Corporate Finance - Corporate Finance Section 1
1. Which of the following is the most appropriate definition of corporate governance?
- Option : C
- Explanation : Corporate governance is the system of internal controls and procedures by which individual companies are managed.
3. Which of the following is least likely a common interest of shareholders and creditors?
- Option : C
- Explanation : Both creditors and shareholders desire high profits, however dividends are only particular to shareholders.
- Option : A
- Explanation : A decision to venture into new markets would increase the company's revenue and profits which is in the interest of both shareholders and employees. In a takeover scenario, the management may fear losing their employment; however, the offer may be attractive for shareholders. Similarly, a proposal to redraft the bonus structure can create a conflict in that shareholders would want to reduce expenses whereas the management would want higher bonuses.
5. Which of the following is not a function of the board of directors?
- Option : B
- Explanation : The board of director's responsibility is to protect shareholder interests and ensure the management works in the best interest of shareholders. Protecting management interests in front of shareholders is not a responsibility of the board.
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