Chapter 9 Flashcards
market-based vs bank-based:
households bear more risk?
market-based - hold investments in equity, property, long-term assets
bank-based: low-risk appetite - bank cash, don’t invest
market-based vs bank-based:
which have more gov regulation?
bank-based markets
market-based vs bank-based:
how are banks concentrated?
market-based - highly fragmented. markets are more important than banks for LT finance
bank-based - highly concentrated + integrated
market-based vs bank-based:
most important source of finance?
market-based : market (after REs)
bank-based : bank lending (after REs)
bank may hold equity
business may hold equity in the bank
bank has access to mgmy info
bank may have a seat on the board
market-based or bank-based?
bank-based
unitary board structure - directors report to:
shareholders - like UK
what boards are on a two tier board?
management board
supervisory board
Germany
The agency problem is behind the need for sound corporate governance. The ‘principal’ in this
agency relationship is:
A customers as a body
B shareholders as a body
C managers as a body
D directors as a body
B
Directors = agents
A consultant has made the following statements, which he maintains are drawn from the definition of
corporate governance in the OECD’s Principles of Corporate Governance .
Statement (1): Corporate governance comprises the practices and procedures for ensuring that a
company is run in such a way that it achieves its objectives.
Statement (2): Corporate governance is a set of relationships between a company’s management, its
board, its shareholders and other stakeholders.
Requirement
Which two of the following are principles in the Wates Principles?
A Statement (1) matches; Statement (2) does not match
B Statement (1) does not match; Statement (2) does not match
C Statement (1) matches; Statement (2) matches
D
Statement 1 fails to specific that corporate governance also covers how objectives are SET!
A financial system comprises which three of the following?
A Governance structures
B Intermediaries
C Securities
D Markets
E Regulators
B C D
Woolmer plc adopts corporate responsibility as a key element in its strategies. This will mean that the
company seeks to:
A meet the minimum obligations it owes to stakeholders
B exceed the minimum obligations it owes to stakeholders
C meet the minimum obligations it owes to shareholders
D exceed the minimum obligations it owes to shareholders
the Co will not just want to do the minimum - they will want to exceed it re all STAKEHOLDERS, not just shareholders
The stewardship approach to corporate governance requires directors of limited companies:
A to act at all times in the best interests of the company
B to allow shareholders to see detailed accounting records on request
C to hold regular monthly meetings to answer shareholders’ questions
D to consult the shareholders over difficult management decisions
A
The board of directors of Lake plc is concerned that the current chief executive’s actions are
undermining the ethical culture at the company. She fails to listen to the concerns of managers about
unfair treatment of suppliers, and she has failed to learn from a recent scandal in which the company
was fined for data protection breaches.
Requirement
To improve the ethical culture at Lake plc, which of the following is the most important action for the
board to take?
A Draft a corporate code of ethics for Lake plc’s employees
B Rewrite Lake plc’s policies regarding suppliers and customers
C Demonstrate leadership by encouraging Lake plc’s chief executive to be more open
D Brief shareholders more fully about Lake plc’s incentive scheme for managers
C
CE has failed to show a key attribute of an ethical leader: openness
the board has the responsibility to act where leaders to no deliver on ethical leadership therefore they need to address the unethical leadership
Which of the following is a list of the five key elements of good corporate governance?
A Board of directors, senior management, employees, external auditors, internal auditors
B Senior management, shareholders, employees, external auditors, lenders
C Board of directors, senior management, shareholders, external auditors, internal auditors
D Senior management, stakeholders, internal auditors, employees, government regulators
C
Which three of the following are core aspects of South Africa’s King Report?
A Good corporate citizenship
B Equality
C Leadership
D Sustainability
E Responsibility
