Corporate Governance quiz Corporate Finance QuizFinancial Analysis Quiz On Jan 31, 2026 Share Corporate Governance 20 questions in 20 minutes Pass Score 70% 1 / 20 Which statement correctly describes corporate governance ? Corporate governance is independent of both shareholder theory and stakeholder theory Corporate governance seeks to minimize and manage conflicting interests between insiders and external shareholders Corporate governance complies with a set of global standards Corporate governance is the arrangement of checks, balances, and incentives a company needs to minimize and manage the conflicting interests between insiders and external shareholders. 2 / 20 Which of the following represents a principal-agent conflict between shareholders and management ? Risk tolerance Accounting and reporting practices Multiple share classes Shareholder and manager interests can diverge with respect to risk tolerance. In some cases, shareholders with diversified investment portfolios can have a fairly high risk tolerances because specific company risk can be diversified away. Managers are typically more risk averse in their corporate decision making to better protect their employment status . 3 / 20 The least likely item to be a requirement for good stakeholder management is : an understanding of the interests of several stakeholder groups maintaining effective communication with other stakeholders the ability to put aside the interests of one’s stakeholder group The ability to manage the conflicting interests of company relations with stakeholders requires good communication with stakeholders and a good understanding of their various interests . 4 / 20 Which of the following stakeholders are least likely to be positively affected by increasing the proportion of debt in the capital structure ? Shareholders Non-management employees Senior management While leverage increases risk for all stakeholders, shareholders generally benefit through higher potential returns. Senior management typically benefits through equity-based compensation. For non-management employees, equity-based compensation is likely to be small to non-existent . 5 / 20 The method of ESG integration that does not exclude any sectors but seeks to invest in the companies with the best practices regarding employee rights and environmental sustainability is : negative screening thematic investing positive screening Positive screening does not exclude any sectors but seeks to invest in the companies with the best practices. Negative screening typically excludes some sectors. Thematic investing refers to making an investment in a company or project in order to advance specific social or environmental goals. 6 / 20 Which of the following scenarios can best be described as offering superior protection of shareholder interests ? When common law is practiced When stakeholder theory prevails When CEO duality is common Unlike civil law systems, common law systems provide judges with the ability to create law by setting precedents that are followed in subsequent cases. Shareholders are viewed as better protected under common law because judges may rule against management actions in situations that are not specifically addressed by statutes. (When CEO duality is common ) is incorrect. Under CEO duality, the CEO also serves as chairperson of the board. All else equal, this decreases the protection of shareholder interests in favor of those of management. ( When stakeholder theory prevails ) is incorrect. Stakeholder theory incorporates the interests of non-shareholders such as customers, suppliers, and employees. This inevitably dilutes the focus on shareholders. 7 / 20 Benefits of effective corporate governance and stakeholder management most likely include : more efficient related party transactions greater control exercised by the most interested stakeholders reduced risk of default Reduced risk of default is among the benefits of effective corporate governance. Risks from poor corporate governance include related party transactions by managers and opportunities for some stakeholder groups to gain advantage at the expense of others . 8 / 20 Which group of company stakeholders would be least affected if the firm’s financial position weakens ? Suppliers Customers Managers and employees Compared with other stakeholder groups, customers tend to be less affected by or concerned with a company’s financial performance . 9 / 20 An investor concerned about clean-up costs resulting from breaches in a publicly traded company’s safety standards would most likely consider which factors in her investment analysis ? Social factors Governance factors Environmental factors Material environmental effects can arise from strategic or operational decisions based on inadequate governance processes or errors in judgment. For example, oil spills, industrial waste contamination events, and local resource depletion can result from poor environmental standards, breaches in safety standards, or unsustainable business models. Such events can be costly in terms of regulatory fines, litigation, clean-up costs, reputational risk, and resource management. 10 / 20 A company’s management team is proposing to sell a major division because of low future growth prospects in that industry. To which committee of the board is the proposal most likely to be presented ? Risk Investment Audit Management is most likely to present the proposed sale to the investment committee, whose main role is to review the viability of material investment opportunities proposed by management. (Risk) is incorrect. Assessing proposed investment or divestment opportunities is the primary role of the investment committee, not the risk committee. The risk committee assists the board in determining the risk policy, profile, and appetite of the company. (Audit) is incorrect. Assessing proposed investment or divestment opportunities is the primary role of the investment committee, not the audit committee. 11 / 20 Which of the following statements regarding stakeholder management is most accurate ? Directors are excluded from voting on transactions in which they hold material interest The use of variable incentive plans in executive remuneration is decreasing Company management ensures compliance with all applicable laws and regulations Often, policies on related-party transactions require that such transactions or matters be voted on by the board (or shareholders), excluding the director holding the interest . 12 / 20 Which of the following statements about environmental, social, and governance (ESG) in investment analysis is correct ? Environmental and social factors have been adopted in investment analysis more slowly than governance factors ESG terminology is easily distinguishable among investors ESG factors are strictly intangible in nature The risks of poor corporate governance have long been understood by analysts and shareholders. In contrast, the practice of considering environmental and social factors has been slower to take hold . 13 / 20 The type of resolution most likely to require a supermajority of shareholder votes for passage is a resolution to: approve the choice of an auditor acquire a company choose a board member Ordinary resolutions, such as those to appoint an auditor or elect a board member, require a simple majority. Acquisitions, mergers, takeovers, and amendments to the company bylaws often require a supermajority of more than 50% for passage . 14 / 20 Green finance is most likely an example of which ESG-related investment approach ? Impact investing Negative screening Values-based investing Green finance is an example of impact investing, which seeks to achieve targeted social or environmental objectives by direct investment in projects or companies. Values-based investing is used to express the moral or ethical beliefs of the investor. Negative screening refers to the practice of excluding certain sectors or companies that deviate from acceptable standards. (Negative screening) is incorrect. Negative screening refers to the practice of excluding certain sectors or companies that deviate from acceptable standards. (Values-based investing) is incorrect. Values-based investing is used to express the moral or ethical beliefs of the investor. 15 / 20 An investor concerned about a publicly traded company’s data privacy and security practices would most likely incorporate which type of ESG factors in an investment analysis ? Social Governance Environmental Social factors considered in ESG implementation generally pertain to the management of the human capital of a business, including data privacy and security. 16 / 20 The board of directors committee most likely to be responsible for monitoring the performance of a project that requires a large capital expenditure is : the audit committee the investment committee the risk committee The investment committee reviews proposals for large acquisitions or projects and also monitors the performance of acquired assets and of projects requiring large capital expenditures . 17 / 20 Which of the following is most consistent with good corporate governance practices ? An audit committee that benefits from the direct guidance of management All stakeholders should have the right to participate in the governance of the firm Appropriate controls and procedures to effectively manage the firm should be in place Effective corporate governance requires a system of appropriate controls and procedures to protect financial markets and investors. (All stakeholders should have the right to participate in the governance of the firm) is incorrect. Only shareholders have the right (not all stakeholders) to participate in the governance of the firm. (An audit committee that benefits from the direct guidance of management) is incorrect. The audit and compensation committees are best structured with exclusively independent directors, and no management involvement. 18 / 20 The existence of “stranded assets” is a specific concern among investors of : property companies energy companies health care companies A specific concern among investors of energy companies is the existence of “stranded assets,” which are carbon-intensive assets at risk of no longer being economically viable because of changes in regulation or investor sentiment . 19 / 20 For which two of a company’s stakeholders does information asymmetry most likely make monitoring more difficult ? Managers and shareholders Suppliers and employees Employees and managers Information asymmetry can exist between a company’s shareholders and its managers because the company’s managers may be much more knowledgeable about the company’s functioning and strategic direction. This makes it more difficult for shareholders to monitor the firm’s managers and determine whether they are acting in shareholders’ interests. 20 / 20 Which of the following issues discussed at a shareholders’ general meeting would most likely require only a simple majority vote for approval ? Voting on a merger Amendments to bylaws Election of directors The election of directors is considered an ordinary resolution and, therefore, requires only a simple majority of votes to be passed . Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback and corporate governanceCorporate Governancecorporate governance definition
