Reading 33: Corporate Governance－LOS a

interest, corporate, management

CFA Institute Area 8-11, 13: Asset Valuation
Session 10: Equity Portfolio Management
Reading 33: Corporate Governance
LOS a: Explain the ways in which management may act that are not in the best interest of the firm's owners (moral hazard) and illustrate how dysfunctional corporate governance can lead to moral hazard.

tycoon

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发表于 2008-9-16 11:14 | 只看该作者

Which of the following statements regarding inadequacies in corporate governance is least accurate?

A)	Shareholders are often ignorant of managerial compensation details.

B)	If managers were paid using stock-based compensation, the level of executive pay could be reduced.

C)	When managers engage in self-dealing, this is to the detriment of shareholders.

D)	Stock prices often drop when investments are announced.

Answer and Explanation

The level of managerial compensation has grown beyond what many consider reasonable. However, this growth is partly due to performance-based compensation. The higher the performance, the greater the payoff from stock and stock option compensation. Stock prices often drop when investments are announced because managers often misuse funds in value wasting projects.

[此贴子已经被作者于2008-9-18 17:07:03编辑过]

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tycoon

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发表于 2008-9-16 11:15 | 只看该作者

Which of the following statements regarding corporate governance is least accurate?

A)	Managers use accounting manipulations to their benefit.

B)	When managers invest in extravagant projects, this is to the detriment of shareholders.

C)	The cross holding of shares in Asia has enabled managers to more effectively thwart takeovers.

D)	Shareholders would prefer managers reject hostile takeovers.

Answer and Explanation

Managers may engage in entrenchment strategies to keep their jobs. As an example, managers may resist hostile takeovers that would result in the loss of their job, even when the takeover would benefit shareholders. Most hostile takeovers benefit shareholders because a higher price is received for their stock in the takeover.

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tycoon

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发表于 2008-9-16 11:15 | 只看该作者

Which of the following statements regarding corporate governance is least accurate?

A)	Moral hazard problems occur because the owners of the firm often have a distant relationship with the firms management.

B)	Recent financial scandals have focused mostly on managers insufficient effort.

C)	When management has excess cash to spend, they often waste it on nonproductive projects.

D)	European laws have helped managers avoid takeovers.

Answer and Explanation

Recent scandals have focused mostly on self-dealing (e.g., plush office decorations) rather than less obvious management deficiencies (e.g., insufficient effort) because it is much more visible and easier to prove.

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Reading 33: Corporate Governance－LOS a

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