Corporate Governance (8:30-10)

Which of the following is NOT an internal governance mechanism?

• the board of directors

• executive compensation

• the market for corporate control

• ownership concentration

Corporate governance revolves around the relationship between which two parties?

• shareholders and managers

• board of directors and managers

• shareholders and board of directors

• none of the above

The separation between firm ownership and management creates an agency relationship.

• True

• False

Innovation is an important influence in Japanese corporate governance structures.

• True

• False

Effective governance that aligns top-level managers’ interest with shareholders’ interest cannot produce a competitive advantage for the firm.

• True

• False

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

• Risks borne by

• Incentives for

• Potential tax burden for

• Earnings potential for

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

• Governance is used to establish order between parties whose interest may be in conflict.

• Corporate governance mechanisms sometimes fail to monitor and control top managers’ decisions.

• Corporate governance mechanisms can be in conflict with one another.

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

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

• used to diversify the firm

• returned to them as dividends.

• used to reduce corporate debt.

• re-invested in additional corporate assets.

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

• 5

• 25

• 50

• 75

Monitoring by shareholders is usually accomplished through

• management consultants

• government auditors

• the firm’s top managers

• board of directors