Question 1

Proxy votes are ...&#10;A)votes exercised by small shareholders.&#10;B)a thing of the past.&#10;C)votes belonging to an investor other than the person or institution exercising them.&#10;D)votes belonging to foreign shareholders.

Accepted Answer

Proxy votes are votes that are owned by one investor but exercised by another person or institution on their behalf. This is common when a shareholder cannot attend a meeting or does not want to be involved in the decision-making process. The person or institution that exercises the proxy vote must follow the instructions of the shareholder who owns the vote. Proxy votes are not limited to small shareholders and are still commonly used today.

Question 2

Private benefits of control are ...&#10;A)higher in common law countries than in civil law countries.&#10;B)the benefits to the large shareholder from controlling a firm and are not shared with the other shareholders.&#10;C)higher in English speaking countries.&#10;D)None of the above.

Accepted Answer

Private benefits of control refer to the benefits that accrue to a large shareholder who controls a firm and are not shared with the other shareholders. The extent of private benefits of control may vary across countries, but it is not necessarily related to whether they follow common or civil law. Similarly, it is not related to whether a country speaks English or not, though English speaking countries may have stronger legal protection for investors.

Question 3

Which one of the following statements is correct?&#10;A)The main corporate governance problem under strong control and dispersed ownership is the expropriation of the minority shareholders by the large shareholder.&#10;B)In the presence of weak control and concentrated ownership, the classic corporate governance problem, i.e. the principal-agent problem, prevails.&#10;C)In the presence of weak control and dispersed ownership, the classic corporate governance problem, i.e. the principal-agent problem, prevails.&#10;D)All of the above are correct.

Accepted Answer

In the presence of strong control and dispersed ownership, the large shareholder has the incentive to expropriate the minority shareholders. In the presence of weak control and concentrated ownership, the controlling shareholder has the incentive to expropriate the other shareholders. In the presence of weak control and dispersed ownership, the managers have the incentive to expropriate the shareholders.

Question 4

Which one of the following statements is correct?&#10;A)The free-rider problem prevails in firms that are widely held.&#10;B)The free-rider problem may result in a lack of shareholder monitoring of the management.&#10;C)A large shareholder may be a solution to the free-rider problem.&#10;D)All of the above.

Accepted Answer

The free-rider problem can occur in widely held firms where individual shareholders may not have the incentive to monitor the firm's management. This can lead to a lack of monitoring and potential agency problems. However, a large shareholder who has a significant stake in the company may be more incentivized to monitor the management and ensure that their investment is being used wisely. Therefore, all three statements are correct.

Question 5

Ownership pyramids are ...&#10;A)a way of achieving weak control with concentrated ownership.&#10;B)a way of increasing the risk of minority shareholder expropriation.&#10;C)some of the most visited tourist sites in the world.&#10;D)None of the above.

Accepted Answer

Ownership pyramids allow a small group of shareholders to control a large number of companies, which can increase the risk of minority shareholder expropriation due to the separation of control and cash flow rights.

Question 6

ACME Inc. has dual-class shares. Class A shares have one vote each. Class B shares do not carry any votes. Class A shares make out 50% of the total equity. ACME Inc.'s main shareholder is the Saint-John Smythe family which owns 80% of Class A shares. What is the percentage of ownership of the Saint-John Smythe family?

A)0%
B)40%
C)50%
D)80%

Accepted Answer

The Saint-John Smythe family owns 80% of Class A shares, which make up 50% of the total equity. Therefore, their ownership percentage is 80% of 50%, which equals 40%.

Question 7

The typical firm from continental Europe and most of Asia is characterised by ...&#10;A)dispersed ownership and weak control.&#10;B)dispersed ownership and strong control.&#10;C)concentrated ownership and strong control.&#10;D)concentrated ownership and weak control.

Accepted Answer

The answer of The typical firm from continental Europe and...

Question 8

Strong control and dispersed ownership can be achieved by ...&#10;A)proxy votes.&#10;B)dual-class shares.&#10;C)ownership pyramids.&#10;D)All of the above.

Accepted Answer

All three mechanisms (proxy votes, dual-class shares, ownership pyramids) allow for a separation of control and ownership.

Proxy votes allow an individual or group to vote on behalf of shareholders who are unable or unwilling to attend a meeting, giving those with the ability to proxy vote a certain level of control over the company without necessarily owning a significant portion of the shares.

Dual-class shares create two types of shares with different voting rights, giving those with the shares with superior voting rights the ability to control the company even if they own a smaller percentage of the company than those with inferior voting rights.

Ownership pyramids involve a complex web of shareholding in which a company holds a controlling stake in subsidiary companies, which in turn hold stakes in other subsidiary companies, creating a chain of control that allows a shareholder to retain control even if they do not own a majority of the shares in any one company.

Deck 3: Control Versus Ownership Rights