As ownership of the corporation is diffused, shareholders ability to monitor managerial decisions

Executive compensation is a governance mechanism that seeks to align managers' and owners' interests through all of the following EXCEPT

penalties for inadequate firm performance.

The CEO and Chairman of the board of directors Alta Corp. is dismayed by a lack of effort and insights his directors provide during board meetings. The directors are all outsiders, experienced, and run their own successful firms. The CEO/chair genuinely seeks their greater involvement. What would you recommend?

Requiring that the directors own stock in the company. Establishing a formal process to evaluate the board's performance. Electing an lead director. All of these options are correct.

In the United States, the fundamental goal of business is to

maximize shareholder wealth.

Corporate governance is all of the following EXCEPT

resolve conflicts among corporate employees.

Usually, large-block shareholders are considered to be those shareholders with at least ______ percent of the firm's stock.

Broadly, the Dodd-Frank Wall Street Reform and Consumer Protection Act seeks to

align financial institutions' actions with society's interests.

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?

The CEO/chairperson of the board has been suspected of opportunistic behavior.

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

appoint another individual as chairperson of the board of directors.

Agency costs reflect all of the following EXCEPT ______ costs.

Compared to managers, shareholders prefer

riskier strategies with more focused diversification for the firm.

All of the following are areas covered by the Dodd-Frank Wall Street Reform and Consumer Protection Act EXCEPT

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

an increased number of IPOs are expected.

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

increased diversification of Sierra Infusion.

Product diversification provides two benefits to managers that do not accrue to shareholders: _______ and _______.

the opportunity for higher compensation through firm growth; a reduction in managerial employment risk

A major conflict of interest between top executives and owners, is that top executives wish to diversify the firm in order to ______, whereas owners wish to diversify the firm to _____.

reduce their employment risk; increase the company's value

In contrast to managers' desires, shareholders usually prefer that free cash flows be

returned to them as dividends.

Research suggests that boards of directors perform better if

outside directors own significant equity in the organization.

In Japan, the principal source of the active monitoring of large companies comes from

Boards of directors are now becoming more involved in

the strategic decision-making process.

Historically, ______ have been at the center of German corporate governance structure.

Given the demands for greater accountability and improved performance, which of the following is NOT a voluntary change many boards of directors have initiated?

compensating directors with stock options rather than with fixed remuneration

Which of the following is TRUE of trends in Japan's corporate governance structure?

Compensation of CEOs in both private and public companies is being tied more closely to observable performance goals.

an important influence in Japanese corporate governance structures.

The market for corporate control may not be as efficient as previously thought as recent findings suggest that those firms targeted for takeover by active corporate raiders are

often performing above their industry averages.

A hostile takeover defense wherein the target firm makes its stock less attractive to a potential acquirer is called:

The repurchase at a premium of the target firm's shares that were 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

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?

Japanese firms will have little interest in Mr. Abercrombie's specialty because these skills are already practiced at a high level.

If the market for corporate control were efficient as a governance device, then only_____ would be targets for takeovers.

Which of the following statements is about corporate governance in Germany is FALSE?

The Vorstand is elected by the firm's employees.

German executives are not dedicated to the maximization of shareholder value to the degree that is the case for executives in the UK and United States largely because

private shareholders and large institutional investors rarely have large ownership positions in firms.

Managers in the United States receive _____ compensation than managers in the rest of the world.

a system of cross-shareholding among firms.

All of the following statements are TRUE about the use of defense tactics by the target firm during a hostile takeover EXCEPT

defense tactics make the costs of a takeover lower.

Ambrose Bierce, the CEO of DictionAry, has been paid a lump sum amounting to 3 years' salary because DictionAry has been bought in a hostile takeover by its main competitor. Ambrose received

The longer the focus of managerial incentive compensation, the greater the _____ top-level managers.

Which of the following reasons would NOT explain the difficulty of determining appropriate executive compensation?

The compensation committee may not have comprehensive firm performance data.

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?

CamCell may have to over-compensate its CEO in order to offset the personal risk a CEO would undertake under this plan.

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

setting the option strike price substantially higher than the current stock price.

The market for corporate control serves as a means of governance when

internal controls have failed.

Agricultural Chemicals, Inc., was the target of a hostile takeover 6 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?

The CEO and top executives should not consider their jobs secure.

The New York Stock Exchange requires that the audit committee be

headed by outside directors.

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

Which of the following is a FALSE statement about corporate governance?

Corporate governance is best achieved with a board of directors with strong ties to management.

Generally, a board member who is a source of information about a firm's day-to-day activities is classified as a(n) ______ director.

Research suggests that the activism of institutional investors such as TIAA-CREF and CalPERS

may not have a direct effect on firm performance.

Monitoring by shareholders is usually accomplished through:

financial institutions such as mutual funds and pension funds that control large-block shareholder positions.

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

a direct effect on firm performance.

Ownership concentration is determined by both

the number of stockholders and total percentage of shares they own

As ownership of the corporation is diffused, shareholders' ability to monitor managerial decisions ________.

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?

If research findings are valid, Amos Ball, Inc., will perform better if a family member is CEO than if an outsider is CEO.

In small firms, managers often own a _____ percentage of the firm, which means there is _______ separation between ownership and managerial control.

The separation between firm ownership and management creates a(n)______ relationship.

An agency relationship exists when one party delegates

decision-making responsibility to a second party.

In the United States, a firm's key stakeholders are the _________.

Which of the following is NOT an internal governance mechanism?

market for corporate control

Corporate governance revolves around the relationship between which two parties?

shareholders and managers

Corporate governance is important to nations because

firms seek to invest in nations with national governance standards that are acceptable to them.

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

a variety of compensation plans for executives of foreign subsidiaries.

Managerial employment risk is the

managers' risk of job loss, loss of compensation, and/or loss of reputation.

Managers may decide to invest in products that are not associated with the firm's current lines of business to increase the firm's level of diversification and decrease their employment risk.

One means that is considered to improve the effectiveness of outside directors is

requiring outside directors to own significant equity stakes in the firm.

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

International Food Services (IFS) has a contract with the Marines to supply meals for its troops in Afghanistan 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?

the board of directors of IFS

Which of the following is FALSE about corporate governance in China?

The state still uses direct and/or indirect controls to influence the strategies employed by most firms.

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 weak board of directors.