! Lecture 4 (w3)

Question 1

Seniorities of debt

Answer 1

-Senior debt
-Subordinated debt
-Junior debt

Question 2

Dual-class shares meaning

Answer 2

stocks offered in two or more classes (one with limited voting power - for public,executives and founders get with more voting power, sometimes even third class for employees)

Question 3

Traits of individual investors

Answer 3

-Lack of incentive and expertice
-Hard to coordinate
-Free-riding problems

Question 4

Traits of Active (institutional) investors

Answer 4

-Has incentive and expertice and resources to monitor
-Have bargaining power
-Seling may be too costly if it moves the market price

Question 5

Traits of passive (institutional) investors

Answer 5

-Tracking index
-Can’t easily sell an individual firm

Question 6

Negative vs Positive screening

Answer 6

Negative - avoid firms, industries with poor financial/ESG performance

Positive - seeking best performers and include those in the portfolio

Question 7

Engagement strategies of shareholders engaging with management

Answer 7

-Private negotiations with management
-Collaborate with other institutional investors
-File shareholder proposals
-Proxy fight
-Threat to divest

Question 8

Proxy fight meaning

Answer 8

unfriendly contest for control over an organization, often involving shareholders’ votes

Question 9

Proxy meaning

Answer 9

delegated person to vote on your behalfzs

Question 10

Shareholder activists

Answer 10

using their equity stake to bring change withing the company

Question 11

Proxy season

Answer 11

April-June - companies hold annual general meetings for shareholders to vote

Question 12

How could creditors affect governance quality

Answer 12

Loan screening
Loan covenant (restrict asset sale without creditors’ permission..)
Regular credit monitor (Financial performance, collateral management)