Corporate Governance 3rd Edition by Kenneth Kim – Test Bank


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Complete Test Bank With Answers




Sample Questions Posted Below






Chapter 5: Investment Banks and Securities Analysts


True / False Questions


F          Due to the higher risk for the investment bank, fees for seasoned equity offerings (SEO) are usually higher than for initial public offerings (IPO).


T          As demand for technology firms dramatically increased in the mid- to late-1990s, investment banks began to bring inferior companies to the market as the risk for underwriting these firms did not seem very high with such strong demand.


T          In the best-efforts method, the investment bank does not guarantee that the firm will get its desired amount of capital.


F          Average first-day returns for IPOs have been negative each year since 1980, because investment banks usually sell at a slightly higher price to compensate for risks from underwriting the issues.


T          In the underwriting method of issuing stock and bonds, the investment bank will guarantee a specific amount of capital.


F          Sell-side analysts typically work at mutual funds and pension funds.


F          Most firms that wish to go public eventually do.


F          The term “Chinese Wall” refers to economic conflict between US and China.



Multiple Choice Questions


The following is/are methods an investment bank can use to issue stocks and bonds:

  1. Underwriting an issue
  2. Best-effort method
  3. Auction method
  4. All of the above.
  5. Both a and b.


The prospectus submitted to the SEC in order to sell securities to the public details all of the following EXCEPT:

  1. Company’s financial condition
  2. Company’s daily stock price over the last two years
  3. Management experience
  4. All of the above are included in the prospectus.
  5. Both b and c.



Traditional roles of the analysts are to conduct analyses of their assigned firm in order to:

  1. Make trading recommendations
  2. Make earnings estimates
  3. Underwrite issues
  4. All of the above.
  5. Both a and b.


With regard to predicting earnings, analysts’ predictions tend to be

  1. optimistic, in order to set a goal for the company’s management that would lead to an increase in shareholder value.
  2. conservative, given the industry game of “Under promise, over deliver”.
  3. optimistic, given the industry game of “Under promise, over deliver.”
  4. conservative, given the industry game of “Over promise, under deliver.”
  5. Both a and c.


Why are investment banks and securities analysts a part of the governance system?

  1. Investment banks evaluate a firm while helping them to access new capital
  2. Investors frequently possess better information than most analysts about a firm
  3. Both investment bank and analysts are in a good position to monitor the firm and to identify problems for shareholders
  4. All of the above.
  5. Both a and c.


Which of the choices below is a benefit of the Regulation Fair Disclosure rule?

  1. It makes analysts jobs easier
  2. It creates a level playing field for investors
  3. It creates a three-tier rating system to eliminate ambiguity
  4. It prevents privileged information from being made public
  5. None of the above.


Which one of these is NOT a traditional method of obtaining capital?

  1. Issuing stock
  2. Issuing bonds
  3. Structured Deals
  4. Borrowing from banks
  5. All of the above are traditional methods of obtaining capital.


In 2003 SEC settlement that resulted in $1.4 billion between Merrill Lynch and nine other firms is referred to as:

  1. National Research Settlement
  2. Global Analyst Research Settlement
  3. Investment Banking Massacre
  4. Global Securities Analysts Settlement
  5. None of the above.



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