Corporate Governance quiz Corporate Finance Quiz On Aug 15, 2024 Share /20 1234567891011121314151617181920 Corporate Governance 20 questions in 20 minutes Pass Score 70% 1 / 20 Which of the following statements concerning the legal environment and shareholder protection is most accurate ? A common law system offers better protection of shareholder interests than does a civil law system Neither system offers an advantage over the other in the protection of shareholder interests A civil law system offers better protection of shareholder interests than does a common law system A common law system offers better protection of shareholder interests than does a civil law system . 2 / 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 factors are strictly intangible in nature ESG terminology is easily distinguishable among investors 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 . 3 / 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 investment committee the audit 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 . 4 / 20 Which of the following statements regarding ESG investment approaches is most accurate ? Thematic investing considers multiple factors Positive screening excludes industries with unfavorable ESG aspects Negative screening excludes industries and companies that do not meet the investor’s ESG criteria Negative screening refers to the practice of excluding certain sectors, companies, or practices that do not meet specific ESG criteria based on the investor’s values, ethics, or preferences . 5 / 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 Environmental Governance Social factors considered in ESG implementation generally pertain to the management of the human capital of a business, including data privacy and security. 6 / 20 Green finance is most likely an example of which ESG-related investment approach ? Values-based investing Negative screening Impact 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. 7 / 20 For which two of a company’s stakeholders does information asymmetry most likely make monitoring more difficult ? Suppliers and employees Employees and managers Managers and shareholders 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. 8 / 20 The type of resolution most likely to require a supermajority of shareholder votes for passage is a resolution to: choose a board member acquire a company approve the choice of an auditor 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 . 9 / 20 Which statement correctly describes corporate governance ? Corporate governance is independent of both shareholder theory and stakeholder theory Corporate governance complies with a set of global standards Corporate governance seeks to minimize and manage conflicting interests between insiders and external shareholders 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. 10 / 20 The primary motivation of activist shareholders is to promote : consideration of human rights in employee relations improved shareholder value environmentally sustainable business practices The primary motivation of activist shareholders is to increase shareholder value. If they feel management or the board has failed to act in the best interests of shareholders, they may attempt to force changes by gaining control of the board. (environmentally sustainable business practices) is incorrect. This is more likely to be a goal of ESG investors with an investment mandate focused on environmental factors. (consideration of human rights in employee relations) is incorrect. This is more likely to be a goal of ESG investors with an investing mandate focused on social factors. 11 / 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. 12 / 20 Which of the following issues discussed at a shareholders’ general meeting would most likely require only a simple majority vote for approval ? Election of directors Voting on a merger Amendments to bylaws The election of directors is considered an ordinary resolution and, therefore, requires only a simple majority of votes to be passed . 13 / 20 Benefits of effective corporate governance and stakeholder management most likely include : greater control exercised by the most interested stakeholders reduced risk of default more efficient related party transactions 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 . 14 / 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 . 15 / 20 _______ investing is the umbrella term used to describe investment strategies that incorporate environmental, social, and governance (ESG) factors into their approaches . ESG Sustainable Responsible Responsible investing is the broadest (umbrella) term used to describe investment strategies that incorporate environmental, social, and governance (ESG) factors into their approaches . 16 / 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 : thematic investing negative screening 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. 17 / 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 . 18 / 20 Which of the following represents a responsibility of a company’s board of directors ? Considering the interests of shareholders only Implementation of strategy Enterprise risk management The board typically ensures that the company has an appropriate enterprise risk management system in place . 19 / 20 Which of the following stakeholders are least likely to be positively affected by increasing the proportion of debt in the capital structure ? Non-management employees Shareholders 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 . 20 / 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. Your score is LinkedIn Facebook Twitter VKontakte 0% Send feedback and corporate governanceCorporate Governancecorporate governance definition