Deck 33: Governance and Corporate Control Around the World

Question 1

Large business combinations in Japan are carried out through reciprocal ownership of common stock.These are called:

A)keiretsu.
B)chaebols.
C)conglomerates.
D)industrial ho

Answer 1

keiretsu.

Question 2

In Japan,commercial banks can own a company's stock up to:

A)1% of the total shares.
B)5% of the total shares.
C)10% of the total shares.
D)Commercial banks cannot own stocks of companies.

Answer 2

5% of the total shares.

Question 3

The idea that a corporation's financial goal is to "maximize stockholder value" is more prevalent in:
i.the U.S.; II)the U.K.; III)France; IV)Japan

A)I and II only
B)II and III only
C)III and IV only
D)II and IV only

Answer 3

I and II only

Question 4

Individual investors in the U.S.can play an important part in corporate governance because:
I.a large fraction of households' portfolio is held directly in equity securities;
II.a large fraction of households' portfolio is held in pension funds;
III.a large fraction of households' portfolio is held directly in bank deposits

A)I only
B)II only
C)III only
D)II and III only

Question 5

The following areas have based their legal system on a civil law tradition:
i.Germany; II)France; III)Scandinavia; IV)U.K.

A)I only
B)II only
C)I,II,and III only
D)IV only

Question 6

Large business combinations in Japan are normally carried out through reciprocal ownership of common stock.These networks,or keiretsu,involve a large number of diversified companies centered around a large bank,industrial firm,or trading firm.One of the main benefits of this structure is argued to be:

A)the monopolistic control of economic segments.
B)the reduction in the costs of financial distress.
C)large-scale diversification that cannot be done by individual shareholders.
D)greater efficiency in management beca

Question 7

The legal system in France is based on the:

A)common law tradition.
B)civil law tradition.
C)Sharia tradition.
D)none of these options.

Question 8

The idea that a corporation should be run in the interests of the shareholders is embedded in the law in:
i.the U.S.; II)the U.K.; III)France; IV)Japan

A)I only
B)I and II only
C)III and IV only
D)II and IV only

Question 9

The United States is considered to have a market-based financial system because:
I.stock market capitalization,as a percentage of GDP,is relatively high;
II.bank loans,as a percentage of GDP,are relatively low;
III.the U.S.has thousands of banks and insurance companies

A)I only
B)II only
C)II and III only
D)I and II only

Question 10

Countries that have poor protection of shareholders' and creditors' rights generally have:
I.smaller stock markets;
II.fewer listed firms and fewer IPOs;
III.less debt financing for private firms

A)I only
B)II only
C)I and II only
D)I,II,and III

Question 11

In which country do financial markets play the most important role as sources of corporate funding?

A)U.S.
B)Japan
C)Germany
D)Korea

Question 12

The following are sources of financing for corporations:
I.households;
II.financial institutions;
III.other corporations

A)I only
B)II only
C)III only
D)I,II,and III

Question 13

In which area do households allocate most of their portfolio savings to banks?

A)Euro area
B)U.K.
C)U.S.
D)Japan

Question 14

In which area do households allocate the highest percentage of their portfolio to direct equity ownership?

A)U.S.
B)Japan
C)U.K.
D)Euro area

Question 15

The ultimate owners of a publicly traded corporation are:

A)individuals.
B)insurance companies.
C)banks.
D)other corporations.

Question 16

In which of the following countries do individual investors play the largest role in corporate governance?

A)U.S.
B)U.K.
C)Japan
D)Germany

Question 17

One should expect that the countries having a common law tradition would do a better job protecting:
I.shareholders;
II.creditors;
III.managers

A)I only
B)II only
C)I and II only
D)I,II,and III

Question 18

In financial institution-based systems,individual investors hold corporate debt and equity in the following ways:
I.directly;
II.indirectly through banks;
III.indirectly through insurance companies;
IV.indirectly through other financial intermediaries

A)I only
B)I and II only
C)IV only
D)II,III,and IV only

Question 19

In Japan,intercompany financing most typically arises in the form of:

A)term loans.
B)trade credit.
C)leasing.
D)insurance contracts.

Question 20

The legal system in the U.S.is based on the:

A)common law tradition.
B)civil law tradition.
C)Sharia tradition.
D)none of these options.

Question 21

A Korean conglomerate is called a:

A)keiretsu.
B)Chaebol.
C)industrial house.
D)conglomerate.

Question 22

Dual-class equity occurs frequently in:
i.U)S.; II)Brazil; III)Canada; IV)Germany; V)Sweden

A)I only
B)II only
C)I,II,III,IV,and V
D)IV and V only

Question 23

The legal system in the U.S.and U.K.is based on a civil law tradition.

Question 24

Consider a three-tier pyramid and a single operating company.Assume that 51% of the votes confer control at each tier.What is the minimum percentage ownership (approximately)at the highest level in the pyramid that will enable control of the operating company?

A)100%
B)51%
C)50%
D)26%

Question 25

Firms raise funds from financial markets and from financial institutions.

Question 26

Family control is least concentrated with the top 10 families in which Asian country?

A)Indonesia
B)Philippines
C)Thailand
D)Japan

Question 27

Consider a firm that has dual-class shares with 250 million Class A shares (having 1 vote each)and 75 million nonlisted Class B shares having 10 votes each.The shares are otherwise identical.If one requires 51% of the votes to control the firm,what number of Class B shares must one control?

A)37.5M
B)51.0M
C)125.0M
D)162.5M

Question 28

The German system of corporate governance is referred to as:

A)Aufsichtsrat
B)Vorstand
C)codetermination
D)Directoire

Question 29

In the United States,individual investors play an important role in corporate governance due to its well-developed democratic institutions.

Question 30

Japan has a bank-based financial system.

Question 31

Households,financial institutions,and other firms are the main sources of funds for firms.

Question 32

What are some of the advantages of market-based systems?
I.successful in developing new industries;
II.more effective in shrinking capital in declining industries;
III.more reliant on transparent financial reporting;
IV.more diverse as sources of corporate financing

A)I,II,and IV
B)II,III,and IV
C)I,III,and IV
D)I,II,and III

Question 33

Large firms in Germany have a:
I.board of directors;
II.supervisory board;
III.management board

A)I only
B)II only
C)III only
D)II and III only

Question 34

Direct individual investment in equity markets generally plays a smaller role in less-developed countries.

Question 35

Which of the following are mechanisms that help minimize agency problems?
I.monitoring by boards of directors;
II.compensation tied to earnings and stock price;
III.transparent financial reporting;
IV.the threat of takeover

A)I only
B)I,and II
C)I,II,and III
D)I,II,III,and IV

Question 36

A firm whose only asset is controlling blocks of shares in other firms is called:

A)a conglomerate.
B)a holding company.
C)a pyramid.
D)dual-class company.

Question 37

Consider a firm that has dual-class shares with 250 million Class A shares (having 1 vote each)and 75 million nonlisted Class B shares having 8 votes each.The shares are otherwise identical.If one requires 51% of the votes to control the firm,what number of Class B shares must one control?

A)37.5M
B)51.0M
C)54.2M
D)162.5M

Question 38

For a given country,which conditions will favor the formation of conglomerates?
I.limited financial markets;
II.poor investor protection;
III.difficulty accessing international capital markets;
IV.limited and transparent government

A)I and II
B)II,III,and IV
C)I,III,and IV
D)I,II,and III

Question 39

Consider a four-tier pyramid and a single operating company.Assume that 51% of the votes confer control at each tier.What is the minimum percentage ownership (approximately)at the highest level in the pyramid that will enable control of the operating company?

A)13%
B)26%
C)50%
D)51%

Question 40

In Japan,the racketeers who demand payment in exchange for not disrupting shareholders' meetings are known as:

A)keiretsu.
B)chaebols.
C)benami.
D)sokaiya.

Question 41

Briefly explain the term keiretsu.

Question 42

The largest conglomerate in India is the Tata Group.

Question 43

Briefly explain the term pyramid in the context of corporate control.

Question 44

Briefly explain the two important legal traditions in Europe and the U.S.

Question 45

Japan has a "main bank" system where banks and firms have long-standing relationships.

Question 46

Conglomerates in Korea are called chaebols.

Question 47

Name Germany's two boards of directors,and briefly explain why large firms in Germany have two boards of directors.

Question 48

What is corporate governance?

Question 49

Under which circumstances would a conglomerate be effective?

Question 50

Suppose that managers were given incentives in the form of restricted stock ownership (i.e.,the stock is not easily sold)instead of outright stock ownership.One would expect such firms to have fewer agency problems.

Question 51

German governance seeks to include labor unions as a partner in making long-term decisions.

Question 52

In Japan,a keiretsu is a network of companies usually organized around a major bank.

Question 53

The legal systems in France,Germany,and Scandinavia have evolved from a common law tradition.

Question 54

Is the U.S.corporate governance structure more or less responsive to shareholders than most other nations,and why or why not?