GRA - 11

Which of the following is not an advantage to having a family owned firm? A. Excessive compensation B. Concentrated investors C. Maintaining presence D. Through investment analysis

A. Excessive compensation

Which is true regarding control-enhancing mechanisms, such as dual class share classes with differential voting rights, that entitles shareholders to a fraction of the total votes outstanding that is greater than their own share ownership stake? A. Families make more use of than non-family firms B. Families make less use of these than non-family firms C. Family firms do not use these at all D. Families use these about the same as non-family firms

A. Families make more use of than non-family firms

Which of the following statements is not correct when defining the relationship between management, ownership and control? A. Family ownership creates value for all of the firm's shareholders only when the founder is still active in the firm as CEO or as Chairman with a hired CEO. B. When family firms are run by descendant-CEOs, minority shareholders in those firms are better of than they would be in non family firms in which they would be exposed to the classic agency conflict with managers C. Descendant-CEOs create value whether or not the family has established control-enhancing mechanisms. D. All of the above

A. Family ownership creates value for all of the firm's shareholders only when the founder is still active in the firm as CEO or as Chairman with a hired CEO.

Family management of a company usually only adds value when which of the following occurs? A. Founder serves as CEO B. Descendant serves as CEO C. Descendant serves as Chairman D. None of the above

A. Founder serves as CEO

When does the family ownership create value? A. If it is combined with family control and management B. If it adopts the profit maximization approach C. When there is more than one founder D. All of the above

A. If it is combined with family control and management

The ratio of the firms market assets to total assets is: A. Tobin's q B. Return on assets C. Non family block-holder ownership D. Family ownership stake

A. Tobin's q

Corporate governance index: A. Aggregates several input variables into several different metrics B. Aggregates several input variables into a single metric C. Aggregates one input variable into several different matrices D. None of the above

B. Aggregates several input variables into a single metric

When management of a firm is transferred from the founder/CEO to his or her descendant, the stock price of the firm generally: A. Increased B. Decreases C. Does not change D. Is unpredictable

B. Decreases

Family control of a company is achieved through all of the following mechanisms except: A. Multiple share classes B. Governmental intervention C. Pyramids D. Cross-bridges

B. Governmental intervention

Families capable of expropriating wealth from the firm in the following ways except: A. Related party transactions B. Repurchased stock C. Excessive compensation D. Special dividends

B. Repurchased stock

Which of the following is not right about founding-family ownership? A. With substantial ownership of cash flows, founding families have the incentives and power to take actions that benefit themselves at the expense of firm performance B. There are no potential benefits of family ownership C. Founding families may have strong incentives to maximize firm value, because the family's value is so closely linked to firm welfare

B. There are no potential benefits of family ownership

The following agency problems occur in different scenarios. All are correct except: A. Type I: Family firms with control-enhancing mechanisms (dual-share classes, pyramids, cross-holdings, or voting agreements) B. Type II: Family firms with control enhancing mechanisms but no family CEO. These firms might have no agency problems C. Type III: Family firms with a family CEO but no control-enhancing mechanisms. These do not have either agency problem. D. Type IV: Non-family firms that may have Agency Problem I but not Agency Problem II

B. Type II: Family firms with control enhancing mechanisms but no family CEO. These firms might have no agency problems

In general, family owned firms typically perform __________ when compared to firms with diversified ownership. A. Better B. Worse C. As well D. Can't compare

C. As well

Which of the following is not a factor that a credit rating firm takes into account when does the assessment to a firm? A. Anti-takeover protection B. Compensation structure C. Bankruptcy D. Audit quality E. All of the above

C. Bankruptcy

Moody's Investor Services, Standard and Poor's, and Fitch Ratings provide ratings on a corporation's ability to pay their debt obligations, known as a firm's __________. A. Credit rating B. Credit score C. Credit-worthiness D. Debt to income ratio

C. Credit-worthiness

Which of the following statements is true about family management? A. It always destroys firm value B. It always creates firm value C. It eliminates Agency cost I but may create Agency cost II D. None of the above

C. It eliminates Agency cost I but may create Agency cost II

Creditworthiness is determined based on a combination of quantitative and qualitative factors. Which of the following is not one such factors? A. Diversity and stability of revenue streams B. Availability of collateral C. Lack of interest coverage D. Leverage controls

C. Lack of interest coverage

For ratings to be useful, they must provide credible information. Three forms of credible information include: A. Subjectivity, independence and obstructive ability B. Objectivity, reliability and predictive ability C. Objectivity, independence and predictive ability D. Subjectivity, dependence and analytical ability

C. Objectivity, independence and predictive ability

Which of the following is not a factor for determining credibility on the usefulness of ratings? A. Ratings provider must be able to demonstrate the predictive ability of ratings B. Ratings provider must be free from conflicts of interest that would comprise the judgement of the provider C. Ratings must only be related to future outcomes that are of interest to the users D. Ratings must be objective i.e. based on data that an outside observer would similarly evaluate

C. Ratings must only be related to future outcomes that are of interest to the users

Family ownership creates value: A. Only when the founder serves as CEO B. Only when the founder serves as Chairman C. When the founder serves as both CEO and Chairman D. None of the above

C. When the founder serves as both CEO and Chairman

Potential benefits of family ownership include: A. Effectively monitored executives and minimized free-rider problems due to close links between family wealth and firm welfare B. Long investment horizons that suggest a willingness to invest in long-term projects relative to smaller executive horizons C. Greater incentive to maximize competitive advantages and firm performance D. All of the above

D. All of the above

Qualitative factors considered when reviewing the audit committee includes: A. Board performance analysis B. Individual director performance reviews C. CEO succession plan D. All of the above

D. All of the above

The Corporate Library (TCL) uses a "grade" scale of A to F to indicate governance risk. Each rating is based on an assessment of some components including: A. CEO compensation practices B. Takeover defenses C. Board-level accounting concerns D. All of the above

D. All of the above

The factor critical in providing credible information is A. Objectivity B. Independence C. Predictive Ability D. All of the above

D. All of the above

What are potential issues that family ownership could cause? A. Management entrenchment problem by influencing the selection of management and directors. B. Firms issue special dividends that favor founding families C. The firm might engage in related party transactions which are against the interest of minority D. All of the above

D. All of the above

What are the three factors that are critical in establishing credibility for ratings? A. Ratings must be objective, in that they are based on data that an outside observer would similarly evaluate B. The ratings provider must be free from conflicts of interest that would compromise the judgement of the provider C. The ratings provider must be able to demonstrate the predictive ability of its ratings D. All of the above

D. All of the above

Which of the following are advantages of family owned businesses? A. Extended horizons B. Firm loyalty C. Concerns over reputation D. All of the above

D. All of the above

In 2010, Risk Metrics/ISS introduced a new system of governance ratings known as Governance Risk Indicators (GRID). The selected inputs are based in which of the following four broad areas? A. Charter/bylaws, code of ethics, standard business conduct, shareholder rights B. Charter/bylaws, board structure, standards of business conduct, shareholder rights C. Audit, board structure, standards of business conduct, shareholder rights D. Audit, shareholder rights, board structure and compensation

D. Audit, shareholder rights, board structure and compensation

Which of the following is not a disadvantage to having a family owned firm? A. Self-fulfilling management B. Non-diversified investments C. Excessive compensation D. Concentrated investors

D. Concentrated investors

Family ownership in companies can lead to all of the following except: A. Entrenchment B. Lower firm values C. Improved performance D. Competitive advantages E. None of the above

E. None of the above