Class 9 : Corporate Governance Part 1 Flashcards
The Sarbanes-Oxley (SOX) Act of 2002
what happens here?
CEO and CFO are accountable for any material misrepresentation
audit committees of the board have independent directors only
The Dodd Franck Wall Street Reform Act of 2010
what does it say
non-binding vote on the appropriateness of senior executive compensation
better disclosure of all direct and indirect sources of that compensation (e.g., golden parachute)
what could we say about the US pay premium
US pay premium is economically modest
mainly reflects the performance-based pay demanded by institutional shareholders and independent boards
what is Keiretsu
Corporate governance system in Japan
public firms with shareholders that include other firms, such as suppliers, with whom they do business
postwar recovery, followed by an inflexible economy with no leeway for corporate restructuring
what is Chaebols?
the corporate interrelationships in South Korea
public firms with strong international footprint, repressed shareholders, and political connections with the Korean government via financing with taxpayers’ money
a recent change in corporate governance rules requires that large (small) firms have 50%+ (25%+) of their boards as outside directors
The G Index
each point stems from one of the 24 provisions that limit shareholder rights, which are grouped in five categories
the 5 categories in the G index that limit shareholder rights
delay of hostile bidders
jeopardy of shareholder voting rights
protection to directors and officers
other takeover defences
and state laws
The E Index
it considers six provisions only:
staggered boards
limitations of shareholder bylaw amendments
poison pills
golden parachutes
supermajority provisions mergers
charter amendments
true or false
Firms with weak shareholder rights show operating underperformance
true
board’s fiduciary duties
manager will work towards shareholder wealth maximization
what is used to align the interests of managers with those of shareholders?
executive compensation via stock options with a vesting period is normally used, but drawbacks arise
what happens to firms allowing for CEO aircraft use?
severely underperform market benchmarks
–> which cannot be explained simply by the costs of the resources consumed
the larger the board, the bigger the firm value
true or false
false
There exists an inverse association between board size and firm value
the largest fraction of lost value takes place as boards grow from small to medium size
CEO performance incentives provided by the board through compensation and the threat of dismissal become more or less effective as board size increases
less effective as board size increases
Firms that announce significant reductions in board size realize which type of stock returns around the announcement dates?
realize substantial excess stock returns around the announcement dates
