Corporate Governance
The system of controls, regulations, and incentives designed to minimize agency costs between managers and investors and prevent corporate fraud.
The role of the corporate governance system is to mitigate the conflict of interest that results from the separation of ____ and ___ without unduly burdening managers with risk of the firm.
ownership,control
T/F: In the U.S the board of directors has a clear fiduciary duty to protect the interests of the shareholders.
True
Inside Directors
Members of a board of directors who are employees, former employees, or family members of employees.
Gray Directors
Members of a board of directors who are not as directly connected to the firm as insiders are, but who have the existing or potential business relationships with the firm.
Outside (Independent) Directors
Any member of a board of directors other than an inside or gray director.
On a board composed of insider, gray and independent directors, the role of the independent director is really that of a ____.
watchdog
Captured
Describes a board of directors whose monitoring duties have been compromised by connections or perceived loyalties to management.
Smaller boards are associated with ___ firm performance.
greater
T/F: When security analysts produce independent valuations of the firms they cover so that they can make buy and sell recommendations to clients, they are also providing a form of firm monitoring.
True
_____ carefully monitor firms to which they are exposed as creditors.
Lenders
_____ of the firm are most likely to detect outright fraud because of their inside knowledge.
Employees
The ____ protects the investing public against fraud and stock price manipulation.
SEC
Backdating
The practice of choosing the grant date of a stock option retroactively, so that the date of the grant would coincide with a date when the stock price was lower than its price at the time the grant was actually awarded.
Greater managerial ownership is associated with ___ value-reducing actions by managers.
fewer
Shareholder Voice
Any shareholder can submit a resolution that is put to a vote at the annual meeting.
Shareholder Approval
Shareholders must approve many major actions taken by the board.
Proxy Contests
Disgruntled shareholders can hold a proxy contest and introduce a rival slate of directors for election to the board.