Question 1

Which one of the following statements is correct?&#10;A)The bootstrapping effect refers to a bidder with weaker corporate governance benefiting from the better corporate governance of its target.&#10;B)The positive spillover effect refers to the improvement in the target's corporate governance as a result of it being taken over by a bidder with better corporate governance.&#10;C)The negative spillover effect refers to the worsening of the target's corporate governance as a result of it being taken over by a bidder with weaker corporate governance.&#10;D)All of the above.

Accepted Answer

All the statements are correct. The bootstrapping effect describes how a bidder with weaker corporate governance can benefit from the stronger corporate governance of its target. The positive spillover effect refers to the improvement in the target's corporate governance due to being acquired by a bidder with superior corporate governance. Conversely, the negative spillover effect describes the deterioration in the target's corporate governance when taken over by a bidder with weaker corporate governance.

Question 2

Reincorporations in other states or countries are a means for companies to improve or worsen their corporate governance. Which one of the following statements is correct as to regulatory competition between states and countries?

A)It will result in a race to the top.
B)States and countries that cater for managers will attract most incorporations and reincorporations.
C)It is as yet not clear whether regulatory competition will result in a race to the top or to the bottom.
D)Regulatory competition will result in a race to the top.

C

Accepted Answer

The statement mentions that it is not clear whether regulatory competition will lead to a race to the top or to the bottom, implying that there is no clear answer or consensus on the matter. Option A and D both suggest that regulatory competition will lead to a race to the top, which contradicts the statement in the question. Option B is too narrow and only focuses on a specific group (managers) rather than considering the broader implications of regulatory competition. Therefore, the correct answer is option C.

Question 3

Which one of the following statements correctly describes the bootstrapping effect?&#10;A)This effect consists of the improvement in corporate governance of the target.&#10;B)Tying boots is difficult.&#10;C)The bootstrapping effect consists of a bidder with weaker corporate governance adopting the corporate governance of the target company it is taking over.&#10;D)The bootstrapping effect relates to the benefits the target company derives from being taken over by a bidder with better corporate governance.

Accepted Answer

The bootstrapping effect refers to the bidder with weaker corporate governance adopting the corporate governance of the target company it is taking over. This is done to improve the bidder's own corporate governance practices and is one of the potential benefits of a takeover. Option A describes the target company's improvement in corporate governance, while Option D describes the benefits to the target company, neither of which is directly related to the bootstrapping effect. Option B is irrelevant to the concept of bootstrapping effect.

Question 4

Which one of the following statements is correct?&#10;A)The shareholder-exploitation hypothesis predicts that regulatory competition will result in a race to the bottom.&#10;B)The cost-avoidance hypothesis predicts that regulatory competition will result in a race to the top.&#10;C)There is as yet no conclusive evidence as to which of the above two competing hypotheses is valid.&#10;D)All of the above.

Accepted Answer

Each statement addresses different aspects of the debate on regulatory competition. A) The shareholder-exploitation hypothesis suggests that jurisdictions will lower protections to attract corporations, leading to a "race to the bottom." B) The cost-avoidance hypothesis posits that jurisdictions will increase protections to attract investors, leading to a "race to the top." C) The debate between these hypotheses is ongoing, with no conclusive evidence favoring one over the other. Therefore, all statements are correct in the context of regulatory competition discussions.

Question 5

Which one of the following statements correctly describes the bonding hypothesis?&#10;A)Banks require covenants when lending to risky companies.&#10;B)The large shareholder commits him/herself not to expropriate the minority shareholders by subjecting the firm to more stringent foreign regulation.&#10;C)Shareholders bond themselves to managers by agreeing not to sell their shares over a specified period.&#10;D)None of the above.

Accepted Answer

The bonding hypothesis suggests that by subjecting themselves to more stringent regulations (often in foreign jurisdictions), large shareholders can signal their commitment not to expropriate minority shareholders. This is a way to reduce agency costs and align interests between large and small shareholders.

Question 6

Contractual corporate governance relates to ...&#10;A)improving national corporate governance regulation via codes of best practice.&#10;B)managerial compensation contracts.&#10;C)shareholder protection offered by the country's legal system.&#10;D)the ways whereby firms can improve their corporate governance beyond their country's standards.

Accepted Answer

The answer of Contractual corporate governance relates to ...&#10;A)improving national...

Question 7

Which one of the following statements is correct?&#10;A)According to the real seat principle, the law applying to the firm is that of its country of incorporation.&#10;B)The incorporation principle makes it more difficult for a firm to move than the real seat principle.&#10;C)According to the incorporation principle, the law applying to the firm is that of its country of incorporation.&#10;D)None of the above.

Accepted Answer

The incorporation principle holds that the law that applies to a firm is that of the country in which it is incorporated. This principle contrasts with the real seat principle, which would apply the law of the country where the firm's main office or operations are located. Therefore, statement C is correct.

Deck 10: Contractual Corporate Governance