BUSI 4940
Simplified Exam Questions with 100% Correct Answers
What is the agency relationship - Managers are agents of the shareholders, which make
decisions for the company
Agency costs - Money to make sure the shareholders are doing what they need to be doing,
or costs and losses incurred by principals as a result
Ownership concentration - number of large block shareholders and the total percentage of
outstanding shares they own
Large Block shareholders - own 5% or more of a company's issued shares, usually
"institutional shareholders"
Types of institutional shareholders - financial institutions, mutual finds, pension plans,
sovereign funds
"nose in, hands out" - board has the power to direct the affairs of the organization, but do not
run the organization
Composition of the board - Insiders (management)
Related (some relationship to the firm)
Outsiders (independents)
Issues with the board - Too ready to approve manager's initiatives, known as Rubber
stamping
Exploited by managers with personal ties to board members
Not vigilant enough in hiring and monitoring CEO behavior
, Lack of agreement about number of and most appropriate role of outside directors
Market for Corporate Control - someone outside of the org takes over to make the company
do better
External governance is known as - Market for corporate control
Internal governance is - compensation for doing well
How do shareholders make money? - dividends, and share price going up
Why is a stock option a good incentive - Option is a stock price above the current value of
the stock, meaning if that the firm does better than the option price, the person with the stock
option benefits
Golden Parachute - lump sum payment is given to one or more top-level managers when the
firm is acquired in a takeover bid
Greenmail - repurchase of target's shares of stock obtained by the acquiring firm at a
premium, in exchange for the company not taking over (i'll pay you extra if you leave my
company alone)
Poison Pill - firm makes shares less valuable
1987 Definition of sustainability - meeting the needs of the present without compromising
the ability of future generations to meet their own needs
Concepts added to the 1992 definition - Third party stakeholders
Simplified Exam Questions with 100% Correct Answers
What is the agency relationship - Managers are agents of the shareholders, which make
decisions for the company
Agency costs - Money to make sure the shareholders are doing what they need to be doing,
or costs and losses incurred by principals as a result
Ownership concentration - number of large block shareholders and the total percentage of
outstanding shares they own
Large Block shareholders - own 5% or more of a company's issued shares, usually
"institutional shareholders"
Types of institutional shareholders - financial institutions, mutual finds, pension plans,
sovereign funds
"nose in, hands out" - board has the power to direct the affairs of the organization, but do not
run the organization
Composition of the board - Insiders (management)
Related (some relationship to the firm)
Outsiders (independents)
Issues with the board - Too ready to approve manager's initiatives, known as Rubber
stamping
Exploited by managers with personal ties to board members
Not vigilant enough in hiring and monitoring CEO behavior
, Lack of agreement about number of and most appropriate role of outside directors
Market for Corporate Control - someone outside of the org takes over to make the company
do better
External governance is known as - Market for corporate control
Internal governance is - compensation for doing well
How do shareholders make money? - dividends, and share price going up
Why is a stock option a good incentive - Option is a stock price above the current value of
the stock, meaning if that the firm does better than the option price, the person with the stock
option benefits
Golden Parachute - lump sum payment is given to one or more top-level managers when the
firm is acquired in a takeover bid
Greenmail - repurchase of target's shares of stock obtained by the acquiring firm at a
premium, in exchange for the company not taking over (i'll pay you extra if you leave my
company alone)
Poison Pill - firm makes shares less valuable
1987 Definition of sustainability - meeting the needs of the present without compromising
the ability of future generations to meet their own needs
Concepts added to the 1992 definition - Third party stakeholders
