Corporate Governance - Final Exam Study Guide 2022 with complete solution. Questions with accurate answers. Graded A

Corporate Governance - Final Exam Study Guide 2022 with complete solution. Questions with accurate answers. Graded A Document Content and Description Below Corporate Governance - Final Exam Study Guide 2022 with complete solution What is the concept of systematic risk as it relates to corporate governance regulation of financial institutions? -Answer- Systemic risk refers to the fact that the largest financial service institutions -- if they fail -- then the entire financial system is at risk of collapse What is the concept of externality as referring to corporate social responsibility? - Answer- A cost to a third party such as society at large in the sale of a product or service of a corporation where the added cost to society was not part of that sale price. One example often given is the sale of tobacco products and the societal cost of cancer health care burdens on states health care systems. What is the definition of greenmail(see book index)? -Answer- Involves an investor rapidly acquiring a block of shares (typically more than 5%) of a company hoping that management - if a takeover is threatened - will buy the shares from the investor at a large profit What is the definition of a spinoff? -Answer- Sells parts of a corporation such as a division or subsidiary to a new group of investors who tries to improve its value by reorganizing it. What is the definition and structure of a hedge fund (see index of book)? -Answer- a hedge fund is a fund that investors put their money into. The managers of the fund select investments on behalf of the investors that the managers hope will increase in value more than the stock market as a whole. These days hedge fund managers will buy shares of firms with poor corporate governance or operations and hope to improve the value of the firm to make money for their clients. The term "hedge" comes from the physical HEDGE in a garden which is there as a kind of protection against risk. The original idea is that these funds would give an investor protection from the typical risks in the stock market, another way to make money, by using active investment managers, and thus we see the term "hedge the risk." What is the definition of privatization of a company? -Answer- The transfer of ownership, property or business from the government to the private sector is termed privatization. The government ceases to be the owner of the entity or business. The process in which a publicly-traded company is taken over by a few people is also called privatization. Why were corporate governance standard scorecards were developed by the market? - Answer- They were developed in order to help institutional investors get a simple less complicated assessment of principal-agent/corporate governance problems at corporations so that they could thoughtfully exercise their votes at shareholder meetings.What does the major ratings firms provide recommendations on? -Answer- Look at financial highlights of the company, the structure and functioning and independence of the board, and board independence, the audit function, protection of shareholder rights, and executive compensation. What are the traditional arguments made for the "lighter touch: approach of the SEC in recent decades -Answer- The "light touch" and "do not kill the goose that lays the golden egg" approach to corporate governance by the US SEC before Enron refers to broad agreement across political spectrum that over-regulation of corporate governance might dampen competition in the market and restrain economic prosperity. What are the issues on the current shareholder nomination reform of the SEC which has been a Congressional priority as expressed in the recent financial reform law and was recently and successfully challenged in court? -Answer- a. Congressional priority as expressed in the recent financial reform law and was recently and successfully challenged in court. b. Well, the issue is that from the point of view of shareholders/investors, there is a desire to reform the old system where there were non-competitive board elections and there were only ten candidates put up for a ten person board and those candidates were nominated by the old board. So the shareholder nomination reform of the SEC pushed by President GW Bush and President B Obama would have allowed a group of shareholders who held a minimum percentage of stock to add one or two (depending on the details of different proposals) board nominees not selected by management so that there would be a real choice between investor and management candidates. Many executives consider this introducing too many wild cards into the boardroom. What are the main features of the two main systems: Anglo vs French? -Answer- The common law system formed by judges responding to specific legal disputes and based on precedents, originated in england, and has the strongest protections for investors, shareholders, and creditors. The civil law system comes from roman law, is based on contributions by scholars affected the french, german, and scandinavian systems (and countries they conquered or had connections with), and has the weakest protections for investors. What are the principal features of the German system? -Answer- Key features of the german system of corporate small public stock market, large role for banks, weak SEC, and employee representation on the supervisory board with them electing an inside management board. What are the principal features of the Japanese system? -Answer- Most of the wealth in closely-held firms, a few large combinations (keiretsu) control many firms, governance is by consensus of managers, banks play a huge role in these combinations, weaken SEC body.Why do most takeovers take place in the UK in the US in terms of characteristics of their corporate governance system? -Answer- Most large companies are traded on their public stock markets which means quick easy public access to the shares of any company. In these countries, less corrupt courts respecting the rule of law are more objective about takeovers and potential acquirers can borrow money from investment banks, pension funds, Or hedge funds to finance the transactions to acquire sales. What are major corporate governance issues in China as a result of the European Union report on China? -Answer- Repeated investigations of corporate governance in China have identified lack of independence of corporate board directors and poor audit procedures as serious problems What are the requirements ERISA puts on institutional investors as shareholders? - Answer- To manage the shares they own exclusively for the benefit of workers who will get pensions What is ERISA? -Answer- is a Federal law governing all pensions and requires them to manage the shares they own exclusively for the benefit of workers who will get the pensions; What is the role of hedge funds in corporate governance (see hedge fund section in the book)? -Answer- Hedge funds sometimes use an investment strategy that says that they can challenge corporate practices and corporate business strategies using activist pressure on management and boards to ultimately improve their investments value What are the role unions as managers of pension plans play in corporate governance? - Answer- Unions hire investment managers for pension funds that unions maintain for their retiring members. What are the main issues in the case on the conflict between Robert monks and Sears? -Answer- Monks did not want sears to keep buying other companies not related to their main department store purpose. He wanted them to sell these divisions. What is the country of Norway's initiative on active corporate governance, and why? - Answer- Norway uses its oil revenues to invest in a pension fund that invests in the stock markets worldwide. The income from these investments is there to help support the budget of the people of Norway. Obviously, they want to keep the principal-agent problems to a minimum so they are very active in corporate governance and shareholder rights worldwide. Why are private and public pension fu