MGMT Chapter 10
"A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist. This may lead to all EXCEPT: a. high executive turnover. b. increased diversification of the firm. c. excessive management compensation. d. reduction in R&D expenditure.
A
"An agency relationship exists when one party delegates: a. decision making responsibility to a second party. b. financial responsibility to employees. c. strategy implementation actions to functional managers. d. ownership of a company to a second party.
A
"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. large block shareholders such as mutual funds and pension funds. d.prevented by the Sarbanes-Oxley Act from owning more than 50% of the stock of any one firm.
C
"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
"One means that is considered to improve the effectiveness of outside directors is: a. mandating that all outside directors be drawn from government or academia rather than industry. b. requiring that outside directors be former executives of the firm. c. requiring outside directors to own significant equity stakes in the firm. d.requiring that outside directors be truly objective by having no ownership interest in the firm.
C
"Recent research evidence shows that ownership concentration is associated with: a. increases in executive compensation. b. greater managerial autonomy. c. lower levels of product diversification. d.companies in mature, slow-cycle industries.
C
"Archibald Smith has moved from an upper-middle management job at Chromatic Array, Inc., to a similar position with Pixilair Corporation. The gap between CEO pay and the pay of other top executives at Chromatic was significantly larger than at Pixilair. What difference can Archibald expect? a. The working relationships among the top management team will be more collaborative at Pixilair than at Chromatic. b. The focus of Chromatic's board of directors will have been more on the creation of shareholder wealth than Pixilair's focus. c. The rating of Pixilair by Institutional Sharehold-ers Services will be less favorable than Chromatic's rating. d.Pixilair will be more vulnerable to hostile takeover than Chromatic.
A
"Boards of directors are now becoming more involved in: a. the strategic decision making process. b. selecting new CEOs. c. the firm's tax issues. d.governmental relations.
A
"The argument for having one individual serve as CEO and chairperson of the Board of Directors is that this: a. provides unified leadership and direction for the firm. b. strengthens the governance processes of the firm. c. gives the Board of Directors more power. d.is less expensive than maintaining two top executives.
A
"The board of directors of CyberScope, Inc., is designing a stock option plan for its CEO that will motivate the CEO to increase the market value of the firm. Consequently, the board is: a. setting the option strike price substantially higher than the current stock price. b. insuring that the strike price value of the options can be lowered if the organizational environ-ment becomes more risky. c. having the stock option plan designed by insiders on the board of directors who are familiar with day-to-day operations of the firm. d.consulting accounting advisors to make sure that the plan transfers wealth to the CEO without immediately appearing on the balance sheet of CyberScope.
A
"The top management team at Sierra Infusion is concerned about the declining performance of firms in their industry. The team members are becoming concerned about the security of their jobs at Sierra Infusion. At a meeting over dinner, the top management team agrees to go to the board of directors with a proposal for: a. increased diversification of Sierra Infusion. b. the addition of outside directors to the board. c. increased shareholder participation in decision making. d.greater concentration on Sierra's core industry.
A
"There is some evidence that performance bonuses for executives based on annual results are ____ investments in R&D where the firm was highly diversified. a. negatively related to: b. positively related to c. not correlated with d.curvilinearly related to
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
"Which of the following is TRUE of trends in Japan's corporate governance structure? a. Some major Japanese firms are bringing in more outsiders onto their boards of directors. b. The market for corporate control has collapsed with the economic crises in Japan. c. Banks' influence over corporations is increas-ing. d.Traditionally privately-owned Japanese firms are going public.
A
Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to three years' salary because DictionAry has been bought in a hostile takeover by its main competitor. Ambrose received: a. a golden parachute. b. a poison pill. c. greenmail. d.a silver handshake.
A
Historically, ____ have been at the center of the German corporate governance structure. a. banks b. institutional shareholders c. public pension funds d.government agencies
A
The Sarbanes-Oxley Act requires all of the following EXCEPT: a. installation of an outsider as the lead director on the Board of Directors. b. accounting firms are forbidden from providing both auditing and consulting services to clients. c. CEOs and CFOs must personally certify the company's financial reports. d.independence of the committees on the firm's Board of Directors.
A
The repurchase at a premium of shares of stock that have been acquired by the aggressor firm in a hostile takeover in exchange for an agreement that the aggressor will no longer target the company for takeover is called: a. greenmail. b. a standstill agreement. c. crossing the palm with silver. d.a poison pill.
A
"Amos Ball, Inc., is a printing company in Iowa that has been family owned and managed for three generations. Which of the following statements is most likely to be TRUE? a. Agency costs at Amos Ball are high. b. If research findings are valid, Amos Ball, Inc., will perform better if a family member is CEO than if an outsider is CEO. c. At Amos Ball, the opportunity for managerial opportunism is high. d. The functions of risk-bearing and decision-making are separate at Amos Ball.
B
"As ownership of the corporation is diffused, shareholders' ability to monitor managerial decisions: a. increases. b. decreases. c. remains constant. d.is eliminated.
B
"Compared to managers, shareholders prefer: a. safer strategies with greater diversification for the firm. b. riskier strategies with more focused diversifica-tion for the firm. c. safer strategies with more focused diversifica-tion for the firm. d.riskier strategies with greater diversification for the firm.
B
"Generally, a board member who is a source of information about a firm's day-to-day activities is classified as a(an) ____ 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 U.S. the fundamental goal of business is to: a. ensure customer satisfaction. b. maximize shareholder wealth. c. provide job security. d. generate profits.
B
"International Food Services (IFS) has a contract with the Marines to supply meals for it troops in Iraq and other foreign assignments. As a means of increasing profits, IFS has used substandard ingredients in these meals and has consistently lied about this practice during quality investigations by the Marines. Who is ultimately responsible for the corporate climate that resulted in this wrongdoing? a. the director of food service for IFS. b. the board of directors of IFS. c. the employees directly involved in the wrongdo-ing. d.the head of contract services for the Marines
B
"Managers in the U.S. receive ____ compensation than managers in the rest of the world. a. equivalent b. higher c. lower d.more variable
B
"Research suggests that the activism of institutional investors such as TIAA-CREF and CalPERS: a. increases shareholder value significantly. b. may not have a direct effect on firm performance. c. is so aggressive that boards of directors have become overly cautious. d.has weakened the effect of other governance mechanisms.
B
"Simon Leagreet, the Chairperson and CEO of L-EVA Industries, Inc., has long been the major power at L-EVA. A majority of the directors are concerned that while Mr. Leagreet has been responsible for the firm's earning above-average returns, that he has been displaying a tendency toward personal extravagance at the firm's expense. In order to limit Mr. Leagreet's power, Board of Directors plans to: a. elect an insider as the lead director. b. appoint another individual as chairperson of the Board of Directors. c. require Mr. Leagreet to personally certify the firm's financial reports. d.reduce the size of the stock option package provided to Mr. Leagreet.
B
"The CEO of Skyco, a publicly-traded company that has been earning below-average returns, has been publicly criticized by shareholders for persuading the board of directors to give her interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options. The CEO's behavior may be indication of: a. reasonably compensating a CEO. b. a weak board of directors. c. the laxity of institutional investors. d.the difference in risk propensity between owners and managers.
B
"The New York Stock Exchange requires that the audit committee be: a. available to comment to external analysts. b. composed solely of outside directors. c. liable for any illegal actions by the top management team. d.made up of CPAs with auditing experience.
B
"The board of directors of Acme Brands is discussing the design of a very generous stock option plan for its top executives. During the debate, one of the directors raises the point that CalPERS owns a significant portion of Acme Brand stock. Which of the following statements is likely to be TRUE? a. This will have no effect on the stock option plan design discussion, because CalPERS' main concern is stock dividends. b. CalPERS' interest in Acme Brands will cause the directors to reduce the size of the stock option plan from what it would otherwise have been. c. CalPERS supports generous stock option plans for executives because it motivates under-performing executives. d.For legal reasons, the board cannot consider the interests of CalPERS over the interests of its top executives.
B
"The board of directors of CamCell, Inc., wishes to design a CEO compensation plan that will align the personal interests of the CEO with the interests of the shareholders in long-term firm performance. The board wishes the CEO to take more short-term risks in order to achieve potentially higher long-term returns. Consequently, the board has decided on an incentive plan that involves payout based on the firm's performance five years in the future. CamCell is presently searching for a new CEO. Which of the following statements is true? a. This plan will be very attractive in luring candidates for the CEO position. b. CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan. c. Institutional investors disapprove of long-term executive incentive plans and they may sell their blocks of stock in CamCell. d.This type of plan is likely to cause the CEO to underinvest in R&D in order to boost CamCell's long-term profitability.
B
"The longer the focus of managerial incentive compensation, the greater the ____ top-level managers. a. earnings potential for: b. risks borne by c. incentives for d.potential tax burden for
B
"The major determinant of CEO pay is(are): a. organizational performance. b. organizational size. c. the qualifications and experience of the CEO. d. the proportion of insiders on the board of directors.
B
"The market for corporate control serves as a means of governance when: a. the firm is overpriced in the market. b. internal controls have failed. c. the corporation has greatly exceeded perform-ance expectations. d.the top management team's interests and the owners' interests are aligned.
B
A primary objective of corporate governance is to: a. determine and control the strategic direction of an organization, so that the top executives are focused on maximizing corporate profits. b. ensure that the interests of top-level managers are aligned with the interests of shareholders. c. lobby legislators to pass laws that are aligned with the organization's interests. d.resolve conflicts among corporate employees
B
James Abercrombie has a thriving consulting firm specializing in training boards of directors in decision-making skills. Mr. Abercrombie has had striking success in reducing conflict and hostility among directors and allowing boards to develop more cohesiveness. Mr. Abercrombie is considering expanding his consulting practice overseas. Which of the following statements is most likely to be TRUE? a. Mr. Abercrombie will have a large market in Japan because the culture highly values consensus decision making. b. Japanese firms will have little interest in Mr. Abercrombie's specialty because these skills are already practiced at a high level. c. German firms will not be interested in Mr. Abercrombie's services because the German system of decision-making is based on authority and few conflicts emerge. d.Mr. Abercrombie should find significant need for his services in companies in transitional economies.
B
When executives have ownership positions or stock options with their employing firm, they are: a. going to actively defend their firm from takeover attempts. b. likely to gain financially if their employing firm is taken over by another. c. pressure the board of directors to reprice their stock options. d.likely to be terminated by the acquiring firm even in a friendly takeover.
B
Which of the following statements is FALSE? a. The Vorstand of a German corporation makes decisions about organization direction and management. b. The Vorstand is elected by the firm's employees. c. Membership of U.S. boards of directors is less directly influenced by the company's employees than is the membership of German Aufsichsrat. d. Banks have less influence on the governance of German corporations than they do on U.S. corporations.
B
____ is an important influence in Japanese corporate governance structures. a. Innovation b. Consensus c. Competition d.Individualism
B
"Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary change many boards of directors have initiated? a. moving toward having directors from different backgrounds b. strengthening the internal management and accounting control systems c. compensating directors with stock options rather than with fixed remuneration. d.establishing and using formal processes to evaluate the board's performance
C
"If the market for corporate control were efficient as a governance device, then only ____ would be targets for takeovers. a. firms with unethical top executives b. firms earning above-average returns c. poorly-performing firms d.over-valued firms
C
"In the U.S., a firm's key stakeholder(s) is(are) the: a. government. b. executives. c. shareholders. d. customers.
C
"Several members of the board of directors of American Textile Products (ATP) have proposed creating the position of lead director. What circumstances would most likely have initiated this proposal? a. ATP has been the initiator of several hostile takeovers in the last two years. b. The board has been successful in reducing the percentage of CEO pay that is composed of stock options. c. The CEO/Chairperson of the Board has been suspected of opportunistic behavior. d.The firm is traded on the New York Stock Exchange and must change its corporate governance to comply with the NYSE's new rules.
C
"The separation between firm ownership and management creates a(n) ____ relationship. a. governance b. control c. agency d. dependent
C
"There is some evidence that those firms targeted for takeover by active corporate raiders are: a. usually on the verge of bankruptcy. b. typically under-performing their industry. c. often performing above their industry averages. d.always outperforming their industry.
C
"Top executives resist tying their compensation to long-term performance of the firm mainly because: a. this delays their compensation for present actions to future years. b. long-term firm performance is more easily manipulated by the board of directors through financial and accounting methods than are shorter-term measures of firm performance. c. uncontrollable events may affect the long-term performance of the firm. d.CEOs and other top executives tend to hold their jobs for five years or less, meaning they are not employed by the firm for the appropriate period of time.
C
Agency costs reflect all of the following EXCEPT ____ costs. a. monitoring b. enforcement c. opportunity d.incentive
C
All of the following are unintended consequences of the Sarbanes-Oxley Act EXCEPT: a. some foreign firms have delisted on U.S. stock exchanges. b. a number of publicly-traded companies have decided to privatize. c. an increased number of IPOs (initial public offerings) are expected. d.internal auditing costs have increased by about one-third.
C
German executives are not dedicated to the maximization of shareholder value largely because: a. the roles of CEO and chairperson of the board of directors are usually combined. b. large institutional investors control large blocks of stock. c. private shareholders rarely have large ownership positions in the firm. d.of the focus on stewardship-management in German firms rather than the financial perform-ance focus of U.S. firms
C
Research suggests that firms with ____ perform better, especially when collaboration among top management team members is important: a. greater emphasis on stock options. b. larger proportion of insiders on the board of directors. c. smaller pay gap between the CEO and other top executives d.where benchmarking is used for top executive pay
C
"A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to ____, while owners wish to diversify the firm to ____. a. generate free cash flows, reduce the risk of total firm failure b. increase the price of the firm's stock, increase the dividends paid out from free cash flows c. reduce the risk of total firm failure, reduce their total portfolio risk d.reduce their employment risk, increase the company's value
D
"All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile takeover EXCEPT: a. defense tactics are usually beneficial for the executives of the target firm. b. defense tactics are opposed by institutional investors. c. defense tactics are typically ineffective in deterring the takeover. d.defense tactics make the costs of a takeover lower.
D
"Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT: a. bonuses. b. long-term incentives such as stock options. c. salary. d.penalties for inadequate firm performance.
D
"In Japan, the principal source of the active monitoring of large companies comes from: a. boards of directors. b. stock brokerage companies. c. the government. d.banks.
D
"Japanese keiretsu are: a. management structures related to total quality management systems. b. company unions which are a type of governance system. c. the banks owing the largest shares of stock in the firm. d. a system of cross-shareholding among firms.
D
"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
"Product diversification provides two benefits to managers that do not accrue to shareholders: ____ and ____. A. greater experience in a wider range of indus-tries, lessening of managerial employment risk b. the manager frequently invests in the acquired firm which allows them extensive profits, the manager can frequently buy excess assets divested by the acquired firm c. the manager's supervisory needs are lowered, the manager is allowed greater time to oversee a wider range of activities d. the opportunity for higher compensation through firm growth, a reduction in managerial employment risk
D
"Research suggests that boards of directors perform better if: a. the CEO is also the chairperson of the board of directors. b. the board includes employees as voting members. c. the board is homogenous in composition. d.outside directors own significant equity in the organization.
D
"Shareholder value is: a. the firm's free cash flow. b. the total revenue of the firm. c. determined by the size of the firm. d.reflected in the price of the stock.
D
"The governance mechanism most closely connected with deterring unethical behaviors by holding top management accountable for the corporate culture is: a. ownership concentration. b. the market for corporate control. c. executive compensation systems. d.the board of directors.
D
"The interests of multinational corporations' shareholders may be best served when there is: a. a uniform compensation plan for all corporate executives, U.S. and foreign alike. b. executive compensation that is primarily based on long-term performance. c. elevation of foreign executive compensation to U.S. levels. d.a variety of compensation plans for execu-tives of foreign subsidiaries.
D
"The ownership of major blocks of stock by institutional investors have resulted in all of the following EXCEPT: a. making CEOs more accountable for their performance. b. increasing the concentration of ownership of large U.S. firms. c. focusing attention on ineffective boards of directors. d.tying the compensation of CEOs to measur-able financial criteria.
D
"The use of excessively-generous stock options for executive compensation has been slowed in the past couple years for all of the following reasons EXCEPT: a. criticism from corporate-governance activists. b. the Sarbanes-Oxley Act. c. a ruling by the Financial Accounting Standards Board. d. widespread shareholder resistance.
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
"Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation? a. The decisions made by top-level managers are typically complex and nonroutine. b. An executive's decisions often affect firm performance only over the long run. c. A number of factors intervene between top-level management decisions and firm performance. d.The compensation committee may not have comprehensive firm performance data.
D
Agricultural Chemicals, Inc., was the target of a hostile takeover six months ago. The CEO and the top executives successfully fended off the takeover and are concentrating on strategies to improve the performance of the firm. Which of the following is most likely to be TRUE? a. Hostile takeover attempts are so common that they do not reflect negatively on the firm's performance. They are more a function of general market conditions. b. The fact that a hostile takeover has occurred is proof that the firm was under-performing. c. Research shows that once a hostile takeover has been defeated, the firm is safe from other hostile takeover attempts for many years. d. The CEO and top executives should not consider their jobs secure.
D
Which of the following is a FALSE statement about corporate governance? a. Governance is used to establish order between parties whose interests may be in conflict. b. Corporate governance mechanisms sometimes fail to monitor and control top managers' decisions. c. Corporate governance mechanisms can be in conflict with one another. d. If properly established, the board of directors will remain effective as a governance mecha-nism for many years.
D
