Tutorial+solutions+Week+12 - Chapter 18 Corporate...

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Chapter 18 Corporate Governance and the International Market for Corporate Control Answers to Conceptual Questions 18.1 Define corporate governance. Why is it important in international finance? Corporate governance refers to the way in which major stakeholders influence and control the modern corporation. Typically, there is a supervisory board (e.g., the Board of Directors in the U.S.) that represents the most influential stakeholders (debtholders in bank-based systems and equity in market-based systems). The supervisory board monitors the management team which manages the day-to-day operations of the corporation. The form of corporate governance determines the particular stakeholders that are represented on the board and has a major large influence on top executive turnover and the market for corporate control. 18.2 In what ways can one firm gain control over the assets of another firm? Direct means of acquiring control over another firm’s assets include an outright purchase of those assets, a purchase of equity, and through merger or consolidation. Indirect means include joint ventures or other collaborative alliances. 18.3 What is synergy? When the whole is greater than the sum of the parts in a corporate acquisition. 18.4 Describe several differences in the role of commercial banks in corporate governance in Germany, Japan, and the United States. Commercial governance in the U.S. is dominated by capital markets. Commercial banks in the U.S. have been constrained by the U.S. Congress in the influence that they can exert over U.S. corporations. For example, the Glass-Steagall Act of 1933 prohibited banks from owning stock except in trust, actively voting shares held in trust for their clients, or acting as investment bankers or equity brokers. Banks in Germany are not constrained in any of these ways. While banks in Japan cannot own more than 5% of the equity of any single company, the share cross-holdings in Japan’s keiretsu place Japanese banks in a more prominent role than their counterparts in the United States. For these reasons, German banks are more influential in corporate governance than Japanese banks and Japanese banks are more influential than U.S. banks in corporate governance. 18.5 Describe four ways that banks can influence corporate boardrooms in countries – such as Germany – that offer universal banking? Universal banking refers to a financial system in which banks offer a full range of banking and financial services. They can influence corporate boardrooms in four ways: 1) supply debt capital via commercial loans, 2) invest in equity, 3) actively vote the shares of their trust (pension fund) and brokerage customers, and 4) serve as investment bankers for debt and equity issues to the public. 18.6
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Tutorial+solutions+Week+12 - Chapter 18 Corporate...

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