Lecture 2

Question 1

What are the three agency costs?

Answer 1

1. Monitoring costs
2. Signaling costs
3. Residual costs

Question 2

What is shirking?

Answer 2

When managers intentionally put in less effort

Question 3

What is tunneling?

Answer 3

When manager transfers company assets for their own benefit

Question 4

What are the anti-takeover mechanisms?

Answer 4

Poison pills: existing shareholders to purchase extra shares at discount

Golden parachute: give generous payment to executives after acquisition

Staggered board: classify board to prevent board being replaced at once

Supermajority requirement: very high shareholder approval

Question 5

What is the VOC known for?

Answer 5

The first publicly listed company

Question 6

What does the board of directors do?

Answer 6

It monitors and advices the management

Question 7

A board of directors consists of?

Answer 7

1. Board independence -> to limit CEO power
2. Board diversity

Question 8

Which three rating agencies do we have and who pays for it?

Answer 8

1. Credit rating agencies -> paid by the issuing company
2. Governance rating agencies -> paid by investors
3. ESG rating agencies -> paid by investors

Question 9

Insitutional investors have the resources, the incentive, and bargaining power to influence management on?

Answer 9

1. Business strategies
2. Corporate governance issues
3. Environmental & social issues