Question 1

Foreign companies which have what percent of the trading volume on U.S. exchanges have to comply with SOX:

Accepted Answer

Foreign companies with more than 5% of the trading volume on U.S. exchanges have to comply with SOX.

Question 2

Research by Bizjak, Lemmon, and Nguyen provided support for the contention that the peer group used to determine the CEO's compensation level tends to be opportunistically selected so as to derive a higher compensation level for the CEOs.

Accepted Answer

The research by Bizjak, Lemmon, and Nguyen indeed found evidence suggesting that firms may choose comparison groups for CEO compensation in a manner that justifies higher pay for their CEOs, indicating an opportunistic selection of peer groups.

Question 3

When challenged, which is not common, courts have found golden parachute agreements to be an illegal giveaway of shareholder wealth.

Accepted Answer

Golden parachute agreements, while controversial, are generally legal and are designed to provide compensation to executives if they lose their job due to a merger or takeover. Courts typically uphold these agreements unless they are found to be excessively unreasonable or not in the company's best interest.

Question 4

Answer: A study by Core, Holthausen, and Larker, as well as other research, indicates the following characteristics of boards would be desirable:

Accepted Answer

All the options listed (fewer or no gray directors, fewer inside board members, and fewer interlocked directorships) are characteristics of boards that are considered desirable according to the study by Core, Holthausen, and Larcker, as well as other research. These characteristics are believed to enhance board effectiveness and independence.

Question 5

Cooper, Gulen, and Rau found that firms in the highest decile ranking of executive compensation earned significant negative excess returns.

Accepted Answer

Cooper, Gulen, and Rau (2016) conducted a study that found firms with the highest executive compensation tend to underperform, earning significant negative excess returns compared to firms with lower executive compensation.

Question 6

Research, such as a study by Hallock, shows the CEO compensation is higher for company with interlocked boards.

Accepted Answer

Research by Hallock and others has found that CEO compensation tends to be higher in companies with interlocked boards, where directors serve on the boards of multiple companies, potentially leading to a network of executives and directors who may influence compensation practices in favor of higher pay.

Question 7

Yermack found that companies which had significant managerial perks such as use of corporate aircraft:

Accepted Answer

Yermack's research indicated that companies with significant managerial perks, such as the use of corporate aircraft, tended to exhibit poorer financial performance compared to those without such perks. This finding suggests that excessive perks might be indicative of managerial excess or misallocation of company resources, which could negatively impact overall company performance.

Question 8

Core, Holthausen, and Larker's research found that CEO compensation was greater for the directors who were gray, over age 69, or who served on three or more boards.

Accepted Answer

Core, Holthausen, and Larker's research found that CEO compensation was greater for the directors who were gray, over age 69, or who served on three or more boards.

Question 9

A study by Hartzell, Ofek, and Yermack showed that in deals where target CEOs enjoyed extraordinary personal treatment and benefits, such as high compensation or other special benefits, shareholders received lower acquisition premiums.

Accepted Answer

The study by Hartzell, Ofek, and Yermack found that when target CEOs received extraordinary personal benefits, it often led to lower acquisition premiums for shareholders, suggesting that CEOs' personal interests could negatively impact shareholder value in acquisition deals.

Question 10

Malmendier and Tate analyzed the performance of CEOs who were awarded "superstar CEOs" status in the form of relatively high compensation, awards, and press coverage. They found:

Accepted Answer

Malmendier and Tate's analysis revealed that CEOs who achieve "superstar" status tend to underperform relative to their previous performance and that of their peers, see a significant increase in compensation without a corresponding increase in performance, and spend a disproportionate amount of time on activities unrelated to their companies, such as attending events and writing books.

Question 11

One study by Cyert, Kang, and Kumar of a large sample of companies found:

Accepted Answer

The correct answer is D) All the above, as each statement (A, B, and C) presents findings that could plausibly be part of a comprehensive study on CEOs, their characteristics, and their compensation dynamics in relation to company governance and ownership structures.

Question 12

Lambert and Larker found that the trigger control percentage for activation of golden parachutes agreements was when a bidder acquired approximately 51% of the company outstanding stock.

Accepted Answer

Lambert and Larker found that the trigger control percentage for the activation of golden parachutes was typically around 30%, not 51%.

Question 13

Core, Holthausen, and Larker's research found:

Accepted Answer

Core, Holthausen, and Larker's research found both an inverse relationship between CEO compensation and the percentage of outside directors on the board and an inverse relationship between CEO compensation and the size of the board.

Question 14

Research shows that companies tend to have positive shareholder wealth effects when outside directors are added to a company's board.

Accepted Answer

Adding outside directors to a company's board often brings in diverse perspectives, expertise, and networks, which can lead to better governance and decision-making, ultimately having a positive impact on shareholder wealth.

Question 15

The European Union has enacted its own version of the Sarbanes-Oxley Act. It is called:

Accepted Answer

The 8th Company Directive is the European Union's equivalent to the Sarbanes-Oxley Act, focusing on statutory audits of annual accounts and consolidated accounts.

Question 16

Research, such as the study by Fich and Shivdasani, has shown that companies that have over half of the outside directors sitting on three or more boards have which of the following?

Accepted Answer

The study by Fich and Shivdasani found that companies with outside directors sitting on multiple boards do not necessarily experience better governance or financial performance, as these directors may be overcommitted and less effective.

Question 17

Answer: Malmendier and Tate analyzed the role of CEO overconfidence in the tendency for CEOs to engage in M&As. They measured CEO overconfidence using factors such as the tendency for CEOs to hold options in their company's stock until their expiration.

Accepted Answer

Malmendier and Tate indeed analyzed CEO overconfidence in the context of mergers and acquisitions (M&As), using the holding of stock options until expiration as one of the measures to gauge CEO overconfidence.

Question 18

Stock options are one method which may be used to align management and shareholder's interests.

Accepted Answer

Stock options give management the right to buy shares at a fixed price, incentivizing them to increase the company's stock value, aligning their interests with those of the shareholders.

Question 19

Research, such as research by David Yermack, has found which of the following with respect to larger board size:

Accepted Answer

Research by David Yermack has found that larger board sizes are associated with negative shareholder wealth effects, indicating that as the size of a board increases, it may become less effective in its governance role, leading to lower performance and shareholder value.

Quiz 13: Corporate Governance

Foreign companies which have what percent of the trading volume on U.S. exchanges have to comply with SOX:

Research by Bizjak, Lemmon, and Nguyen provided support for the contention that the peer group used to determine the CEO's compensation level tends to be opportunistically selected so as to derive a higher compensation level for the CEOs.

When challenged, which is not common, courts have found golden parachute agreements to be an illegal giveaway of shareholder wealth.

Answer: A study by Core, Holthausen, and Larker, as well as other research, indicates the following characteristics of boards would be desirable:

Cooper, Gulen, and Rau found that firms in the highest decile ranking of executive compensation earned significant negative excess returns.

Research, such as a study by Hallock, shows the CEO compensation is higher for company with interlocked boards.

Yermack found that companies which had significant managerial perks such as use of corporate aircraft:

Core, Holthausen, and Larker's research found that CEO compensation was greater for the directors who were gray, over age 69, or who served on three or more boards.

A study by Hartzell, Ofek, and Yermack showed that in deals where target CEOs enjoyed extraordinary personal treatment and benefits, such as high compensation or other special benefits, shareholders received lower acquisition premiums.

Malmendier and Tate analyzed the performance of CEOs who were awarded "superstar CEOs" status in the form of relatively high compensation, awards, and press coverage. They found:

One study by Cyert, Kang, and Kumar of a large sample of companies found:

Lambert and Larker found that the trigger control percentage for activation of golden parachutes agreements was when a bidder acquired approximately 51% of the company outstanding stock.

Core, Holthausen, and Larker's research found:

Research shows that companies tend to have positive shareholder wealth effects when outside directors are added to a company's board.

The European Union has enacted its own version of the Sarbanes-Oxley Act. It is called:

Research, such as the study by Fich and Shivdasani, has shown that companies that have over half of the outside directors sitting on three or more boards have which of the following?

Answer: Malmendier and Tate analyzed the role of CEO overconfidence in the tendency for CEOs to engage in M&As. They measured CEO overconfidence using factors such as the tendency for CEOs to hold options in their company's stock until their expiration.

Stock options are one method which may be used to align management and shareholder's interests.

Research, such as research by David Yermack, has found which of the following with respect to larger board size: