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Which of the following statements is not true about stockholders?

They own equal shares of company assets.

Which of the following is not true about institutional investors?

The proportion of institutional ownership of stock in the U.S. has declined slowly since the 1960s.

Institutional investors are sometimes referred to as:

Wall Street investors.

In 2008 and early 2009, share values declined sharply as the global economy fell into a severe recession. This type of stock market is referred to as a:

Bear market.

Which if the following is not a legal right of stockholders?

To vote on who will become chief executive officer (CEO).

Corporate governance involves the exercise of control over a company’s:

Entire operations.

The directors of a company are a central factor in corporate governance because they:

Exercise formal legal authority over company policy.

The paramount duty of the board of directors of a public corporation is to:

Select and oversee competent and ethical management to run the company.

Which of the following is true about corporate boards?

Corporate boards average 12 members.

In 2010, median compensation for directors at the largest U.S. corporations was (rounded to the nearest $10):


The board committee that administers and approves salaries and benefits of high-level managers in a company is called the:

Compensation committee.

Which of the following is not a function of board committees?

The finance committee works closely with the human resources department to fund employee salaries.

How are directors (members of corporate boards) selected?

Shareholders elect the directors from a list of candidates.

Which of the following is a key feature of effective boards of directors?

Hold regular meetings without the CEO present.

By 2010, out of the 100 largest US companies, how many had separated the positions of CEO and board chairman?


The "agency problem" arises when:

Managers act in their own interest, rather than in the interest of shareholders.

The main reason that American executives are paid so much is:

Pay is set by the compensation committees of the board, largely comprised of other CEOs who have an interest in pushing compensation up.

Which of the following arguments opposes the idea of high executive pay?

High salaries divert resources that could be used to invest in the business.

Which of the following is not an argument for high executive compensation?

Inflated executive pay helps U.S. firms compete with foreign rivals.

A reason for institutions becoming more assertive in promoting the interests of their member investors is:

It is difficult for institutions to sell their holdings.

The activism of institutional investors in other countries has been spearheaded by:

U.S.-based pension and mutual funds that in recent years acquired large stakes in foreign countries.

Which of the following is not an example of fulfilling social objectives through stock ownership?

Selling stock of companies with a below-market rate of return.

The mission of the Securities and Exchange Commission (SEC) is to:

Protect shareholders’ rights by making sure that stock markets are run fairly.

In response to concerns about the lack of transparency in financial accounting, Congress passed a new law called the:

Sarbanes-Oxley Act.

The Securities and Exchange Commission outlaws:

Any manipulative or deceptive device used to trade stocks.

Which of the following is not an instance of "insider trading"?

A marketing executive briefing stock analysts on the company’s sales performance.

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