Ch33 Governance And Corporate Control Around The Exam Prep

Principles of Corporate Finance, 13e (Brealey)

Chapter 33 Governance and Corporate Control around the World

1) The United States is considered to have a market-based financial system because

I) stock market capitalization, as a percentage of GDP, is relatively high;

II) bank loans, as a percentage of GDP, are relatively low;

III) the United States has thousands of banks and insurance companies

A) I only

B) II only

C) II and III only

D) I and II only

2) In which country do financial markets play the most important role as sources of corporate funding?

A) The United States

B) Japan

C) Germany

D) Korea

3) In which area do households allocate the highest percentage of their portfolio to direct equity ownership?

A) The United States

B) Japan

C) The United Kingdom

D) The euro area

4) In financial institution-based systems, individual investors hold corporate debt and equity in the following ways:

A) directly.

B) directly and indirectly through banks.

C) indirectly through other financial intermediaries.

D) All of the options are correct.

5) In which area do households allocate most of their portfolio savings to banks?

A) The euro area

B) The United Kingdom

C) The United States

D) Japan

6) Countries that have poor protection of shareholders' and creditors' rights generally have

I) smaller stock markets;

II) fewer listed firms and fewer IPOs;

III) less debt financing for private firms

A) I only

B) II only

C) I and II only

D) I, II, and III

7) One should expect that the countries having a common law tradition would do a better job protecting

A) shareholders.

B) creditors.

C) shareholders and creditors.

D) shareholders, creditors, and managers.

8) The ultimate owners of a publicly traded corporation are

A) individuals.

B) insurance companies.

C) banks.

D) other corporations.

9) Individual investors in the United States can play an important part in corporate governance because

I) a large fraction of households' portfolio is held directly in equity securities;

II) a large fraction of households' portfolio is held in pension funds;

III) a large fraction of households' portfolio is held directly in bank deposits

A) I only

B) II only

C) III only

D) II and III only

10) The following are sources of financing for corporations:

A) households.

B) financial institutions.

C) other corporations.

D) households, financial institutions, and other corporations.

11) In which of the following countries do individual investors play the largest role in corporate governance?

A) The United States

B) The United Kingdom

C) Japan

D) Germany

12) In Japan, intercompany financing most typically arises in the form of

A) term loans.

B) trade credit.

C) leasing.

D) insurance contracts.

13) The legal system in the United States is based on the

A) common law tradition.

B) civil law tradition.

C) Sharia tradition.

D) None of these options are correct.

14) The legal system in France is based on the

A) common law tradition.

B) civil law tradition.

C) Sharia tradition.

D) None of these options are correct.

15) The following areas have based their legal system on a civil law tradition:

A) Germany.

B) France.

C) Germany, France, and Scandinavia.

D) the United Kingdom.

16) The idea that a corporation's financial goal is to "maximize stockholder value" is more prevalent in

A) the United States and the United Kingdom.

B) the United Kingdom and France.

C) France and Japan.

D) the United Kingdom and Japan.

17) The idea that a corporation should be run in the interests of the shareholders is embedded in the law in

A) the United States.

B) the United States and the United Kingdom.

C) France and Japan.

D) the United Kingdom and Japan.

18) Large business combinations in Japan are carried out through cross-holding ownership of common stock. These are called

A) keiretsu.

B) chaebols.

C) conglomerates.

D) industrial houses.

19) Large business combinations in Japan are normally carried out through reciprocal ownership of common stock. These networks, or keiretsu, involve a large number of diversified companies centered around a large bank, industrial firm, or trading firm. One of the main benefits of this structure is argued to be

A) the monopolistic control of economic segments.

B) the reduction in the costs of financial distress.

C) large-scale diversification that cannot be done by individual shareholders.

D) greater efficiency in management because the management skills are homogeneous even for firms in different industries.

20) In Japan, commercial banks can own a company's stock up to

A) 1 percent of the total shares.

B) 5 percent of the total shares.

C) 10 percent of the total shares.

D) Commercial banks cannot own stocks of companies.

21) In Japan, the racketeers who demand payment in exchange for not disrupting shareholders' meetings are known as

A) keiretsu.

B) chaebols.

C) benami.

D) sokaiya.

22) The German system of corporate governance where there are two boards is referred to as

A) Aufsichtsrat.

B) Vorstand.

C) codetermination.

D) Directoire.

23) Large firms in Germany have a

A) board of directors.

B) supervisory board.

C) management board.

D) supervisory board and a management board.

24) A firm whose only asset is controlling blocks of shares in other companies is called

A) a conglomerate.

B) a holding company.

C) a pyramid.

D) a dual-class company.

25) Family control is least concentrated with the top 10 families in which one of these Asian countries?

A) Indonesia

B) Philippines

C) Thailand

D) Japan

26) Dual-class equity occurs frequently in

A) Mexico.

B) Brazil.

C) Canada and Germany.

D) All of the options are correct.

27) A Korean conglomerate is called a(n)

A) keiretsu.

B) chaebol.

C) industrial house.

D) conglomerate.

28) For a given country, which conditions will favor the formation of conglomerates?

I) limited financial markets;

II) poor investor protection;

III) difficulty accessing international capital markets;

IV) limited and transparent government

A) I and II

B) II, III, and IV

C) I, III, and IV

D) I, II, and III

29) What are some of the advantages of market-based systems?

I) successful in developing new industries;

II) more effective in shrinking capital in declining industries;

III) more reliant on transparent financial reporting;

IV) more diverse as sources of corporate financing

A) I, II, and IV

B) II, III, and IV

C) I, III, and IV

D) I, II, and III

30) Which of the following are mechanisms that help minimize agency problems?

I) monitoring by boards of directors;

II) compensation tied to earnings and stock price;

III) transparent financial reporting;

IV) the threat of takeover

A) I only

B) I, and II

C) I, II, and III

D) I, II, III, and IV

31) Firms raise funds from financial markets and from financial institutions.

32) Japan has a bank-based financial system.

33) In the United States, individual investors play an important role in corporate governance due to its well-developed democratic institutions.

34) Direct individual investment in equity markets generally plays a smaller role in less-developed countries.

35) Households, financial institutions, and other firms are the main sources of funds for firms.

36) The legal system in the United States and the United Kingdom is based on a civil law tradition.

37) The legal systems in France, Germany, and Scandinavia have evolved from a common law tradition.

38) In Japan, a keiretsu is a network of companies usually organized around a major bank.

39) Japan has a "main bank" system where banks and firms have long-standing relationships.

40) Conglomerates in Korea are called chaebols.

41) The largest conglomerate in India is the Tata Group.

42) German governance seeks to include labor unions as a partner in making long-term decisions.

43) Suppose that managers were given incentives in the form of restricted stock ownership (i.e., the stock is not easily sold) instead of outright stock ownership. One would expect such firms to have fewer agency problems.

44) What is corporate governance?

45) Briefly explain the two important legal traditions in Europe and the United States.

46) Briefly explain the term keiretsu.

47) Name Germany's two boards of directors and briefly explain why large firms in Germany have two boards of directors.

48) Briefly explain the term pyramid in the context of corporate control.

49) Under which circumstances would a conglomerate be effective?

50) Is the United States corporate governance structure more or less responsive to shareholders than most other nations, and why or why not?