Deck 33: Governance and Corporate Control Around the World

Question 1

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

A)The United States
B)Japan
C)The UK
D)The euro area

Answer 1

The United States

Question 2

The United States is considered to have a market-based financial system because

A)stock market capitalization, as a percentage of GDP, is relatively high.
B)bank loans, as a percentage of GDP, are relatively low.
C)bank loans, as a percentage of GDP, are relatively low, and the United States has thousands of banks and insurance companies.
D)stock market capitalization, as a percentage of GDP, is relatively high and bank loans, as a percentage of GDP, are relatively low.

Answer 2

stock market capitalization, as a percentage of GDP, is relatively high and bank loans, as a percentage of GDP, are relatively low.

Question 3

Countries that have poor protection of shareholders' and creditors' rights generally have

A)smaller stock markets.
B)fewer listed firms and fewer IPOs.
C)smaller stock markets and fewer listed firms and fewer IPOs.
D)smaller stock markets, fewer listed firms and fewer IPOs, and less debt financing for private firms.

Answer 3

smaller stock markets, fewer listed firms and fewer IPOs, and less debt financing for private firms.

Question 4

In financial institution-based systems, individual investors hold corporate debt and equity in the following ways:

A)directly.
B)directly and indirectly through banks.
C)indirectly through other financial intermediaries.
D)All of the options are correct.

Question 5

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

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

Question 6

The ultimate owners of a publicly traded corporation are

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

Question 7

One should expect that the countries having a common law tradition would do a better job protecting

A)shareholders.
B)creditors.
C)shareholders and creditors.
D)shareholders, creditors, and managers.

Question 8

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 houses.

Question 9

The legal system in the United States is based on the

A)common law tradition.
B)civil law tradition.
C)Sharia tradition.
D)None of these options are correct.

Question 10

The idea that a corporation's financial goal is to "maximize stockholder value" is more prevalent in

A)the United States and the UK.
B)the UK and France.
C)France and Japan.
D)the UK and Japan.

Question 11

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

A)The United States
B)The UK
C)Japan
D)Germany

Question 12

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

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

Question 13

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 are correct.

Question 14

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

A)The United States
B)Japan
C)Germany
D)Korea

Question 15

The following are sources of financing for corporations:

A)households.
B)financial institutions.
C)other corporations.
D)households, financial institutions, and other corporations.

Question 16

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 because the management skills are homogeneous even for firms in different industries.

Question 17

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

A)The euro area
B)The UK
C)The United States
D)Japan

Question 18

The idea that a corporation should be run in the interests of the shareholders is embedded in the law in

A)the United States.
B)the United States and the UK.
C)France and Japan.
D)the UK and Japan.

Question 19

Individual investors in the United States can play an important part in corporate governance because

A)a large fraction of households' portfolio is held directly in equity securities.
B)a large fraction of households' portfolio is held in pension funds.
C)a large fraction of households' portfolio is held directly in bank deposits.
D)a large fraction of households' portfolio is held in pension funds, and a large fraction of households' portfolio is held directly in bank deposits.

Question 20

The following areas have based their legal system on a civil law tradition:

A)Germany.
B)France.
C)Germany, France, and Scandinavia.
D)the UK.

Question 21

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 percent of the votes to control the firm, what number of Class B shares must one control?

A)37.5 million
B)51 million
C)54.2 million
D)162.5 million

Question 22

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

Question 23

The legal system in the United States and the UK is based on a civil law tradition.

Question 24

Large firms in Germany have a

A)board of directors.
B)supervisory board.
C)management board.
D)supervisory board and a management board.

Question 25

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)a dual-class company.

Question 26

A Korean conglomerate is called a(n)

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

Question 27

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

Question 28

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

Question 29

Consider a three-tier pyramid and a single operating company.Assume that 51 percent 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 percent
B)51 percent
C)50 percent
D)26 percent

Question 30

Dual-class equity occurs frequently in

A)the United States.
B)Brazil and Sweden.
C)Canada and Germany.
D)All of the options are correct.

Question 31

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 32

What are some of the advantages of market-based systems?

A)Successful in developing new industries, more effective in shrinking capital in declining industries, and more diverse as sources of corporate financing
B)More effective in shrinking capital in declining industries, more reliant on transparent financial reporting, and more diverse as sources of corporate financing
C)Successful in developing new industries, more reliant on transparent financial reporting, and more diverse as sources of corporate financing
D)Successful in developing new industries, more effective in shrinking capital in declining industries, and more reliant on transparent financial reporting

Question 33

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 percent of the votes to control the firm, what number of Class B shares must one control?

A)37.5 million
B)51 million
C)125 million
D)162.5 million

Question 34

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

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

Question 35

Firms raise funds from financial markets and from financial institutions.

Question 36

The German system of corporate governance is referred to as

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

Question 37

Consider a four-tier pyramid and a single operating company.Assume that 51 percent 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 percent
B)26 percent
C)50 percent
D)51 percent

Question 38

For a given country, which conditions will favor the formation of conglomerates?

A)Limited financial markets and poor investor protection
B)Poor investor protection, difficulty accessing international capital markets, and limited and transparent government
C)Limited financial markets, difficulty accessing international capital markets, and limited and transparent government
D)Limited financial markets, poor investor protection, and difficulty accessing international capital markets

Question 39

Japan has a bank-based financial system.

Question 40

Which of the following are mechanisms that help minimize agency problems?

A)Monitoring by boards of directors
B)Monitoring by boards of directors and compensation tied to earnings and stock price
C)Monitoring by boards of directors, compensation tied to earnings and stock price, and transparent financial reporting
D)Monitoring by boards of directors, compensation tied to earnings and stock price, transparent financial reporting, and the threat of takeover

Question 41

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

Question 42

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 43

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

Question 44

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

Question 45

Briefly explain the term keiretsu.

Question 46

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

Question 47

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

Question 48

Under which circumstances would a conglomerate be effective?

Question 49

What is corporate governance?

Question 50

Conglomerates in Korea are called chaebols.

Question 51

Briefly explain the two important legal traditions in Europe and the United States.

Question 52

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

Question 53

The largest conglomerate in India is the Tata Group.

Question 54

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