- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 3. Corporate Governance: Conflicts, Mechanisms, Risks, and Benefits
- Subject 3. Corporate Governance Risks and Benefits
CFA Practice Question
Which of the following is most likely a benefit of an effective corporate governance structure?
A. Default risk may increase.
B. Managers may make decisions which benefit them but not the shareholders.
C. Operating performance may improve.
Explanation: Improvement in operational and financial performance is a potential benefit of an effective corporate governance structure.
A: Effective corporate governance leads to a decrease, not increase in default risk.
Due to the fact that when managers make decisions which only benefit them, they are not considering the interests of other stakeholders, namely shareholders.
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