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Corporate Governance
1) For moral hazard to exist, there needs to be
A) symmetry of information. B) asymmetry of information.
C) the possibility of complete contracts. D) None of the above.
Answer: B

2) Related-party transactions may consist of tunnelling and transfer pricing.

a.true b. false
Answer ; A
3) The agency problem of debt consists of the the shareholders expropriating the debtholders.
a.true b. false
Answer A

4) Empire building is an example of agency problems

a.true b. false
Answer a

5) The following statement about the residual loss is correct.

A) There is a residual loss if the monitoring costs exceed the bonding costs.
B) The residual loss consists of the loss in firm value caused by the agent not running the firm in the
interest of the principal and which cannot be prevented by monitoring and bonding.
C) The residual loss is the difference between the monitoring costs and the bonding costs.
D) None of the above.
Answer: B

6) The main corporate governance problem outside the UK and the USA is ...
A) the principal-agent problem.
B) excessive dividends.
C) the expropriation of the minority shareholders by the large, controlling shareholder.
D) hostile takeovers.
Answer: C

7) The benefit of the mutual organisational form isThe avoidance of conflicts of interests between
owners and customers.
a. true b.False
Answer: A

8) The demutualisation consists of a mutual building society converting into a stock corporation and
floating on the stock exchange.
a.true b. false
Answer A

9-Dispersed ownership has advantages

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a. Increased liquidity resulting in a lower cost of capital
b.The exposure to hostile takeovers putting pressure on managers to perform will
c.Both A and B
d.None of the above
Answer : C

10-The main disadvantage of Dispersed ownership is the free –rider problem

a.True b. False
Answer : A

11- Concentrated control and ownership have a major advantage

a. There will be a shareholder with enough power and sufficient in incentives to monitor the
management
b. increasing liquidity resulting in a lower cost of debt
c. Both A and B
d.None of the above
Answer : A

12- The main advantages of Concentrated control and ownership is

a.The free –rider problem whereby each individual shareholders refuses to monitor the management
b.The danger of minority shareholder expropriation
c.Both A and B
d.None of the above
Answer : B

13- Combination A : weak control and Dispersed ownership is to apply to most Anglo – American
Firms
a.True B. False
Answer : A

14- weak control and Dispersed ownership have

a.Advantages of liquidity and takeover market
b.Disadvantages of insufficient monitoring
c.Main conflict of interests between the management and shareholders
d.All of the above
Answer ;D

15- Dispersed ownership and strong control

a.Active market in the shares
b.There also an increased risk of minority shareholders expropriation
c.There is a controlling shareholders with enough power to prevent the managers from expropriating
the shareholders
d.All of the above
Answer : D

16- Concentrated ownership and weak control is Lack of monitoring and low liquidity
a. True b. False
Answer ; A
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17- Concentrated ownership and strong control
a.Create strong monitoring incentives
b.Low liquidity and reduced takeover probability
c.Both A and B
d.None of the above
Answer ; C

18- Strong control and dispersed ownership can be achieved by

a.Ownership pyramids
b.Proxy votes
c. Dual- class shares
d.All of the above
Answer : D

19- Clauses in the articles of association that confer additional votes to long –term shareholders is
consider one of many ways to achieving dispersed ownership and strong control
a. True b. false
Answer : A

20- Originate from the shares of the bank’s customers deposited with the banks is
a.Voting coalitions b.Proxy votes
c.Dual –class shares d.None of the above
Answer ;B

21- issued by some continental Europe firms , but also American firms , have two classes of shares
a.Voting coalition b.Proxy votes
c.Dual-class shares d.All of the above
Answer ; C

22- Originate from the increase in firms value due the monitoring of the management and they are
shared by all the shareholders
a.Private benefits b.Tunnelling
c.Security benefits d.Nepotism
Answer : C

23- Extracted from the firm by the large shareholder and are the expense of the minority shareholders
a.Private benefits b.Security benefits
cTunnelling d.All of the above
Answer : A

24- The main ways of achieving dispersed ownership control all violate the rule of one – share one –
vote
a. True b. False
Answer : A

25- Some studies are measuring the value of private benefits of control by
a.Transfer pricing
b.The premium above the market price paid by the buyer of a block of shares
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c.The discount under the market price paid by the buyer of a block of shares
d.None of the above
Answer : B

26- The main consequence of violating the rule of one share one vote
a.The increased in private benefits of control
b.The increased probability of minority shareholder expropriation
c .Both A and B
d.None of the above
Answer : C

27- Ownership pyramids are

A) a way of achieving weak control with concentrated ownership.
B) a way of increasing the risk of minority shareholder expropriation.
C) some of the most visited tourist sites in the world.
D) None of the above.
Answer : B

28- Private benefits of control are B) the benefits to the large shareholder from controlling a firm and
are not shared with the other shareholders.
a. True b. False
Answer .A

29- Proxy votes are votes exercised by small shareholders.

a. True b. False
Answer .B

30- The main corporate governance problem under strong control and dispersed ownership is the
expropriation of the minority shareholders by the large shareholder.
a. True b. False
Answer .A
B) In the presence of weak control and concentrated ownership, the classic corporate governance

31- The free-rider problem may result in a lack of shareholder monitoring of the management.
a. True b. False
Answer .A

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 Model Answer
1 B 11 C
2 D 12 A
3 D 13 B
4 D 14 A
5 C 15 A
6 D 16 A

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 7 A 17 A
8 A 18 D
9 D 19 D
10 B 20 B