Deck 13: Corporate Governance

Question 1

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

A) More than 5%
B) More than 10%
C) Less than 50%
D) More than 50%

Answer 1

A

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.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

A) Fewer or no gray directors
B) Fewer inside board members
C) Fewer interlocked directorships
D) All the above

Question 5

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

Question 6

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

Question 7

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

A) Exhibited no difference in financial performance compared to those without perks
B) Exhibited poorer performance
C) There was no significance difference in 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.

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.

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:

A) Such CEOs underperforming compared to their prior performance as well as the performance of their peers b The compensation of such CEOs rose significantly on attainment of the superstar status but their performance declined
C) Such CEOs spent a disproportionate amount of time doing other activities such as attending public and private events as well as writing books
D) All the above
E) None of the above

Question 11

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

A) The average CEO in their study was 55 years of age, and had served in that position for an average of eight years
B) Found that in 70% of the cases the CEO was also the board chairman
C) The equity ownership of the largest shareholder and the board was negatively correlated with CEO compensation.
D) All the above
E) Both a and b

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.

Question 13

Core, Holthausen, and Larker's research found:

A) An inverse relationship between CEO compensation and the percentage of outside directors on the board
B) An inverse relationship between CEO compensation and the size of the board
C) None of the above
D) Both a and b

Question 14

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

Question 15

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

A) European Accounting Regulatory Mandate
B) 8^th Company Directive
C) European Commission Accounting Regulatory Reform Law
D) None of the above

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?

A) Better financial performance but not better governance
B) Better governance but not better financial performance
C) Better governance and better financial performance
D) Neither better governance nor better financial performance

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.

Question 18

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

Question 19

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

A) Positive shareholder wealth effects
B) Negative shareholder wealth effects
C) No significant market reactions
True or False Questions