Ch. 16 (Final)

Which of the following statements about the board of directors is untrue? a. Boards advise the CEO. b. Boards carry out resource acquisition for the focal firm. c. Affiliated directors are independent directors. d. Boards' effectiveness stems from norms.

Affiliated directors are independent directors.

Which of the following statements about governance mechanisms is misleading? a. Governance mechanisms can be classified as voice-based and exit-based mechanisms. b. As an external governance mechanism, private equity utilizes the stock market to discipline managers. c. In general, boards are likely to use "carrots" before considering "sticks." d. Product market competition complements the market for corporate control and the market for private equity.

As an external governance mechanism, private equity utilizes the stock market to discipline managers.

Executives on the top management team (TMT) are led by the _____.

CEO

Which of the following statement concerning principal-agent versus principal-principal conflicts is true? a. Formal institutional protection is often lacking in principal-agent conflicts. b. Courts are more protective of minority shareholder rights in principal-principal conflicts. c. Manifestations in principal-agent conflicts take the form of expropriation. d. Considering ownership pattern in principal-principal conflicts, often greater than 50 percent of equity is controlled by the largest shareholders.

Considering ownership pattern in principal-principal conflicts, often greater than 50 percent of equity is controlled by the largest shareholders.

The costs associated with principal-agent relationships are called _____.

agency costs

____ are persons to whom authority is delegated.

agents

Loan issued by the firm is called a(n) _____.

bond

In _____ ownership and control, founders start up firms and completely own and control them on an individual or family basis.

concentrated

The vast majority of large firms throughout continental Europe, Asia, Latin America, and Africa feature _____ ownership.

concentrated family

Corporations in _____ are bank-oriented, network-based systems.

continental Europe

_____ is the relationship among various participants in determining the direction and performance of corporations.

corporate governance

Listing shares on foreign stock exchanges is known as _____.

cross listing

_____ refers to a loan that the firm needs to pay back at a given time with interest.

debt

_____ refers to a firm's failure to satisfy the terms of a loan obligation.

default

Firms with ____ ownership have a separation of ownership and control.

diffused

Firms with ____ ownership have numerous small shareholders but none with a dominant level of control.

diffused

_____ refers to the stock in a firm (usually expressed in shares), which represents the owners' rights.

equity

Corporations in the United States and the United Kingdom rely mostly on _____. a. voice-based, internal mechanism b. bank-oriented, network-based systems c. bank-oriented, high-tension systems d. exit-based, external mechanism

exit-based, external mechanism

Activities that enrich controlling shareholders at the expense of minority shareholders are referred to as _____.

expropriation

A member of the board who is a top executive of the firm is called a(n) _____.

inside director

_____ is a means by which investors, often in partnership with incumbent managers, issue bonds and use the cash raised to purchase the firm's stock.

leveraged buyout

Private equity is primarily invested through _____.

leveraged buyouts

The main external governance mechanism is the _____. a. market for corporate control b. market for product competition c. market for private equity d. market for stock options

market for corporate control

A non-management member of the board is called _____.

outside director

_____ are often labeled independent directors.

outside directors

In an agency relationship, a person who delegates authority is called a(n) _____.

principal

The conflicts between controlling shareholders and minority shareholders are called _____.

principal-principal conflicts

Equity capital invested in non-public companies is called _____.

private equity

The owners of a firm are often known as _____.

shareholders

Corporate governance in ____ enterprises has relatively weak external and weak internal governance mechanisms.

state owned

Corporations in _____ are market-oriented, high-tension systems.

the United States

The basic laws in supply and demand suggest that in general, the larger the pool of capital providers: a. the lower the cost of capital. b. the higher the rate of return. c. the more likely a firm will default on loan obligations. d. the higher the ROI for investors.

the lower the cost of capital.

A form of corporate theft that diverts resources from the firm for personal or family use is called _____.

tunneling

In the context of governance mechanisms, _____ mechanism refers to shareholders' willingness to work with managers, usually through the board.

voice based

Corporations in continental Europe and Japan rely mostly on _____. a. voice-based, internal mechanisms b. market-oriented, network-based systems c. market-oriented, high-tension systems d. exit-based, external mechanisms

voice-based, internal mechanisms