Which of the Following Statements Is FALSE

question 34

Multiple Choice

Which of the following statements is FALSE?

• A)In addition to the evidence that board independence matters for major activities such as firing CEOs and making corporate acquisitions,researchers have found a strong connection between board structure and firm performance.
• B)Theoretical and empirical research support the notion that the longer a CEO has served,especially when that person is also chairman of the board,the more likely the board is to become captured.
• C)Most firms that have just gone public,either as young companies or as older firms returning to public status after a leveraged buyout (LBO),choose to start with smaller boards.
• D)Boards tend to grow over time as members are added for various reasons.For example,boards are often expanded by one or two seats after an acquisition to accommodate the target CEO and perhaps one other target director.

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Definitions:

Agency Cost

The costs arising from conflict of interest between principals (owners) and agents (managers), including monitoring expenditures and the costs of structuring operations to minimize issues.

Marginal Cost

The cost incurred by producing one additional unit of a product or service.

Claim Dilution

The reduction in the likelihood of recovery or the value of each creditor’s claim as a result of an increase in the number of claimants or claims against the same debtor or asset.

Secured Loan

A loan that is backed by collateral, providing the lender with assurance that the loan will be repaid.