which of the following statements is incorrect
a.
A stock is a certificate representing partial ownership in a corporation.
b.
Like debt securities, common stock is issued by firms to obtain funds.
c.
Stocks are issued by corporations to raise short-term
c.
stocks are issued by corporations to raise short-term funds
preferred shareholders
may not receive a dividend every year
from a cost perspective, preferred stock is a less desirable source of capital for a firm than bonds
true
a ____ requires that dividends cannot be paid on common stock until all current and previously omitted dividends are paid on preferred stock
cumulative provision
firms assume ____ risk when they issue preferred stock than when they issue bonds. The payment of dividends on preferred stock ____ be omitted without the firm being forced into bankruptcy
less; can
when a corporation first decides to issue stock to the public, it engages in an
initial public offering
a firm can best avoid the time lag between registering new securities with the SEC and actually selling them by
shelf-registration
the process by which the lead underwriter solicits indications of interest by institutional investors in an IPO at various possible _____ prices is referred to as _____
offer; book building
to the extent that shares sold during an IPO are discounted from their appropriate price, the proceeds that the issuing firm receives from the IPO are less than it deserves
True
the transaction costs to the issuing firm in an IPO is usually ___ percent of the funds raised
7%
if many investors quickly sell an IPO stock in the secondary market, there will be ____ on the stock's price
downward pressure
the purpose of a lockup provision is to
prevent downward pressure on the stock's price
when the lockup period expires, the share price commonly
decreases significantly
IPOs tend to occur more primarily during recessions
false
the initial (one-day) return of IPOs in the US have averaged about _____ percent over the last 30 years
20%
the practice of purchasing IPO stock at the offer price and selling the stock shortly afterward is called
flipping
_____ occurs when a securities firm allocates share from an IPO to corporate executives who may be considering an IPO or other business that will require the help of an investment bank
spinning
when brokers encourage investors to place bids for IPO shares on the first day that are above the offer price this is referred to as
laddering
on average, IPOs of firms tend to perform ____ over a period of years or longer
poorly
a firm that wants to engage in a secondary stock offering does not need to file the offering with the SEC
false
a firm will typically attempt to sell shares from a secondary offering
at the prevailing market price
buy and sell orders on the OTC market are completed by
a telecommunications network
an ____ is a certificate which represents ownership of a foreign stock
ADR
the first-time issuance of shares by a specific firm tot he public is referred to as an
initial public offering (IPO)
a new stock issuance by a specific firm that already has stock outstanding is referred to as an
secondary stock offering
managers of firms may consider a stock repurchase or even a leveraged buyout when they believe their stock is _____ by the market, or a secondary stock offering when they believe their stock is ______ by the market
undervalued; overvalued
the largest organized exchange, listing the largest firms, is the
new york stock exchange
_____ are employed by the brokerage firms and execute orders for clients on the floor of the NYSE
independent brokers
the OTC market does not have a trading floor
true
firms listed as "pink sheets" on the OTC market
none of the above
the prevailing price per share divided by the firm's earnings per share is known as the
price-earnings ratio
the ____ is a value-weighted average of stock prices of 30 large U.S firms
dow jones industrial average
the _____ is a value-weighted index of stock prices of 500 large U.S firms
Standard and Poor's 500
sudden favorable news about the performance of a firm will make investors believe that the firm's stock is ____ undervalued at its prevailing price
undervalued
analysts periodically communicate with high-level managers of the firms whose stock they rate
true
shareholders can most easily measure a firm's performance by monitoring changes in its _____ overtime
share price
which of the following is NOT true regarding the SOX act?
it allows public accounting firms to offer non-audit consulting services to an audit client whether the client's audit committee pre-approves the non-audit services or not
an example of shareholder activism is
a.
communication with the firm.
b.
engaging in a proxy contest.
c.
filing a lawsuit against the board.
d.
all of the above
all of the above
_____ are acquisitions that require substantial amounts of borrowed funds
leveraged buyouts
_____ are not barriers to corporate control to eliminate agency problems
leveraged buyouts
listing stock on a foreign stock exchange
a.
enhances the stock's liquidity.
b.
may increase the firm's perceived financial standing.
c.
may protect a firm against hostile takeovers.
d.
all of the above
all of the above
american depository receipts (ADRs) are similar to
stocks
_____ are portfolios of international stocks created and managed by various financial institutions
international mutual funds
______ sell shares to investors and use the proceeds to invest in portfolios of international stocks created and managed by portfolio managers
international mutual funds
when a firm buys some of its shares that it had previously issued, this is referred to as _____
stock repurchase
whenever _____, the stock price will be driven up
demand exceeds supply
which of the following is not a form of shareholder activisim?
poison pills
initial public offerings (IPOs) tend to occur more frequently during bearish (weak) stock markets
false
initial public offerings (IPOs) perform _____ on the day following the IPO and _____ for periods of a year or longer after the IPO
well;poorly
which of the following is not a part of the over-the-counter market?
the new york stock exchange
if the secondary market is inactive, then the shares would be illiquid
true
private firms that need a large equity investment but are not yet in position to go public may attempt to obtain funding from a venture capital (VC) fund
true
venture capital (VC) funds receive money from wealth investors and from pension funds that need to receive their money back in one year or less
false
venture capital (VC) funds commonly serve as advisors to the businesses in which they invest
true
venture capital (VC) funds usually invest in publicly-traded businesses
false
venture capital (VC) funds typically plan to exit from their original investment within a period of about one year
false
the phrase "leaving money on the table" refers to investors who pa more for a stock in the secondary market than was paid by those investors who were able to buy shares at the initial (offer) price on the IPO date
false
underwriters sell most or all of the shares of an IPO to institutional investors
true
the total cost of engaging in an IPO is usually about 1% of the total proceeds
false
since the SOX act of 2002, the initial returns resulting from an IPO have been smaller
true
in general, secondary offerings cause an immediate increase in the market price of the stock
false
electronic stock exchanges that execute stock transactions electronically are referred to as electronic communications networks (ECNs)
true
as a result of SOX, the firms were able to reduce their costs of compiling and reporting financial information
false
as a result of SOX, there was a reduced likelihood of fraudulent financial reporting by firms
true
the legal protection of shareholders varies substantially among countires
true
common law countries such as the US, canada, and the UK allow for more legal protection than civil law countries such as france or italy
true
the gov't enforcement of securities laws varies among countries
true
the laws of the financial information that must be provided by public companies is similar among all developed countries
false
ECNs are passive funds that track a specific index
false
a venture capital fund typically plans to exit from its original investment within about 4-7 years
true
VC funds typically take over businesses and manage them
false
normally, only the owners of preferred stock are permitted to vote on certain key matters concerning the firm, such as the election of the BOD
false
if investors become dissatisfied with a firms, performance, they can compete with mgmt in soliciting proxy votes in what is known as a proxy fight
true
IPOs tend to occur more frequently during bullish stock markets
true
according to financial research, there is evidence that the stock price associated with an IPO typically rises on the first day but then declines over time
true
shelf-registration allows firms to quick access to funds without repeatedly being slowed by the registration process
true
in addition to the Nasdaq market, the OTC market has another segment known as "pink sheets", where smaller stocks are traded
true
the dow jones industrial average (DJIA) is value-weighted average of stock prices of 30 large U.S firms
true
research studies have found that the share prices of target firms and of acquiring firms react very positively to announcements of an acquisition
false
if managers believe that their firm's stock price is weak because it is undervalued by the market, they may consider repurchasing a portion of the shares that are outstanding
true
international exchange-traded funds (ETFs) represent international indexes that reflect composites of stocks for particular countries; shares of the index can be purchased or sold, thereby allowing investors to invest directly in a stock index representin
true
which of the following is not true with respect to VC funds?
one common exit strategy for VC funds is to sell its equity stake to the public before the business engages in a public stock offering
the owners of common stock are permitted to vote on the
a.
election of the board of directors.
b.
authorization to issue new shares of common stock.
c.
approval of amendments to the corporate charter.
d.
adoption of bylaws.
e.
all of the above
all of the above
which of the following is not true with respect to preferred stock?
if the firm does not have sufficient earnings from which to pay the preferred stock dividends, the preferred shareholders may force the firm into bankruptcy.
which of the following is false with respect to IPOs?
owners of firms that engage in IPOs are normally required to retain their shares for at least 3 years before selling them in the secondary market.
to discourage flipping, some securities firms make ____ shares of future IPOs available to institutional investors that retain shares for a _____ period of time
more;long
there is strong evidence that IPOs of firms perform _____ on average over a period of a year or longer
poorly
firms are more willing to issue new stock in a secondary stock offering when the market price of their outstanding shares is relatively
high
pink sheets" are traded on the
over-the-counter market
which of the following is not a provision specified in the SOX act?
it requires that only inside board members of a firm be on the firm's audit committee
which of the following is not a form of shareholder activism?
anti-takeover amendments
which of the following is not a barrier to corporate control?
proxy contests