Corporate Governance

Question 1

The set of mechanisms used to manage the relationships among stakeholders and to determine and control the strategic direction and performance of organizations

Answer 1

corporate governance

Question 2

Exists when one party delegates decision-making responsibility to a second party for compensation

Answer 2

agency relationship

Question 3

The seeking of self-interest with guile (i.e., cunning or deceit)

Answer 3

managerial opportunism

Question 4

The sum of incentive costs, monitoring costs, enforcement costs, and individual financial losses incurred by principals because governance mechanisms cannot guarantee total compliance by the agent

Answer 4

agency costs

Question 5

Defined by the number of large-block shareholders and the total percentage of the firm’s shares they own

Answer 5

ownership concentration

Question 6

Typically own at least 5 percent of a company’s issued shares

Answer 6

large-block shareholders

Question 7

Financial institutions, such as mutual funds and pension funds, that control large-block shareholder positions

Answer 7

institutional owners

Question 8

A group of elected individuals whose primary responsibility is to act in the owners’ best interests by formally monitoring and controlling the firm’s top level managers

Answer 8

board of directors

Question 9

A governance mechanism that seeks to align the interest of managers and owners through salaries, bonuses, and long-term incentives such as stock awards and options

Answer 9

executive compensation

Question 10

An external governance mechanism that is active when a firm’s internal governance mechanisms fail

Answer 10

market for corporate control