21 Questions
Match the following terms with their definitions:
Agency cost of debt = Conflict between shareholders and creditors due to differing objectives Debt - Risk-taking = Situation where stockholders take riskier projects than creditors prefer Bankruptcy Cost = Total expected cost of going bankrupt, including direct and indirect costs Capital providers' problem = Divergence of interests between stockholders and creditors
Match the following statements with the correct term:
Creditors lend money to stockholders = Agency cost of debt Stockholders maximize wealth = Agency cost of debt Expected bankruptcy cost function of two variables = Bankruptcy Cost Clash of interests between lenders and stockholders = Capital providers' problem
Match the following situations with the appropriate consequence:
Stockholders invest in risky projects = Debt - Risk-taking Stockholders pay themselves large dividends = Debt - Risk-taking Legal and Deadweight Costs in bankruptcy = Bankruptcy Cost Indirect costs of bankruptcy due to financial trouble perception = Bankruptcy Cost
Match the stakeholder initiative with its corresponding type of additional disclosure:
Sustainability Reports = Link strategy and sustainable results Human Capital Reports = Diversity etc. Climate Change Impact Reports = Potential impacts on the firm from climate change risk External Assessment of ESG = Third-party organizations rate and rank companies on ESG dimensions
Match the challenge faced by directors with the correct solution for increasing transparency:
Lack of uniform disclosure standards = Some companies provide additional disclosure via Sustainability Reports Absence of reliable reporting metrics = Some companies provide additional disclosure via Human Capital Reports Difficulty in assessing stakeholder initiatives = Some companies provide additional disclosure via Climate Change Impact Reports Need for oversight of ESG matters = Some companies provide additional disclosure via External Assessment of ESG
Match the entity with its primary objective:
Stakeholders = Better understanding a company's ESG initiatives Shareholders = Looking to rate and rank companies on ESG dimensions Directors = Facing challenges in providing oversight of ESG matters Third-party organizations = Providing external assessment of ESG
Match the following concepts with their descriptions:
CEO Activism = CEOs taking personal stances on environmental, social, and political issues Debt and Equity Providers = The relationship between debt and equity providers ESG Scores and Risks = Measuring qualitative factors and making them quantitative Credit Rating Agencies = Entities responsible for providing credit ratings for companies
Match the following statements with the correct descriptions:
CEO Activism Public Perception = The public supports CEO advocacy for environmental, healthcare, poverty, and tax issues CEO Activism Contentious Issues = The public is less supportive of CEO activism on gun control, abortion, politics, and religion CEO Activism Impact = Research shows that CEO activism has both positive and negative effects Executive Compensation Tie = Movement to link results to executive compensation, increasing measurement challenges
Match the following factors with their roles:
Role of Debt = Understanding the role of debt in the financial structure Managing Complexity = Handling relationships with various stakeholders effectively Stock Performance Measurement = Quantifying earnings or stock performance for evaluation Auditing Results = Ensuring accuracy and reliability of reported outcomes
Match the following index fund companies with their nickname:
Blackrock = Big 3 Vanguard = Big 3 State Street = Big 3 Fidelity = Big 3
Match the following companies with their active involvement in advocacy campaigns:
Google = Employee Activism Amazon = Employee Activism Microsoft = Employee Activism Apple = Employee Activism
Match the following stakeholder dimensions with the method used to rate corporations:
ESG Metrics Data providers = Financial reports
Match the following commitments with the respective areas in the Business Round Table statement:
Delivering value to customers = Business Round Table - Purpose Investing in employees = Business Round Table - Purpose Dealing ethically with suppliers = Business Round Table - Purpose Supporting communities = Business Round Table - Purpose
Match the following actions with their impact on shareholders according to the Business Round Table statement:
Transparency and effective engagement = Generating long-term value Supporting communities and protecting environment = Generating long-term value Investing in employees' training and education = Generating long-term value Dealing fairly and ethically with suppliers = Generating long-term value
Match the following companies with their commitment to diversity and inclusion:
Google = Diversity and inclusion Amazon = Diversity and inclusion Microsoft = Diversity and inclusion Facebook = Diversity and inclusion
Match the following credit rating grades with their corresponding default risk level:
AAA = Low default risk BB = High default risk A = Low default risk CC = High default risk
Match the following functions of Credit Rating Agencies with their descriptions:
Providing rating reports = Detailed information on issuer's risk profile Monitoring role = Tracking performance of transactions Calibrating investment decisions = Matching risk-return preferences Unique letter-based scores = Indicating default risk and financial stability
Match the following credit rating agencies with their primary function:
Moody's = Providing credit ratings for securities S&P = Issuing credit ratings for debt instruments Fitch = Evaluating issuer's financial stability Equity Analysts = Analyzing firm's operating conditions
Match the following characteristics of speculative grade securities with their corresponding rating grades:
BBB = Investment grade CC = Speculative grade A = Investment grade B = Speculative grade
Match the following aspects analyzed by Equity Analysts with their focus areas:
Firm's future prospects = Long-term outlook Management team effectiveness = Operating conditions assessment General industry outlook = Industry perspective evaluation Financial conditions evaluation = Immediate future prospects
Match the following roles of Credit Rating Agencies with their impact on investors:
Assisting in informed decisions = Helping investors analyze risks Providing external-governance mechanisms = Serving as equity analysts Giving detailed information on risks = Calibrating investment preferences Tracking transaction performance = Monitoring industry outlook
This quiz covers the concept of agency cost of debt, the relationship between creditors and stockholders, and the role of creditors in forcing a firm into bankruptcy. Test your knowledge on how creditors provide funds to a company and their risk of being expropriated by insiders.
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