Question 1

Both top executives and owners of the firm wish to diversify the firm to reduce risk.

Accepted Answer

False

Question 2

Corporate governance is a means to establish harmony between parties (the firm's owners and its top-level managers)whose interests may conflict.

Accepted Answer

Corporate governance is designed to align the interests of shareholders and management to achieve long-term success for the company. It helps to establish a system of checks and balances to ensure accountability and transparency.

Question 3

The separation of ownership and control is the most effective means used by firms to prevent managerial opportunism.

Accepted Answer

False

Question 4

Recent emphasis on corporate governance stems mainly from the failure of corporate governance mechanisms to adequately monitor and control top-level managers' decisions.

Accepted Answer

The statement is true, as recent corporate scandals and financial crises have highlighted the importance of effective corporate governance to ensure ethical behavior and prevent abuses of power by top managers.

Question 5

In the United States,the members of the board of directors are a firm's key stakeholders and a company's legal owners.

Accepted Answer

The answer of In the United States,the members of the...

Question 6

Failures of corporate internal controls and inadequate internal control systems allowed unethical executives at such companies as Enron and WorldCom to act in their own self-interest.

Accepted Answer

The failures of corporate internal controls and inadequate internal control systems at Enron and WorldCom allowed executives to engage in unethical behavior, such as fraud and accounting manipulation, for personal gain.

Question 7

Executive compensation is considered an external corporate governance mechanism because it determined in part by market forces.

Accepted Answer

The answer of Executive compensation is considered an external corporate...

Question 8

In the United States,the primary goal of a firm is to maximize profits to provide a financial gain to shareholders.

Accepted Answer

This is considered the traditional and commonly accepted goal of a firm in the United States.

Question 9

A top-level manager's reputation is a dependable predictor of his/her future behavior.

Accepted Answer

The answer of A top-level manager's reputation is a dependable...

Question 10

The three internal corporate governance mechanisms are ownership concentration,board of directors,and the market for corporate control.

Accepted Answer

The answer of The three internal corporate governance mechanisms are...

Question 11

Agency costs include incentives for executives,monitoring,enforcement costs,and any individual financial losses incurred by principals.

Accepted Answer

This statement accurately describes the components of agency costs.

Question 12

Corporate governance is the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of an organization.

Accepted Answer

Corporate governance includes various mechanisms such as board of directors, audit committees, executive compensation, risk management, and transparency in financial reporting to ensure accountability and effective management of the organization for the benefit of all stakeholders.

Question 13

An agency relationship exists when one or more persons (the principal or principals)hire another person or persons
(the agent or agents)as decision-making specialists to perform a service.

Accepted Answer

This statement correctly describes the nature of an agency relationship.

Question 14

In general,when governance mechanisms are strong,managers have free rein in their decisions.

Accepted Answer

When governance mechanisms are strong, it means that there are processes and systems in place to monitor and regulate the actions of managers, also known as oversight. This does not mean that managers have free rein in their decisions, but rather that they are held accountable for their actions and that there are consequences for any actions that are not in line with the goals and values of the organization.

Question 15

In the modern U.S. corporation,the ownership and managerial control of the firm are separated.

Accepted Answer

In the modern U.S. corporation, ownership is often distributed among shareholders while managerial control is exercised by a board of directors and executive officers. This separation of ownership and control is a defining characteristic of the modern corporate form.

Question 16

Corporate governance involves oversight in areas where owners,managers,and members of boards of directors may have conflicts of interest.

Accepted Answer

Corporate governance is designed to ensure that the interests of all stakeholders, including shareholders, are considered and protected. It involves establishing policies and procedures to prevent conflicts of interest between owners, managers, and members of boards of directors. This includes the establishment of independent audit committees, regular board evaluations, and the implementation of codes of conduct and ethics.

Question 17

In modern corporations-especially those in the United States and United Kingdom-a primary objective of corporate governance is to ensure that the interests of top-level managers are aligned with the interests of shareholders.

Accepted Answer

This is because in modern corporate governance, the role of top-level managers is to maximize shareholder value and ensure long-term success of the company, which in turn benefits the shareholders.

Question 18

Amelia Smith is the sole owner of the successful restaurant chain,Amelia's Café. Ms. Smith has taken a no- interest loan from the company in order to build a luxurious seaside house for herself in Carmel,California. This constitutes a classic agency problem.

Accepted Answer

The answer of Amelia Smith is the sole owner of...

Question 19

In a large number of family owned firms,ownership and managerial control are not separated.

Accepted Answer

In many family owned firms, the family members who own the business also hold managerial positions and are involved in day-to-day decision making. As a result, ownership and managerial control are not separated in these firms.

Question 20

As a rule,shareholders prefer more product diversification than do managers because shareholders wish to reduce risk and maximize wealth.

Accepted Answer

The answer of As a rule,shareholders prefer more product diversification...

Quiz 10: Corporate Governance.