A) Frequently, large boards of directors are less effective than small boards of directors.
B) Since outside directors have no other connection with the firm, they are indebted to the CEO for putting them on the board.
C) The more members of a board of directors, the better its function.
D) A company has an interlocking board of directors if the CEO also serves as the chairman of the board of directors.
E) A company whose board members are elected in staggered terms is said to be an interlocking board of directors.
G) None of the above
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A) A classified board is one in which the board members have staggered terms.
B) One tool of corporate governance is a company's tax avoidance strategy.
C) One tool of corporate governance is choosing a good investment banker.
D) A classified board is one in which the board members serve anonymously.
E) A classified board is one in which an announcement requesting applications for board members appears in the newspaper.
G) A) and D)
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A) A targeted share repurchase is when the company purchases stock from one shareholder at a higher price than it offers to other shareholders.
B) An example of asset switching is an option to exchange one piece of real estate for another.
C) A shareholder-friendly charter will make it harder for a company to be acquired.
D) A targeted share repurchase can be used to encourage a hostile takeover.
E) Anti-takeover charter provisions are good for shareholders because they prevent a raider from stealing the company for a below-market price.
G) A) and C)
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A) Inside directors are likely to side with the CEO since they are employees.
B) In a classified board, it is easier for dissidents to gain representation since fewer seats are up for election each year.
C) Inside directors are more concerned with shareholders' interests since they are more closely concerned with firm operations.
D) Since outside directors have no other connection with the firm, they are indebted to the CEO for putting them on the board.
E) The more members of a board of directors, the better its function.
G) A) and B)
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A) If a company has a classified board, fewer board seats are filled each year.
B) One tool of corporate governance is choosing a good investment banker.
C) A classified board is one in which the board members serve anonymously.
D) A classified board is one in which an announcement requesting applications for board members appears in the newspaper.
E) In a classified board, it is easier for dissidents to gain representation since fewer seats are up for election each year.
G) B) and D)
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A) Targeted share repurchases.
B) Shareholder rights provisions.
C) Restricted voting rights.
D) Poison pills.
E) Abnormally high executive compensation.
G) A) and E)
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B) False
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B) False
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A) An example of an agency relationship is when the board of directors hires a CEO to run a company.
B) An example of an agency relationship is when the CEO nominates a slate of candidates to be on the board of directors.
C) An example of an agency relationship is when a supervisor hires a forklift operator.
D) The supervisor-employee relation between a production line supervisor and a production line operator is an example of an agency relationship.
E) An agency cost is the wage required to pay someone who is hired to perform a service.
G) A) and D)
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A) Personal use of the corporate jet is an example of a nonpecuniary benefit.
B) A supplier substituting a lower-quality raw material without approval is an example of asset switching.
C) An agency problem occurs when an owner/manager sells stock to an outside investor and the owner/manager fears the outside investor will consume too many perquisites.
D) An agency conflict between inside owners/managers and outside owners occurs when the outside owners sell their shares to someone else.
E) A quarter-end bonus is an example of a nonpecuniary benefit.
G) A) and C)
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A) It is harder for dissidents to gain board seats if a company's board is classified.
B) A classified board is one in which an announcement requesting applications for board members appears in the newspaper.
C) In a classified board, it is easier for dissidents to gain representation since fewer seats are up for election each year.
D) Inside directors are more concerned with shareholders' interests since they are more closely concerned with firm operations.
E) Management is said to be entrenched when the senior managers are consuming excessive perquisites.
G) C) and E)
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A) An example of an agency cost is when an outside investor is only willing to pay less for stock because she thinks the original owner will consume too many perquisites.
B) An example of an agency cost is when the board of directors pays a dividend to shareholders.
C) An example of an agency cost is when an attorney hires an expert witness for a trial.
D) The commission required by the Federal Housing Agency for a small business loan is an example of an agency cost.
E) An example of an agency cost is the salary of the agent hired to work for the principal.
G) C) and D)
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A) A shareholder-friendly charter will make it easier for a company to be acquired.
B) A company whose board members are elected in staggered terms is said to be an interlocking board of directors.
C) A shareholder-friendly charter will make it easier for shareholders to meet with the CEO if they have concerns.
D) A targeted share repurchase can be used to encourage a hostile takeover.
E) An example of an agency cost is when the board of directors pays a dividend to shareholders.
G) D) and E)
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B) False
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A) The board has a majority of outsiders who have experience and aren't too busy.
B) CEO is the chairman of the board.
C) The board is as large as is possible.
D) Board members are paid at a rate higher than their peers and their payment is mostly cash.
E) The board has a majority of insiders from company management on it who bring first-hand knowledge of how the company operates.
G) A) and E)
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A) Lenders will protect themselves from the risk of asset switching by writing debt covenants into loans.
B) Lenders can't legally prevent a firm from engaging in asset switching.
C) Firms borrowing money have greater flexibility to use that money when there are debt covenants.
D) When lenders protect themselves from the risk of asset switching by charging a higher interest rate, the firm's WACC can decrease.
E) A lender calling in a corporate loan and then lending the funds out to a safer borrower is an example of asset switching.
G) A) and C)
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A) One tool of corporate governance is monitoring management.
B) One tool of corporate governance is the choice of how much dividends to pay.
C) A company's matching contribution to a retirement plan is a nonpecuniary benefit
D) One tool of corporate governance is stock repurchases.
E) Corporate governance is better when Directors are also employees of the company so they know the business very well.
G) All of the above
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A) A manager/shareholder agency conflict arises when the manager's actions aren't in the company's best interest.
B) An agency problem occurs when an owner/manager sells stock to an outside investor and the owner/manager fears the outside investor will consume too many perquisites.
C) An agency conflict between inside owners/managers and outside owners occurs when the outside owners sell their shares to someone else.
D) A quarter-end bonus is an example of a nonpecuniary benefit.
E) A company's matching contribution to a retirement plan is a nonpecuniary benefit.
G) A) and B)
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A) Asset switching occurs when a company borrows money for a safe investment but uses it for a
Risky investment.
B) An example of an agency cost is when the board of directors pays a dividend to shareholders.
C) An example of an agency cost is when an attorney hires an expert witness for a trial.
D) The commission required by the Federal Housing Agency for a small business loan is an example of
An agency cost.
E) An example of an agency cost is the salary of the agent hired to work for the principal.
G) B) and C)
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A) An outside director is a board member who has no other affiliation with the company.
B) A classified board is one in which an announcement requesting applications for board members appears in the newspaper.
C) In a classified board, it is easier for dissidents to gain representation since fewer seats are up for election each year.
D) Inside directors are more concerned with shareholders' interests since they are more closely concerned with firm operations.
E) Since outside directors have no other connection with the firm, they are indebted to the CEO for putting them on the board
G) A) and B)
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