Quiz 17: Corporate Governance and the International Market for Corporate Control

Corporate governance refers to the way in which major stakeholders exert control over the modern corporation.

The "Anglo-American" model of corporate governance is characterized by dispersed equity ownership, a large proportion of public debt and equity, and an independent management team.

Bank-based corporate governance systems rely on bank loans and close monitoring of management by banks but do not rely on equity investments on the part of banks.

Corporate takeovers within Japanese keiretsu are public affairs conducted through the financial marketplace.

The typical NYSE firm in the United State has a board of directors that is primarily drawn from the ranks of management.

Market-based systems of corporate governance have supervisory boards that represent a dispersed set of shareholders and often include outside directors.

Bank-based systems of corporate governance have supervisory boards that are usually dominated by bankers and other corporate insiders.

Historically, banks in the United States have faced fewer legal and regulatory constraints on how and where they conduct their business than banks in Germany and Japan.

The ratio of the assets of the largest U.S. commercial banks to U.S. gross domestic product (GDP) exceeds the asset/GDP ratios of China, Germany, Japan, and the United Kingdom.

Commercial banks in Germany face relatively few legal constraints on how much stock they are allowed to own in a particular corporation.

Commercial banks in Japan face no legal constraints on how much stock they are allowed to own in a particular corporation.

Hostile acquisitions are more common in Germany and Japan because of the concentration of equity ownership in the hands of only a few equity owners.

The biggest barrier to a foreign acquisition of a Japanese company is the requirement that the Japanese Ministry of Finance and the Japanese Fair Trade Commission be notified of the offer.

The costs of monitoring management and ensuring that they act in the best interest of other stakeholders are called agency costs.

Comparative studies of executive turnover typically find evidence of cross-country similarities in HOW top management is replaced.

In Japan, the national government usually takes the initiative in replacing top executives.

In Germany, the lead bank often takes the initiative in replacing top executives.

China's business sectors includes a "state sector" of partially privatized exchange-listed state-owned enterprises (SOEs).

China's "listed sector" includes partially privatized exchange-listed state-owned enterprises (SOEs).

China's banks have been constrained by intrusive government regulation and do not yet have a large role in China's financial industry.

China has fully privatized its four largest banks in an effort to allow the banking industry to grow along with the economy.

In studies of U.S. acquisitions of foreign firms, shareholders of target firms typically capture large positive gains at the time of the acquisition announcement whereas shareholders of acquiring firms typically do not gain.

Returns to acquiring firms are negatively correlated with the profitability of the acquiring firm in cross-country mergers and acquisitions.

Empirical studies generally confirm that the level of foreign acquisitions by domestic firms is positively related to the real value of the domestic currency.

Tunneling refers to the expropriation of corporate assets from minority shareholders by controlling stakeholders.

Tunneling is a mechanism for resolving the agency problems that exist between managers and other stakeholders of the firm.

Corporate governance refers to ______. A) the model corporation as characterized by the World Bank B) the role of top managers as the shepherds of the corporation C) the organizational chart D) the way in which stakeholders exert control over the corporation E) None of the above

The "Anglo-American" model of corporate governance is characterized by ______. A) a patriarchal top management team B) a separate division for the Treasury and the Controller C) concentrated bank ownership and bank monitoring of the management team d dispersed equity ownership and a relatively independent management team E) None of the above

The system of corporate governance used in Germany and Japan relies on ______. A) a patriarchal top management team B) a separate division for the Treasury and the Controller C) concentrated bank ownership and bank monitoring of the management team d dispersed equity ownership and a relatively independent management team E) None of the above

In Japan, a network of companies linked through equity share cross-holdings and through customer/supplier relations is called a ______. A) gaijin B) keiretsu C) mushi mushi D) soju E) wakarimasen

In Korea, a horizontally diversified network of related companies is called a ______. A) bulgogi B) chaebol C) chop chae D) galbi E) kimchi

In Japan, corporate share cross-holdings contribute to ______. A) a move to break up the Japanese keiretsu in favor of arms-length business transactions B) an active market for mergers and acquisitions C) close inter-firm cooperation D) Three of the above E) Two of the above

In Japanese keiretsu, corporate takeovers typically ______. A) are aggressive, financially motivated, arms-length deals B) are managed by the corporation's main bank and keiretsu partners C) involve outside investors and outside corporations D) All of the above E) None of the above

The supervisory board of a large German corporation typically ______. A) includes management B) includes government representatives C) includes representatives of banks and of labor D) All three of a) through c) E) Two of a) through c)

The ratio of assets controlled by the three largest banks to GNP is highest in ______. A) China B) Germany C) Japan D) United Kingdom E) United States

Historically, U.S. banks were prohibited from each of a) through d) EXCEPT A) engaging in investment banking activities B) making a market in equity securities C) owning stock for their own account D) voting shares held in trust for other investors E) banks have been prohibited from all of the above

The most important voice on the supervisory boards of large German corporations is that of ______. A) banks B) employees C) government representatives D) managers E) stockholders

German banks control equity capital in which of the following ways? A) through bank-controlled mutual funds and investment companies B) through investment banking activities C) through ownership of equity for their own account D) through the shares of their banking clients E) All of the above

The importance of commercial banks in Japanese corporate governance is ______. A) greater than in Germany and the United States B) less than in Germany and the United States C) greater than in Germany but less than that in the United States D) greater than in the United States but less than that in Germany E) about the same as in Germany and the United States

China's business sectors include each of a) through d) EXCEPT A) A "listed" sector of partially privatized exchange-listed state-owned enterprises (SOEs) B) A "private" sector of family- and publicly-owned firms with no government ownership C) A "Red" sector of government-owned firms that are now exchange-listed listed in Hong Kong D) A "state" sector of wholly government-owned businesses E) China's business sectors include each of the above

In modern Japan, collaborative groups of vertically and horizontally integrated companies with extensive cross-holdings of each others' shares and with a major Japanese bank or corporation at the center are called ______. A) gaijin B) keiretsu C) wasabi D) zaibatsu E) None of the above

Hostile acquisitions conducted through the financial markets are most common in ______. A) China B) Germany C) Japan D) Mexico E) the United Kingdom

Barriers against hostile foreign acquisitions of firms in Japanese keiretsu include ______. A) exchanges of employees between companies B) inter-linked supervisory boards C) reciprocal share cross-holdings with other business partners D) Three of the above E) Two of the above

The strongest barrier against hostile foreign acquisitions of German companies is from ______. A) a cultural aversion to hostile and aggressive social behavior B) a requirement that foreign bidders notify the European Union of their intended purchase C) reciprocal share cross-holdings with other corporations D) the German predilection for order and cleanliness E) the structure of the supervisory board

Large, family-controlled businesses are most commonly found in _______. A) China B) Germany C) Japan D) Mexico E) the United States

Who usually wins in domestic U.S. takeovers? A) managers of the target firm B) shareholders of the acquiring firm C) shareholders of the target firm D) Three of the above E) Two of the above

In less-competitive domestic M&A markets, winners often include which of a) through c)? A) managers of the target firm B) shareholders of the acquiring firm C) shareholders of the target firm D) Three of the above E) Two of the above

Empirical evidence from cross-border acquisitions suggests that the gain to shareholders of acquiring firms is ______. A) negatively related to the profitability of the acquiring firm B) negatively related to the profitability of the target firm C) positively related to the profitability of the acquiring firm D) positively related to the profitability of the target firm E) independent of the profitability of the acquiring and target firms

The level of domestic acquisitions of foreign firms is ______. A) negatively related to the real value of the domestic currency B) positively related to the real value of the domestic currency C) negatively related to the level of domestic interest rates D) negatively related to the level of foreign interest rates E) None of the above

The level of domestic acquisitions of foreign firms is ______. A) negatively related to the real value of the domestic currency B) positively related to the real value of the domestic currency C) negatively related to the level of domestic interest rates D) negatively related to the level of foreign interest rates E) None of the above