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Exam 10: Corporate Governance and Ethics

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Question 61

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Amelia Smith is the sole owner of the successful restaurant chain, Amelia's Café. Ms. Smith has taken a no-interest loan from the company in order to build a luxurious seaside house for herself in Carmel, California. This constitutes a classic agency problem.

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Question 62

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One suggestion given in the Chapter 10 Strategic Focus for aligning agents' and principals' interests is to award stock options with a strike price that is the average of the last 90 days and that cannot be exercised for five years.

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Question 63

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As a rule, shareholders prefer more product diversification than do managers because shareholders wish to reduce risk and maximize wealth.

The ownership of major blocks of stock by institutional investors have resulted in all of the following EXCEPT

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, he has been displaying a tendency toward personal extravagance at the firm's expense. In order to limit Mr. Leagreet's power, the board of directors plans to

A virtually exclusive reliance on financial controls may occur when outsider-dominated boards exist. This may lead to all of the following EXCEPT

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

The most effective defense against a hostile takeover is the poison pill strategy.

The interests of multinational corporations' shareholders may be best served when there is

Scandals at Enron, WorldCom, and HealthSouth illustrate the negative effects of poor ethical behavior on a firm's efforts to satisfy stakeholders.

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

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.

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?

Corporate governance revolves around the relationship between which two parties?

In the U.S., the fundamental goal of business is to

Recent research shows that CEOs of public and private companies in Japan receive similar levels of compensation, but their compensation is not tied closely to observable performance goals.

The governance mechanism most closely connected with deterring unethical behaviors by holding top management accountable for the corporate culture is

All of the following are consequences of the Sarbanes-Oxley Act EXCEPT

Managers in firms that have been subjects of hostile takeovers usually find that their value to the new firm has been enhanced because of their in-depth insider knowledge.

According to the Chapter 10 Strategic Focus, corporate governance can be challenging for firms such as Rio Tinto with significant product and geographic diversification.