Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134408897
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Question
Chapter 29, Problem 16P
Summary Introduction
To discuss: The reason why hedging against a decrease in market value stock matters for a corporate governance.
Introduction:
Dodd-Frank Act is an act that was enacted in the year 2010 by Country U. This Act came into force due to the 2008 financial crisis. Its main aim is to strengthen financial stability of the Country U governance.
The way wherein the stakeholders of a company control the affairs of the firm to guarantee their return on investment is termed as corporate governance.
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Which of the following statements is NOT CORRECT?
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“Going public” establishes a firm’s true intrinsic value and ensures that a liquid market will always exist for the firm’s shares.
Publicly owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC.
When stock in a closely held corporation is offered to the public for the first time, the transaction is called “going public,” and the market for such stock is called the new issue market.
Which of the following statements is CORRECT?
One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the capital structure.
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Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers.
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Chapter 29 Solutions
Corporate Finance Plus MyLab Finance with Pearson eText -- Access Card Package (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Ch. 29.1 - Prob. 1CCCh. 29.1 - Prob. 2CCCh. 29.2 - Prob. 1CCCh. 29.2 - Prob. 2CCCh. 29.3 - What is the main reason for tying managers...Ch. 29.3 - Prob. 2CCCh. 29.4 - Prob. 1CCCh. 29.4 - Prob. 2CCCh. 29.5 - Prob. 1CCCh. 29.5 - Prob. 2CC
Ch. 29.5 - Prob. 3CCCh. 29.6 - Prob. 1CCCh. 29.6 - Prob. 2CCCh. 29 - Prob. 1PCh. 29 - Prob. 2PCh. 29 - Prob. 3PCh. 29 - Prob. 4PCh. 29 - Prob. 5PCh. 29 - Prob. 6PCh. 29 - Prob. 7PCh. 29 - Prob. 8PCh. 29 - Prob. 9PCh. 29 - Prob. 10PCh. 29 - Prob. 11PCh. 29 - Prob. 12PCh. 29 - Prob. 13PCh. 29 - Prob. 14PCh. 29 - Prob. 15PCh. 29 - Prob. 16PCh. 29 - Prob. 17PCh. 29 - Prob. 18PCh. 29 - Prob. 19PCh. 29 - Prob. 20P
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- It is frequently stated that the one purpose of the preemptive right is to allow individuals to maintain their proportionate share of the ownership and control of a corporation.a. How important do you suppose control is for the average stockholder of a firm whose shares are traded on the New York Stock Exchange?b. Is the control issue likely to be of more importance to stockholders of publicly owned or closely held (private) firms?arrow_forwardShould corporate lawyers who become aware that someone at the client corporation may have violated securities laws report their suspicions only to persons within the corporation, or should they report their concerns to the SEC?arrow_forwardWhich of the following statements is NOT CORRECT? (A) Going public establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares (B) Publicly owned companies have sold shares to investors who are not associated with management, and they must register with and report to a regulatory agency such as the SEC. (C) When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public." and the market for such stock is called the new issue market (D) It is possible for a firm to go public and yet not raise any additional new capital (E) When a coporation';s shares are owned by a few individuals who own most of the stock or are part of the firm's management, we say that the firm is "closaly, or privately, held.arrow_forward
- Below is a summary of the SEC corporate governance requirements of companies publicly-listed in the stock exchange. For each requirement, state how it is intended to help to address the risk of fraud in publicly traded organizations. a. Boards need to consist of at least independent directors or 1/3 of the board which is higher.arrow_forwardWhy are vice presidents and other executive managers who are privy to financial performance data considered insiders to a publicly traded company as defined by the Securities and Exchange Commission (SEC)?arrow_forwardA stockholder dissatisfied with the management of the corporation done by the Board of Directors surrenders his certificate of stocks and demands the return of the subscription price paid by him. Can he rightfully do this? Explain.arrow_forward
- Why can a stockholder have the right to inspect corporate books and records? Is this right absolute or allows for exception? Explain.arrow_forwardWhich is not true: The blue-sky process involves state security regulators The SEC reviews public company registration documents Regulation A covers large company stock offerings Underwriters are investment banks managing public offeringsarrow_forwardThe American Competitiveness and Corporate Accountability Act of 2002 is otherwise known as the Sarbanes-Oxley Act. Provisions of this law significantly affected capital markets, corporate governance and the Accountancy Profession especially the area on auditing. true or false?arrow_forward
- Which of the following is a disadvantage of a company going public? Going public mandates compliance with ongoing SEC disclosure requirements. The amount of equity capital that can be raised in the public equity markets is typically less than the amount that can be raised through private sources. A company can raise equity capital only once by going public. There are millions of investors in public stock markets, and it is not easier for firms to reach these investors through public markets.arrow_forwardWhich law or regulation requires that public companies must maintain strong internal control systems?a. Dodd-Frank Actb. Sarbanes-Oxley Actc. Securities and Exchange Act of 1933d. Treadway Commissionarrow_forwardWhich of the following statements is NOT CORRECT? a. It is possible for a firm to go public and yet not raise any additional new capital for the firm itself. b. When a corporation's shares are owned by a few individuals, we say that the firm is "closely, or privately, held." c. The stock of publicly owned companies must generally be registered with and reported to a regulatory agency such as the SEC. d. When stock in a closely held corporation is offered to the public for the first time, the transaction is called "going public, or an IPO," and the market for such stock is called the new issue or IPO market. e. "Going public" establishes a firm's true intrinsic value and ensures that a liquid market will always exist for the firm's shares.arrow_forward
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