Question 1

Two important issues in corporate governance are (1)the rules that cover the board's ability to fire the CEO and (2)the rules that cover the CEO's ability to remove members of the board.

Accepted Answer

False

Question 2

A poison pill is also known as a corporate restructuring.

Accepted Answer

A poison pill is a defensive strategy used by a company to make itself less attractive to a potential acquirer. It is not the same thing as a corporate restructuring, which refers to a significant change in a company's organizational or financial structure.

Question 3

Which of the following is NOT normally regarded as being a barrier to hostile takeovers?&#10;A) Targeted share repurchases.&#10;B) Shareholder rights provisions.&#10;C) Restricted voting rights.&#10;D) Poison pills.&#10;E) Abnormally high executive compensation.

Accepted Answer

Abnormally high executive compensation is not normally regarded as a barrier to hostile takeovers. In fact, it may even be perceived as a reason for the takeover attempt, as investors may believe that the company's executives are overpaid and that a change in management is needed to improve performance. The other options listed (A, B, C, D) are all commonly used as barriers to hostile takeovers.

Question 4

The CEO of D'Amico Motors has been granted some stock options that have provisions similar to most other executive stock options.If D'Amico's stock underperforms the market,these options will necessarily be worthless.

Accepted Answer

Stock options granted to executives, including those at D'Amico Motors, typically have a set exercise price. If the company's stock underperforms the market but remains above the exercise price, the options can still hold value, allowing the executive to purchase shares at a price lower than the market value.

Question 5

Which of the following is NOT normally regarded as being a good reason to establish an ESOP?&#10;A) To enable the firm to borrow at a below-market interest rate.&#10;B) To make it easier to grant stock options to employees.&#10;C) To help prevent a hostile takeover.&#10;D) To help retain valued employees.&#10;E) To increase worker productivity.

Accepted Answer

Statement b is the correct answer,because firms can easily grant stock options to employees without an ESOP.

Question 6

ESOPs were originally designed to help improve worker productivity,but today they are also used to help prevent hostile takeovers.

Accepted Answer

ESOPs, or Employee Stock Ownership Plans, were introduced as a way to increase employee motivation and productivity by giving them a stake in the company's success through stock ownership. However, over time, they have also been utilized as a tool to protect the company from unwanted takeovers by giving employees a controlling interest in the company.

Deck 13: Agency Conflicts and Corporate Governance