Chapter 10

A board composed primarily of outside directors will have better insights as to the firms intended strategic initiatives, the reasons for the initiatives, and the outcomes expected from them than will inside directors. a. True b. False

b

Managers in the United States receive ______ compensation than managers in the rest of the world. a. equivalent b. higher c. lower d. more variable

b

More intense application of governance mechanisms such as mandated by Sarbanes Oxley and Dodd-Frank may cause firms to take on fewer risky projects and thus increase potential shareholder wealth. a. True b. False

b

In the United States, a firm's key stakeholder(s) is(are) the a. government. b. executives. c. shareholders. d. customers

c

Institutional owners are a. shareholders in the large institutional firms listed on the New York Stock Exchange. b. banks and other lending institutions that have provided major financing to the firm. c. financial institutions such as mutual funds and pension funds that control large-block shareholder positions. d. prevented by the Sarbanes-Oxley Act from owning more than 50 percent of the stock of any one firm

c

An agency relationship exists when one or more persons (the principal or principals) hire another person or persons (the agent or agents) as decision-making specialists to perform a service. a. True b. False

a

As globalization grows, adequate corporate governance is becoming an important requirement for doing business with a foreign firms and in foreign countries. a. True b. False

a

Attitudes toward corporate governance in Japan are affected by the concepts of obligation, family, and consensus. a. True b. False

a

Because of recent ineffective performance, boards of directors are experiencing increasing pressure from shareholders, lawmakers, and regulators to be more effective in preventing managers from acting in their own interest. a. True b. False

a

Corporate governance involves oversight in areas where owners, managers, and members of boards of directors may have conflicts of interest. a. True b. False

a

Failures of corporate internal controls and inadequate internal control systems allowed unethical executives at such companies as Enron and WorldCom to act in their own self-interest. a. True b. False

a

In a large number of family owned firms, ownership and managerial control are not separated. a. True b. False

a

In recent years, the number of individuals who are large-block shareholders have declined and been replaced by institutional owners such as mutual funds and pension funds. a. True b. False

a

Large-block shareholders typically own at least 5 percent of a corporation's issued shares. a. True b. False

a

Recent emphasis on corporate governance stems mainly from the failure of corporate governance mechanisms to adequately monitor and control top-level managers' decisions. a. True b. False

a

Usually, large-block shareholders are considered to be those shareholders with at least _______ percent of the firm's stock. a. 5 b. 25 c. 50 d. 75

a

Corporate governance is the set of mechanisms used to manage the relationship among stakeholders and to determine and control the strategic direction and performance of an organization. a. True b. False

a

In the United States, the primary goal of a firm is to maximize profits to provide a financial gain to shareholders. a. True b. False

a

Ownership of many modern corporations is now concentrated in the hands of institutional investors rather than individual stockholders. a. True b. False

a

The performance of individual board members and entire boards are being evaluated more formally and with greater intensity than in years past. a. True b. False

a

The primary role of the board of directors is to monitor and control top-level executives to protect owners' interests. a. True b. False

a

Generally, a board member who is a source of information about a firm's day-to-day activities is classified as a(n) ________ director. a. lead independent b. inside c. related d. encumbered

b

In contrast to managers' desires, shareholders usually prefer that free cash flows be a. used to diversify the firm. b. returned to them as dividends. c. used to reduce corporate debt. d. re-invested in additional corporate assets

b

In the United States, the fundamental goal of business is to a. ensure customer satisfaction. b. maximize shareholder wealth. c. provide job security. d. generate profits.

b

Ownership concentration is determined by both a. the number of stockholders and the parties they represent. b. the number of stockholders and total percentage of shares they own. c. the number of outside directors and the parties they represent. d. the number of outside directors and total percentage of shares they own

b

Managerial employment risk is the a. risk that managers will behave opportunistically. b. risk undertaken by managers to earn stock options. c. managers' risk of job loss, loss of compensation, and/or loss of reputation. d. risk managers will not find a new top management position if they should be dismissed

c

The separation between firm ownership and management creates a(n) ________ relationship. a. governance b. control c. agency d. dependent

c

Monitoring by shareholders is usually accomplished through a. management consultants. b. government auditors. c. the firm's top managers. d. the board of directors

d

Which of the following is NOT an internal governance mechanism? a. the board of directors b. ownership concentration c. executive compensation d. the market for corporate control

d