Group 7: Exam Questions

11, 13, 18, 23b, 30

Problem 11 a.Risks: To corporate the impact of cash flow uncertainty on firm value .  Intensify the decision complexity and result in decision making less effective b. A rise in the proportion of shareholder-elected female directors worsens the performance of the firm d. Mandatory Employee Directors  Strongest impact on firm’s performance  Employee have more incentives and power to make decision beneficial for themselves at the expense of stockholders c. Model must control for: . Gender diversity should not be increased.Firm’s size: There is a consistent correlation between firm’s size and value creation in asset-pricing tests . There is a negative relationship between firm’s performance and fraction of Employee Directors Why??? Employees will try to protect their human capital invested in the company by opposing the projects that they fear may decrease their benefits.

with only one class of directors coming up for election in a given year  it takes longer time to replace a majority (normally two thirds) to make a decision of accepting the bid  a more independent board is more likely to reject the initial bid and demand higher revised bid. typically three. making it difficult to take over the targeted firm . Staggered board is one of the takeover defences Why??? A staggered board (classified board) is segmented into classes.Problem 24b • Question: Staggered board makes the firm more exposed to takeover attempts • Answer: False.

better monitoring & advice .Trade-off between monitoring and advice . not like monitoring b.Problem 13 a.CEO is unwilling to share information with more independent board .CEO like advices. The relationship may not positive because: . Endogeneity means: Information provision is affected by board independence: CEO provides less information to more independent board Assumptions: .More information.Independent directors have stronger monitoring incentives than dependent directors .

A too powerful owner takes control and runs firm in his way without the need of an independent board .Disadvantage: non-executive directors are not independent from executive directors.Advantage: non-executive directors have enough information. b. 1-tier board . The concentrated ownership with strong control firms would benefit the least: . better monitoring. .The board has already been independent from managers .Problem 20 a.

The optimal fraction of women on the board may vary from firm to firm. it may damage the optimal fraction of gender in each firm and do harm to firm’s value . .If a regulation mandates the same fraction of male directors in every firm. The fraction of male directors has been set at optimal level:  Its marginal effect on firm’s performance is 0  Its corresponding coefficient is expected to be 0 b.Problem 18 a. .

Ensure that managers act in most shareholders' interests and mitigate agency problem.Problem 30 a.Negative advice effect of the board without enough information. reduces board’s performance.CEO tend to be less willing to provide firm-specific information to board. have less to lose in fight with powerful owners and thus leads to better monitoring .Independent directors have no or little relation with large shareholders. . b. . Mitigate agency problems in concentrated-ownership-firms: . How CEO and board react when board independence increases: .