BUS 284 Final Exam | Complete Solutions, Answered

BUS 284 Final Exam | Complete Solutions, Answered For moral hazard to exist, there needs to be ... A) symmetry of information. B) asymmetry of information. C) the possibility of complete contracts. D) None of the above. Related-party transactions may consist of ... A) managers becoming entrenched. B) tunnelling and transfer pricing. C) transactions between shareholders of the same political persuasion. D) None of the above. The agency problem of debt consists of the following: A) the debtholders forcing the managers to expropriate the shareholders. B) banks using proxy votes. C) the shareholders expropriating the debtholders. D) the large debtholder expropriating the minority debtholders. Which of the following are examples of agency problems? A) Empire building B) Investing the firm's funds in projects with a negative net present value. C) Managers' on-the-job consumption of shareholder funds. D) All of the above apply. The following statement about the residual loss is correct. A) There is a residual loss if the monitoring costs exceed the bonding costs. B) The residual loss consists of the loss in firm value caused by the agent not running the firm in the interest of the principal and which cannot be prevented by monitoring and bonding. C) The residual loss is the difference between the monitoring costs and the bonding costs. D) None of the above. The main corporate governance problem outside the UK and the USA is ... A) the principal-agent problem. B) excessive dividends. C) the expropriation of the minority shareholders by the large, controlling shareholder. D) hostile takeovers. Which one of the following is a benefit of the mutual organizational form? A) The avoidance of conflicts of interests between owners and customers. B) The reduced cost of capital. C) The higher threat of a hostile takeover and the resulting higher pressure on the managers to perform well. D) None of the above. Which one of the following statements about evidence from research on German and UK initial public offerings (IPOs) is true? A) UK IPOs end up with fewer new large shareholders six years after the IPO. B) There is a rapid separation of ownership and control in the German IPOs. C) The initial shareholders of German IPOs manage to keep majority control longer than the initial shareholders of UK IPOs. D) None of the above. Which one of the following statements is correct? A) German banks assume a much more important role as providers of finance and management support in small- and medium-sized enterprises than in other countries. B) Banks never assumed an important role in the German corporate governance system. C) Germany is not a bank-based system. This is just a myth. D) The German corporate governance system is not any different from the UK or US system in terms of the role of banks. Which one of the following statements about the theory of property rights is true? A) Employees should be given ownership of the firm, if their investments in their human capital are highly specific to the firm. B) Firms should not be in the form of partnerships unless they operate in the financial sector. C) Property rights should always confer more cash flow rights than control rights. D) None of the above. Which one of the following statements correctly defines demutualization? A) The demutualization consists of a mutual building society converting into a stock corporation and floating on the stock exchange. B) This concerns the change in control from the situation where the firm is mutually controlled by many small shareholders to the situation where the firm is controlled by a large shareholder. C) Both of the above are correct. D) None of the above. The 'quiet life' hypothesis consists of ... A) Employees taking too many holidays. B) Managers avoiding cognitively difficult activities. C) Shareholders retiring from their day jobs to live off the revenues from their investments. D) None of the above. Compared to UK firms, German firms ... A) experience a much more rapid separation between ownership and control after going public. B) experience no or at least a much less rapid separation between ownership and control after going public. C) are on average older when they go public. D) Both B and C are correct. Which one of the following statements is correct? A) Surprisingly, control by banks is relatively low in continental Europe. B) Apart from the UK and the Netherlands, institutional investors are relatively unimportant. C) The most important type of large shareholder across continental Europe is holding companies and industrial companies. D) All of the above are correct. Which one of the following statements is correct? A) Institutional investors, followed by managers, are the most important types of shareholders in the UK. B) Managers are the most important type of shareholder in the UK. C) Institutional investors are the second most important type of shareholder in the UK. D) None of the above are correct. Which one of the following statements is correct? A) The concentration of control in UK firms is low, but still higher than in US firms. B) Most of stock-market listed firms in the USA have a shareholder with a blocking minority, but no shareholder with a majority of the votes. C) The concentration of control in the Netherlands is comparable to that in UK and US firms. D) None of the above. Which one of the following statements is correct? A) Families are the most important type of large shareholder across all of Europe. B) Institutional shareholders are the main type of shareholder in the UK. C) Institutional shareholders are the main type of shareholder in the Netherlands. D) Both B and C are correct. Which one of the following statements is correct? A) The concentration of control in Japan is low compared to other Asian countries. B) Zaibatsus are typically the pre-WWII form of most keiretsus. C) A keiretsu is a group of industrial companies with ties to a single bank which acts as the principal lender to the group companies. D) All of the above. Which one of the following statements is correct? A) Corporate control in Eastern Europe is slightly lower than in Western Europe. B) Corporate control in Eastern Europe is slightly lower than in Western Europe and the second largest shareholder is much more important. C) Corporate control in the transitional economies of Eastern Europe is as concentrated as in Western Europe. D) None of the above. Internal capital markets, i.e. capital markets within so called business groups, tend to be efficient, if ... A) The business groups are in the form of horizontal structures. B) The business groups are characterized by cross-shareholdings. C) The business groups are in the form of ownership pyramids. D) None of the above. In the former Communist countries of Eastern Europe, the most prevalent types of large shareholders are... A) Foreign shareholders. B) Individuals. C) The government. D) Both B) and C). ACME Inc. has dual-class shares. Class A shares have one vote each. Class B shares do not carry any votes. Class A shares make out 50% of the total equity. ACME Inc.'s main shareholder is the Saint-John Smythe family which owns 80% of Class A shares. What is the percentage of ownership of the Saint-John Smythe family? A) 0% B) 40% C) 50% D) 80% Ownership pyramids are ... A) a way of achieving weak control with concentrated ownership. B) a way of increasing the risk of minority shareholder expropriation. C) some of the most visited tourist sites in the world. D) None of the above. Private benefits of control are... A) higher in common law countries than in civil law countries. B) the benefits to the large shareholder from controlling a firm and are not shared with the other shareholders. C) higher in English speaking countries. D) None of the above. Proxy votes are ... A) votes exercised by small shareholders. B) a thing of the past. C) votes belonging to an investor other than the person or institution exercising them. D) votes belonging to foreign shareholders. Strong control and dispersed ownership can be achieved by ... A) proxy votes. B) dual-class shares. C) ownership pyramids. D) All of the above. The typical firm from continental Europe and most of Asia is characterized by ... A) dispersed ownership and weak control. B) dispersed ownership and strong control. C) concentrated ownership and strong control. D) concentrated ownership and weak control. Which one of the following statements is correct? A) The main corporate governance problem under strong control and dispersed ownership is the expropriation of the minority shareholders by the large shareholder. B) In the presence of weak control and concentrated ownership, the classic corporate governance problem, i.e. the principal-agent problem, prevails. C) In the presence of weak control and dispersed ownership, the classic corporate governance problem, i.e. the principal-agent problem, prevails. D) All of the above are correct. Which one of the following statements is correct? A) The free-rider problem prevails in firms that are widely held. B) The free-rider problem may result in a lack of shareholder monitoring of the management. C) A large shareholder may be a solution to the free-rider problem. D) All of the above. The 'loi Florange' is a new law, which became effective in 2014 in France. A) It changed the old system from an opt-in system to an opt-out system. B) It confers double-voting rights to shareholders who have held their shares for at least two years. C) Both A) and B) are correct. D) None of the above. According to La Porta et al., ... A) civil law countries provide greater investor protection. B) English law countries have weaker investor rights. C) common law countries provide weaker shareholder protection. D) None of the above. Mark Roe argues that ... A) politics drives corporate governance. B) German law is better at protecting investor rights than French law. C) proportional voting systems have stronger employee rights. D) None of the above. Recent criticisms of La Porta et al.s' theory on the role of legal families include the following. A) As La Porta et al. used secondary sources rather than the actual law texts, they have made errors in interpreting the law. B) The legal family is only a proxy for culture which is much better at explaining common patterns and differences in corporate governance across countries. C) Some of the criteria that La Porta et al. have retained to measure investor protection are irrelevant whereas some of those that have been omitted are clearly relevant. D) All of the above are correct. The following statement about the taxonomies of corporate governance systems is correct. A) The varieties of capitalism literature argues that there is a hierarchy of corporate governance systems. B) The varieties of capitalism literature is based on the principle of complementarities. C) Scandinavian law provides weaker investor protection than French law. D) Electoral systems based on the proportionality rule have stronger investor rights. Which one of the following statements about Mark Roe's taxonomy of corporate governance systems is true? A) Social democracies have more hostile takeover activity. B) Social democracies will experience a separation of ownership and control in contrast to more conservative countries. C) Politics drives corporate governance. D) None of the above. Which one of the following statements about the Gramm-Leach-Bliley Act of 1999 is correct? A) This Act removed barriers to capital flows and the movement of citizens across the member states of the European Union. B) This Act introduced American Depository Receipts (ADRs), enabling foreign firms to cross-list on a US stock exchange. C) This Act prevented US banks from engaging in both commercial and investment banking. D) None of the above. Which one of the following statements about the insider system is correct? A) Control is dispersed. B) There is an active market for corporate control and hostile takeovers are a frequent occurrence. C) Stock markets are large and highly developed. D) None of the above. Which one of the following statements is correct? A) The VOC literature proposes a hierarchy of corporate governance systems. B) The varieties of capitalism (VOC) literature argues that there is a zero-sum game between employee rights and investor rights, i.e. one can only be improved by weakening the other. C) Contrary to the taxonomies proposed by the finance and law literature, the VOC literature does not assume that the employee rights can only be improved by reducing investor rights. D) None of the above. Which one of the following statements is correct? A) Financialization consists of turning any asset which generates cash flows into a tradable security or a derivative of such a security. B) Financialization refers to the increasingly important role of the financial industry and capital markets on a global level. C) Both A and B are correct. D) None of the above. Which one of the following statements is correct? A) Supply-side economics is the exact opposite doctrine to Keynesian economics as it advocates a focus on the supply side of the economy rather than the demand side. B) Supply-side economics argues against globalization. C) US President Ronald Reagan's economic policies were heavily influenced by Keynesian economic theory. D) None of the above. Which one of the following statements is correct? A) The two types of path dependence are structure-driven and rule-driven path dependence. B) Path dependence refers to the impact of history on current corporate governance arrangements. C) Both of the above are correct. D) None of the above are correct. Which one of the following statements is correct? A) Marco Pagano and Paolo Volpin argue that under majoritarian electoral systems worker rights will be stronger. B) They assume that there is a zero-sum game between improving worker rights and investor rights. C) Worker rights will be stronger under proportional electoral systems. D) Both B and C are correct. One of the theories linking financial systems to economic growth is the corporate governance theory. Which one of the following statements about this theory is correct? A) According to this theory, large shareholders are likely to interfere too much with the running of the firm and reduce managerial efficiency. B) The empirical evidence suggests that, contrary to the corporate governance theory, it is concentrated ownership that induces managers and employees to make firm-specific investments. C) This theory predicts that industrial activities that require investments from the management and employees are more likely to flourish under dispersed ownership. D) All of the above. Which one of the following statements about firms from bank-based systems is correct? A) These firms have less leverage as banks only tend to lend to firms with lots of fixed assets that can be used as collateral. B) These firms have more leverage than firms from market-based-systems. C) These firms tend to have banks as their main shareholders. D) These firms have similar leverage, but source most of their debt financing from banks rather than bond markets. Which one of the following statements is correct? A) Horizontal associations are likely to improve economic growth as they increase trust in society. B) There is some evidence of both a negative and positive effect of horizontal associations on economic growth and that the two effects cancel each other out. C) Some argue that horizontal associations are likely to reduce economic growth given that they are often self-serving associations that aim at appropriating economic resources at the cost of the rest of society. D) All of the above statements are correct. Which one of the following statements is correct? A) According to the information collection theory, stock markets are better at valuing intangible assets than banks. B) The renegotiation theory predicts that financial systems with many small banks will favour short-term investment projects rather than long-term ones. C) The corporate governance theory predicts that industries requiring substantial investments from the management and other stakeholders will thrive under dispersed ownership. D) All of the above. Which one of these statements is correct? A) Trust is reduced by income inequality and land property inequality. B) Trust within a society has been shown to have a positive impact on economic growth. C) When one adjusts for the quality of law, trust still has a positive effect on economic growth. D) All of the above statements are correct. Compared to US regulation, UK regulation on corporate governance is ... A) a fairly recent innovation. B) much less prescriptive. C) much more rule based. D) much more prescriptive. Which one of the following statements is correct? A) Some studies have found a positive effect of female CEOs on firm performance, but a negative effect of other female directors. B) Empirical evidence suggests that effect of female board representation depends on the industry. C) Both of the above statements are correct. D) None of the above. Which one of the following statements is correct? A) A staggered board is a type of anti-takeover device. B) Most UK firms have anticipatory takeover defenses in place. C) Anti-takeover devices are common place in UK firms. D) None of the above. Which one of the following statements is correct? A) The G20/OECD Principles explicitly mention the role of stakeholders in the firm and that their rights should be observed as prescribed by law and regulation. B) The G20/OECD Principles are modelled on the Anglo-American system of corporate governance. C) The G20/OECD Principles of Corporate Governance advocate the maximization of shareholder value and do not take into account the role of other stakeholders in the firm. D) None of the above. Which one the following statements is true? A) The Dodd-Frank Act in the USA is on a "comply or explain" basis. B) The recommendations of UK codes of best practice in corporate governance are on a "comply or explain" basis for unlisted firms, but compulsory for listed firms. C) Successive codes of best practice in the UK have recommended the separation of the roles of the CEO and the chair of the board of directors. D) None of the above. The aim of the UK Stewardship Code is ... A) To regulate the airline industry, with particular emphasis on the qualifications of aircrews. B) To improve the quality of engagement between institutional investors and their investee firms to increase long-term returns to shareholders and to improve corporate