Chapter 9 (2) Flashcards
What is the primary focus of corporate governance?
A) To enhance the profits of individual employees
B) To align the interests of shareholders, management, and the board of directors
C) To reduce the number of shareholders in a corporation
D) To increase the power of management over shareholders
B
How does corporate governance impact a corporation?
A) It focuses on short-term profitability only
B) It helps determine the direction and performance of the corporation
C) It limits the involvement of shareholders in decision-making
D) It prioritizes the interests of the board of directors over shareholders
B
According to Robert Monks and Nell Minow, what does corporate governance define?
A) The profits of the company
B) The relationship among various participants in determining the direction and performance of corporations
C) The amount of shareholder dividends
D) The legal obligations of the corporatio
B
The primary participants in corporate governance, according to Monks and Minow, are the shareholders,
board of directors, and employees
F. Robert Monks and Nell Minow, two leading scholars in corporate governance, define it as the
relationship among various participants in determining the direction and performance of corporations.
The primary participants are the shareholders, the management (led by the CEO), and the board of
directors
Who are the primary owners of a corporation?
A) The CEO
B) The employees
C) The shareholders
D) The board of directors
C
What is the role of management in a corporation?
A) To oversee the activities of the board of directors
B) To manage the day-to-day operations of the company
C) To represent the interests of shareholders in decision-making
D) To elect the board of directors
B. Led by CEOs
Who is responsible for overseeing the management of the corporation?
A) The employees
B) The shareholders
C) The board of directors
D) The customers
C
Who typically leads the management team of a corporation?
A) The chief financial officer (CFO)
B) The chief executive officer (CEO)
C) The chief operating officer (COO)
D) The board chairperson
B
What is the primary task of the board of directors in corporate governance?
A) To run the day-to-day operations of the company
B) To oversee the activities of management and ensure alignment with shareholder interests
C) To directly manage the company’s financial performance
D) To hire employees for the corporatio
B
How are members of the board of directors selected?
A) They are appointed by the CEO
B) They are elected by the shareholders
C) They are chosen by the company’s employees
D) They are selected by government regulators
B
How does good corporate governance affect investment decisions?
A) It has no effect on investment decisions
B) It can lead to higher security prices for companies with sound practices
C) It discourages investors from investing in companies
D) It leads to lower security prices for companies
B
What is the “corporate governance premium”?
A) A reduction in company profits due to good governance
B) A higher valuation and increased investment in companies with strong governance practices
C) A premium that companies must pay for good governance
D) A tax imposed on companies with strong governance
B
How does the corporate governance premium vary between countries?
A) It is the same in all countries
B) It is larger for firms in countries with sound corporate governance practices
C) It is smaller in countries with better corporate governance standards
D) It is based solely on company size, not governance practices
B
What is the relationship between good governance and financial performance?
A) Good governance always guarantees superior financial performance
B) Good governance is sometimes associated with superior financial performance, but not always
C) Financial performance is not affected by corporate governance
D) Companies with good governance always perform poorly financially
B
The corporate governance premium is smaller for firms in countries with sound corporate governance
practices compared to countries with weaker corporate governance standards.
F. The corporate governance premium is larger for firms in countries with sound corporate governance
practices compared to countries with weaker corporate governance standards.
Sound governance practices always leads to superior financial performance.
F. Sound governance practices often lead to superior financial performance. However, this is not always the
case.
What is the general assumption about practices such as independent directors and stock options?
A) They are guaranteed to result in poor financial performance
B) They are generally assumed to result in better financial performance
C) They have no effect on financial performance
D) They always result in long-term gains for the company
B
Why might independent directors not always contribute to better financial performance?
A) They are always too involved in company operations
B) They may lack the necessary expertise or involvement
C) They are not compensated enough
D) They have too much control over the company’s decisions
B
What is a potential negative effect of granting stock options to the CEO?
A) They encourage CEOs to make decisions that focus on short-term share price increases
B) They help CEOs make decisions that benefit the long-term performance of the company
C) They have no significant impact on a CEO’s decision-making
D) They discourage CEOs from taking risks
A
What is the primary purpose of a corporation?
A) To allow one party to control all operations
B) To allow different parties to contribute capital, expertise, and labor for mutual benefit
C) To focus only on maximizing shareholder profits
D) To provide employees with ownership stakes in the company
B
What benefit do shareholders (investors) receive from their participation in a corporation?
A) They have unlimited liability for the corporation’s debts
B) They can participate in the profits of the enterprise without being responsible for its operations
C) They must take on the daily responsibilities of running the company
D) They are required to manage the operations of the corporation
B
What right do shareholders have in a corporation?
A) The right to make all operational decisions
B) The right to elect directors who have a fiduciary obligation to protect their interests
C) The right to directly manage day-to-day activities
D) The right to control all financial transactions within the company
B
What is the central concept of agency theory?
A) The relationship between stockholders and external auditors
B) The relationship between the owners (principals) and managers (agents)
C) The interaction between competitors in a market
D) The control of operations by the board of directors
B
In the context of agency theory, who are the “principals”?
A) The managers of the company
B) The employees who work for the company
C) The owners of the firm, typically stockholders
D) The customers of the company
C