Chapter 11 - pt 2

Question 1

voice-based mechanism

Answer 1

Corporate governance mechanism that focuses on shareholders’ willingness to work with managers, usually through the board of directors, by “voicing” their concerns

Question 2

exit-based mechanisms

Answer 2

Corporate governance mechanism that focuses on exit, indicating that shareholders no longer have patience and are willing to “exit” by selling their shares

Question 3

shareholder activism

Answer 3

(1) activities of large shareholders eager to maximize their returns
(2) activities of small shareholders pushing their own proposals

Question 4

activist shareholder

Answer 4

(1) a traditional shareholder interested in maximizing his/her wealth
(2) a social activist eager to promote his/her agenda

Question 5

shareholder democracy

Answer 5

a movement to let shareholders have more control of the management of the firm

Question 6

shareholder empowerment

Answer 6

Shift in the allocation of power from corporate managers and directors to shareholders

Question 7

private equity

Answer 7

equity capital invested in private (nonpublic) companies

Question 8

leveraged buyout (LBO)

Answer 8

a means by which private investors, often in partnership with incumbent managers, issue bonds and use the cash raised to buy the firm’s stock

Question 9

shareholder capitalism

Answer 9

a view of capitalism that suggests that the most fundamental purpose for firms to exist is to serve the economic interests of shareholders

Question 10

managerial human capital

Answer 10

Skills and abilities acquired by top managers

Question 11

foreign portfolio investment (FPI)

Answer 11

Foreigners’ purchase of stocks and bonds in one country

Question 12

stewardship theory

Answer 12

a theory that suggests that managers should be regarded as stewards of owners’ interests

Question 13

cross-listing

Answer 13

Firms list their shares on foreign stock exchanges

Question 14

Washington Consensus

Answer 14

a view centered on the unquestioned belief in the superiority of private ownership over state ownership in economic policy making, which is often spearheaded by the US government and two Washington-based international organizations: the International Monetary Fund and the World Bank

Question 15

moral hazard

Answer 15

recklessness when people and organizations (including firms and governments) do not have to face the full consequences of their actions

Question 16

Beijing Consensus

Answer 16

a view that questions Washington Consensus’ belief in the superiority of private ownership over state ownership in economic policy making, which is often associated with the position held by the Chinese government

Question 17

Chapter 11 - title

Answer 17

Governing the Corporation Globally