Chapter 33 - Governance and Corporate Control Around the World
Chapter 33 Governance and Corporate Control Around the World Multiple Choice Questions
1. The United States has a market-based financial system because: I) it has a large stock market II) it has a large corporate bond market III) it has financial institutions A. I only B. II only C. II and III only D. I and II only
2. Financial markets are more important for firms to raise funds for investment in the: I) U.S.A II) U.K. III) Germany A. I only B. II only C. I and II only D. II and III only
3. Financial institutions are more important for firms to raise funds in (the): I) U.S.A II) Germany III) Japan A. I only B. II and III only C. III only D. I and III only
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Chapter 33 - Governance and Corporate Control Around the World
4. In financial institution based systems, individual investors hold corporate debt and equity through the following ways: I) directly II) indirectly through banks III) indirectly through insurance companies IV) indirectly through other financial intermediaries A. I only B. I and II only C. IV only D. II, III and IV only
5. Which of the following statement(s) is(are) true about company financing in the U.S.A.? I) The U.S.A. has a large amount of bank loans outstanding. II) The U.S.A. has a large stock market. III) The U.S.A. has a large bond market. A. I only B. II only C. I, II and III D. II and III only
6. The total amount of financial assets in the U.S.A. is: A. 275% of the GDP B. 267% of the GDP C. 236% of the GDP D. none of the above
7. The total amount of financial assets in Japan is: A. 327% of the GDP B. 306% of the GDP C. 286% of the GDP D. none of the above
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Chapter 33 - Governance and Corporate Control Around the World
8. The total amount of financial assets in the U.K. is: A. 327% of the GDP B. 288% of the GDP C. 267% of the GDP D. none of the above
9. Individual investors in the U.S.A. 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: I) Households II) Financial institutions III) Other corporations A. I only B. II only C. III only D. I, II, and III
11. Individual investors of which of the following countries play an important role in corporate governance? A. U.S.A. B. U.K. C. Japan D. none of the above
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Chapter 33 - Governance and Corporate Control Around the World
12. In Japan inter-company financing is in the form of: A. Term loans B. Trade credit C. Leasing D. None of the above
13. The legal system in the U.S.A is based on: A. Common law tradition B. Civil law tradition C. Sharia tradition D. None of the above
14. The legal system in France is based on: A. Common law tradition B. Civil law tradition C. Sharia tradition D. None of the above
15. The following countries have legal system based on civil law tradition: I) Germany II) France III) Scandinavia IV) U.K A. I only B. II only C. I, II, and III only D. IV only
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Chapter 33 - Governance and Corporate Control Around the World
16. The idea that a corporation's financial goal is to "maximize stockholder value" is more prevalent in: I) the U.S.A. II) the U.K. III) France IV) Japan A. I and II only B. II and III only C. III and IV only D. II and IV only
17. The idea that a corporation should be run in the interests of the shareholders is embedded in the law in: I) the U.S.A. II) the U.K. III) France IV) Japan A. I only B. I and II only C. III and IV only D. II and IV only
18. Large business combinations in Japan are carried out through reciprocal ownership of common stock. These are called: A. Keiretsu B. Chaebols C. Conglomerates D. Industrial houses
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Chapter 33 - Governance and Corporate Control Around the World
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 of financial distress costs C. Large scale diversification that cannot be done by individual shareholders D. Greater efficiency in management because the management skills are homogeneous even for
20. In Japan, commercial banks can own a company's stock up to: A. 1% of the total shares B. 5% of the total shares C. 10% 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 is referred to as: A. Aufsichtsrat B. Vorstand C. Codetermination D. Directoire
23. The largest ten families in Indonesia control what percentage of all firms? A. 58% of the outstanding shares B. 33% of the outstanding shares C. 25% of the outstanding shares D. 21% of the outstanding shares
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Chapter 33 - Governance and Corporate Control Around the World
24. The largest ten families in Thailand control what percentage of all firms? A. 46% of the outstanding shares B. 33% of the outstanding shares C. 25% of the outstanding shares D. 21% of the outstanding shares
25. The largest ten families in Taiwan control what percentage of all firms? A. 42% of the outstanding shares B. 33% of the outstanding shares C. 25% of the outstanding shares D. 18% of the outstanding shares
26. The largest ten families in Japan control what percentage of all firms? A. 42% of the outstanding shares B. 33% of the outstanding shares C. 25% of the outstanding shares D. 2% of the outstanding shares
27. Large firms in Germany have: I) the board of directors II) the supervisory board III) the management board A. I only B. II only C. III only D. II and III only
28. A firm whose only asset is controlling blocks of shares in other firms is called: A. a conglomerate B. a holding company C. a pyramid D. Dual-class company
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29. "Effective control" of a firm requires approximately: A. 100% ownership B. 51% ownership C. 50% ownership D. 20% ownership
30. Dual-class equity occurs frequently in: I) U.S.A. II) Brazil III) Canada IV) Germany V) Sweden A. I only B. II only C. I, II, III, IV, and V D. IV and V only
31. A Korean conglomerate is called a: A. Keiretsu B. Chaebol C. Industrial house D. Conglomerate
32. Conglomerates can be effective in A. the U.S.A. B. Great Britain C. developing economies D. none of the above
33. Which country has the highest percentage of widely held stock? A. Korea B. Singapore C. Japan D. Malaysia
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Chapter 33 - Governance and Corporate Control Around the World
34. Which country has the highest percentage of state owned corporate stock? A. Korea B. Singapore C. Japan D. Malaysia
True / False Questions
35. Firms raise funds from financial markets and from financial institutions. True False
36. Japan has bank based financial system. True False
37. In the United States, individual investors can play an important role in corporate governance because of well-developed democracy. True False
38. Direct individual investment in the equity market is relatively small around the world. True False
39. Households, financial institutions and other firms are the main sources of funds for firms. True False
40. The legal system in the U.S.A. and U.K. is based on civil law tradition. True False
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Chapter 33 - Governance and Corporate Control Around the World
41. The legal systems in France, Germany and Scandinavia have evolved from common-law tradition. True False
42. In Japan, a keiretsu is a network of companies organized around a major bank. True False
43. Japan has "main bank" system where banks and firms have long-standing relationships between them. True False
44. Conglomerates in Korea are called chaebols. True False
45. The largest conglomerate in India is the Tata Group. True False
46. German governance seeks to include labor as a partner in making long term decisions. True False
47. Widely held and direct ownership of firms is common in Germany.
True False
Short Answer Questions
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Chapter 33 - Governance and Corporate Control Around the World
48. What is corporate governance?
49. Briefly explain the two important legal traditions in Europe and the U.S.A.
50. Briefly explain the term "keiretsu."
51. Briefly explain why a bank in Germany can own shares of a corporation while a bank in the U.S.A. cannot.
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Chapter 33 - Governance and Corporate Control Around the World
52. Briefly explain why large firms in Germany have two boards of directors.
53. Briefly explain the term pyramid in the context of corporate control.
54. Under what circumstances would a conglomerate be effective?
55. Is the US corporate governance structure more or less responsive to shareholders than most other nations and why or why not?
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Chapter 33 - Governance and Corporate Control Around the World
Chapter 33 Governance and Corporate Control Around the World Answer Key
Multiple Choice Questions
1. The United States has a market-based financial system because: I) it has a large stock market II) it has a large corporate bond market III) it has financial institutions A. I only B. II only C. II and III only D. I and II only
Type: Easy
2. Financial markets are more important for firms to raise funds for investment in the: I) U.S.A II) U.K. III) Germany A. I only B. II only C. I and II only D. II and III only
Type: Easy
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Chapter 33 - Governance and Corporate Control Around the World
3. Financial institutions are more important for firms to raise funds in (the): I) U.S.A II) Germany III) Japan A. I only B. II and III only C. III only D. I and III only
Type: Easy
4. In financial institution based systems, individual investors hold corporate debt and equity through the following ways: I) directly II) indirectly through banks III) indirectly through insurance companies IV) indirectly through other financial intermediaries A. I only B. I and II only C. IV only D. II, III and IV only
Type: Medium
5. Which of the following statement(s) is(are) true about company financing in the U.S.A.? I) The U.S.A. has a large amount of bank loans outstanding. II) The U.S.A. has a large stock market. III) The U.S.A. has a large bond market. A. I only B. II only C. I, II and III D. II and III only
Type: Easy
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Chapter 33 - Governance and Corporate Control Around the World
6. The total amount of financial assets in the U.S.A. is: A. 275% of the GDP B. 267% of the GDP C. 236% of the GDP D. none of the above
Type: Medium
7. The total amount of financial assets in Japan is: A. 327% of the GDP B. 306% of the GDP C. 286% of the GDP D. none of the above
Type: Medium
8. The total amount of financial assets in the U.K. is: A. 327% of the GDP B. 288% of the GDP C. 267% of the GDP D. none of the above
Type: Medium
9. Individual investors in the U.S.A. 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
Type: Medium
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10. The following are sources of financing for corporations: I) Households II) Financial institutions III) Other corporations A. I only B. II only C. III only D. I, II, and III
Type: Easy
11. Individual investors of which of the following countries play an important role in corporate governance? A. U.S.A. B. U.K. C. Japan D. none of the above
Type: Medium
12. In Japan inter-company financing is in the form of: A. Term loans B. Trade credit C. Leasing D. None of the above
Type: Easy
13. The legal system in the U.S.A is based on: A. Common law tradition B. Civil law tradition C. Sharia tradition D. None of the above
Type: Easy
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14. The legal system in France is based on: A. Common law tradition B. Civil law tradition C. Sharia tradition D. None of the above
Type: Medium
15. The following countries have legal system based on civil law tradition: I) Germany II) France III) Scandinavia IV) U.K A. I only B. II only C. I, II, and III only D. IV only
Type: Medium
16. The idea that a corporation's financial goal is to "maximize stockholder value" is more prevalent in: I) the U.S.A. II) the U.K. III) France IV) Japan A. I and II only B. II and III only C. III and IV only D. II and IV only
Type: Medium
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Chapter 33 - Governance and Corporate Control Around the World
17. The idea that a corporation should be run in the interests of the shareholders is embedded in the law in: I) the U.S.A. II) the U.K. III) France IV) Japan A. I only B. I and II only C. III and IV only D. II and IV only
Type: Medium
18. Large business combinations in Japan are carried out through reciprocal ownership of common stock. These are called: A. Keiretsu B. Chaebols C. Conglomerates D. Industrial houses
Type: Easy
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 of financial distress costs C. Large scale diversification that cannot be done by individual shareholders D. Greater efficiency in management because the management skills are homogeneous even for
Type: Medium
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Chapter 33 - Governance and Corporate Control Around the World
20. In Japan, commercial banks can own a company's stock up to: A. 1% of the total shares B. 5% of the total shares C. 10% of the total shares D. Commercial banks cannot own stocks of companies
Type: Difficult
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
Type: Medium
22. The German system of corporate governance is referred to as: A. Aufsichtsrat B. Vorstand C. Codetermination D. Directoire
Type: Medium
23. The largest ten families in Indonesia control what percentage of all firms? A. 58% of the outstanding shares B. 33% of the outstanding shares C. 25% of the outstanding shares D. 21% of the outstanding shares
Type: Medium
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Chapter 33 - Governance and Corporate Control Around the World
24. The largest ten families in Thailand control what percentage of all firms? A. 46% of the outstanding shares B. 33% of the outstanding shares C. 25% of the outstanding shares D. 21% of the outstanding shares
Type: Medium
25. The largest ten families in Taiwan control what percentage of all firms? A. 42% of the outstanding shares B. 33% of the outstanding shares C. 25% of the outstanding shares D. 18% of the outstanding shares
Type: Medium
26. The largest ten families in Japan control what percentage of all firms? A. 42% of the outstanding shares B. 33% of the outstanding shares C. 25% of the outstanding shares D. 2% of the outstanding shares
Type: Medium
27. Large firms in Germany have: I) the board of directors II) the supervisory board III) the management board A. I only B. II only C. III only D. II and III only
Type: Medium
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Chapter 33 - Governance and Corporate Control Around the World
28. A firm whose only asset is controlling blocks of shares in other firms is called: A. a conglomerate B. a holding company C. a pyramid D. Dual-class company
Type: Medium
29. "Effective control" of a firm requires approximately: A. 100% ownership B. 51% ownership C. 50% ownership D. 20% ownership
Type: Medium
30. Dual-class equity occurs frequently in: I) U.S.A. II) Brazil III) Canada IV) Germany V) Sweden A. I only B. II only C. I, II, III, IV, and V D. IV and V only
Type: Medium
31. A Korean conglomerate is called a: A. Keiretsu B. Chaebol C. Industrial house D. Conglomerate
Type: Easy
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Chapter 33 - Governance and Corporate Control Around the World
32. Conglomerates can be effective in A. the U.S.A. B. Great Britain C. developing economies D. none of the above
Type: Easy
33. Which country has the highest percentage of widely held stock? A. Korea B. Singapore C. Japan D. Malaysia
Type: Easy
34. Which country has the highest percentage of state owned corporate stock? A. Korea B. Singapore C. Japan D. Malaysia
Type: Easy
True / False Questions
35. Firms raise funds from financial markets and from financial institutions. TRUE
Type: Medium
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Chapter 33 - Governance and Corporate Control Around the World
36. Japan has bank based financial system. TRUE
Type: Medium
37. In the United States, individual investors can play an important role in corporate governance because of well-developed democracy. FALSE
Type: Medium
38. Direct individual investment in the equity market is relatively small around the world. TRUE
Type: Medium
39. Households, financial institutions and other firms are the main sources of funds for firms. TRUE
Type: Medium
40. The legal system in the U.S.A. and U.K. is based on civil law tradition. FALSE
Type: Difficult
41. The legal systems in France, Germany and Scandinavia have evolved from common-law tradition. FALSE
Type: Medium
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Chapter 33 - Governance and Corporate Control Around the World
42. In Japan, a keiretsu is a network of companies organized around a major bank. TRUE
Type: Medium
43. Japan has "main bank" system where banks and firms have long-standing relationships between them. TRUE
Type: Medium
44. Conglomerates in Korea are called chaebols. TRUE
Type: Easy
45. The largest conglomerate in India is the Tata Group. TRUE
Type: Medium
46. German governance seeks to include labor as a partner in making long term decisions. TRUE
Type: Medium
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Chapter 33 - Governance and Corporate Control Around the World
47. Widely held and direct ownership of firms is common in Germany.
FALSE
Type: Medium
Short Answer Questions
48. What is corporate governance? The issue of corporate governance arises from the separation of ownership and control that exists in companies. Stockholders of firms may be thought of more as investors than owners for practical purposes as managers of large firm generally control the day-to-day decisionmaking. This makes most shareholders passive investors in a firm, and thereby providing important opportunities for the managers of such firms to make decisions that may benefit themselves personally rather than the shareholders. In order to protect owner/investors, there is an established set of checks and balances, generally referred to as corporate governance.
Type: Difficult
49. Briefly explain the two important legal traditions in Europe and the U.S.A. The legal systems in the U.S.A. and U.K. have developed from common-law tradition. The legal systems in France, Germany and Scandinavia have developed from civil law tradition.
Type: Medium
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50. Briefly explain the term "keiretsu." This is an institutional arrangement that is unique to Japan. A keiretsu is a network of companies that is usually organized around a major bank. These companies have crossholdings arrangements and enter into business relationships among themselves.
Type: Medium
51. Briefly explain why a bank in Germany can own shares of a corporation while a bank in the U.S.A. cannot. Germany has universal banking system and it allows for banks to invest in non-financial corporations. But, in the U.S.A. federal law prohibits equity investments by banks in nonfinancial corporations.
Type: Medium
52. Briefly explain why large firms in Germany have two boards of directors. Large firms in Germany have two boards of directors—the supervisory board and management board. This arrangement is geared towards reconciling the demands of industrialization with liberal concepts about individual rights.
Type: Medium
53. Briefly explain the term pyramid in the context of corporate control. In a pyramid, corporate control is exercised through a sequence of controlling positions in several layers of companies. The actual operating companies are at the bottom of the pyramid. Above each operating company is a first holding company, then a second holding company, and so on. Pyramids are common in Asian countries.
Type: Medium
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Chapter 33 - Governance and Corporate Control Around the World
54. Under what circumstances would a conglomerate be effective? Generally conglomerates perform well in less developed countries and also in countries where the legal system is based on civil-law systems.
Type: Difficult
55. Is the US corporate governance structure more or less responsive to shareholders than most other nations and why or why not? US public corporations have serious problems related to agency problems and corporate governance, but pale compared to other nations. Many nations, specifically in eastern Asia, have corporate ownership dominated by a very small group of people. Japan, being the exception, the balance of the nations survive on long term domination by very few people. Even in Europe, widely held corporate ownership is the exception, not the rule.
Type: Difficult
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