Question 1

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 2

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

Accepted Answer

Malmendier and Tate found that CEOs who attained superstar status underperformed compared to their prior performance and the performance of their peers. They also found that their compensation rose significantly but their performance declined. Additionally, they spent a disproportionate amount of time on other activities such as attending events and writing books.

Question 3

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

Accepted Answer

The study by Cyert, Kang, and Kumar found all the mentioned points: the average age and tenure of CEOs, the dual role of CEO and board chairman in 70% of cases, and the negative correlation between equity ownership and CEO compensation.

Question 4

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 5

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

Accepted Answer

Stock options give management an incentive to increase the company's stock price, as they will directly benefit from its growth. This helps align their interests with those of shareholders who also want to see an increase in the company's value.

Question 6

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

Accepted Answer

All three characteristics mentioned in options A, B, and C have been found to be desirable for boards according to the study by Core, Holthausen, and Larker and other research. A board with fewer or no gray directors (directors who are retired CEOs or executives) is believed to have better independence and objectivity. Fewer inside board members (those who are also executives or employees of the company) help ensure that the board is not influenced solely by management and is more likely to provide oversight. Fewer interlocked directorships (where board members serve on multiple boards of companies with interdependent interests) can help avoid conflicts of interest and promote better decision-making.

Question 7

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 did measure CEO overconfidence using factors such as the tendency for CEOs to hold options in their company's stock until their expiration.

Question 8

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

Accepted Answer

The statement is true, as Cooper, Gulen, and Rau's research found that high executive compensation was correlated with negative excess returns.

Question 9

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

Accepted Answer

The answer of Foreign companies which have what percent of...

Question 10

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

Accepted Answer

The statement is true based on research. The addition of outside directors to a company's board tends to have a positive impact on shareholder wealth.

Question 11

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 12

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

Accepted Answer

The European Union enacted the 8th Company Directive, which includes regulations on the preparation and presentation of financial statements, auditing, and internal control. This can be considered as the EU's equivalent to the Sarbanes-Oxley Act enacted in the United States.

Question 13

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 in deals where target CEOs received special treatment, shareholders were actually offered lower acquisition premiums.

Question 14

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 found support for the idea that peer groups for CEO compensation are often selectively chosen to benefit the CEOs with higher compensation levels.

Question 15

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

Accepted Answer

The statement is true according to research conducted by Hallock.

Question 16

With respect to companies with golden parachute agreements, Machlin, Choe, and Miles found:

Accepted Answer

All of the above are correct.

Question 17

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 size leads to negative shareholder wealth effects. This is because larger boards are associated with decreased monitoring and increased opportunities for shirking by board members.

Question 18

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 answer of Research, such as the study by Fich...

Question 19

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 20

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 did find that CEO compensation was greater for directors who were older, had longer tenures, and served on multiple boards.

Quiz 13: Corporate Governance