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Outside directors are more likely to watch out for the interests of shareholders of their firm because


A) they are more likely to benefit from using inside information to trade stocks.
B) they do not have the safety of serving on the boards of other firms.
C) they are part-time employees of the firm.
D) they have more independence than inside directors.

E) All of the above
F) None of the above

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De Bruyne Inc.,a publicly traded company,has ten members on its board.Of the ten members,six members are employees of the company and includes the CEO,who also chairs the board.The board has been failing in its responsibilities toward the shareholders who now want a new board.Assuming that the total number of board members remains constant,how many outside directors should the shareholders appoint to De Bruyne's board to achieve board independence?


A) 1
B) 3
C) 5
D) 7

E) A) and D)
F) A) and C)

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Which of the following facts proves that GE's board is fairly diverse compared to other Fortune 500 companies?


A) GE's board is composed of 94 percent outside directors, compared to less than 70 percent for the others.
B) GE's board is chaired by its CEO while other companies have outside directors.
C) GE's board is composed of 28 percent women, compared to less than 16 percent for the others.
D) GE's board has five committees, each with its own chair, compared with less than three for the others.

E) A) and B)
F) C) and D)

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What does "limited liability for investors" imply in a public stock company?


A) Shareholders are liable for their invested capital and personal wealth and not for any other investments made.
B) Shareholders who provide the risk capital are liable only to the capital specifically invested.
C) Shareholders are liable for all the decisions made by the board of directors of the company.
D) Shareholders have financial but not legal responsibilities toward the public stock company.

E) A) and B)
F) A) and C)

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If the board of directors at GE decides to pursue a stakeholder strategy,should they change the ecomagination strategy?


A) Yes, they should change the strategy because it provides benefits to the society.
B) No, they should not change the strategy because the strategy already helps them save costs while generating huge revenues.
C) No, they should not change the strategy because the change would necessitate making tough ethical decisions.
D) Yes, they should change the strategy because creating value for society is against the principles of stakeholder strategy.

E) C) and D)
F) B) and C)

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Which of the following is the result of a leveraged buyout (LBO) ?


A) An LBO changes the CEO of a public company.
B) An LBO changes a public company into a private company.
C) An LBO changes a private company into a public company.
D) An LBO changes the board of directors of a private company.

E) None of the above
F) A) and B)

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A mortgage-loan officer persuades unsuspecting consumers to sign up for exotic mortgages,such as "option ARMs." These mortgages offer borrowers the choice to pay less than the required interest,which is then added to the principal while the interest rate can adjust upward.Because of this setup,many borrowers are unable to repay the mortgage once the interest rates go up.Which of the following phrases best describes this scenario?


A) legal but not ethical
B) ethical but not legal
C) legal and ethical
D) neither legal nor ethical

E) None of the above
F) A) and B)

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One of the ways to foster ethical behavior in employees is to


A) avoid codifying organizational culture.
B) create a control system that encourages desired values.
C) view clients as counter parties to transactions.
D) align the vision statement of the organization with its informal culture.

E) A) and B)
F) None of the above

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Ethics is


A) not synonymous with law.
B) impossible to codify into law.
C) always universal and cannot differ between cultures.
D) the minimum acceptable standard in business practice.

E) A) and D)
F) B) and D)

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The board of directors of a public stock company consists of


A) managers appointed by the owners of a company to run its day-to-day operations.
B) individuals who formally represent the firm's shareholders and oversee the work of executives.
C) the legal owners of a publicly traded company that was purchased in a leveraged buyout.
D) employees of a company who belong to the senior management and directly report to the CEO of the firm.

E) C) and D)
F) A) and B)

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Which of the following statements best supports the view that GE's ecomagination strategy is in line with the shared value creation framework?


A) The ecomagination strategy is the brainchild of the founder of the company.
B) The ecomagination strategy helps GE spend more on research and development than other similar companies.
C) The ecomagination strategy generated $3 billion in revenues for GE during 2012.
D) The ecomagination strategy allows GE to produce "green" products while increasing revenue and competitive advantage.

E) B) and D)
F) All of the above

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What is a unicorn?


A) a public stock company valued at a billion dollars or more
B) a public stock company valued at a million dollars or more
C) a private start-up company valued at a billion dollars or more
D) a private start-up company valued at a million dollars or more

E) A) and B)
F) A) and D)

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Which of the following proves that GE's board of directors is significantly independent?


A) Twenty-six percent of the board members at GE are female.
B) The CEO of GE is also the chairman of the board.
C) Sixteen of the 17 board directors are from outside the organization.
D) GE's board has five committees, each with its own chair.

E) All of the above
F) A) and B)

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MainLine Inc.is a public stock company that provides natural gas for businesses.Although this company generates a large profit,its methods of obtaining gas have at times broken down,thereby causing environmental problems.As a result,the company's value creation has suffered.This scenario supports Michael Porter's warning that


A) public companies often do not keep economic needs and societal needs separate from each other, thereby contributing to low value creation.
B) public companies have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events.
C) public companies do not focus enough on increasing firm profits, thereby contributing to low value creation.
D) public companies have defined value creation too narrowly and as a result have ignored political lobbying, thereby contributing to black swan events.

E) A) and C)
F) A) and B)

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Poison pills have become rare because


A) leveraged buyouts can effectively skirt the measures put in place by poison pills.
B) the market for corporate control is dead.
C) federal laws prevent hostile takeovers.
D) they retard an effective function of equity markets.

E) None of the above
F) C) and D)

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Which of the following is an important internal corporate-governance mechanism?


A) shareholder capitalism
B) board of directors
C) market for corporate control
D) activist investors

E) C) and D)
F) B) and D)

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The Securities and Exchange Commission (SEC) makes all financial reports filed by public companies available electronically via the _____ database.


A) GAAP
B) JASON
C) EDGAR
D) PARMER

E) All of the above
F) None of the above

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Michael Porter recommends that managers use the shared value creation framework to focus on


A) creating new regional clusters.
B) narrowing the customer base to eliminate nonconsumers.
C) streamlining traditional internal firm value chains.
D) reducing the involvement of nongovernmental organizations.

E) None of the above
F) All of the above

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Which of the following is a common result of a hostile takeover of a company?


A) The new owner sells the company in pieces.
B) The new owner keeps the company intact.
C) The new owner keeps the board of directors of the company the same.
D) The new owner enhances the reputations of the company's management.

E) None of the above
F) A) and B)

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Which of the following acts in the Goldman Sachs-Galleon Group insider trading scandal is an egregious exploitation of information asymmetry?


A) Galleon Group's decision to trust Rajat Gupta's information as accurate
B) Rajaratnam receiving information regarding Warren Buffet's impending multibillion-dollar injection into Goldman Sachs
C) Warren Buffet's decision to inject a huge amount of money into Goldman Sachs based on its financial reports
D) Rajat Gupta providing information regarding Warren Buffet's impending multibillion-dollar injection into Goldman Sachs

E) A) and D)
F) A) and C)

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