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标题: Corporate Finance【Reading 42】Sample [打印本页]

作者: Kingpin804    时间: 2012-3-29 13:51     标题: [2012 L1] Corporate Finance【Session 11 - Reading 42】Sample

During a recent luncheon, Angus Rahamut and Dan Riding became engaged in a discussion of issues related to corporate governance. Neither of these individuals is an expert in the field of corporate governance and either of them may have made an inaccurate statement. Which of the following is most likely to be an inaccurate statement?
A)
“Board members must have the experience and qualifications necessary for them to be able to make decisions independently from the firm’s management.”
B)
“To be independent, a board member must not have any material relationship with the firm’s executive management or their families.”
C)
“In order to avoid conflicts of interest, board members should seek management approval prior to hiring external advisors.”



Ideally, independent board members can hire external consultants without management’s approval. This enables the board to obtain advice on specialized issues that is not biased by the interests of management.
作者: Kingpin804    时间: 2012-3-29 13:52

Corporate governance defines the appropriate rights, role, and responsibilities of:
A)
management only.
B)
management and the board of directors.
C)
management, the board of directors, and shareholders.



Corporate governance defines the appropriate rights, roles, and responsibilities of a corporation’s management, the board of directors, and shareholders.
作者: Kingpin804    时间: 2012-3-29 13:52

Which of the following statements regarding corporate governance practices is least accurate?
A)
Good corporate governance practices ensure that the firm’s financial and operating activities are reported to shareholders in a verifiable manner.
B)
Corporate governance is not as important for firms with largely dispersed minority shareholders.
C)
Corporate governance is the system of internal controls/procedures by which firms are managed.



Good corporate governance practices are extremely important in the case of firms with largely dispersed minority shareholders. Both remaining statements are accurate.
作者: Kingpin804    时间: 2012-3-29 13:52

Corporate governance is the set of internal controls, processes and procedures defining how a firm is managed. Which of the following statements concerning corporate governance is least accurate?
A)
Good corporate governance dictates that the firm’s financial, operating and governance activities are reported to stakeholders in a fair, accurate and timely manner.
B)
Good corporate governance means that the board can work effectively with management.
C)
Corporate governance defines the appropriate rights, roles and responsibilities of management, the board, and stakeholders within a firm.



The board of directors must be able to act independently from management. Both remaining statements concerning corporate governance are accurate.
作者: Kingpin804    时间: 2012-3-29 13:53

All of the following practices constitute good corporate governance, EXCEPT:
A)
there are proper procedures and controls covering management’s day-to-day operations and the firm acts lawfully in dealings with shareholders.
B)
the board of directors protects shareholder interests, and the shareholders have a voice in governance.
C)
the firm’s financial, operating, and governance activities are reported to shareholders in a fair, accurate, and timely manner, and management acts independent of the board of directors.



The board of directors must be able to act independent of management, not vice versa. Both of the remaining practices are examples of good corporate governance.
作者: Kingpin804    时间: 2012-3-29 13:53

Which of the following activities would least likely be an example of good corporate governance?
A)
Management is allowed to act independently of board of directors.
B)
The board has decided to eliminate finders’ fees for its members for any potential acquisitions that are brought to management’s attention.
C)
The board of directors has decided to conduct a self-assessment.



The board of directors should be allowed to act independently of management. Management should not be allowed to act independently from the board.
作者: Kingpin804    时间: 2012-3-29 13:53

Rochelle Dixon is delivering a presentation on best practices for corporate governance. Two of her recommendations are as follows:
Statement 1: To avoid the potential for harming shareholders’ interests by wasting company resources, the Board of Directors should get management’s approval before it hires outside consultants.
Statement 2: The more members a Board of Directors has, the more likely it is to represent shareholders’ interests fairly.
Are Dixon’s statements CORRECT?
Statement 1Statement 2
A)
IncorrectCorrect
B)
IncorrectIncorrect
C)
CorrectCorrect



Both statements are incorrect. An independent board should have the ability to seek specialized advice by hiring outside consultants without management approval. The size of the board should be appropriate for the facts and circumstances of the firm; having more members does not imply that the board will be more independent if the additional members are aligned closely with management or are less well qualified.
作者: Kingpin804    时间: 2012-3-29 13:54

A board of directors is most likely to protect the shareholders’ interests when:
A)
the board requires that management attend all meetings.
B)
one individual can be identified as the leading board member from outside the firm.
C)
the board includes representatives from the firm’s key customers and suppliers.



Especially in cases where the chairman of the board is closely aligned with the firm, independent board members are more able to protect shareholders’ interests when they have a leading or primary independent member. The board should meet regularly outside the presence of management. Board members who represent the firm’s customers and suppliers may have interests that conflict with those of shareholders.
作者: Kingpin804    时间: 2012-3-29 13:54

There are a lot of issues to consider in determining board independence. What would be the best definition of true “independence”? Independence, as it relates to board members, refers to:
A)
the degree to which these persons are not biased or otherwise controlled by firm management or other groups which may have some degree of control over management.
B)
the degree to which these persons are not biased or otherwise controlled by firm management or the outside audit group.
C)
avoidance of material conflicts of interest.



Avoiding material conflicts of interest is important, but this is not a true definition of independence. Independent board members should be independent from the outside audit group, but this is not part of the actual definition. Benefiting management interests should not be a board priority.
作者: Kingpin804    时间: 2012-3-29 13:54

Which of the following statements related to corporate governance is least accurate?
A)
It is desirable for the chairman of the board to be the firm’s current CEO or former CEO.
B)
Board members should not have any material relationships with the firm’s advisers, auditors, and their families.
C)
It is desirable for board members to have board experience with other boards.



The willingness of independent board members to express opinions that are not aligned with managements’ may be impaired when the chairman is the firm’s current CEO or a former CEO.
作者: Kingpin804    时间: 2012-3-29 13:55

A properly qualified board member is of vital importance to proper corporate governance within a firm. Board members who lack the requisite skills, knowledge and expertise to conduct a thorough review of the firm’s activities are:
A)
more likely to defer to management when making decisions.
B)
less likely to participate fully in decision-making matters during board meetings.
C)
more likely to consult with outside interests to assist in decision-making.



Board members must be properly qualified, having the knowledge and experience which is required to advise management in light of the firm’s specific situations encountered. Both remaining answers are incorrect.
作者: Kingpin804    时间: 2012-3-29 13:55

Which of the following might be an undesirable trait of a member of the board of directors?
A)
Lack of legal or regulatory problems as a result of working with other firms.
B)
Service on the board for more than 10 years.
C)
Experience with the technologies, products, and services the firm offers.



Service on the board for more than 10 years may indicate knowledge and experience, but may result in a member becoming too close to management.
作者: Kingpin804    时间: 2012-3-29 13:55

A critical corporate governance issue is ensuring that the board and its members have the requisite experience needed to properly govern the firm for the shareholders’ benefit. When considering board member qualifications, investors and shareholders should consider whether board members can act with care and competence as a result of their experience with all of the following EXCEPT:
A)
the competitive landscape the firm faces.
B)
legal issues.
C)
technologies, products, services which the firm offers.



Knowledge of the firm’s competitive landscape is likely beyond what a board member should have intimate knowledge about. The other items are all issues a board member should be knowledgeable about. Other issues board members should have experience with include financial operations, accounting and auditing topics, and business risks the firm faces.
作者: Kingpin804    时间: 2012-3-29 13:56

Which of the following practices should be included in a firm’s code of ethics?
A)
Prohibiting board members or other insiders from purchasing stock before shareholders can make purchases.
B)
Providing the board with relevant corporate information in a timely manner and prohibiting board members or other insiders from purchasing stock before shareholders can make purchases.
C)
Providing the board with relevant corporate information in a timely manner and allowing board members or other insiders to purchase stock before shareholders can make purchases.



The firm’s code of ethics establishes the basic principles of integrity, trust, and honesty. Two of the practices listed in the reading discuss providing the board with relevant corporate information in a timely manner and prohibiting board members or other insiders from purchasing stock before shareholders can make purchases.
作者: Kingpin804    时间: 2012-3-29 13:56

A strong corporate code of ethics is vitally important. Which of the following statements concerning a firm’s code of ethics is least likely accurate?
A)
A firm’s code of ethics should require clear disclosure of any advantages given to the firm’s insiders that are not also offered to shareholders.
B)
A firm’s code of ethics sets standards for ethical conduct based on basic principles of integrity, trust and honesty.
C)
As part of investor review of the firm’s ethical climate, investors should determine whether the firm gives the board access to relevant corporate information in a timely manner.



The firm’s code of ethics should prohibit practices that give advantages to company insiders that are not also offered to shareholders.
作者: Kingpin804    时间: 2012-3-29 13:56

The audit committee of a company’s Board of Directors is most likely to act in the interests of shareholders when:
A)
the committee has authority to prevent the company from engaging in non-audit business relationships with its external auditors.
B)
a company officer other than the CEO controls the audit budget.
C)
a reliable communication “firewall” is in place between the committee and the company’s internal auditors.



The audit committee is responsible for evaluating the financial information that the company provides to shareholders. This committee should be able to approve or reject the company’s proposed non-audit engagements with its external auditing firm. The audit committee, not management, should control the audit budget, and there should be no restrictions on communication between the committee and the company’s internal auditors.
作者: Kingpin804    时间: 2012-3-29 13:56

A special-purpose board committee with which of the following responsibilities would be least likely to act in the best interests of the shareholders?
A)
Takeover defense.
B)
Corporate governance.
C)
Mergers and acquisitions.



A committee responsible for takeover defense would most likely be acting in the interests of the company's current management rather than in the interests of shareholders.
作者: Kingpin804    时间: 2012-3-29 13:57

Investors have a duty to determine whether the board has properly established committees of independent board members to help carry out various board functions. Which of the following statements about the “audit committee” is least accurate?
A)
The audit committee should ensure that the audit is conducted consistent with generally accepted auditing standards (GAAS).
B)
Firm management is responsible for hiring and supervising the independent external auditors, but the audit committee has strict oversight responsibilities.
C)
The audit committee should ensure that the independent auditors have authority over the audit of the entire corporate group, which includes foreign subs and affiliates.



The audit committee is responsible for hiring and supervising the independent external auditors, in order to ensure that the auditors’ priorities are consistent with the best interests of shareholders. Both remaining statements are correct.
作者: Kingpin804    时间: 2012-3-29 13:57

Which of the following statements concerning Board committees is least accurate?
A)
The nominations committee is responsible for recruiting qualified board members and preparing an executive management succession plan.
B)
Members of the audit committee should be independent experts in accounting and finance.
C)
The audit committee has authority over the procedures used to audit the entire corporate group including subsidiaries and affiliates.



The independent auditor has authority over the audit procedures. The audit committee is responsible for hiring and supervising the independent auditor.
作者: Kingpin804    时间: 2012-3-29 13:57

Which of the following policies regarding shareowner rights for equity investors is most likely detrimental to the shareowners’ interests?
A)
The company uses a third-party entity to tabulate shareowner votes.
B)
Shareowners are permitted to vote either by paper ballot or a proxy voting service.
C)
Shareowners can approve changes to the corporate structure only with a supermajority vote.



Provisions that require a supermajority can even make changes strongly supported by shareowners more difficult to enact.
作者: Kingpin804    时间: 2012-3-29 13:58

Shareholder-sponsored resolutions are something investors can consider in order to be “heard”. These resolutions do have implications for investors. Which of the following statements regarding shareholder-sponsored resolutions is least accurate?
A)
The right to propose initiatives for consideration at the firm’s annual meeting is one way for shareholders to send a message that they are dissatisfied with the way the board is handling one or more firm matters.
B)
The ability shareholders have to propose needed changes in a firm can serve to erode shareholder value.
C)
The right to propose initiatives for consideration at the firm’s annual meeting is one way for shareholders to send a message that they are dissatisfied with the way management is handling one or more firm matters.



The ability to bring issues in front of the board and/or management can serve to prevent erosion of shareholder value.
作者: Kingpin804    时间: 2012-3-29 13:59

Which of the following is least likely to be considered a “best practice” regarding corporate governance?
A)
Use of a third party to tabulate votes and retain voting records.
B)
A code of ethics that is audited and improved periodically.
C)
Board members are limited to a six-year term.



Anything beyond 2- or 3-year term limits on board membership has the potential to restrict the ability for shareholders to change the composition of the board if its members are not acting in the shareholders’ best interest.
作者: Kingpin804    时间: 2012-3-29 14:00

The most likely outcome of adopting a golden parachute, poison pill, or greenmail is a:
A)
negative impact on the stock price and a greater possibility for a successful takeover bid.
B)
reduced possibility for a successful takeover bid and a positive impact on the stock price.
C)
reduced possibility for a successful takeover bid and a negative impact on the stock price.



Adopting a golden parachute, poison pill, or greenmail are all take-over defenses used to frustrate an acquisition attempt. The barriers created by such defenses are likely to decrease the value of the stock.
作者: Kingpin804    时间: 2012-3-29 14:00

Which of the following would NOT be a good source for information about a company’s proxy voting rules?
A)
Company’s articles of organization and by-laws.
B)
Firm’s corporate governance statement.
C)
Firm’s annual report.



The annual report would typically not contain this detailed information.
作者: Kingpin804    时间: 2012-3-29 14:00

One of the issues shareholders should consider is the issue of confidential voting of proxies. Which of the following statements would be considered most accurate in regard to proxy voting and confidential votes?
A)
It is an SEC requirement that the proxy voting process be confidential.
B)
Shareholders are more likely to vote conscientiously if allowed to do so confidentially.
C)
Confidentiality of voting does not ensure that all votes are counted equally.



Shareholders will be more likely to vote and vote conscientiously if they are sure that board members and/or management will not find out how they voted. There is no SEC requirement of confidentiality regarding proxy voting. Confidentiality of voting does insure that all votes are counted equally.
作者: Kingpin804    时间: 2012-3-29 14:01

All of the following negatively affect shareholders’ proxy voting rights, EXCEPT:
A)
allowing proxy voting by means other than a paper ballot.
B)
preventing investors who wish to vote their shares from trading during a period prior to the annual meeting.
C)
requiring attendance at the annual meeting.



Allowing proxy voting by means other than a paper ballot has a positive impact on shareholders’ proxy voting rights. Both of the remaining choices negatively affect shareholders’ proxy voting rights.
作者: Kingpin804    时间: 2012-3-29 14:01

Which of the following rights concerning shareholder-sponsored board nominations and shareholder-sponsored resolutions would be advantageous to an investor?
A)
The right to nominate or remove board members in certain circumstances, and the right to propose initiatives for consideration at the annual meeting.
B)
The right to propose initiatives for consideration at the annual meeting, but not the right to nominate or remove board members in certain circumstances.
C)
The right to nominate or remove board members in certain circumstances, but not the right to propose initiatives for consideration at the annual meeting.



Investors need the power to put forth an independent board nominee. In addition, the right to propose initiatives for consideration at the annual meeting is an important method to send a message to management.
作者: Kingpin804    时间: 2012-3-29 14:02

Which of the following actions would most likely have a positive influence on shareholder value?
A)
Executive board members regularly attend the board meetings.
B)
Only one class of common equity has been issued.
C)
Adopting a poison pill.



Firms with dual classes of equity can have a negative effect on shareholder value as the shareholder may have inferior voting rights. Takeover measures such as poison pills, golden parachutes, and greenmail typically have a negative effect on shareholder value. Annual elections are preferred for board members as it increases accountability. Executive board members regularly attending the meetings can potentially prevent free discussion among the independent members.
作者: Kingpin804    时间: 2012-3-29 14:02

Which of the following statements regarding company takeover defenses is CORRECT?
A)
Newly created anti-takeover provisions may or may not require stakeholder authorization/approval.
B)
The firm’s annual report contains pertinent details concerning takeover defenses.
C)
A firm’s proxy is the most likely place to find information about present takeover defenses.



These provisions may or may not require such approval. In either case, the firm may have to, at a minimum, provide information to its shareholders about any amendments to existing takeover defenses. A firm’s articles of organization are the most likely places to locate information about present takeover defenses.
作者: Kingpin804    时间: 2012-3-29 14:02

When examining a firm’s ownership structure, it is imperative to examine any super-voting rights by certain classes of shareholders. Which of the following statements concerning these voting rights is most accurate?
A)
If a company has a significant minority shareowner group, such as a founding family, cumulative voting to elect board members can be a positive factor for shareholders.
B)
Super-voting rights by certain classes of shareholders impair the firm’s ability to raise capital for the future.
C)
Firms with a single class of common equity could encourage prospective acquirers to only deal directly with shareholders with the supermajority rights.



Firms with dual classes of common equity could encourage prospective acquirers to only deal directly with shareholders with the supermajority rights. If the firm has a significant minority ownership group, such as a founding family, use of cumulative voting to elect board members can favor specific interests at the expense of the interests of other shareholders.
作者: Kingpin804    时间: 2012-3-29 14:02

Which of the following firms is most likely to have a board of directors that considers the best interest of all shareholders?
A)
Firms that assign a single vote to each share, but not firms with different classes of common equity with supermajority rights given to one class.
B)
Firms that assign a single vote to each share, and firms with different classes of common equity with supermajority rights given to one class.
C)
Neither firms with different classes of common equity with supermajority rights given to one class, nor firms that assign a single vote to each share.



Firms that assign one vote to each share are more likely to have a board that considers the best interest of all shareholders. Firms with dual classes of common equity where supermajority rights are given to one class are likely to have boards that focus on the interests of the supermajority shareholders.




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