Chapter 5

Question 1

interested in achieving good long-term growth

Answer 1

Executives

Question 2

Suggests that a firm can be viewed as a contract between resource providers and the resource controller. A relationship that came into being by the existence of principals and agents

Answer 2

Agency Theory

Question 3

the insufficiency of information that is normally obtainable to the principal and to the agents.

Answer 3

Adverse Selection

Question 4

resources to be sacrificed to keep an eye on things that are perceived or need to be closely controlled from the perception of the principal are significant costs in a principal-agent relationship.

Answer 4

Agency Cost

Question 5

A corporation’s manager can or may have personal objectives that compete with the owners’ objective of maximization of shareholder wealth.

Answer 5

Conflict of Interest

Question 6

are principals of public companies and their immediate agents are board of directors.

Answer 6

Shareholders

Question 7

are principals; their agents are the executives selected to carry out policies and the independent auditors they engage to audit the FS of the company.

Answer 7

BOD

Question 8

exercise of voting in behalf of shareholders through the use of special authority given by the shareholder/principal to another shareholder. In this process, the one who would cast votes would either by another shareholder or a fund manager.

Answer 8

Proxy Voting

Question 9

vote for uncontested director or trustee nominees, other minor things like changes in company name and procedural matters

Answer 9

Routine Decisions

Question 10

vote for charter and amendments of by-laws, on matters related to compliance with application laws/regulations

Answer 10

Governance

Question 11

vote proposals that need shareholders’ confirmation of anti-takeover measures and proxy system provide a swift and effective way of piling up these poison pills

Answer 11

Issues on anti-takeover

Question 12

is a lawsuit filed by a shareholder on behalf of the corporation against a third party. The third party referred to here, more often, is an insider of the corporation, directors and other senior officers of the company.

Answer 12

Derivative suit

Question 13

is the “general term referring to transfer of control of a firm from one group of shareholders to another group of shareholders.

Answer 13

Takeover - Corporate takeover

Question 14

Before a bidder company makes an offer for another company, it usually inform first the BOD of the company to be taken over. When the board agree, it then recommends the said offer be accepted by the shareholders.

Answer 14

Friend takeover

Question 15

permits the “acquirer to be” company to bypass target company’s management if it is uncooperative and unwilling to agree to a merger or takeover.

Answer 15

Hostile takeover

Question 16

is a type of merger used by private companies to become publicly traded without passing through an initial public offering (IPO).

Answer 16

Reverse Takeover

Question 17

is a corporate finance term which means a type of takeover proposal that is public and open invitation, usually coursed through media by a prospective acquirer to all stockholders of a publicly-traded corporation (“acquirer to be”) which is the target corporation.

Answer 17

Tender Offer

Question 18

is an act of funding for the purpose of obtaining control over a corporation through the purchase of stock or any other means; the process of providing capital for someone to establish control of another corporation.

Answer 18

Financing takeover

Question 19

The acquiring company borrow from a bank to finance the takeover or raise funds needed through issuance of bonds.

Answer 19

Debt Financing

Question 20

This is done by giving the shareholder of the target company offers that include a debt instrument in partial or full payment of shares.

Answer 20

Partial of Full equity conversion

Question 21

Sometimes the takeover can entirely be financed by a share swap or all share deal. There will be no money involved, instead the bidder company issues its own new shares to the shareholders of the “acquired to be” company. The acquiring company will end up the majority shareholder and have the control over the company’s crucial issues.

Answer 21

Share Swap/ All share deal

Question 22

other corporations/entities, private or public, offering the same product or services that the company is offering. This affects governance considering that, to the eyes of the investors, the best run business are the most attractive for investment.

Answer 22

Competitors

Question 23

person or entity who manages routinely huge amount of money. They are involved in lending money, project financing, large-scale investment or large-scale management of money. Financiers affect company’s governance because as the fund provider, financiers wants their investment secured.

Answer 23

Financiers

Question 24

public authority or government agency responsible for exercising authority over some area of corporate activity in a regulatory or supervisory capacity.

Answer 24

Regulatory Agencies

Question 25

refers to independent organizations trying to police a particular industry or corporate conduct to make certain that their activities are in accordance with the acceptable standards and existing laws.

Answer 25

Watchdogs

Question 26

are corporations that are always on the watch and waiting for a chance to takeover a certain company.

Answer 26

Predator companies

Question 27

Gatekeepers refer to independent third party persons/entity whose cooperation is important because they have the capability to at least deter, if not prevent misconduct of corporations.

Answer 27

Information enhancers, providers and gatekeepers

Question 28

is an individual/entity which acts as an agent for corporation issuing securities.

Answer 28

Investment bankers

Question 29

refers to an entity which offers trading services and facilitates for stock brokers and traders, to buy and sell shares of stock and other securities.

Answer 29

Stock Exchanges

Question 30

cautious study of the soundness and reliability of the corporation with the view of bringing its securities to the investment market

Answer 30

Origination (investigation, analysis and research)

Question 31

an arrangement with an investment banker whereby the investment banker agrees to buy the entire issue at a set price.

Answer 31

Underwriting (Public cash offerings)

Question 32

this is marketing the security issue. The investment banker acts as a professional firm to distribute securities efficiently for the corporation.

Answer 32

Distribution

Question 33

refers to newspapers, magazines, TV channels, broadcast programs, and other media specializing in financial news and updates.

Answer 33

Financial Press