more protective of minority shareholder rights in principal-principal conflicts.
C) Manifestations in principal-agent conflicts take the form of expropriation.
D) Considering ownership pattern in principal-principal conflicts, often greater than 50 percent of equity is controlled by the largest shareholders.

Question 51

_____ are often labeled independent directors.

A) Managing directors
B) Inside directors
C) Executive directors
D) Outside directors

Question 52

In an agency relationship,a person who delegates authority is called a(n)_____.

A) principal
B) agent
C) manager
D) employee

Question 53

The conflicts between controlling shareholders and minority shareholders are called _____.

A) owner-manager conflicts
B) agent-agent conflicts
C) principal-agent conflicts
D) principal-principal conflicts

Question 54

The vast majority of large firms throughout continental Europe,Asia,Latin America,and Africa feature _____ ownership.

A) concentrated state
B) concentrated family
C) diffused family
D) diffused state

Question 55

Firms with ____ ownership have numerous small shareholders but none with a dominant level of control.

A) concentrated
B) family
C) diffused
D) state

Question 56

In _____ ownership and control,founders start up firms and completely own and control them on an individual or family basis.

A) concentrated
B) diffused
C) capitalized
D) declared

Question 57

_____ refers to a firm's failure to satisfy the terms of a loan obligation.

A) Debt
B) Dissolution
C) Default
D) Defeasance

Question 58

Firms with ____ ownership have a separation of ownership and control.

A) state
B) concentrated
C) diffused
D) focused

Question 59

Listing shares on foreign stock exchanges is known as _____.

A) capital rationing
B) diagonal spread
C) cross-listing
D) primary listing

Question 60

A non-management member of the board is called _____.

A) outside director
B) co-manager
C) executive manager
D) inside director

Question 61

Corporations in _____ are bank-oriented,network-based systems.

A) China
B) continental Europe
C) the United States
D) the United Kingdom

Question 62

Discuss the opportunistic agents versus managerial stewards' debate concerning corporate finance and governance.

Question 63

LBO-based private equity transactions are associated with three major changes in corporate governance.List these changes.

Question 64

Corporations in continental Europe and Japan rely mostly on _____.

A) voice-based, internal mechanisms
B) market-oriented, network-based systems
C) market-oriented, high-tension systems
D) exit-based, external mechanisms

Question 65

Private equity is primarily invested through _____.

A) leveraged buyouts
B) acquisitions
C) alliances
D) stock swaps

Question 66

Corporations in the United States and the United Kingdom rely mostly on _____.

A) voice-based, internal mechanism
B) bank-oriented, network-based systems
C) bank-oriented, high-tension systems
D) exit-based, external mechanism

Question 67

_____ is a means by which investors,often in partnership with incumbent managers,issue bonds and use the cash raised to purchase the firm's stock.

A) Hedged tender
B) Flat trade
C) Adjustable-rate mortgage
D) Leveraged buyout

Question 68

Differentiate between concentrated and diffused ownership.

Question 69

Describe how institutions and resources influence corporate governance.

Question 70

Equity capital invested in non-public companies is called _____.

A) preferred equity
B) common equity
C) shared equity
D) private equity

Question 71

The main external governance mechanism is the _____.

A) market for corporate control
B) market for product competition
C) market for private equity
D) market for stock options

Question 72

Explain the role of the Board of Directors.

Question 73

Outline the principal-agent problems in an agency relationship.

Question 74

Corporations in _____ are market-oriented,high-tension systems.

A) Japan
B) continental Europe
C) the United States
D) China

Question 75

Elaborate on the external governance mechanisms.

Question 76

Elaborate on the principal-principal conflicts.

Question 77

Which of the following statements about governance mechanisms is misleading?

A) Governance mechanisms can be classified as voice-based and exit-based mechanisms.
B) As an external governance mechanism, private equity utilizes the stock market to discipline managers.
C) In general, boards are likely to use "carrots" before considering "sticks."
D) Product market competition complements the market for corporate control and the market for private equity.

Question 78

Corporate governance in ____ enterprises has relatively weak external and weak internal governance mechanisms.

A) exit-based
B) voice-based
C) unit-trust
D) state-owned