Ch004-Corporate-Governance-Around-the-World资料讲解
Corporate Governance 公司治理
Corporate Governance 公司治理本文由高顿ACCA整理发布，转载请注明出处Corporate governance involves risk management and internal control, accountability to stakeholders and conducting business in an effective and ethical way.By definition, corporate governance is the system by which organizations are directed and controlled, nowadays, more and more companies put more efforts on the corporate governance. Here there are several key elements in corporate governance: Good governance provides a framework for an organization to pursue its strategy in an ethical and effective way from the perspective of all stakeholder group affected, and offers safeguards against misuse of resources, physical or intellectual. The stakeholder groups include customers, suppliers, shareholders, employees and other interested parties. They want to cooperate with or work for a company which is ethical and socially responsible.The management and reduction of risk is a fundamental issue in all definitions of good governance. Risk management should b e embedded into company’s culture and become everyday’s work, risk may not be eliminated entirely, and it could only be reduced to some extent. Meanwhile, risk may change significantly when environment changes.Corporate governance codes of good practice generally cover the following areas: The board should be responsible for taking major policy and strategic decisions; directors should have a mix of skills and their performance should be assessed regularly; appointments should be conducted by formal procedures administered by a nomination committee; audit committees of independent non-executive directors should liaise with external audit, supervise internal audit, and review the annual accounts and internal controls; the board should maintain a regular dialogue with shareholders, particularly institutional shareholders. The annual general meeting is the most significant forum for communication; annual reports must convey a fair and balanced view of the organization. They should state whether the organization has complied with governance regulations and codes and give specific disclosures about the board, internal control reviews, going concern status and relations with stakeholders.更多ACCA资讯请关注高顿ACCA官网：。
CHAPTER 4 CORPORATE GOVERNANCE AROUND THE WORLD
CHAPTER 4 CORPORATE GOVERNANCE AROUND THE WORLDSUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQuestions1.The majority of major corporations are franchised as public corporations. Discuss thekey strength and weakness of the …public corporation‟. When do you think the public corporation as an organizational form is unsuitable?Answer: The key strength of the public corporation lies in that it allows for efficient risk sharing among investors. As a result, the public corporation may raise a large sum of capital at a relatively low cost. The main weakness of the public corporation stems from the conflicts of interest between managers and shareholders.2.The public corporation is owned by multitude of shareholders but managed byprofessional managers. Managers can take self-interested actions at the expense of shareholders. Discuss the conditions under which the so-called agency problem arises.Answer: The agency problem arises when managers have control rights but insignificant cash flow rights. This wedge between control and cash flow rights motivates managers to engage in self-dealings at the expense of shareholders.3.Following corporate scandals and failures in the U.S. and abroad, there is a growingdemand for corporate governance reform. What should be the key objectives ofcorporate governance reform? What kind of obstacles can there be thwarting reform efforts?Answer: The key objectives of corporate governance reform should be to strengthen shareholder rights and protect shareholders from expropriation by corporate insiders, whethermanagers or large shareholders. Controlling shareholders or managers do not wish to lose their control rights and thus resist reform efforts.4.Studies show that the legal protection of shareholder rights varies a great deal acrosscountries. Discuss the possible reasons why the English common law traditionprovides the strongest and the French civil law tradition the weakest protection ofinvestors.Answer: In civil law countries, the state historically has played an active role in regulating economic activities and has been less protective of property rights. In England, control of the court passed from the crown to the parliament and property owners in seventeenth century. English common law thus became more protective of property owners, and this protection was extended to investors over time.5.Explain …the wedge‟ between the control and cash flow rights and discuss its implicationsfor corporate governance.Answer: When there is a separation of ownership and control, managers have control rights with insignificant cash flow rights, whereas shareholders have cash flow rights but no control rights. This wedge gives rise to the conflicts of interest between managers and shareholders. The wedge is the source of the agency problem.6.Discuss different ways that dominant investors use to establish and maintain the controlof the company with relatively small investments.Answer: Dominant investors may use: (i) shares with superior voting rights, (ii) pyramidal ownership structure, and (iii) inter-firm cross-holdings.7.The Cadbury Code of the Best Practice adopted in the United Kingdom led to asuccessful reform of corporate governance in the country. Explain the key requirements of the Code and discuss how it may have contributed to the success of reform.Answer: The Code requires that chairman of the board and CEO be held by two different individuals, and that there should be at least three outside board members. The recommended board structure helped to strengthen the monitoring function of the board and reduce the agency problem.8.Many companies grant stocks or stock options to the managers. Discuss the benefitsand possible costs of using this kind of incentive compensation scheme.Answer: Stock options can be useful for aligning the interest of managers with that of shareholders and reduce the wedge between managerial control rights and cash flow rights. But at the same time, stock options may induce managers to distort investment decisions and manipulate financial statements so that they can maximize their benefits in the short run.9.It has been shown that foreign companies listed in the U.S. stock exchanges are valuedmore than those from the same countries that are not listed in the U.S. Explain the reasons why U.S.-listed foreign firms are valued more than those which are not. Also explain why not every foreign firm wants to list stocks in the United States.Answer: Foreign companies domiciled in countries with weak investor protection can bond themselves credibly to better investor protection by listing their stocks in U.S. exchanges that are known to provide a strong investor protection. Managers of some companies may not wish to list shares in U.S. exchanges, subjecting themselves to stringent disclosure and monitoring, for fear of losing their control rights and private benefits.10.Explain “free cash flows.” Why do managers like to retain free cash flows instead ofdistributing it to shareholders? Discuss what mechanisms may be used to solve this problem?Answer: Free cash flow represents a firm‟s internally generated fund in excess of the amount needed to undertake all profitable investment projects. Managers may want to keep free cash flows to undertake unprofitable projects at the expense of shareholders to benefit themselves. Having some debt can impose disciplining effect on the managers and induce them to reduce waste of firm‟s resources.。
corporate governance
Corporate governanceCorporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include labor(employees), customers, creditors (e.g., banks, bond holders), suppliers, regulators, and the community at large.Corporate governance is a multi-faceted subject.[1]An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that tryto reduce or eliminate the principal-agent problem. A related but separate thread of discussions focuses on the impact of a corporate governance system in economic efficiency, with a strong emphasis shareholders' welfare. There are yet other aspects to the corporate governance subject, such as the stakeholder view and the corporate governance models around the worldDefinitionIn A Board Culture of Corporate Governance business author Gabrielle O'Donovan defines corporate governance as 'an internal system encompassing policies, processes and people, which serves the needs of shareholders and other stakeholders, by directing and controlling management activities with good business savvy, objectivity, accountability and integrity. Sound corporategovernance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes'.O'Donovan goes on to say that 'the perceived quality of a company's corporate governance can influence its share price as well as the cost of raising capital. Quality is determined by the financial markets, legislation and other external market forces plus how policies and processes are implemented and how people are led. External forces are, to a large extent, outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture. To date, too much of corporate governance debate has centred on legislative policy, to deterfraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause.'[2]It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders, creditors, employees, customers and suppliers, and complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.Report of SEBI committee (India) on Corporate Governance defines corporate governance as the acceptance by management of the inalienable rights of shareholders as the true owners of the corporation and of their own role as trustees on behalf of the shareholders. It is about commitment to values, about ethical business conduct and about making a distinction between personal& corporate funds in the management of a company.” The definition is drawn from the Gandhian principle of trusteeship and the Directive Principles of the Indian Constitution. Corporate Governance is viewed as ethics and a moral duty.Role of Institutional InvestorsMany years ago, worldwide, buyers and sellers of corporation stocks were individual investors, such as wealthy businessmen or families, who often had a vested, personal and emotional interest in the corporations whose shares they owned. Over time, markets have become largely institutionalized: buyers and sellers are largely institutions (e.g., pension funds, mutual funds, hedge funds, exchange traded funds, other investor groups; insurance companies, banks, brokers, and other financial institutions).The rise of the institutional investor has brought with it some increase of professional diligence which has tended to improve regulation of the stock market (but not necessarily in the interest of the small investor or even of the naïve institutions, of which there are many). Note that this process occurred simultaneously with the direct growth of individuals investing indirectly in the market (for example individuals have twice as much money in mutual funds as they do in bank accounts). However this growth occurred primarily by way of individuals turning over their funds to 'professionals' to manage, such as in mutual funds. In this way, the majority of investment now is described as "institutional investment" even though the vast majority of the funds are for the benefit of individual investors.Program trading, the hallmark of institutional trading, averaged over 80% of NYSE trades in some months of 2007. (Moreover, these statistics do not reveal the full extent of the practice, because of so-called 'iceberg' orders. See Quantity and display instructions under last reference.)Unfortunately, there has been a concurrent lapse in the oversight of large corporations, which are now almost all owned by large institutions. The Board of Directors of large corporations used to be chosen by the principal shareholders, who usually had an emotional as well as monetary investment in the company (think Ford), and the Board diligently kept an eye on the company and its principal executives (they usually hired and fired the President, or Chief Executive Officer— CEO).A recent study by Credit Suisse found that companies in which "founding families retain a stake of more than 10% of the company's capital enjoyed a superior performance over their respective sectorial peers."Since 1996, this superior performance amounts to 8% per year.Forget the celebrity CEO. "Look beyond Six Sigma and the latest technology fad. One of the biggest strategic advantages a company can have, [BusinessWeek has found], is blood lines."In that last study, "BW identified five key ingredients that contribute to superior performance. Not all are qualities unique to enterprises with retained family interests. But they do go far to explain why it helps to have someone at the helm—or active behind the scenes—who has more than a mere paycheck and the prospect of a cozy retirement at stake." See also, "Revolt in the Boardroom," by Alan Murray.Nowadays, if the owning institutions don't like what the President/CEO is doing and they feel that firing them will likely be costly (think "golden handshake") and/or time consuming, they will simply sell out their interest. The Board is now mostly chosen by the President/CEO, and may be made up primarily of their friends and associates, such as officers of the corporation or business colleagues. Since the (institutional) shareholders rarely object, the President/CEO generally takes the Chair of the Board position for his/herself (which makes it much more difficult for the institutional owners to "fire" him/her). Occasionally, but rarely, institutional investors support shareholder resolutions on such matters as executive pay and anti-takeover, aka, "poison pill" measures. Finally, the largest pools of invested money (such as the mutualfund 'Vanguard 500', or the largest investment management firm for corporations, State Street Corp.) are designed simply to invest in a very large number of different companies with sufficient liquidity, based on the idea that this strategy will largely eliminate individual company financial or other risk and, therefore, these investors have even less interest in a particular company's governance.Since the marked rise in the use of Internet transactions from the 1990s, both individual and professional stock investors around the world have emerged as a potential new kind of major (short term) force in the direct or indirect ownership of corporations and in the markets: the casual participant. Even as the purchase of individual shares in any one corporation by individual investors diminishes, the sale of derivatives(e.g., exchange-traded funds(ETFs), Stockmarket index options[7], etc.) has soared. So, the interests of most investors are now increasingly rarely tied to the fortunes of individual corporations.But, the ownership of stocks in markets around the world varies; for example, the majority of the shares in the Japanese market are held by financial companies and industrial corporations (there is a large and deliberate amount of cross-holding among Japanese keiretsu corporations and within S. Korean chaebol'groups') [8], whereas stock in the USA or the UK and Europe are much more broadly owned, often still by large individual investors.Parties to corporate governanceParties involved in corporate governance include the regulatory body (e.g. the Chief Executive Officer, the board of directors,management and shareholders). Other stakeholders who take part include suppliers, employees, creditors, customers and the community at large.In corporations, the shareholder delegates decision rights to the manager to act in the principal's best interests. This separation of ownership from control implies a loss of effective control by shareholders over managerial decisions. Partly as a result of this separation between the two parties, a system of corporate governance controls is implemented to assist in aligning the incentives of managers with those of shareholders. With the significant increase in equity holdings of investors, there has been an opportunity for a reversal of the separation of ownership and control problems because ownership is not so diffuse.A board of directors often plays a key role in corporate governance. It is their responsibility to endorse the organisation's strategy, develop directional policy, appoint, supervise and remunerate senior executives and to ensure accountability of the organisation to its owners and authorities.The Company Secretary, known as a Corporate Secretary in the US and often referred to as a Chartered Secretary if qualified by the Institute of Chartered Secretaries and Administrators (ICSA), is a high ranking professional who is trained to uphold the highest standards of corporate governance, effective operations, compliance and administration.All parties to corporate governance have an interest, whether direct or indirect, in the effective performance of the organisation.Directors, workers and management receive salaries, benefits and reputation, while shareholders receive capital return. Customers receive goods and services; suppliers receive compensation for their goods or services. In return these individuals provide value in the form of natural, human, social and other forms of capital.A key factor is an individual's decision to participate in an organisation e.g. through providing financial capital and trust that they will receive a fair share of the organisational returns. If some parties are receiving more than their fair return then participants may choose to not continue participating leading to organizational collapse.PrinciplesKey elements of good corporate governance principles includehonesty, trust and integrity, openness, performance orientation, responsibility and accountability, mutual respect, and commitment to the organization.Of importance is how directors and management develop a model of governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports.Commonly accepted principles of corporate governance include:Rights and equitable treatment of shareholders: Organizations should respect the rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercisetheir rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings.∙Interests of other stakeholders: Organizations should recognize that they have legal and other obligations to all legitimate stakeholders.∙Role and responsibilities of the board: The board needs a range of skills and understanding to be able to deal with various business issues and have the ability to review and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfill its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors.∙Integrity and ethical behaviour: Ethical and responsible decision making is not only important for public relations, but it is also a necessary element in risk management and avoiding lawsuits. Organizations should develop a code of conduct for their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that reliance by a company on the integrity and ethics of individuals is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries.∙Disclosure and transparency: Organizations should clarify and make publicly known the roles and responsibilities of board and management to provide shareholders with a level ofaccountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organization should be timely and balanced to ensure that all investors have access to clear, factual information.Issues involving corporate governance principles include:∙internal controls and the independence of the entity's auditors ∙oversight and management of risk∙oversight of the preparation of the entity's financial statements ∙review of the compensation arrangements for the chief executive officer and other senior executives∙the resources made available to directors in carrying out theirduties∙the way in which individuals are nominated for positions on the board∙dividend policyNevertheless "corporate governance," despite some feeble attempts from various quarters, remains an ambiguous and often misunderstood phrase. For quite some time it was confined only to corporate management. That is not so. It is something much broader, for it must include a fair, efficient and transparent administration and strive to meet certain well defined, written objectives. Corporate governance must go well beyond law. The quantity, quality and frequency of financial and managerial disclosure, the degree and extent to which the board of Director(BOD) exercise their trustee responsibilities (largely an ethical commitment), and the commitment to run a transparent organization- these should be constantly evolving due to interplay of many factors and the roles played by the more progressive/responsible elements within the corporate sector. In India, a strident demand for evolving a code of good practices by the corporation, written by each corporation management, is emerging.Mechanisms and controlsCorporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example, to monitor managers' behaviour, an independent third party (the auditor) attests the accuracy ofinformation provided by management to investors. An ideal control system should regulate both motivation and ability.Internal corporate governance controlsInternal corporate governance controls monitor activities and then take corrective action to accomplish organisational goals. Examples include:Monitoring by the board of directors: The board of directors, with its legal authority to hire, fire and compensate top management, safeguards invested capital. Regular board meetings allow potential problems to be identified, discussed and avoided. Whilst non-executive directors are thought to be more independent, they may not always result in more effective corporate governance and may not increase performance.[5]Different board structures are optimal for different firms. Moreover, the ability of the board to monitor the firm's executives is a function of its access to information. Executive directors possess superior knowledge of the decision-making process and therefore evaluate top management on the basis of the quality of its decisions that lead to financial performance outcomes, ex ante. It could be argued, therefore, that executive directors look beyond the financial criteria.Balance of power: The simplest balance of power is very common; require that the President be a different person from the Treasurer. This application of separation of power is further developed in companies where separate divisions check and balance each other's actions. One group may proposecompany-wide administrative changes, another group review and can veto the changes, and a third group check that the interests of people (customers, shareholders, employees) outside the three groups are being met.Remuneration: Performance-based remuneration is designed to relate some proportion of salary to individual performance. It may be in the form of cash or non-cash payments such as shares and share options, superannuation or other benefits. Such incentive schemes, however, are reactive in the sense that they provide no mechanism for preventing mistakes or opportunistic behaviour, and can elicit myopic behaviour.External corporate governance controlsExternal corporate governance controls encompass the controlsexternal stakeholders exercise over the organisation. Examples include:∙competition∙debt covenants∙demand for and assessment of performance information (especially financial statements)∙government regulations∙managerial labour market∙media pressure∙takeoversSystemic problems of corporate governance∙Demand for information: A barrier to shareholders using good information is the cost of processing it, especially to a smallshareholder. The traditional answer to this problem is the efficient market hypothesis(in finance, the efficient market hypothesis (EMH) asserts that financial markets are efficient), which suggests that the small shareholder will free ride on the judgements of larger professional investors.∙Monitoring costs: In order to influence the directors, the shareholders must combine with others to form a significant voting group which can pose a real threat of carrying resolutions or appointing directors at a general meeting.∙Supply of accounting information: Financial accounts form a crucial link in enabling providers of finance to monitor directors. Imperfections in the financial reporting process will cause imperfections in the effectiveness of corporate governance. Thisshould, ideally, be corrected by the working of the external auditing process.Role of the accountantFinancial reporting is a crucial element necessary for the corporate governance system to function effectively. Accountants and auditors are the primary providers of information to capital market participants. The directors of the company should be entitled to expect that management prepare the financial information in compliance with statutory and ethical obligations, and rely on auditors' competence.Current accounting practice allows a degree of choice of method in determining the method of measurement, criteria for recognition, and even the definition of the accounting entity. The exercise of thischoice to improve apparent performance (popularly known as creative accounting) imposes extra information costs on users. In the extreme, it can involve non-disclosure of information.One area of concern is whether the accounting firm acts as both the independent auditor and management consultant to the firm they are auditing. This may result in a conflict of interest which places the integrity of financial reports in doubt due to client pressure to appease management. The power of the corporate client to initiate and terminate management consulting services and, more fundamentally, to select and dismiss accounting firms contradicts the concept of an independent auditor. Changes enacted in the United States in the form of the Sarbanes-Oxley Act (in response to the Enron situation as noted below) prohibit accounting firms fromproviding both auditing and management consulting services. Similar provisions are in place under clause 49 of SEBI Act in India. The Enron collapse is an example of misleading financial reporting. Enron concealed huge losses by creating illusions that a third party was contractually obliged to pay the amount of any losses. However, the third party was an entity in which Enron had a substantial economic stake. In discussions of accounting practices with Arthur Andersen, the partner in charge of auditing, views inevitably led to the client prevailing.However, good financial reporting is not a sufficient condition for the effectiveness of corporate governance if users don't process it, or if the informed user is unable to exercise a monitoring role due to high costs .。
CHAPTER-4-CORPORATE-GOVERNANCE-AROUND-THE-WORLD说课讲解
CHAPTER 4 CORPORATE GOVERNANCE AROUND THE WORLDSUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQuestions1.The majority of major corporations are franchised as public corporations. Discuss thekey strength and weakness of the ‘public corporation’. When do you think the public corporation as an organizational form is unsuitable?Answer: The key strength of the public corporation lies in that it allows for efficient risk sharing among investors. As a result, the public corporation may raise a large sum of capital at a relatively low cost. The main weakness of the public corporation stems from the conflicts of interest between managers and shareholders.2.The public corporation is owned by multitude of shareholders but managed byprofessional managers. Managers can take self-interested actions at the expense of shareholders. Discuss the conditions under which the so-called agency problem arises.Answer: The agency problem arises when managers have control rights but insignificant cash flow rights. This wedge between control and cash flow rights motivates managers to engage in self-dealings at the expense of shareholders.3.Following corporate scandals and failures in the U.S. and abroad, there is a growingdemand for corporate governance reform. What should be the key objectives ofcorporate governance reform? What kind of obstacles can there be thwarting reform efforts?Answer: The key objectives of corporate governance reform should be to strengthen shareholder rights and protect shareholders from expropriation by corporate insiders, whethermanagers or large shareholders. Controlling shareholders or managers do not wish to lose their control rights and thus resist reform efforts.4.Studies show that the legal protection of shareholder rights varies a great deal acrosscountries. Discuss the possible reasons why the English common law traditionprovides the strongest and the French civil law tradition the weakest protection ofinvestors.Answer: In civil law countries, the state historically has played an active role in regulating economic activities and has been less protective of property rights. In England, control of the court passed from the crown to the parliament and property owners in seventeenth century. English common law thus became more protective of property owners, and this protection was extended to investors over time.5.Explain ‘the wedge’ between the control and cash flow rights and discuss its implicationsfor corporate governance.Answer: When there is a separation of ownership and control, managers have control rights with insignificant cash flow rights, whereas shareholders have cash flow rights but no control rights. This wedge gives rise to the conflicts of interest between managers and shareholders. The wedge is the source of the agency problem.6.Discuss different ways that dominant investors use to establish and maintain the controlof the company with relatively small investments.Answer: Dominant investors may use: (i) shares with superior voting rights, (ii) pyramidal ownership structure, and (iii) inter-firm cross-holdings.7.The Cadbury Code of the Best Practice adopted in the United Kingdom led to asuccessful reform of corporate governance in the country. Explain the key requirements of the Code and discuss how it may have contributed to the success of reform.Answer: The Code requires that chairman of the board and CEO be held by two different individuals, and that there should be at least three outside board members. The recommended board structure helped to strengthen the monitoring function of the board and reduce the agency problem.8.9.Many companies grant stocks or stock options to the managers. Discuss the benefitsand possible costs of using this kind of incentive compensation scheme.Answer: Stock options can be useful for aligning the interest of managers with that of shareholders and reduce the wedge between managerial control rights and cash flow rights. But at the same time, stock options may induce managers to distort investment decisions and manipulate financial statements so that they can maximize their benefits in the short run.10.It has been shown that foreign companies listed in the U.S. stock exchanges are valuedmore than those from the same countries that are not listed in the U.S. Explain the reasons why U.S.-listed foreign firms are valued more than those which are not. Also explain why not every foreign firm wants to list stocks in the United States.Answer: Foreign companies domiciled in countries with weak investor protection can bond themselves credibly to better investor protection by listing their stocks in U.S. exchanges that are known to provide a strong investor protection. Managers of some companies may not wish to list shares in U.S. exchanges, subjecting themselves to stringent disclosure and monitoring, for fear of losing their control rights and private benefits.11.Explain “free cash flows.” Why do managers like to retain free cash flows instead ofdistributing it to shareholders? Discuss what mechanisms may be used to solve this problem?Answer: Free cash flow represents a firm’s internally generated fund in excess of the amount needed to undertake all profitable investment projects. Managers may want to keep free cash flows to undertake unprofitable projects at the expense of shareholders to benefit themselves. Having some debt can impose disciplining effect on the managers and induce them to reduce waste of firm’s resources.。
Corporate Governance Hong Kong - New York University公司治理香港-纽约大学
Presented by: Heidi Sehrt Ryan Mackenzie Dana Gayeski
Alexandra Commelin
A. Commelin, D. Gayeski, R. Mackenzie, H. Sehrt
Agenda
A. Commelin, D. Gayeski, R. Mackenzie, H. Sehrt
P/E (ttm): 21.63
EPS (ttm): 1.01
Div & Yield: 0.70 (3.19%)
Esprit Holdings Limited
• Core markets in 40 countries, in all 5 continents • Acquired WW Esprit trademark rights (Esprit de
Achievements of Success
• Jun 2003: Best Company Investment Report in the consumer industry in Asia
• May 2003: Best Corporate Governance and Best Financial Mgmt in HK (no.8)
• What is corporate governance? • Hong Kong background and trends • An example of poor corporate governance • An example of good corporate governance • Recommendations • Q&A
CorporateGovernanceReputationManagement公司治理和声誉管理
Highlight of the Code
Duties of the Board ➢ Ensuring the integrity of financial reports. ➢ Ensuring that ethical standard are
maintained. ➢ Ensuring compliance with the law of
1111
Highlight of the Code
Duties of the Board ➢ The board must observe the highest
ete the framework for
delegation of authority. ➢ The board shall identify risk and monitor
77
NIGERIA cont.
➢ A major multinational soap company also admitted that it sent a false financial report to the Stock Exchange.
➢ Central Bank of Nigeria sent five Bank Chief Executives & their director packing over corporate governance issues.
➢ To improve corporate governance and ensure highest standard of transparency and accountability. The Security & Exchange in September 2008 inaugurated a National Committee for the Review of the 2003 code of corporate governance for the public companies in Nigeria
Corporate Governance and the Financial Crisis
The OECD Steering Group Action Plan: The Agenda
In April 2009, the Steering Group adopted an action plan based on two pillars:
– establishing a set of recommendations in the specific areas of corporate governance where they found the most relevant implementation gaps of the principles (to be published as a self-standing commentary to the Principles)
Corporate Governance and the Financial Crisis
Daniel Blume, OECD Corporate Affairs Division 10 November, 2009 Rio de Janeiro, Brazil
The role of Corporate Governance in the Crisis: the evidence
Last week, Steering Group considered 34 specific “implementation guidance” recommendations
– developing better and systematic mechanisms for peer review and peer dialogue
The role of Corporate Governance in the Crisis: the analytical framework
Corporate Governance Around the World
Governance and the Public Corporation: Key Issues
A key weakness is the conflict of interest between managers and shareholders.
In principle, shareholders elect a board of directors, who in turn hire and fire the managers who actually run the company.
McGraw-Hill/Irwin
4-1
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Governance and the Public Corporation: Key Issues
The public corporation, which is jointly owned by a multitude of shareholders protected with limited liability, is a major organizational innovation of vast economic consequences.
not have the time to devote to making the
numerous decisions at each of his many companies
anyway.
McGraw-Hill/Irwin
4-5
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Corporate Governance and Firm Value
.Corporate Governance and Firm Value:The Case of VenezuelaUrbi Garay and Maximiliano González*ABSTRACTManuscript Type:EmpiricalResearch Question/Issue:We examine the relationship between corporate governance andfirm value,and evaluate the relatively understudied governance practices in Venezuela.Research Findings/Results:We construct a corporate governance index(CGI)for publicly-listedfirms that is free of self-selection and self-reported bias andfind that its mean value is below the emerging market average in general,and below the Latin American average in particular.This weak investor protection environment makes Venezuela a good setting to study how corporate governance practices affectfirm value.We show that an increase of1per cent in the CGI results in an average increase of11.3per cent in dividend payouts,9.9per cent in price-to-book,and2.7per cent in Tobin’s Q.These findings are robust after considering the potential endogeneity of our regression variables.Theoretical Implications:Results contrast to those reported in the US due to the higher interfirm variations in CGI.Our findings are consistent with the theoretical models that relate good corporate governance practices to higher investor confidence,and with the agency model of dividend payout.Furthermore,we conjecture that our results are generalizable mainly to other countries where investor protection is low.Practical Implications:Two direct insights to policy makers and practitioners follow from our analysis:first,managers in weak investor protection environments could differentiate theirfirms adopting corporate policies to improve their gover-nance structure;and second,our measure of governance practices gives investors a quantitative tool to better assess Venezuelanfirms.Keywords:Corporate governance rating/index,corporate performance,South AmericaINTRODUCTIONM ore companies in a growing number of countries are increasingly attempting to adopt better corporate governance practices.In the case of Latin America,the Andean Development Corporation(Corporación Andina de Fomento–CAF)recently presented an outline for a corporate governance Andean Code(CAF,2005).Furthermore,the larger companies of the region,especially those that belong to thefinancial sector,are in the process of adopting other international codes of best corporate governance practices, such as the Sarbanes-Oxley Act and the Principles of Corporate Governance developed by the Organization for Economic Co-operation and Development(OECD,1999).It is not difficult to predict that the success or failure of these initiatives will depend on the real impact that they may have on thefinancial performance and market valuation of the companies that adopt them.La Porta,López-de-Silanes,Shleifer and Vishny(1997, 1998,2000a)show that the legal framework thatfirms and investors face differs significantly around the world,in part,because of differences in legal origin.They argue that investors are less protected in French Civil Law countries, compared with countries from the Common Law origin. All countries in Latin America have the same legal origin, which is French Civil Law.They alsofind that Latin American countries perform even worse than the average French Civil Law countries in terms of investor rights,and argue that this helps explain the low level offinancial development and the small size of stock exchanges of these countries.Chong and López-de-Silanes(2007)confirm thesefindings for a more recent period.Furthermore, according to Djankov,La Porta,López-de-Silanes and*Address for correspondence:Suite11629,6910N.W.50Street,Miami,FL/33166.Tel:5713394999(ext.3369);Email:mgf@.coVolume16Number3May2008©2008The AuthorsJournal compilation©2008Blackwell Publishing Ltddoi:10.1111/j.1467-8683.2008.00680.xShleifer(2008)Venezuela exhibits one of the worst scores in terms of investor protection.The weak investor protection inherent in many Latin American countries offers an opportunity forfirms to dif-ferentiate themselves from the rest and to send strong and credible signals to attract investors by self-adopting good corporate governance practices and policies,thus partially compensating investors for the weak legal environment in which thesefirms operate.Klapper and Love(2004) and Durnev and Kim(2005)show that corporate gover-nance provisions matter more in countries with weak legal protection.We know relatively little about the potential impact that the adoption of corporate governance practices may have on company value in Latin America(see Chong and López-de-Silanes,2007,for a recent review of this evidence).Measur-ing this effect is important for the region because the success or failure of implementing good corporate governance prac-tices may be greater if the market rewards those companies that adopt them.In the case of the US,the empirical evi-dence shows either no effect or an economically small effect.1 Black(2001)argues that perhaps these weak results in the US arise because the variation infirm governance is small given that the minimum quality of corporate governance, which is set by law and by norms,is very high in that country.On the other hand,interfirm governance variation is found to be much larger in Venezuela.This should not come as a surprise,as a country with weaker laws and norms offers a wider range for governance differences between firms and,therefore,the potential for stronger results on the effects of governance onfirm value.Furthermore,even though Venezuela is the fourth largest economy in Latin America(after Brazil,Mexico,and Argentina),relatively little is known about corporate governance practices in this country.In sum,Venezuela represents a very strong case study.We evaluate the current state of corporate governance practices in Venezuela by constructing a corporate gover-nance index(CGI)for allfirms listed in the Caracas Stock Exchange(CSE)as of the end of2004and comparing the results to other emerging and Latin American countries. We then evaluate whetherfirm dividend payout policies, price-to-book multiple,and Tobin’s Q(TQ)are related to our CGI.By undertaking a single country-study approach,we attempt to perform a straightforward empirical test that has the advantage of avoiding some of the potential econometric problems involved in cross-country studies such as the omitted variable bias and the usually high across-firm heterogeneity.In general,wefind a positive and strong relation between our index of corporate governance and the payout ratio, price-to-book multiple,and TQ forfirms in Venezuela.From the composition of the index,wefind that the subindexes on ethics and conflicts of interest,composition and perfor-mance of the board of directors,and shareholders’rights explain much of the cross-sectional difference in payout ratio;on the other hand,the subindex regarding ethics and conflicts of interest can explain much of the results when price-to-book and TQ are used as dependent variables. These results add to the growing literature that supports the idea that in countries with relatively low investor pro-tection,good corporate governance practices and policies could be used as an efficient mechanism forfirms that want to distinguish themselves to attract investors.Although our results are tentative given the small size of the CSE,they passed a series of robustness checks that attempted to tackle, among other potential problems,the issue of endogeneity,a common concern found in this literature.Our paper is similar to Black(2001)and Judge,Naoumova and Koutzevol(2003)who tested the relation between cor-porate governance andfirm value in Russia,a transition economy characterized by weak investor protection.Both papers have a small sample and Russia,like Venezuela,is also a country that scores low in terms of investor protection and exhibits a high interfirm variation in corporate governance practices.Our paper is also related to recent country studies done in Latin America2and especially with Garay and González(2005),who also studied the case of Venezuela.The evidence reported in this paper is important not only for Venezuela but also for other emerging markets in the process of attempting to improve their corporate governance practices.The evidence we show here adds to the growing literature worldwide that indicates thatfirms can differenti-ate themselves by adopting better corporate governance practices and policies.That is,even in a weak investor pro-tection environment,firms can increase their market value by adopting good corporate governance measures.The rest of the paper is organized as follows:first,we review the growing literature on corporate governance and market valuation,concentrating on recent papers that are based on Latin America.Second,we construct a CGI for Venezuela and compare it with other emerging economies and,more importantly,to other Latin American countries. Third,we present the data and conduct our econometric analysis testing the relation between afirm’s dividend payout ratio,price-to-book,and TQ,and our CGI.Fourth, we perform a number of robustness checks to our main findings.In the last section we present the conclusions and policy recommendations,as well as its potential practical applications and suggestions for future studies.LITERATURE REVIEWMany definitions of corporate governance stress the poten-tial conflicts of interest between insiders(managers,boards of directors,and majority shareholders)and outsiders (minority shareholders and creditors)of the company.The set of internal and external mechanisms to balance these conflicts of interest is what it is usually known as corporate governance.The effect that a set of good corporate governance prac-tices may have onfirm’s value is,however,an empirical question.Recently,different studies,trying to measure quantitatively the quality of corporate governance,have created indexes based on legal,accounting,andfirm-level financial information.Gompers,Ishii and Metrick(2003) construct a CGI based on24governance rules for1,500 large USfirms,and show thatfirms with higher corporate governance scores had higherfirm value.La Porta et al.(1997)study a sample of49countries and conclude that countries with legal systems based on CivilVolume16Number3May2008©2008The AuthorsJournal compilation©2008Blackwell Publishing LtdLaw,especially the French legal system,provide less pro-tection to investors and have less developed capital markets,particularly when compared with countries from the Common Law origin.These authors also conclude that dividend policy constitutes an essential tool to reduce agency conflicts to minority investors.3Thesefindings are consistent with the theoretical model presented in La Porta,López-de-Silanes,Shleifer and Vishny,(2002),where the positive effects of good corporate governance practices onfirm valuation are explained by higher investor confidence.This situation lowers the cost of capital and,ultimately,increasesfirm value.Also,these results are consistent with the agency model of dividend payout in the corporate governance framework developed in La Porta,López-de-Silanes,Shleifer and Vishny(2000b). Since the seminal empirical papers of La Porta et al. (1997,1998,2000a)showing that laws that protect investors differ significantly across countries,in part because of dif-ferences in legal origin,the academic focus has shifted to study corporate governance in the international setting.4 Klapper and Love(2004)was among thefirst and more comprehensive papers focusing on corporate governance in emerging ingfirm-level evidence on corporate governance practices for495companies from25emerging markets,they show that better corporate governance is highly correlated with better operating performance and market valuation.Many country-studies have used a methodology that is very similar to that of Klapper and Love(2004).For example, Black,Jang and Kim(2006a)constructed a CGI for South Korea;and Black(2001)and Black,Love and Rachinsky (2006b)both studied how their CGI affectsfirm value in Russia.The empirical evidence for Latin America has also grown rapidly in recent years.Leal and Carvalhal-da-Silva (2005)studied Brazil,Chong and López-de-Silanes(2006) studied Mexico,Lefort and Walker(2005)studied Chile, and Garay and González(2005)studied Venezuela.All these papers show that,on average,a good set of corporate gover-nance practices and policies is positively related tofirm value. Thesefindings in Latin America are especially important because the weak investor protection inherent in this region offers an opportunity forfirms to differentiate themselves to attract investors by self-adopting good corporate gover-nance practices.Easterbrook and Fischer(1991)argue that firms themselves,when it is optimal to do so,could offer private contracts with better terms than can be offered by the rigid legal system.In the same manner,Diamond(1989, 1991)presents a theoretical discussion of the effects of a firm’s reputation on its access to externalfinancing,and Coffee(1999)argues for a“global convergence”in corporate governance that is independent of the local legal environ-ment.Empirically,Klapper and Love(2004)and Durnev and Kim(2005)find that corporate governance practices play a more important role in countries where legal protection is weak.That is,firm-level improvements in corporate governance could,in some way,bypass the obstacles and inefficiencies of a country’s legal system.That makes Venezuela a good setting to corroborate the effect good corporate governance practices have onfirm valuation,given the overall low scores this country exhibits in terms of investors’protection and the high interfirm variation in corporate governance practices observed in this country.This suggests the following hypothesis: Hypothesis1:Better corporate governance practices will be positively related tofirm valuation in Venezuela.This paper is similar to Garay and González(2005)because both papers usefirm-level data for Venezuelan listedfirms. However,the two papers differ in three important aspects. First,we present a more detailed analysis of each of the questions in our CGI and exclude all questions that are not directly applicable to the Venezuelan market.In contrast, Garay and González(2005)used a standard and more general questionnaire that was very similar to the one used by Klapper and Love(2004).Second,we answered the ques-tions directly and therefore our paper is less likely to suffer from self-selection and self-reported bias.Third,here we have directly addressed the endogeneity issue,a typical concern in this type of empirical analysis.Moreover,the focus in Garay and González(2005)was not to test whether corporate governance affects market valuation but iffinan-cial performance somehow affects CEO turnover.Corporate Governance Index(CGI)Most studies onfirm-level evidence on corporate governance practices gather their information using questionnairesfilled by the companies themselves.This methodology presents various potential problems,among others:a low response rate,especially from those companies whose corporate gov-ernance practices are poor(self-selection bias);and,for the firms that do respond to the questionnaire,there is a tendency to present themselves not as they are at the moment when the questionnaire is being completed,but as they want to see themselves in the future(self-report bias).In our paper we follow a different route to construct our CGI.In the same spirit of Leal and Carvalhal-da-Silva(2005),we answer the questions ourselves using publicly available information. From Leal and Carvalhal-da-Silva(2005)’s24questions we ended up with17questions that are applicable to the Venezuelan setting.5Each one of these17questions was answered using publicly available information.We then grouped the questions into four subindexes,namely:infor-mation disclosure(five questions),composition and perfor-mance of the board of directors(five questions),ethics and conflicts of interest(three questions),and shareholders’rights(four questions).We report our results for each sub-index in Table1for the46companies listed in the CSE in the year2004.6The disclosure subindex shows that only19.6per cent of thefirms disclose penalties against management in case of deviating from the corporate governance policy;82.6per cent report their auditedfinancial statements on time;only 17.4per cent use international accounting standards;84.8 per cent hire internationally recognized auditors;and50 per cent disclose information on managerial compensation. The arithmetic mean for this subindex is50.9per cent. According to the composition and performance of the board of directors’subindex,for60.9per cent of thefirms in the sample,the chairman of the board is also the CEO or general manager;56.5per cent have monitoring committees;Volume16Number3May2008©2008The AuthorsJournal compilation©2008Blackwell Publishing LtdTABLE 1Corporate Governance Index (CGI)These questions were answered by the authors for each of the 46Venezuelan firms that were listed in the Caracas Stock Exchange (BVC)in 2004to determine for each firm its CGI.The answer to each question is either “Yes”or “No.”If the answer is “Yes,”we add 1,and if the answer is “No,”we add 0.All answers are based on publicly available information.The primary sources of information are firms’financial statements,bylaws,minutes of meetings,and annual reports available at the CNV .At the end of each question,there are remarks in italics on whether what is stated in the question is stipulated in the Venezuelan Code of Commerce.Arithmetic Affirmative N Questionsmean answersSUBINDEX –DISCLOSURE50.9%1Does the company indicate in its charter,annual reports,or in any other manner,the penalties against the management in case of breach of its desired corporate governance practices?Required by Generally Accepted Auditing Standards.19.6%9/462Does the company present reports of its audited financial statements on time?Required by the CNV.82.6%38/463Does the company use international accounting standards?Required by Generally Accepted Auditing Standards .17.4%8/464Does the company use any recognized auditing firm?Required by the CNV and by Generally Accepted Auditing Standards.84.8%39/465Does the company disclose,in any form whatsoever,the compensation of the general manager and of the board of directors?Required by the CNV.50.0%23/46SUBINDEX –COMPOSITION AND PERFORMANCE OF THE BOARD OF DIRECTORS 54.4%6Are the chairman of the board of directors and the general manager two different people?Not required by any legal instrument.60.9%28/467Does the company have monitoring committees,such as appointment or compensation or auditing committees,or all of these?The auditing committee is established in the Venezuelan Code of Commerce.56.5%26/468Is the board of directors clearly comprised of external directors and possibly independent ones?Stipulated in the Code of Commerce,but not limited to the fact that they be independent.32.6%15/469Is the board of directors comprised of five to nine members,as per recommendation of good international corporate governance practices?Not required by any legal instrument or regulatory entity.73.9%34/4610Is there a permanent auditing committee?Stipulated in the Code of Commerce.47.8%22/46SUBINDEX –EHTICS AND CONFLICTS OF INTEREST39.9%11Is the company free of any penalty or fine for breach of good corporate governance practices or of any rules of the CNV during the last year?CNV rules.82.6%38/4612Taking into account the agreements among shareholders,are the controllingshareholders owners of less than 50%of the voting shares?Not established in any legal instrument or by any regulatory entity.30.4%14/4613Is the capital/voting rights ratio of controlling shareholders higher than 1?Not established in any legal instrument or by any regulatory entity. 6.5%3/46SUBINDEX –SHAREHOLDERS’RIGHTS16.3%14Does the company charter or any other verifiable means facilitate the voting process of the shareholders beyond that established by law?Stipulated in the Code of Commerce.28.3%13/4615Does the company charter guarantee additional voting rights to that established by law?Stipulated in the Code of Commerce.13.0%6/4616Are there pyramidal structures that reduce concentration of control?Not established in any legal instrument or by any regulatory entity.15.2%7/4617Are there agreements among shareholders that reduce concentration of control?Not established in any legal instrument or by any regulatory entity.8.7%4/46AVERAGE CGI (equally weighting the four subindexes)40.3%Source:Comisión Nacional de V alores (CNV),Código de Comercio,.The questionnaire is adapted from Leal and Carvalhal-da-Silva (2005)to the Venezuelan setting.Volume 16Number 3May 2008©2008The AuthorsJournal compilation ©2008Blackwell Publishing Ltd32.6per cent have external directors7;73.9per cent have a board composed of between5to9members;and47.8per cent have a permanent audit committee.The arithmetic mean for this subindex is54.4per cent.The ethics and conflicts of interest’s subindex shows that 82.6per cent of the companies are free from penalties orfines on the part of the regulatory agency(the Comisión Nacional de Valores);there exists a shareholder that controls less than50 per cent of thefirm’s shares in30.4per cent of thefirms in the sample;and in6.5per cent of thefirms,the capital to voting rights ratio of majority shareholders is higher than1. The arithmetic mean for this subindex is39.9per cent. Finally,the shareholders’rights subindex shows that only 28.3per cent of thefirms in the sample facilitate the voting process beyond what is required by law;only13.0per cent have voting rights beyond that required by law;only15.2per cent do not exhibit a pyramidal structure that reduces the concentration of control8;and8.7per cent report special agreements among shareholders that reduce the concentra-tion of control.The arithmetic mean for this subindex is a very low16.3per cent.Taking together these averages,we can conclude that only around half of thefirms in our sample comply with the requirements of the disclosure of the composition and per-formance of the board of directors and more work needs to be done in terms of ethics and conflicts of interest,and, especially,in terms of shareholders’rights.At thefirm level the highest overall CGI was71.7per cent and the lowest was16.7per cent.We found a much larger variation in Venezuelanfirms’corporate governance practices when compared with the US(results are not reported here).The average CGI in the sample is a low40.3per cent.In Table2Panel A we compare our CGI with the results reported by Klapper and Love(2004)who analyzed495firms in25emerging countries,9Lefort and Walker(2005) who studied181firms in Chile,and Leal and Carvalhal-da-Silva(2005)who studied214firms in Brazil.Table2shows that Venezuela is14percentage points below the emerging market average and19percentage points below Chile,which is the leading country in Latin America in terms offinancial development and investor protection(Chong and López-de-Silanes,2007).The Venezuelan average is closer to the one reported for Brazil.In Panel B we summarize the results obtained for each subindex and compare them with the results presented in Garay and González(2005)and in Lefort and Walker(2005) for Venezuela and Chile,respectively.Overall,the CGI we obtained produces a score14percentage points below the CGI reported by Garay and González(2005).As mentioned before,this difference could represent an overestimation on that paper due to the self-selection and self-reported bias generated whenfirms’executives completed the question-naires.Only in the composition and performance of the board of directors(Board)subindex do wefind similar results. We also include in this panel the score reported by Lefort and Walker(2005)for Chile.The CGI for Chile is close to20 percentage points higher than the CGI for Venezuela.Only in the subindex of ethics and conflicts of interest(Ethics)are the scores relatively close.Finally,in Table2Panel C we show the correlation matrix among the subindexes.As expected,all subindexes are posi-tively and significantly related to the overall CGI.Chong and López-de-Silanes(2006)report a similarfinding for Mexico, even though their corporate governance components are not exactly comparable to ours,and Leal and Carvalhal-da-Silva (2005)do not provide a correlation matrix for Brazil.On the other hand,each of our subindexes shows little correlation with the other subindexes(none of the correlation coeffi-cients are statistically different from zero).Interestingly,each subindex seems to be taking into account a different dimen-sion of the overall governance of thefirm.Overall,these results confirm that Venezuela represents a good case study to test whetherfirms can somehow bypass a poor investor protection environment by voluntarily adopt-ing good corporate governance practices.A relatively high CGI is an indicator thatfirms can use to attract investors.We want to verify whether investors in Venezuela recognize this signal by assigning a higher market valuation to suchfirms.DATAHaving shown that Venezuela is a strong case study to test whether corporate governance is related tofirm valuation and dividend payout,in this section we present the depen-dent,independent,and control variables used to formally test our hypothesis.Dependent VariablesWe use three alternative dependent variables to test our hypothesis.First,we use the dividend payout ratio(DPR), which is measured as the quotient between cash dividends and net Porta et al.(2000b)show thatfirms in countries where investors are better protected exhibit higher dividend payouts thanfirms in countries where investors are poorly protected.On the other hand,Black et al.(2006a) and Leal and Carvalhal-da-Silva(2005)do notfind support for this hypothesis in the cases of South Korea and Brazil, respectively.The second dependent variable is the price-to-book ratio (price-to-book value or PBV),measured as the quotient between per share market price and book value.The price-to-book is a valuation measure that has been used in corporate governance studies by authors such as Leal and Carvalhal-da-Silva(2005)for Brazil.Finally,we use the TQ as the third of our dependent variables.This variable was com-puted as the market value of thefirm’s assets(book value of assets-book value of equity+market value of equity) divided by the book value of assets.TQ can be considered the classic valuation measure and has been used extensively in the corporate governance literature(see,for instance, Morck,Shleifer and Vishny,1988;La Porta et al.,2002; Gompers et al.,2003).Information regarding each one of these variables was obtained from the CSE Anuario(2004–yearbook)and corresponds to year-end values.Economatica’s database was also used in some cases to confirm the validity of stock market prices data.Independent VariablesAs we mentioned in the previous section,the CGI was constructed based on17questions pertaining to differentVolume16Number3May2008©2008The AuthorsJournal compilation©2008Blackwell Publishing Ltdcorporate governance practices.We answered these ques-tions for each of the46Venezuelanfirms that were listed in the CSE in2004to determine for eachfirm its CGI.The answer to each question is either“Yes”or“No.”If the answer is “Yes,”we add1and if the answer is“No,”we add0.All answers are based on publicly available information.These17 questions were answered after reviewing eachfirm’sfinan-cial statements,bylaws,minutes of the boards of directors and shareholders’meetings,and annual reports available at the Comisión Nacional de Valores library.TABLE2Comparative AnalysisIn this table we compare our corporate governance index(CGI)to similar studies done in other emerging markets.Panel A presents basic statistics comparing25different emerging markets(Klapper and Love,2004)together with the CGI calculated for Chile(Lefort and Walker,2005)and Brazil(Leal and Carvalhal-da-Silva,2005).Panel B divides the CGI into its four subindexes and compares the values with a similar study for Venezuela(Garay and González,2005)and Chile(Lefort and Walker,2005).Panel C shows the correlation matrix of each of the subindexes(p-values are reported below each correlation coefficient).Panel A:Comparative statistics for the Venezuelan CGI versus other emerging market studiesDescription This paper Klapper and Love(2004)Lefort and Walker(2005)Leal and Carvalhal-da-Silva(2005)Mean40.3454.1158.8641.67 Median40.4754.97NR41.67 Standard deviation12.1114.00NR8.33 Minimum16.6711.77NR16.67 Maximum71.6792.77NR79.17 Country Venezuela25EM Chile Brazil Observations46374181214Source:The above-mentioned papers.All numbers(except the number of observations)are expressed in percentages.EM=Emerging Markets;NR=not reported.Panel B:Comparative subindex for the Venezuelan CGI versus other studies in Venezuela and in ChileThis paper(46firms)Garay and González(2005)Lefort and Walker(2005)Subindex Questions Score(%)Questions Score(%)Questions Score(%) Ethics339.9746.0737.6 Board554.42556.02664.9 Shareholders416.32454.02059.7 Disclosure550.81460.81473.4 Overall CGI1740.37054.36758.9Panel C:Subindex correlation matrixCGI Disclosure Board Ethics ShareholdersCGI1Disclosure0.4110.02Board of directors0.750.2910.000.10Ethics and conflicts of interest0.41-0.120.1210.020.560.53Shareholders’rights0.34-0.27-0.180.0910.050.130.310.64Volume16Number3May2008©2008The AuthorsJournal compilation©2008Blackwell Publishing Ltd。
尤恩版《国际财务管理》第七版教师习题册及答案TBChap004
尤恩版《国际财务管理》第七版教师习题册及答案TBChap004Chapter 04Corporate Governance Around the World True / False Questions1.Countries with strong shareholder protection tend to have more valuable stock markets and morecompanies listed on stock exchanges per capita than countries with weak protection.True FalseMultiple Choice Questions2.Corporate governance can be defined asA. t he economic, legal, and institutional framework in which corporate control and cash flow rightsare distributed among shareholders, managers and other stakeholders of the company.B. t he general framework in which company management is selected and monitored.C. t he rules and regulations adopted by boards of directors specifying how to managecompanies.D. t he government-imposed rules and regulations affecting corporate management.3.When managerial self-dealings are excessive and left unchecked,A. t hey can have serious negative effects on share values.B. t hey can impede the proper functions of capital markets.C. t hey can impede such measures as GDP growth.D. a ll of the above4.Corporate governance structureA. v aries a great deal across countries.B. h as become homogenized following the integration of capital markets.C. h as become homogenized due to cross-listing of shares of many public corporations.D. n one of the above5.The genius of public corporations stems from their capacity to allow efficient sharing or spreadingof risk among many investors, who can buy and sell their ownership shares on liquid stockexchanges and let professional managers run the company on behalf of shareholders. This risk sharing stems fromA. t he liquidity of the shares.B. t he limited liability of shareholders.C. t he limited liability of bondholders.D. t he limited ability of shareholders.6.In a public company with diffused ownership, the board of directors is entrusted withA. m onitoring the auditors and safeguarding the interests of shareholders.B. m onitoring the shareholders and safeguarding the interests of management.C. m onitoring the management and safeguarding the interests of shareholders.D. n one of the above7.The key weakness of the public corporation isA. t oo many shareholders, which makes it difficult to make corporate decision.B. r elatively high corporate income tax rates.C. c onflicts of interest between managers and shareholders.D. c onflicts of interests between shareholders and bondholders.8.When company ownership is diffuse,A. a "free rider" problem discourages shareholder activism.B. t he large number of shareholders ensures strong monitoring of managerial behavior because with a large enough group, there's almost always someone who will to incur the costs of monitoring management.C. f ew shareholders have a strong enough incentive to incur the costs of monitoring management.D. b oth a and c are correct9.In many countries with concentrated ownershipA. t he conflicts of interest between shareholders and managers are worse than in countries with diffuse ownership of firms.B. t he conflicts of interest are greater between large controlling shareholders and small outside shareholders than between managers and shareholders.C. t he conflicts of interest are greater between managers and shareholders than between large controlling shareholders and small outside shareholders.D. c orporate forms of business organization with concentrated ownership are rare.10.In what country do the three largest shareholders control, on average, about 60 percent of the shares of a public company?A. U nited StatesB. C anadaC. G reat BritainD. I taly11.The public corporationA. i s jointly owned by a (potentially) large number of shareholders.B. o ffers shareholders limited liability.C. s eparates the ownership and control of a firms assets.D. a ll of the above12.The key strengths of the public corporation is/areA. t heir capacity to allow efficient risk sharing among many investors.B. t heir capacity to raise large amounts of funds at relatively low cost.C. t heir capacity to consolidate decision-making.D. a ll of the above13.The central issue of corporate governance isA. h ow to protect creditors from managers and controlling shareholders.B. h ow to protect outside investors from the controlling insiders.C. h ow to alleviate the conflicts of interest between managers and shareholders.D. h ow to alleviate the conflicts of interest between shareholders and bondholders.14.In theory,A. m anagers are hired by the shareholders at the annual stockholders meeting. If the managersturn in a bad year, new ones get hired.B. s hareholders hire the managers to oversee the board of directors.C. m anagers are hired by the board of directors; the board is accountable to the shareholders.D. n one of the above15.In the reality of corporate governance at the turn of this century,A. b oards of directors are often dominated by management-friendly insiders.B. a typical board of directors often has relatively few outside directors who can independentlyand objectively monitor the management.C. m anagers of one firm often sit on the boards of other firms, whose managers are on the boardof the first firm. Due to the interlocking nature of these boards, there can exist a culture of "I'll overlook your problems if you overlook mine."D. a ll of the above have been true to a greater or lesser extent in the recent past.16.The strongest protection for investors is provided byA. E nglish common law countries, such as Canada, the United States, and the U.K.B. F rench civil law countries, such as Belgium, Italy, and Mexico.C. a weak board of directors.D. s ocialized firms.17.The public corporation has a key weakness:A. t he conflicts of interest between bondholders and shareholders.B. t he conflicts of interest between managers and bondholders.C. t he conflicts of interest between stakeholders and shareholders.D. t he conflicts of interest between managers and shareholders.18.The separation of the company's ownership and control,A. i s especially prevalent in such countries as the United States and the United Kingdom, wherecorporate ownership is highly diffused.B. i s especially prevalent in such countries as the Italy and Mexico, where corporate ownership is highly concentrated.C. i s a rational response to the agency problem.D. n one of the above19.In the United States, managers are legally bound by the "duty of loyalty" toA. t he board of directors.B. t he shareholders.C. t he bondholders.D. t he government.20.In the United States, managers are bound by the "duty of loyalty" to serve the shareholders.A. T his is an ethical, not legal, obligation.B. T his is a legal obligation.C. T his is only a moral obligation; there are no penalties.21.Outside the United States and the United Kingdom,A. c oncentrated ownership of the company is more the exception than the rule.B. d iffused ownership of the company is more the exception than the rule.C. p artnerships are more important than corporations.D. n one of the above22.A complete contract between shareholders and managersA. w ould specify exactly what the manager will do under each of all possible future contingencies.B. w ould be an expensive contract to write and a very expensive contract to monitor.C. w ould eliminate any conflicts of interest (and managerial discretion).D. a ll of the above23.Why is it rational to make shareholders "weak" by giving control to the managers of the firm?A. T his may be rational when shareholders may be neither qualified nor interested in making business decisions.B. T his may be rational since many shareholders find it easier to sell their shares in an underperforming firm than to monitor the management.C. T his may be rational to the extent that managers are answerable to the board of directors.D. A ll of the above are explanations for the separation of ownership and control.24.Free cash flow refers toA. a firm's cash reserve in excess of tax obligation.B. a firm's funds in excess of what's needed for undertaking all profitable projects.C. a firm's cash reserve in excess of interest and tax payments.D. a firm's income tax refund that is due to interest payments on borrowing.25.The investors supply funds to the company but are not involved in the company's daily decisionmaking. As a result, many public companies come to haveA. s trong shareholders and weak managers.B. s trong managers and weak shareholders.C. s trong managers and strong shareholders.D. w eak managers and weak shareholders.26.The agency problem refers to the possible conflicts of interest betweenA. s elf-interested managers as principals and shareholders of the firm who are the agents.B. a ltruistic managers as agents and shareholders of the firm who are the principals.C. s elf-interested managers as agents and shareholders of the firm who are the principals.D. d utiful managers as principals and shareholders of the firm who are the agents.27.Self-interested managers may be tempted toA. i ndulge in expensive perquisites at company expense.B. a dopt anti-takeover measures for their company to ensure their personal job security.C. w aste company funds by undertaking unprofitable projects that benefit themselves but notshareholders.D. a ll of the above are potential abuses that self-interested managers may be tempted to visitupon shareholders.28.Suppose in order to defraud the shareholders, a manager sets up an independent company thathe owns sells the main company's output to this company. He would be tempted to set the transfer priceA. b elow market prices.B. a bove market prices.C. a t the market price.D. i n accordance with GAAP.29.Suppose in order to defraud the shareholders, a manager sets up an independent company thathe owns buys one of the main company's inputs of production from this company. He would be tempted to set the transfer priceA. b elow market prices.B. a bove market prices.C. a t the market price.D. i n accordance with GAAP.30.Why do managers tend to retain free cash flow?A. M anagers are in the best position to decide the best use of those funds.B. T hese funds are needed for undertaking profitable projects and the issue costs are less thannew issues of stocks or bonds.C. M anagers may not be acting in the shareholders best interest, and for a variety of reasons, want to use the free cash flow.D. N one of the above31.Managerial entrenchment efforts are clear signs of the agency problem. They includeA. a nti-takeover defenses.B. p oison pills.C. c hanges in the voting procedures to make it more difficult for the firm to be taken over.D. a ll of the above32.In high-growth industries where companies' internally generated funds fall short of profitable investment opportunities,A. m anagers are less likely to waste funds in unprofitable projects.B. m anagers are more likely to waste funds in unprofitable projects.33.The agency problem tendsA. t o be more serious in firms with free cash flows.B. t o be more serious in firms with excessive amounts of excess cash.C. t o be less serious in firms with few numbers of shareholders.D. a ll of the above34.In the graph at right, X, Y, and Z representA. e ntrenchment, alignment, entrenchment.B. a lignment, entrenchment, alignment.C. m isalignment and alignment.D. a gency costs of debt and equity.35.In the graph at right, for Fortune 500 companies, X, Y areA. 5% and 25%.B. 15% and 50%.C. 50% and 75%.D. N one of the above36.Which of the following is true regarding leveraged buy-outs (LBOs)?A. L BOs involve managers or buyout partners acquiring controlling interests in public companies, usually financed by heavy borrowing.B. C oncentrated ownership and high level of debt associated with LBOs are the mechanism for solving the agency problem.C. L BOs improve a company's free cash flow and this is the mechanism by which they can solvethe agency problem.D. B oth a and b37.Tobin's Q isA. t he ratio of the market value of company assets to the replacement costs of the assets.B. a means to find overvalued stocks: if Q is high it means that the cost to replace a firm's assets is greater than the value of its stock.C. t he same as the price-to-book ratio.D. B oth a and b are correct38.It is important for society as a whole to solve the agency problem, since the agency problemA. l eads to waste of scarce resources.B. h ampers capital market functions.C. r etards economic growth.D. a ll of the above39.In the U.S., the chief role of the board of directors isA. t o hire the management team.B. t o decide on the annual capital budget.C. t o design an effective incentive compatible compensation scheme for themselves.D. n one of the above40.In the United Kingdom, the majority of public companiesA. v oluntarily abide by the Code of Best Practice on corporate governance.B. a re compelled by law to abide by the Code of Best Practice on corporate governance.C. d o not abide by the Code of Best Practice on corporate governance.41.In Germany the corporate board isA. l egally charged with representing the interests of shareholders exclusively.B. l egally charged with looking after the interests of stakeholders (e.g., workers, creditors, etc.) in general, not just shareholders.C. l egally charged as a supervisory board only.D. l egally charged as a management board only.42.In the United StatesA. b oards of directors are legally responsible for representing the interests of the shareholders.B. d ue to the diffused ownership structure of the public company, management often gets to choose board members who are likely to be friendly to management.C. t here is a correlation between underperforming firms and boards of directors who are not fully independent.D. a ll of the above are true, in the United States.43.In the United States, it is not uncommon for the same person to serve as both CEO and chairman of the board.A. T his situation must not have much conflict of interest since it is common.B. T his situation has a built-in conflict of interest.C. T his is only legal if that individual owns a controlling number of shares in the firm.D. N one of the above44.Suppose you are the CEO of company A, and you serve on the board of company B, while the CEO of B is on your board.A. T his is a potential conflict of interest for both parties.B. T his is normal and even a desirable situation since it allows for efficient information sharing between the firms.C. T here is a potential conflict for the shareholders of the two firms.D. A ll of the above are true.45.In the United States, it is well documented thatA. b oards dominated by their chief executives are prone to trouble.B. p ublic scrutiny can help improve corporate governance.C. a s public firms improve their corporate governance, the stock price goes up.D. a ll of the above46.The board of directors may grant stock options to managers. These areA. c all options.B. p ut options.C. n one of the above47.If an incentive contract specifies certain accounting performanceA. t hat accounting number will likely be the focus of managers.B. m anagers will set aside the accounting goal if it conflicts with the goal of maximizing shareholder wealth.C. m anagers will be unable to manipulate the GAAP, so shareholders can be confident of having their wealth maximized.48.The board of directors may grant stock options to managers in order toA. s ave executive compensation costs.B. u se as a substitute for bonus.C. a lign the interest of managers with that of shareholders.D. n one of the above49.When designing an incentive contract,A. i t is important for the board of directors to set up an independent compensation committee thatcan carefully design the contract and diligently monitor manager's actions.B. s enior executives can be trusted to not abuse incentive contracts by artificially manipulating accounting numbers since the auditors should look in to that.C. t he presence of any incentive is enough, whether it is accounting based or stock-price based.D. t he board of directors should always give the managers a "heads I win, tails you lose" type of option.50.Concentrated ownership of a public companyA. i s normal in the United States, following the well-publicized scandals of recent years.B. i s relatively rare in the United States and common in many other parts of the world.C. l eads to a free-rider problem with the minority shareholders relying on the majority shareholders to assume an undue burden in monitoring the management.D. i s the norm in Great Britain.51.Concentrated ownership of a public companyA. c an be an effective way to alleviate the agency problem between shareholders and managers.B. i s the norm in Great Britain.C. t ends to be an ineffective way to alleviate conflicts of interest between groups of shareholders.D. n one of the above52.The goal of a greater accounting transparencyA. i s to impose more rules and harsher penalties for their violation.B. i s to reduce the information asymmetry between corporate insiders and the public.C. i s to discourage managerial self-dealings.D. a nswers b and c53.Accounting TransparencyA. c an only be achieved when managers commit to serving on their own audit committee.B. o ccurs when the accounting department has translucent cubicles for their workers.C. p romises to reduce the information asymmetry between corporate insiders and the public.D. n one of the above54.While debt can reduce agency costs between shareholders and management,A. d ebt can create its own agency costs.B. t his only happens at extreme levels of debt.C. t his does not work for firms in mature industries with large cash reserves.D. n one of the above is true55.While debt can reduce agency costs between shareholders and management,A. e xcessive debt may also induce the risk-averse managers to forgo profitable but risky investment projects, causing an underinvestment problem.B. w ith debt financing companies can misuse debt to finance corporate empire building.C. b oth a and bD. n one of the above。
corporate_finance_chapter1
The quality of a corporation’s corporate of governance affects the risks and value of the corporation. Effective, strong corporate governance is essential for the efficient functioning of markets.
Copyright © 2013 CFA Institute
2
2. CORPORATE GOVERNANCE: OBJECTIVES AND GUIDING PRINCIPLES
• There are inherent conflicts of interest in corporations in which the ownership and management are separate. • Objectives of corporate governance:
Copyright © 2013 CFA Institute
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CORPORATION
• A corporation is a legal entity that has rights similar to an individual.
For example, a corporation can enter into contracts. Corporations around the world: Limited Company (U.K.), Gesellschaft (German); SocietéAnonyme (France), 公司 (China); şirket (Turkey); บริษัท (Thailand)
Corporate-governance
Title SheetThe Report QuestionCorporate governance，how a company is run，is becoming an important issue for companies to consider due to numerous recent high—profile corporate failures. As a result, businesses are starting to use a corporate governance statement as a way to communicate their corporate governance practices and promote their ethical credentials to interested parties, such as shareholders. This statement is often incorporated into the company's annual report. To assist with the development of good corporate governance and clear corporate governance statements the ASX Corporate Governance Council has developed a set of principles and recommendations to guide companies。
What is corporate governance and why is it an important issue for companies? Select the principles in the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations that are most relevant to your BABC001 industry。
CORPORATE GOVERNANCE
CORPORATE GOVERNANCECorporate governance is defined by McEally and Kim as the “system of principles, policies, procedures, and clearly defined responsibilities and accountabilities used by stakeholders to overcome conflicts of interest inherent in the corporate form.” Notethat conflicts of interest are most severe in corporation because of the separation of ownership and management (vs. sole proprietorship or partnership), so the focus is on corporate governance in corporations.There are core attributes that all effective corporate governance systems share. An effective corporate governance system will:y Define the rights of shareholders and other important stakeholders.y Define and communicate to stakeholders the oversight responsibilities of managers and directors.y Provide for fair and equitable treatment in all dealing between managers, directors, and shareholders.y Have complete transparency and accuracy in disclosures regarding operations, performance, risk, and financial position.An agency relationship occurs when an individual, who is referred to as the “agent”,acts on the behalf of another individual, who is referred to as the “principal”. Such a relationship creates the potential for a principal-agent problem where the agent mayact for his own well being rather than that of the principal. Corporate governance systems are primarily concerned with potential principal agent problems in two areas:(1) between managers and shareholders and (2) between directors and shareholders. Examples of ways that management may act for its own interests rather than those of shareholders include:y Using funds to expand the size of the firm.y Granting excessive compensation and perquisites.y Investing in risky venturesy Not taking enough riskThe following factors may cause directors to align more closely with managers than shareholders:y Lack of independencey Board members have personal relationships with management.y Board members have consulting or other business agreements with the firm.y Interlinked boards.y Directors may be overcompensated.The following are guidelines for corporate government best practices to remember for the exam:y75% of board members are independent.y CEO and Chairman are separate positions.y Directors are knowledgeable and experienced and serve on only two or three boards.y The board holds annual elections (not staggered elections).y The board is evaluated and assessed annually.y The finance committee includes only independent directors with finance expertise, and the committee meets annually with auditors.y Only independent directors serve on the nominating committee.y Most of senior management’s compensation is tied to performance.y The board uses independent and outside counsel.y The board is required to approve any related-party transactions.The key is to remember the link between valuation and corporate governance. Empirical studies show that:y Strong corporate governance increases profitability and shareholder returns.y Weak corporate governance decrease company value by increasing risk to shareholders.。
acca corporate governance论述
ACCA Corporate GovernanceIntroductionCorporate governance refers to the system of rules, practices, and processes by which a company is directed and controlled. It involves balancing the interests of various stakeholders, such as shareholders, management, customers, suppliers, financiers, government, and the community.The Association of Chartered Certified Accountants (ACCA) has played a significant role in promoting corporate governance globally. Thisarticle aims to discuss the importance of corporate governance and how ACCA contributes to enhancing it.Importance of Corporate Governance1.Protection of Shareholder Rights: Effective corporate governanceensures that shareholders’ rights are protected. It providestransparency in decision-making processes and safeguards againstany abuse of power by management.2.Enhanced Accountability: Good corporate governance promotesaccountability among directors and executives. It establishesmechanisms for reporting financial performance accurately andtransparently to shareholders.3.Risk Management: Corporate governance frameworks help companiesidentify and manage risks effectively. By implementing sound risk management practices, companies can protect their reputation andensure long-term sustainability.4.Ethical Business Practices: Corporate governance encouragesethical behavior within organizations. It sets standards forintegrity, fairness, and responsible business practices.5.Access to Capital: Companies with strong corporate governancepractices are more likely to attract investors and secure capital at favorable terms. Investors have greater confidence in companies with transparent financial reporting and effective risk management systems.6.Long-Term Value Creation: A well-governed company focuses onlong-term value creation rather than short-term gains. By aligning the interests of management with those of shareholders, corporategovernance helps sustain business growth over time.ACCA’s Contribution to Corporate GovernanceACCA actively contributes to enhancing corporate governance through various initiatives:1.Global Advocacy: ACCA is involved in global advocacy effortsaimed at promoting good corporate governance practices worldwide.It works closely with governments, regulators, professional bodies, and other stakeholders to develop and implement effectivegovernance frameworks.2.Professional Qualification: ACCA offers a globally recognizedprofessional qualification that includes corporate governance as a core component. By equipping accountants with the necessary skills and knowledge, ACCA ensures that professionals can contributeeffectively to enhancing corporate governance within organizations.3.Research and Insights: ACCA conducts research on corporategovernance issues and publishes reports to provide valuableinsights to policymakers, regulators, and businesses. Thesereports highlight emerging trends, best practices, and areas forimprovement in corporate governance.4.Training and Development: ACCA provides training programs andcontinuous professional development opportunities for accountantsand professionals involved in corporate governance. These programs help individuals stay updated with the latest developments in thefield and enhance their governance skills.5.Thought Leadership: ACCA actively engages in thought leadershipactivities related to corporate governance. It organizesconferences, seminars, and webinars where experts share theirinsights on various aspects of governance, including boardeffectiveness, risk management, and ethical practices.6.Collaboration with Stakeholders: ACCA collaborates with variousstakeholders, including regulators, standard-setting bodies,professional associations, and industry leaders. Thiscollaboration aims to develop common standards and guidelines for good corporate governance practices.ConclusionCorporate governance plays a crucial role in ensuring the long-term success of companies while protecting the interests of shareholders and other stakeholders. ACCA’s contributions to enhancing corporate governance through advocacy, education, research, training programs, thought leadership activities, and collaboration have been instrumental in promoting good governance practices globally.By equipping professionals with the necessary skills and knowledge, ACCA continues to play a pivotal role in shaping the future of corporate governance worldwide.。
OECD Principles of Corporate Governance
OECD Principlesof CorporateGovernance2004«© OECD, 2004.© Software: 1987-1996, Acrobat is a trademark of ADOBE.All rights reserved. OECD grants you the right to use one copy of this Program for your personal use only. Unauthorised reproduction, lending, hiring, transmission or distribution of any data or software is prohibited. You must treat the Program and associated materials and any elements thereof like any other copyrighted material.All requests should be made to:Head of Publications Service,OECD Publications Service,2, rue André-Pascal,75775 Paris Cedex 16, France.OECD Principlesof Corporate Governance2004ORGANISA TION FOR ECONOMIC CO-OPERA TION AND DEVELOPMENTORGANISATION FOR ECONOMIC CO-OPERATIONAND DEVELOPMENTPursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD) shall promote policies designed:–to achieve the highest sustainable economic growth and employment and a rising standard of living in member countries, while maintaining financial stability, and thus to contribute to the development of the world economy;–to contribute to sound economic expansion in member as well as non-member countries in the process of economic development; and–to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in accordance with international obligations.The original member countries of the OECD are Austria, Belgium, Canada, Denmark, France, Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, T urkey, the United Kingdom and the United States. The following countries became members subsequently through accession at the dates indicated hereafter: Japan (28th April 1964), Finland (28th January 1969), Australia (7th June1971), New Zealand (29th May1973), Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland (22nd November 1996), Korea (12th December 1996) and the Slovak Republic (14th December 2000). The Commission of the European Communities takes part in the work of the OECD (Article 13 of the OECD Convention).Publié en français sous le titre :Principes de gouvernement d’entreprise de l’OCDE2004© OECD 2004Permission to reproduce a portion of this work for non-commercial purposes or classroom use should be obtained through the Centre français d’exploitation du droit de copie (CFC), 20,rue des Grands-Augustins, 75006 Paris, France, tel. (33-1) 44 07 47 70, fax (33-1) 46 34 67 19, for every country except the United States. In the United States permission should be obtained through the Copyright Clearance Center, Customer Service, (508)750-8400, 222 Rosewood Drive, Danvers, MA 01923 USA, or CCC Online: . All other applications for permission to reproduce or translate all or part of this book should be made to OECD Publications, 2, rue André-Pascal, 75775 Paris Cedex 16, France.3© OECD 2004ForewordThe OECD Principles of Corporate Governance were endorsed byOECD Ministers in 1999 and have since become an international benchmark for policy makers, investors, corporations and other stakeholders worldwide. They have advanced the corporate governance agenda and provided specific guidance for legislative and regulatory initiatives in both OECD and non OECD countries. The Financial Stability Forum has designated the Principles as one of the 12 key standards for sound financial systems. The Principles also provide the basis for an extensive programme of co-operation between OECD and non-OECD countries and underpin the corporate governance component of World Bank/IMF Reports on the Observance of Standards and Codes (ROSC).The Principles have now been thoroughly reviewed to take account of recent developments and experiences in OECD member and non-member countries. Policy makers are now more aware of the contribution good corporate governance makes to financial market stability, investment and economic growth. Companies better understand how good corporate governance contributes to their competitiveness. Investors – especially collective investment institutions and pension funds acting in a fiduciary capacity – realise they have a role to play in ensuring good corporate governance practices, thereby underpinning the value of their investments. In today’s economies, interest in corporate governance goes beyond that of shareholders in the performance of individual companies. As companies play a pivotal role in our economies and we rely increasingly on private sector institutions to manage personal savings and secure retirement incomes, good corporate governance is important to broad and growing segments of the population.The review of the Principles was undertaken by the OECD Steering Group on Corporate Governance under a mandate from OECD Ministers in 2002. The review was supported by a comprehensive survey of how member countries addressed the different corporate governance challenges they faced. It also drew on experiences in economies outside the OECD area where the OECD, in co-operation with the World Bank and other sponsors,4 – OECD PRINCIPLES OF CORPORATE GOVERNANCEorganises Regional Corporate Governance Roundtables to support regionalreform efforts.The review process benefited from contributions from many parties.Key international institutions participated and extensive consultations wereheld with the private sector, labour, civil society and representatives fromnon-OECD countries. The process also benefited greatly from the insights ofinternationally recognised experts who participated in two high levelinformal gatherings I convened. Finally, many constructive suggestionswere received when a draft of the Principles was made available for publiccomment on the internet.The Principles are a living instrument offering non-binding standards and good practices as well as guidance on implementation, which can beadapted to the specific circumstances of individual countries and regions.The OECD offers a forum for ongoing dialogue and exchange ofexperiences among member and non-member countries. To stay abreast ofconstantly changing circumstances, the OECD will closely followdevelopments in corporate governance, identifying trends and seekingremedies to new challenges.These Revised Principles will further reinforce OECD’s contribution and commitment to collective efforts to strengthen the fabric of corporategovernance around the world in the years ahead. This work will noteradicate criminal activity, but such activity will be made more difficult asrules and regulations are adopted in accordance with the Principles.Importantly, our efforts will also help develop a culture of values for professional and ethical behaviour on which well functioning marketsdepend. Trust and integrity play an essential role in economic life and forthe sake of business and future prosperity we have to make sure that they areproperly rewarded.Donald J. JohnstonOECD Secretary-General© OECD 20049© OECD 2004 OECD Principles of Corporate GovernanceThe OECD Principles of Corporate Governance were originallydeveloped in response to a call by the OECD Council Meeting at Ministerial level on 27-28 April 1998, to develop, in conjunction with national governments, other relevant international organisations and the private sector, a set of corporate governance standards and guidelines. Since the Principles were agreed in 1999, they have formed the basis for corporate governance initiatives in both OECD and non-OECD countries alike. Moreover, they have been adopted as one of the Twelve Key Standards for Sound Financial Systems by the Financial Stability Forum. Accordingly, they form the basis of the corporate governance component of the World Bank/IMF Reports on the Observance of Standards and Codes (ROSC).The OECD Council Meeting at Ministerial Level in 2002 agreed to survey developments in OECD countries and to assess the Principles in light of developments in corporate governance. This task was entrusted to the OECD Steering Group on Corporate Governance, which comprises representatives from OECD countries. In addition, the World Bank, the Bank for International Settlements (BIS) and the International Monetary Fund (IMF) were observers to the Group. For the assessment, the Steering Group also invited the Financial Stability Forum, the Basel Committee, and the International Organization of Securities Commissions (IOSCO) as ad hoc observers.In its review of the Principles, the Steering Group has undertaken comprehensive consultations and has prepared with the assistance of members the Survey of Developments in OECD Countries. The consultations have included experts from a large number of countries which have participated in the Regional Corporate Governance Roundtables that the OECD organises in Russia, Asia, South East Europe, Latin America and Eurasia with the support of the Global Corporate Governance Forum and others, and in co-operation with the World Bank and other non-OECD countries as well. Moreover, the Steering Group has consulted a wide range of interested parties such as the business sector, investors, professional groups at national and international levels, trade unions, civil society organisations and international standard setting bodies. A draft version of10 – OECD PRINCIPLES OF CORPORATE GOVERNANCEthe Principles was put on the OECD website for public comment andresulted in a large number of responses. These have been made public on theOECD web site.On the basis of the discussions in the Steering Group, the Survey and the comments received during the wide ranging consultations, it was concludedthat the 1999 Principles should be revised to take into account newdevelopments and concerns. It was agreed that the revision should bepursued with a view to maintaining a non-binding principles-basedapproach, which recognises the need to adapt implementation to varyinglegal economic and cultural circumstances. The revised Principles containedin this document thus build upon a wide range of experience not only in theOECD area but also in non-OECD countries.© OECD 200411© OECD 2004PreambleThe Principles are intended to assist OECD and non-OECDgovernments in their efforts to evaluate and improve the legal, institutional and regulatory framework for corporate governance in their countries, and to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance. The Principles focus on publicly traded companies, both financial and non-financial. However, to the extent they are deemed applicable, they might also be a useful tool to improve corporate governance in non-traded companies, for example, privately held and state-owned enterprises. The Principles represent a common basis that OECD member countries consider essential for the development of good governance practices. They are intended to be concise, understandable and accessible to the international community. They are not intended to substitute for government, semi-government or private sector initiatives to develop more detailed “best practice” in corporate governance.Increasingly, the OECD and its member governments have recognised the synergy between macroeconomic and structural policies in achieving fundamental policy goals. Corporate governance is one key element in improving economic efficiency and growth as well as enhancing investor confidence. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and its shareholders and should facilitate effective monitoring. The presence of an effective corporate governance system, within an individual company and across an economy as a whole, helps to provide a degree of confidence that is necessary for the proper functioning of a market economy. As a result, the cost of capital is lower and firms are encouraged to use resources more efficiently, thereby underpinning growth.12 – OECD PRINCIPLES OF CORPORATE GOVERNANCECorporate governance is only part of the larger economic context in which firms operate that includes, for example, macroeconomic policies andthe degree of competition in product and factor markets. The corporategovernance framework also depends on the legal, regulatory, andinstitutional environment. In addition, factors such as business ethics andcorporate awareness of the environmental and societal interests of thecommunities in which a company operates can also have an impact on itsreputation and its long-term success.While a multiplicity of factors affect the governance and decision-making processes of firms, and are important to their long-term success, thePrinciples focus on governance problems that result from the separation ofownership and control. However, this is not simply an issue of therelationship between shareholders and management, although that is indeedthe central element. In some jurisdictions, governance issues also arise fromthe power of certain controlling shareholders over minority shareholders. Inother countries, employees have important legal rights irrespective of theirownership rights. The Principles therefore have to be complementary to abroader approach to the operation of checks and balances. Some of the otherissues relevant to a company’s decision-making processes, such asenvironmental, anti-corruption or ethical concerns, are taken into accountbut are treated more explicitly in a number of other OECD instruments(including the Guidelines for Multinational Enterprises and the Conventionon Combating Bribery of Foreign Public Officials in InternationalTransactions) and the instruments of other international organisations.Corporate governance is affected by the relationships among participants in the governance system. Controlling shareholders, which maybe individuals, family holdings, bloc alliances, or other corporations actingthrough a holding company or cross shareholdings, can significantlyinfluence corporate behaviour. As owners of equity, institutional investorsare increasingly demanding a voice in corporate governance in somemarkets. Individual shareholders usually do not seek to exercise governancerights but may be highly concerned about obtaining fair treatment fromcontrolling shareholders and management. Creditors play an important rolein a number of governance systems and can serve as external monitors overcorporate performance. Employees and other stakeholders play an importantrole in contributing to the long-term success and performance of thecorporation, while governments establish the overall institutional and legalframework for corporate governance. The role of each of these participantsand their interactions vary widely among OECD countries and among non-OECD countries as well. These relationships are subject, in part, to law andregulation and, in part, to voluntary adaptation and, most importantly, tomarket forces.© OECD 2004OECD PRINCIPLES OF CORPORATE GOVERNANCE – 13© OECD 2004 The degree to which corporations observe basic principles of goodcorporate governance is an increasingly important factor for investment decisions. Of particular relevance is the relation between corporate governance practices and the increasingly international character of investment. International flows of capital enable companies to access financing from a much larger pool of investors. If countries are to reap the full benefits of the global capital market, and if they are to attract long-term “patient” capital, corporate governance arrangements must be credible, well understood across borders and adhere to internationally accepted principles. Even if corporations do not rely primarily on foreign sources of capital, adherence to good corporate governance practices will help improve the confidence of domestic investors, reduce the cost of capital, underpin the good functioning of financial markets, and ultimately induce more stable sources of financing.There is no single model of good corporate governance. However, work carried out in both OECD and non-OECD countries and within the Organisation has identified some common elements that underlie good corporate governance. The Principles build on these common elements and are formulated to embrace the different models that exist. For example, they do not advocate any particular board structure and the term “board” as used in this document is meant to embrace the different national models of board structures found in OECD and non-OECD countries. In the typical two tier system, found in some countries, “board” as used in the Principles refers to the “supervisory board” while “key executives” refers to the “management board”. In systems where the unitary board is overseen by an internal auditor’s body, the principles applicable to the board are also, mutatis mutandis, applicable. The terms “corporation” and “company” are used interchangeably in the text.The Principles are non-binding and do not aim at detailed prescriptions for national legislation. Rather, they seek to identify objectives and suggest various means for achieving them. Their purpose is to serve as a reference point. They can be used by policy makers as they examine and develop the legal and regulatory frameworks for corporate governance that reflect their own economic, social, legal and cultural circumstances, and by market participants as they develop their own practices.The Principles are evolutionary in nature and should be reviewed in light of significant changes in circumstances. To remain competitive in a changing world, corporations must innovate and adapt their corporate governance practices so that they can meet new demands and grasp new opportunities. Similarly, governments have an important responsibility for shaping an effective regulatory framework that provides for sufficient flexibility to allow markets to function effectively and to respond to14 – OECD PRINCIPLES OF CORPORATE GOVERNANCEexpectations of shareholders and other stakeholders. It is up to governmentsand market participants to decide how to apply these Principles indeveloping their own frameworks for corporate governance, taking intoaccount the costs and benefits of regulation.The following document is divided into two parts. The Principles presented in the first part of the document cover the following areas: I)Ensuring the basis for an effective corporate governance framework; II) Therights of shareholders and key ownership functions; III) The equitabletreatment of shareholders; IV) The role of stakeholders; V) Disclosure andtransparency; and VI) The responsibilities of the board. Each of the sectionsis headed by a single Principle that appears in bold italics and is followed bya number of supporting sub-principles. In the second part of the document,the Principles are supplemented by annotations that contain commentary onthe Principles and are intended to help readers understand their rationale.The annotations may also contain descriptions of dominant trends and offeralternative implementation methods and examples that may be useful inmaking the Principles operational.© OECD 200415© OECD 2004Part OneThe OECD Principles of Corporate Governance17© OECD 2004 I. Ensuring the Basis for an Effective Corporate Governance FrameworkThe corporate governance framework should promote transparentand efficient markets, be consistent with the rule of law andclearly articulate the division of responsibilities among differentsupervisory, regulatory and enforcement authorities.A.The corporate governance framework should be developed with a view to its impacton overall economic performance, market integrity and the incentives it creates for market participants and the promotion of transparent and efficient markets.B.The legal and regulatory requirements that affect corporate governance practices ina jurisdiction should be consistent with the rule of law, transparent and enforceable.C.The division of responsibilities among different authorities in a jurisdiction shouldbe clearly articulated and ensure that the public interest is served.D.Supervisory, regulatory and enforcement authorities should have the authority,integrity and resources to fulfil their duties in a professional and objective manner.Moreover, their rulings should be timely, transparent and fully explained.18II. The Rights of Shareholders andKey Ownership FunctionsThe corporate governance framework should protect and facilitatethe exercise of shareholders’ rights.A.Basic shareholder rights should include the right to: 1) secure methods of ownershipregistration; 2) convey or transfer shares; 3) obtain relevant and material information on the corporation on a timely and regular basis; 4) participate and vote in general shareholder meetings; 5) elect and remove members of the board; and 6) share in the profits of the corporation.B.Shareholders should have the right to participate in, and to be sufficiently informedon, decisions concerning fundamental corporate changes such as: 1) amendments to the statutes, or articles of incorporation or similar governing documents of the company; 2) the authorisation of additional shares; and 3) extraordinary transactions, including the transfer of all or substantially all assets, that in effect result in the sale of the company.C.Shareholders should have the opportunity to participate effectively and vote ingeneral shareholder meetings and should be informed of the rules, including voting procedures, that govern general shareholder meetings:1.Shareholders should be furnished with sufficient and timely informationconcerning the date, location and agenda of general meetings, as well as full andtimely information regarding the issues to be decided at the meeting.2.Shareholders should have the opportunity to ask questions to the board,including questions relating to the annual external audit, to place items on theagenda of general meetings, and to propose resolutions, subject to reasonablelimitations.3.Effective shareholder participation in key corporate governance decisions, suchas the nomination and election of board members, should be facilitated.Shareholders should be able to make their views known on the remunerationpolicy for board members and key executives. The equity component of compensation schemes for board members and employees should be subject toshareholder approval.© OECD 2004OECD PRINCIPLES OF CORPORATE GOVERNANCE – 194.Shareholders should be able to vote in person or in absentia, and equal effectshould be given to votes whether cast in person or in absentia.D.Capital structures and arrangements that enable certain shareholders to obtain adegree of control disproportionate to their equity ownership should be disclosed. E.Markets for corporate control should be allowed to function in an efficient andtransparent manner.1.The rules and procedures governing the acquisition of corporate control in thecapital markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets, should be clearly articulated and disclosed so that investors understand their rights and recourse. Transactions should occur at transparent prices and under fair conditions that protect the rights of all shareholders according to their class.2.Anti-take-over devices should not be used to shield management and the boardfrom accountability.F.The exercise of ownership rights by all shareholders, including institutionalinvestors, should be facilitated.1.Institutional investors acting in a fiduciary capacity should disclose their overallcorporate governance and voting policies with respect to their investments, including the procedures that they have in place for deciding on the use of theirvoting rights.2.Institutional investors acting in a fiduciary capacity should disclose how theymanage material conflicts of interest that may affect the exercise of key ownership rights regarding their investments.G.Shareholders, including institutional shareholders, should be allowed to consult witheach other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.© OECD 200420III. The Equitable Treatment of Shareholders The corporate governance framework should ensure the equitabletreatment of all shareholders, including minority and foreignshareholders. All shareholders should have the opportunity toobtain effective redress for violation of their rights.A.All shareholders of the same series of a class should be treated equally.1.Within any series of a class, all shares should carry the same rights. Allinvestors should be able to obtain information about the rights attached to all series and classes of shares before they purchase. Any changes in voting rightsshould be subject to approval by those classes of shares which are negatively affected.2.Minority shareholders should be protected from abusive actions by, or in theinterest of, controlling shareholders acting either directly or indirectly, and should have effective means of redress.3.Votes should be cast by custodians or nominees in a manner agreed upon withthe beneficial owner of the shares.4.Impediments to cross border voting should be eliminated.5.Processes and procedures for general shareholder meetings should allow forequitable treatment of all shareholders. Company procedures should not make itunduly difficult or expensive to cast votes.B.Insider trading and abusive self-dealing should be prohibited.C.Members of the board and key executives should be required to disclose to theboard whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the corporation.© OECD 200421IV. The Role of Stakeholders in Corporate Governance The corporate governance framework should recognise the rightsof stakeholders established by law or through mutual agreementsand encourage active co-operation between corporations andstakeholders in creating wealth, jobs, and the sustainability offinancially sound enterprises.A.The rights of stakeholders that are established by law or through mutual agreementsare to be respected.B.Where stakeholder interests are protected by law, stakeholders should have theopportunity to obtain effective redress for violation of their rights.C.Performance-enhancing mechanisms for employee participation should be permittedto develop.D.Where stakeholders participate in the corporate governance process, they shouldhave access to relevant, sufficient and reliable information on a timely and regular basis.E.Stakeholders, including individual employees and their representative bodies,should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this.F.The corporate governance framework should be complemented by an effective,efficient insolvency framework and by effective enforcement of creditor rights.© OECD 2004。
corporate governance standards
corporate governance standardsCorporate governance standards are a set of rules, principles, and best practices that guide the management and operations of a company. They aim to ensure that the company is run in a responsible, ethical, and effective manner, with the interests of shareholders and other stakeholders properly taken into account.Corporate governance standards cover a wide range of areas, including:Board structure and composition: This includes the role and responsibilities of the board, the selection and appointment of directors, the board's size and composition, and the extent to which the board is independent from management.Management accountability: This ensures that management is accountable to the board and responsible for the day-to-day operations of the company. It also includes measures to prevent fraud, mismanagement, and other unethical behavior.Shareholder rights and responsibilities: This outlines the rights of shareholders, including voting rights, dividend rights, and their ability to seek redress if their rights areinfringed.Transparency and disclosure: This requires the company to provide timely, accurate, and transparent information to shareholders and other stakeholders on its financial performance, strategy, governance structure, and other important matters.Risk management: This involves identifying, assessing, and managing risks faced by the company, including financial risks, operational risks, and reputational risks.Compliance and ethics: This sets out the company's code of conduct and ethical standards, and ensures that these standards are adhered to by all employees and directors.Stakeholder engagement: This involves maintaining good relationships with all stakeholders, including shareholders, employees, suppliers, customers, regulators, and the community. It ensures that their interests are taken into account in the company's decision-making process.The implementation of good corporate governance standards helps to build trust and confidence in the company among shareholders and other stakeholders. It also enhances the company's reputation and competitiveness in the market.。
国际财务管理ER 7e Ch04 Outline
Chapter 4Corporate Governance around the WorldGovernance of the Public Corporation: Key IssuesThe Agency ProblemRemedies for the Agency ProblemBoard of DirectorsIncentive ContractsConcentrated OwnershipAccounting TransparencyDebtOverseas Stock ListingsMarket for Corporate ControlLaw and Corporate GovernanceConsequences of LawOwnership and Control PatternPrivate Benefits of ControlCapital Markets and ValuationCorporate Governance ReformObjectives of ReformPolitical DynamicsThe Sarbanes-Oxley ActThe Cadbury Code of Best PracticeThe Dodd-Frank ActSummaryIn the wake of recurrent financial crises and high-profile corporate scandals and failures in the United States and abroad, corporate governance has attracted a lot of attention worldwide. This chapter provides an overview of corporate governance issues, with the emphasis on intercountry differences in the governance mechanisms.1. The public corporation, which is jointly owned by many shareholders with limited liability, is a major organizational innovation with significant economic consequences. The efficient risk-sharing mechanism allows the public corporation to raise large amounts of capital at low cost and profitably undertake many investment projects, boosting economic growth.2. The public corporation has a major weakness: the agency problem associated with the conflicts of interest between shareholders and managers. Self-interested man-agers can take actions to promote their own interests at the expense of shareholders. The agency problem tends to be more serious for firms with excessive free cash flows but without growth opportunities.3. To protect shareholder rights, curb managerial excesses, and restore confidence in capital markets, it is important to strengthen corporate governance, defined as the economic, legal, and institutional framework in which corporate control and cash flow rights are distributed among shareholders, managers, and other stakeholders of the company.4. The central issue in corporate governance is: how to best protect outside investors from expropriation by managers and controlling insiders so that investors can receive fair returns on their funds.5. The agency problem can be alleviated by various methods, including (a) strengthening the independence of boards of directors; (b) providing managers with incentive contracts, such as stocks and stock options, to better align the interests of managers with those of shareholders; (c) concentrated ownership so that large shareholders can control managers; (d) using debt to induce managers to disgorge free cash flows to investors; (e) listing stocks on the London or New York stock exchange where shareholders are better protected; and (f ) inviting hostile takeover bids if the managers waste funds and expropriate shareholders.6. Legal protection of investor rights systematically varies across countries, depending on the historical origin of the national legal system. English common law countries tend to provide the strongest protection, French civil law countries the weakest. The civil law tradition is based on the comprehensive codification of legal rules, whereas the common law tradition is based on discrete rulings by independent judges on specific disputes and on judicial precedent. The English common law tradition, based on independent judges and local juries, evolved to be more protective of property rights, which were extended to the rights of investors.7. Protecting the rights of investors has major economic consequences in terms of corporate ownership patterns, the development of capital markets, economic growth, and more. Poor investor protection results in concentrated ownership, excessive private benefits of control, underdeveloped capital markets, and slower economic growth.8. Outside the United States and the United Kingdom, large shareholders, often founding families, tend to control managers and expropriate small outside shareholders. In other words, large, dominant shareholders tend to extract substantial private benefits of control.9. Corporate governance reform efforts should be focused on how to better protect outside investors from expropriation by controlling insiders. Often, controlling insiders resist reform efforts, as they do not like to lose their private benefits of control. Reformers should understand political dynamics and mobilize public opinion to their cause.。
CHAPTER-4-Corporate-Governance-Around-the-World
CHAPTER 4 Corporate Governance Around the WorldGovernance of the Public Corporation: Key IssuesThe Agency ProblemRemedies for the Agency ProblemBoard of DirectorsInternational Finance in Practice: When Boards Are All in the FamilyIncentive ContractsConcentrated OwnershipAccounting TransparencyDebtOverseas Stock ListingsMarket for Corporate ControlLaw and Corporate GovernanceConsequences of LawOwnership and Control PatternPrivate Benefits of ControlCapital Markets and ValuationCorporate Governance ReformObjectives of ReformPolitical DynamicsThe Cadbury Code of Best PracticeSummaryMINI CASE: Parmalat: Europe’s Enron1Corporate governance can be defined as:a) the economic, legal, and institutional framework in which corporatecontrol and cash flow rights are distributed among shareholders, managers and other stakeholders of the companyb)the general framework in which company management is selected and monitoredc) the rules and regulations adopted by boards of directors specifying howto manage companiesd)the government-imposed rules and regulations affecting corporatemanagementAnswer: a)2When managerial self-dealings are excessive and left uncheckeda)They can have serious negative effects on share valuesb)They can impede the proper functions of capital marketsc)They can impede such measures as GDP growthd)All of the aboveAnswer: d)3Corporate governance structurea)Varies a great deal across countriesb)Has become homogenized following the integration of capital marketsc)Has become homogenized due to cross-listing of shares of many publiccorporationsd)None of the aboveAnswer: a)Governance of the Public Corporation: Key Issues4The central issue of corporate governance isa)how to protect creditors from managers and controlling shareholdersb)how to protect outside investors from the controlling insidersc)how to alleviate the conflicts of interest between managers and shareholdersd)how to alleviate the conflicts of interest between shareholders andbondholdersAnswer: b)5The key weakness of the public corporation isa)too many shareholders, which makes it difficult to make corporate decisionb)relatively high corporate income tax ratesc)conflicts of interest between managers and shareholdersd)conflicts of interests between shareholders and bondholdersAnswer: c)6When company ownership is diffuse,a) A “free rider” problem discourages shareholder activismb)The large number of shareholders ensures strong monitoring of managerialbehavior because with a large enough group, there’s almost always someone who will to incur the costs of monitoring management.c)Few shareholders have a strong enough incentive to incur the costs ofmonitoring management.d)a) and c) are correctAnswer: d)7In what country do the three largest shareholders control, on average, about60 percent of the shares of a public company?a)United Statesb)Canadac)Great Britaind)ItalyAnswer: d)8The public corporationa)Is jointly owned by a (potentially) large number of shareholdersb)Offers shareholders limited liabilityc)Separates the ownership and control of a firms assetsd)All of the aboveAnswer: d)9The key strengths of the public corporation is/area)Their capacity to allow efficient risk sharing among many investorsb)Their capacity to raise large amounts of funds at relatively low costc)Their capacity to consolidate decision-makingd)All of the aboveAnswer: d)10In theory,a)Managers are hired by the shareholders at the annual stockholders meeting.If the managers turn in a bad year, new ones get hired.b)Shareholders hire the managers to oversee the board of directors.c)Managers are hired by the board of directors; the board is accountable tothe shareholders.d)None of the aboveAnswer: c)11In many countries with concentrated ownershipa)The conflicts of interest between shareholders and managers are worse thanin countries with diffuse ownership of firms.b)The conflicts of interest are greater between large controlling shareholdersand small outside shareholders than between managers and shareholders.c)The conflicts of interest are greater between managers and shareholders thanbetween large controlling shareholders and small outside shareholdersd)Corporate forms of business organization with concentrated ownership arerareAnswer: b)12In the reality of corporate governance at the turn of this century,a)Boards of directors are often dominated by management-friendly insiders.b) A typical board of directors often has relatively few outside directors whocan independently and objectively monitor the management.c)Managers of one firm often sit on the boards of other firms, whose managersare on the board of the first firm. Due to the interlocking nature of these boards, there can exist a culture of “I’ll overlook your problems if you overlook mine.”d)All of the above have been true to a greater or lesser extent in the recentpast.Answer: d)The Agency Problem13A complete contract between shareholders and managersa)Would specify exactly what the manager will do under each of all possiblefuture contingenciesb)Would be an expensive contract to write and a very expensive contract tomonitor.c)Would eliminate any conflicts of interest (and managerial discretion)d)All of the aboveAnswer: d)14Most shareholders are “weak” in that they give up control to the managers of the firm.a)This may be rational when shareholders may be neither qualified norinterested in making business decisions.b)This may be rational since many shareholders find it easier to sell theirshares in an underperforming firm than to monitor the managementc)This may be rational to the extent that managers are answerable to the boardof directorsd)All of the above are explanations for the separation of ownership and control. Answer: d)15Free cash flow refers toa) a firm's cash reserve in excess of tax obligationb) a firm's funds in excess of what's needed for undertaking all profitableprojectsc) a firm's cash reserve in excess of interest and tax paymentsd) a firm's income tax refund that is due to interest payments on borrowing Answer: b)16Self-interested managers may be tempted toa)Indulge in expensive perquisites at company expenseb)Adopt antitakeover measures for their company to ensure their personal jobsecurityc)Waste company funds by undertaking unprofitable projects that benefitthemselves but not shareholdersd)All of the above are potential abuses that self-interested managers may betempted to visit upon shareholders.Answer: d)17Why do managers tend to retain free cash flow?a)Managers are in the best position to decide the best use of those fundsb)These funds are needed for undertaking profitable projects and the issuecosts are less than new issues of stocks or bonds.c)Managers may not be acting in the shareholders best interest, and for avariety of reasons, want to use the free cash flow.d)None of the aboveAnswer: c)Rationale: Free cash flow is defined as firm's funds in excess of what's needed for undertaking all profitable projects.18The agency problem tendsa)To be more serious in firms with free cash flowsb)To be more serious in firms with excessive amounts of excess cashc)To be less serious in firms with few numbers of shareholdersd)All of the aboveAnswer: d)Remedies for the Agency ProblemBoard of Directors19In the United Statesa)Boards of directors are legally responsible for representing the interestsof the shareholdersb)Due to the diffused ownership structure of the public company, managementoften gets to choose board members who are likely to be friendly tomanagement.c)There is a correlation between underperforming firms and boards of directorswho are not fully independent.d)All of the above are true, in the United States.Answer: d)International Finance in Practice: When Boards Are All in the Family20In the United States, it is well documented thata)Boards dominated by their chief executives are prone to troubleb)Public scrutiny can help improve corporate governancec)As public firms improve their corporate governance, the stock price goes upd)All of the aboveAnswer: d)Incentive Contracts21The board of directors may grant stock options to managers in order toa)save executive compensation costsb)use as a substitute for bonusc)align the interest of managers with that of shareholdersd)none of the aboveAnswer: c)22When designing an incentive contract,a)It is important for the board of directors to set up an independentcompensation committee that can carefully design the contract and diligently monitor manager’s actions.b)Senior executives can be trusted to not abuse incentive contracts byartificially manipulating accounting numbers since the auditors should look in to that.c)The presence of any incentive is enough, whether it is accounting based orstock-price based.d)The board of directors should always give the managers a “heads I win, tailsyou lose” type of option.Answer: a)Concentrated Ownership23Concentrated ownership of a public companya)Is normal in the United States, following the well-publicized scandals ofrecent years.b)Is relatively rare in the United States and common in many other parts ofthe world.c)Leads to a free-rider problem with the minority shareholders relying on themajority shareholders to assume an undue burden in monitoring the managementd)Is the norm in Great BritainAnswer: b)24Concentrated ownership of a public companya)Can be an effective way to alleviate the agency problem between shareholdersand managers.b)Is the norm in Great Britainc)Tends to be an ineffective way to alleviate conflicts of interest betweengroups of shareholdersd)None of the aboveAnswer: a)Accounting Transparency25Accounting Transparencya)Can only be achieved when managers commit to serving on their own auditcommittee.b)Occurs when the accounting department has translucent cubicles for theirworkersc)Promises to reduce the information asymmetry between corporate insiders andthe public.d)None of the aboveAnswer: c)Debt26While debt can reduce agency costs between shareholders and managementa)Debt can create its own agency costsb)This only happens at extreme levels of debtc)This does not work for firms in mature industries with large cash reservesd)None of the above are true.Answer: a)27Debt can reduce agency costs between shareholders and management.a)But only if the firm is totally up to its eyeballs in debt.b)Only to the extent that the firm can commit all of its free cash flow.c)But excessive debt can create its own agency conflicts.d)Debt is best used as a corporate governance mechanism by young companies withlimited cash reserves.Answer: c)Overseas Stock Listings28Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and managementa)By moving to a better countyb)By listing their stocks in countries with strong investor protectionc)By voluntarily complying with the provisions of theU.S. Sarbanes-Oxley Actd)Having a press conference and promising to be nice to their investors. Answer: b)29Benetton, an Italian clothier, is listed on the New York Stock Exchange.a)This decision provides their shareholders with a higher degree of protectionthan is available in Italy.b)This decision can be a signal of the company’s commitment to shareholderrights.c)This may make investors both in Italy and abroad more willing to providecapital and to increase the value of the pre-existing shares.d)All of the aboveAnswer: d)Market for Corporate Control30Suppose the managers of a company have driven the stock price down because they have spent the investors’ money o n lavish perquisites like golf clubmemberships and great buckets of guacamole.a)This situation may prompt a corporate raider to buy up the shares of the firmin a hostile takeover.b)If the hostile takeover is successful, the managers will probably lose theirjobs in the ensuing restructuring.c)If the restructuring is successful, the stock price should rise, and thecorporate raider can sell his shares at a profit.d)All of the aboveAnswer: d)Law and Corporate Governance31Private benefits of corporate control will tend to be higher ina)French civil law countries than in English common law countriesb)English common law countries than in French civil law countriesc)French civil law countries than in Scandinavian civil law countriesd)English common law countries than in German civil law countriesAnswer: a)32English common law countries tend to provide a stronger protection of shareholder rights than French civil law countries becausea)the former countries tend to be more democratic than the latter.b)the former countries tend to protect property rights better than the latter.c)the former countries tend to have more separation of power than the latter.d)All of the above.Answer: b)33Studies show that the quality of law enforcement, as measured by the rule of law index, will tend to bea)Higher in French civil law countries than in English common law countriesb)Higher in English common law countries than in Scandinavian civil lawcountriesc)highest in Scandinavian civil law countries and German civil law countriesd)Highest in English common law countriesAnswer: c)Consequences of LawOwnership and Control Pattern34Suppose Mr. Lee and his relatives hold 30% of shares outstanding of Samsung Life, which in turn holds 20% of Samsung Electronics. What is the cash flow right of the Lee family in Samsung Electronics?a)50 percentb)10 percentc)20 percentd) 6 percentAnswer: d)Rationale: .30 × .20 = .0635Concentrated corporate ownership is most prevalent ina)Italyb)The U.K.c)The U.S.d)AustraliaAnswer: a)36In countries with concentrated ownershipa)Hostile takeovers are quite rareb)Hostile takeovers are quite commonc)All of the aboved)None of the aboveAnswer: a)37What is the difference between control rights and cash flow rights?a)Since all shareholders benefit only from pro-rata cash flows, control rightsand cash flow rights are the same thing.b)Large investors may be able to derive private benefits from control, thuscontrol rights can exceed cash flow rights.c)Cash flow rights are more important than control rights since the only reasonto invest in anything is to generate cash.d)None of the aboveAnswer: b)Private Benefits of Control38One way to measure the value of private benefits of controla)Is to measure the difference in value between non voting shares and votingsharesb)Is to measure the va lue of the “block premium” the value difference betweenthe price per share paid for a control block of shares versus the exchange price of regular shares.c)Both a) and b)d)None of the aboveAnswer: c)Capital Markets and Valuation39Several studies document the empirical link betweena)Weak investor protection and GDP growthb)Financial development and economic growthc)Growth in GDP and concentrated ownershipd)None of the aboveAnswer: b)40Financial development can contribute to economic growth in what way(s)?a)Financial development enhances savingsb)Financial development channels savings toward real investments in productivecapacitiesc)Financial development enhances the efficiency of investment allocationthrough the monitoring and signaling functions of capital markets.d)All of the above.Answer: d)Corporate Governance Reform41Comparing the U.S. with the German and Japanese corporate governance systems,a)The U.S. system is “market centered”.b)The German and Japanese systems are “bank centered”.c)It seems fair to say that no country has a perfect system.d)All of the above.Answer: d)Objectives of Reform42Among the objectives of corporate governance reform,a)Introduce expensive and burdensome accounting reforms.b)Strengthen the protection of outside investors from expropriation by managers andcontrolling insiders.c)Provide taxpayer financing for corporate raiders to strengthen the discipline ofthe marketplace.d)None of the aboveAnswer: b)43In the U.S., corporate governance reform has included all of the following except:a)Strengthen the independence of boards of directorsb)Enhancing the transparency and disclosure of financial statementsc)Energizing the regulatory an monitoring functions of the SECd)Requiring auditors to sit on the boards of directorsAnswer: d)Rationale: that would be a clear conflict of interest.44The Sarbanes-Oxley Act of 2002 stipulates thata) a public accounting oversight board be createdb)the company should appoint independent financial experts to its audit committeec)CEO and CFO sign off the company's financial statementsd)all of the aboveAnswer: d)45The Sarbanes-Oxley Act of 2002a)Has had the consequence that many foreign firms have de-listed in the U.S. exchangesand listed their shares on the London Stock Exchange and other European exchanges.b)Has increased the pace of foreign firms listing their shares in the U.S.c)a) and b) are both trued)all of the aboveAnswer: a)Students may enjoy arguing about the logical structure of this question, but clearly no one in their right mind would select c).46The cost of compliance with the Sarbanes-Oxley Act of 2002a)Is a small amount, since most firms were playing by rules to begin with.b)Disproportionately affects small firmsc)Is paid for with tax credits for firms found to be in compliance.d)all of the aboveAnswer: b)47The major components of the Sarbanes-Oxley Act include all of the following excepta)Accounting regulation—The creation of a public accounting oversight board chargedwith overseeing the auditing of public companies, and restricting the consulting services that auditors can provide to clients.b)Audit committee—the company should appoint independent “financial experts” toits audit committee.c)Shareholder voting rights reform—“one share one vote” is now the law of the land.d)Executive responsibility—CEOs and CFO s must sign off on the company’s financialstatements.Answer: c)Rationale: there are still many different classes of stock with varying voting rights.The Cadbury Code of Best Practice48The Cadbury Code of Best Practicea)Is the U.N. equivalent of the Sarbanes-Oxley Actb)Is voluntary, but firms that fail to comply must explain why they choose not tocomplyc)Has the force of law, like the Sarbanes-Oxley Actd)None of the aboveAnswer: b)49Following the adoption of the Cadbury Code of Best practice,a)Joint CEO/COB (chief executive officer and chairman of the board) positions declinedb)There has been a significant impact on the internal governance mechanisms of U.K.companiesc)CEOs have become more sensitive to company performance, strengthening managerialaccountability and weakening managerial entrenchment.d)All of the aboveAnswer: d)50The key requirements of the Cadbury Code of Best Practicea)Boards of directors should include at least three outside directorsb)The positions of CEO and chairman of the board should not reside in the sameindividualc)Compliance is mandatory for public corporations, optional for listed non-publiccorporationsd)a) and b) but not c)Answer: d)（注：可编辑下载，若有不当之处，请指正，谢谢!）。
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C h004-C o r p o r a t e-G o v e r n a n c e-A r o u n d-t h e-W o r l dEun & Resnick 4eCHAPTER 4 Corporate Governance Around the WorldGovernance of the Public Corporation: Key IssuesThe Agency ProblemRemedies for the Agency ProblemBoard of DirectorsInternational Finance in Practice: When Boards Are All in the FamilyIncentive ContractsConcentrated OwnershipAccounting TransparencyDebtOverseas Stock ListingsMarket for Corporate ControlLaw and Corporate GovernanceConsequences of LawOwnership and Control PatternPrivate Benefits of ControlCapital Markets and ValuationCorporate Governance ReformObjectives of ReformPolitical DynamicsThe Cadbury Code of Best PracticeSummaryMINI CASE: Parmalat: Europe’s Enron1Corporate governance can be defined as:a) the economic, legal, and institutional framework in which corporate control and cashflow rights are distributed among shareholders, managers and other stakeholders of the companyb)the general framework in which company management is selected and monitoredc) the rules and regulations adopted by boards of directors specifying how to managecompaniesd)the government-imposed rules and regulations affecting corporate management Answer: a)2When managerial self-dealings are excessive and left uncheckeda)They can have serious negative effects on share valuesb)They can impede the proper functions of capital marketsc)They can impede such measures as GDP growthd)All of the aboveAnswer: d)3Corporate governance structurea)Varies a great deal across countriesb)Has become homogenized following the integration of capital marketsc)Has become homogenized due to cross-listing of shares of many public corporationsd)None of the aboveAnswer: a)Governance of the Public Corporation: Key Issues4The central issue of corporate governance isa)how to protect creditors from managers and controlling shareholdersb)how to protect outside investors from the controlling insidersc)how to alleviate the conflicts of interest between managers and shareholdersd)how to alleviate the conflicts of interest between shareholders and bondholders Answer: b)5The key weakness of the public corporation isa)too many shareholders, which makes it difficult to make corporate decisionb)relatively high corporate income tax ratesc)conflicts of interest between managers and shareholdersd)conflicts of interests between shareholders and bondholdersAnswer: c)6When company ownership is diffuse,a) A “free rider” problem discourages shareholder activismb)The large number of shareholders ensures strong monitoring of managerial behaviorb ecause with a large enough group, there’s almost always someone who will to incur thecosts of monitoring management.c)Few shareholders have a strong enough incentive to incur the costs of monitoringmanagement.d)a) and c) are correctAnswer: d)7In what country do the three largest shareholders control, on average, about 60 percent of the shares of a public company?a)United Statesb)Canadac)Great Britaind)ItalyAnswer: d)8The public corporationa)Is jointly owned by a (potentially) large number of shareholdersb)Offers shareholders limited liabilityc)Separates the ownership and control of a firms assetsd)All of the aboveAnswer: d)9The key strengths of the public corporation is/area)Their capacity to allow efficient risk sharing among many investorsb)Their capacity to raise large amounts of funds at relatively low costc)Their capacity to consolidate decision-makingd)All of the aboveAnswer: d)10In theory,a)Managers are hired by the shareholders at the annual stockholders meeting. If themanagers turn in a bad year, new ones get hired.b)Shareholders hire the managers to oversee the board of directors.c)Managers are hired by the board of directors; the board is accountable to the shareholders.d)None of the aboveAnswer: c)11In many countries with concentrated ownershipa)The conflicts of interest between shareholders and managers are worse than in countrieswith diffuse ownership of firms.b)The conflicts of interest are greater between large controlling shareholders and smalloutside shareholders than between managers and shareholders.c)The conflicts of interest are greater between managers and shareholders than betweenlarge controlling shareholders and small outside shareholdersd)Corporate forms of business organization with concentrated ownership are rare Answer: b)12In the reality of corporate governance at the turn of this century,a)Boards of directors are often dominated by management-friendly insiders.b) A typical board of directors often has relatively few outside directors who canindependently and objectively monitor the management.c)Managers of one firm often sit on the boards of other firms, whose managers are on theboard of the first firm. Due to the interlocking nature of these boards, there can exist aculture of “I’ll overlook your problems if you overlook mine.”d)All of the above have been true to a greater or lesser extent in the recent past.Answer: d)The Agency Problem13A complete contract between shareholders and managersa)Would specify exactly what the manager will do under each of all possible futurecontingenciesb)Would be an expensive contract to write and a very expensive contract to monitor.c)Would eliminate any conflicts of interest (and managerial discretion)d)All of the aboveAnswer: d)14Most shareholders are “weak” in that they give up control to the managers of th e firm.a)This may be rational when shareholders may be neither qualified nor interested in makingbusiness decisions.b)This may be rational since many shareholders find it easier to sell their shares in anunderperforming firm than to monitor the managementc)This may be rational to the extent that managers are answerable to the board of directorsd)All of the above are explanations for the separation of ownership and control.Answer: d)15Free cash flow refers toa) a firm's cash reserve in excess of tax obligationb) a firm's funds in excess of what's needed for undertaking all profitable projectsc) a firm's cash reserve in excess of interest and tax paymentsd) a firm's income tax refund that is due to interest payments on borrowingAnswer: b)16Self-interested managers may be tempted toa)Indulge in expensive perquisites at company expenseb)Adopt antitakeover measures for their company to ensure their personal job securityc)Waste company funds by undertaking unprofitable projects that benefit themselves butnot shareholdersd)All of the above are potential abuses that self-interested managers may be tempted to visitupon shareholders.Answer: d)17Why do managers tend to retain free cash flow?a)Managers are in the best position to decide the best use of those fundsb)These funds are needed for undertaking profitable projects and the issue costs are lessthan new issues of stocks or bonds.c)Managers may not be acting in the shareholders best interest, and for a variety of reasons,want to use the free cash flow.d)None of the aboveAnswer: c)Rationale: Free cash flow is defined as firm's funds in excess of what's needed for undertaking all profitable projects.18The agency problem tendsa)To be more serious in firms with free cash flowsb)To be more serious in firms with excessive amounts of excess cashc)To be less serious in firms with few numbers of shareholdersd)All of the aboveAnswer: d)Remedies for the Agency ProblemBoard of Directors19In the United Statesa)Boards of directors are legally responsible for representing the interests of theshareholdersb)Due to the diffused ownership structure of the public company, management often gets tochoose board members who are likely to be friendly to management.c)There is a correlation between underperforming firms and boards of directors who are notfully independent.d)All of the above are true, in the United States.Answer: d)International Finance in Practice: When Boards Are All in the Family20In the United States, it is well documented thata)Boards dominated by their chief executives are prone to troubleb)Public scrutiny can help improve corporate governancec)As public firms improve their corporate governance, the stock price goes upd)All of the aboveAnswer: d)Incentive Contracts21The board of directors may grant stock options to managers in order toa)save executive compensation costsb)use as a substitute for bonusc)align the interest of managers with that of shareholdersd)none of the aboveAnswer: c)22When designing an incentive contract,a)It is important for the board of directors to set up an independent compensationcommittee that can carefully design the contract and diligently monitor manager’s actions.b)Senior executives can be trusted to not abuse incentive contracts by artificiallymanipulating accounting numbers since the auditors should look in to that.c)The presence of any incentive is enough, whether it is accounting based or stock-pricebased.d)The board of directors should always give the managers a “heads I win, tails you lose”type of option.Answer: a)Concentrated Ownership23Concentrated ownership of a public companya)Is normal in the United States, following the well-publicized scandals of recent years.b)Is relatively rare in the United States and common in many other parts of the world.c)Leads to a free-rider problem with the minority shareholders relying on the majorityshareholders to assume an undue burden in monitoring the managementd)Is the norm in Great BritainAnswer: b)24Concentrated ownership of a public companya)Can be an effective way to alleviate the agency problem between shareholders andmanagers.b)Is the norm in Great Britainc)Tends to be an ineffective way to alleviate conflicts of interest between groups ofshareholdersd)None of the aboveAnswer: a)Accounting Transparency25Accounting Transparencya)Can only be achieved when managers commit to serving on their own audit committee.b)Occurs when the accounting department has translucent cubicles for their workersc)Promises to reduce the information asymmetry between corporate insiders and the public.d)None of the aboveAnswer: c)Debt26While debt can reduce agency costs between shareholders and managementa)Debt can create its own agency costsb)This only happens at extreme levels of debtc)This does not work for firms in mature industries with large cash reservesd)None of the above are true.Answer: a)27Debt can reduce agency costs between shareholders and management.a)But only if the firm is totally up to its eyeballs in debt.b)Only to the extent that the firm can commit all of its free cash flow.c)But excessive debt can create its own agency conflicts.d)Debt is best used as a corporate governance mechanism by young companies with limitedcash reserves.Answer: c)Overseas Stock Listings28Companies domiciled in countries with weak investor protection can reduce agency costs between shareholders and managementa)By moving to a better countyb)By listing their stocks in countries with strong investor protectionc)By voluntarily complying with the provisions of theU.S. Sarbanes-Oxley Actd)Having a press conference and promising to be nice to their investors.Answer: b)29Benetton, an Italian clothier, is listed on the New York Stock Exchange.a)This decision provides their shareholders with a higher degree of protection than isavailable in Italy.b)This decision can be a signal of the company’s commitment to share holder rights.c)This may make investors both in Italy and abroad more willing to provide capital and toincrease the value of the pre-existing shares.d)All of the aboveAnswer: d)Market for Corporate Control30Suppose the managers of a company have driven the stock price down because they have spent the investors’ money on lavish perquisites like golf club memberships and greatbuckets of guacamole.a)This situation may prompt a corporate raider to buy up the shares of the firm in a hostiletakeover.b)If the hostile takeover is successful, the managers will probably lose their jobs in theensuing restructuring.c)If the restructuring is successful, the stock price should rise, and the corporate raider cansell his shares at a profit.d)All of the aboveAnswer: d)Law and Corporate Governance31Private benefits of corporate control will tend to be higher ina)French civil law countries than in English common law countriesb)English common law countries than in French civil law countriesc)French civil law countries than in Scandinavian civil law countriesd)English common law countries than in German civil law countriesAnswer: a)32English common law countries tend to provide a stronger protection of shareholder rights than French civil law countries becausea)the former countries tend to be more democratic than the latter.b)the former countries tend to protect property rights better than the latter.c)the former countries tend to have more separation of power than the latter.d)All of the above.Answer: b)33Studies show that the quality of law enforcement, as measured by the rule of law index, will tend to bea)Higher in French civil law countries than in English common law countriesb)Higher in English common law countries than in Scandinavian civil law countriesc)highest in Scandinavian civil law countries and German civil law countriesd)Highest in English common law countriesAnswer: c)Consequences of LawOwnership and Control Pattern34Suppose Mr. Lee and his relatives hold 30% of shares outstanding of Samsung Life, which in turn holds 20% of Samsung Electronics. What is the cash flow right of the Lee family in Samsung Electronics?a)50 percentb)10 percentc)20 percentd) 6 percentAnswer: d)Rationale: .30 × .20 = .0635Concentrated corporate ownership is most prevalent ina)Italyb)The U.K.c)The U.S.d)AustraliaAnswer: a)36In countries with concentrated ownershipa)Hostile takeovers are quite rareb)Hostile takeovers are quite commonc)All of the aboved)None of the aboveAnswer: a)37What is the difference between control rights and cash flow rights?a)Since all shareholders benefit only from pro-rata cash flows, control rights and cash flowrights are the same thing.b)Large investors may be able to derive private benefits from control, thus control rightscan exceed cash flow rights.c)Cash flow rights are more important than control rights since the only reason to invest inanything is to generate cash.d)None of the aboveAnswer: b)Private Benefits of Control38One way to measure the value of private benefits of controla)Is to measure the difference in value between non voting shares and voting sharesb)Is to measure the value of the “block premium” the value difference between the priceper share paid for a control block of shares versus the exchange price of regular shares.c)Both a) and b)d)None of the aboveAnswer: c)Capital Markets and Valuation39Several studies document the empirical link betweena)Weak investor protection and GDP growthb)Financial development and economic growthc)Growth in GDP and concentrated ownershipd)None of the aboveAnswer: b)40Financial development can contribute to economic growth in what way(s)?a)Financial development enhances savingsb)Financial development channels savings toward real investments in productive capacitiesc)Financial development enhances the efficiency of investment allocation through themonitoring and signaling functions of capital markets.d)All of the above.Answer: d)Corporate Governance Reform41Comparing the U.S. with the German and Japanese corporate governance systems,a)The U.S. system is “market centered”.b)The German and Japan ese systems are “bank centered”.c)It seems fair to say that no country has a perfect system.d)All of the above.Answer: d)Objectives of Reform42Among the objectives of corporate governance reform,a)Introduce expensive and burdensome accounting reforms.b)Strengthen the protection of outside investors from expropriation by managers and controllinginsiders.c)Provide taxpayer financing for corporate raiders to strengthen the discipline of the marketplace.d)None of the aboveAnswer: b)43In the U.S., corporate governance reform has included all of the following except:a)Strengthen the independence of boards of directorsb)Enhancing the transparency and disclosure of financial statementsc)Energizing the regulatory an monitoring functions of the SECd)Requiring auditors to sit on the boards of directorsAnswer: d)Rationale: that would be a clear conflict of interest.44The Sarbanes-Oxley Act of 2002 stipulates thata) a public accounting oversight board be createdb)the company should appoint independent financial experts to its audit committeec)CEO and CFO sign off the company's financial statementsd)all of the aboveAnswer: d)45The Sarbanes-Oxley Act of 2002a)Has had the consequence that many foreign firms have de-listed in the U.S. exchanges and listedtheir shares on the London Stock Exchange and other European exchanges.b)Has increased the pace of foreign firms listing their shares in the U.S.c)a) and b) are both trued)all of the aboveAnswer: a)Students may enjoy arguing about the logical structure of this question, but clearly no one in their right mind would select c).46The cost of compliance with the Sarbanes-Oxley Act of 2002a)Is a small amount, since most firms were playing by rules to begin with.b)Disproportionately affects small firmsc)Is paid for with tax credits for firms found to be in compliance.d)all of the aboveAnswer: b)47The major components of the Sarbanes-Oxley Act include all of the following excepta)Accounting regulation—The creation of a public accounting oversight board charged withoverseeing the auditing of public companies, and restricting the consulting services that auditors can provide to clients.b)Audit committee—the company should appoint independent “financial experts” to its auditcommittee.c)Shareholder voting rights reform—“one share one vote” is now the law of the land.d)Executive responsibility—CEOs and CFOs must sign off on the company’s financial statements. Answer: c)Rationale: there are still many different classes of stock with varying voting rights.The Cadbury Code of Best Practice48The Cadbury Code of Best Practicea)Is the U.N. equivalent of the Sarbanes-Oxley Actb)Is voluntary, but firms that fail to comply must explain why they choose not to complyc)Has the force of law, like the Sarbanes-Oxley Actd)None of the aboveAnswer: b)49Following the adoption of the Cadbury Code of Best practice,a)Joint CEO/COB (chief executive officer and chairman of the board) positions declinedb)There has been a significant impact on the internal governance mechanisms of U.K. companiesc)CEOs have become more sensitive to company performance, strengthening managerialaccountability and weakening managerial entrenchment.d)All of the aboveAnswer: d)50The key requirements of the Cadbury Code of Best Practicea)Boards of directors should include at least three outside directorsb)The positions of CEO and chairman of the board should not reside in the same individualc)Compliance is mandatory for public corporations, optional for listed non-public corporationsd)a) and b) but not c)Answer: d)。