Ethics Exam 3, Chapter 14
16. Which of the following statements is not true about stockholders?
B. They own equal shares of company assets.
18. Institutional investors are sometimes referred to as:
B. Wall Street investors.
33. The "agency problem" arises when:
C. Managers act in their own interest, rather than in the interest of shareholders.
43. In response to concerns about the lack of transparency in financial accounting, Congress passed a new law called the:
C. Sarbanes-Oxley Act.
40. Which of the following is not an example of fulfilling social objectives through stock ownership?
C. Selling stock of companies with a below-market rate of return.
32. By 2010, out of the 100 largest US companies, how many had separated the positions of CEO and board chairman?
C. Thirty-one.
26. In 2010, median compensation for directors at the largest U.S. corporations was (rounded to the nearest $10):
D. $212,510.
29. The audit committee is required by U.S. law to be:
D. A and B, but not C.
21. Which if the following is not a legal right of stockholders?
D. To vote on who will become chief executive officer (CEO).
10. Most boards now staff their compensation committees exclusively with outside directors and permit them to hire their own consultants.
True
44. The Securities and Exchange Commission outlaws:
A. Any manipulative or deceptive device used to trade stocks.
25. Which of the following is true about corporate boards?
A. Corporate boards average 12 members.
23. The directors of a company are a central factor in corporate governance because they:
A. Exercise formal legal authority over company policy.
31. Which of the following is a key feature of effective boards of directors?
A. Hold regular meetings without the CEO present.
37. A reason for institutions becoming more assertive in promoting the interests of their member investors is:
A. It is difficult for institutions to sell their holdings.
34. The main reason that American executives are paid so much is:
A. Pay is set by the compensation committees of the board, largely comprised of other CEOs who have an interest in pushing compensation up.
41. The mission of the Securities and Exchange Commission (SEC) is to:
A. Protect shareholders' rights by making sure that stock markets are run fairly.
30. How are directors (members of corporate boards) selected?
A. Shareholders elect the directors from a list of candidates.
38. The activism of institutional investors in other countries has been spearheaded by:
A. U.S.-based pension and mutual funds that in recent years acquired large stakes in foreign countries.
45. Which of the following is not an instance of "insider trading"?
B. A marketing executive briefing stock analysts on the company's sales performance.
22. Corporate governance involves the exercise of control over a company's:
B. Entire operations.
24. The paramount duty of the board of directors of a public corporation is to:
B. Select and oversee competent and ethical management to run the company.
17. Which of the following is not true about institutional investors?
B. The proportion of institutional ownership of stock in the U.S. has declined slowly since the 1960s.
20. In 2008 and early 2009, share values declined sharply as the global economy fell into a severe recession. This type of stock market is referred to as a:
C. Bear market.
36. Which of the following is not an argument for high executive compensation?
C. Inflated executive pay helps U.S. firms compete with foreign rivals.
39. Social investors seek to eliminate from their investment portfolios companies that:
D. All of the above.
42. Reports filed with the SEC provide information on a company's:
D. All of the above.
19. Investors may receive an economic benefit from the ownership of stock by receiving:
D. Both B and C, but not A.
27. The board committee that administers and approves salaries and benefits of high-level managers in a company is called the:
D. Compensation committee.
35. Which of the following arguments opposes the idea of high executive pay?
D. High salaries divert resources that could be used to invest in the business.
28. Which of the following is not a function of board committees?
D. The finance committee works closely with the human resources department to fund employee salaries.
1. The three types of stockholders that own shares of stock in U.S. corporations are individuals, institutions, and government.
False
11. Shareholders must rely exclusively on the board of directors to protect their interests.
False
12. Institutional investors have little incentive to hold their shares and organize to change management policy.
False
13. The activism of institutional shareholders has often worsened company performance.
False
3. Investors always choose to invest in the stock of companies that pay high dividends.
False
4. A corporation's stockholders have a right to inspect the company's books for any reason.
False
9. The ratio of average executive to average worker pay tends to increase during recessions and fall back during periods of economic expansion.
False
14. In U.S. vs. O'Hagen, the court ruled that someone who traded on the basis of inside information when he or she knew the information was confidential was guilty of misappropriation.
True
15. Stockholders have become an increasingly powerful and vocal stakeholder group in corporations.
True
2. Since the 1960s, there has been phenomenal growth in the numbers of institutional investors in the United States.
True
5. It is the responsibility of the board of directors and its audit committee to engage an independent accounting firm to audit the financial statements prepared by management.
True
6. When boards of directors meet without management present, they are more likely to have completely candid discussions about a company's affairs.
True
7. The Organization for Economic Cooperation and Development (OECD), representing 30 nations, issued a revised set of principles of corporate governance in 2004 to serve as a benchmark for companies and policymakers worldwide.
True
8. Stock options represent the right to buy a company's stock at a set price for a certain period.
True
