Question #11

Reading: Reading 16 Environmental, Social, and Governance (ESG) Considerations in Investment Analysis

PDF File: Reading 16 Environmental, Social, and Governance (ESG) Considerations in Investment Analysis.pdf

Page: 4

Status: Unattempted

Correct Answer: A

Part of Context Group: Q11-13 First in Group
Shared Context
- Hernandez is most likely to encounter principal–agent problems when analyzing a company with an ownership structure that combines: A) dispersed ownership and concentrated voting power. B) dispersed ownership and dispersed voting power. C) concentrated ownership and concentrated voting power.
Question
Hernandez is analyzing the securities of a company that has mutual business interests with another company. Two firms have cross-holding share arrangements with each other. Hernandez could best describe this structure as:
Answer Choices:
A. horizontal ownership
B. pyramid ownership
C. vertical ownership
Explanation
Horizontal ownership describes a scenario where companies with mutual business interests have cross-holding share agreements with each other. Pyramid (also known as vertical) ownership is the situation where a company has a controlling interest in two or more holding companies; and these holding companies have controlling interests in several operating companies.
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