1. Explain “free cash flows.” Why do managers like to retain free cash flows instead of distributing it to shareholders? Discuss what mechanisms may be used to solve this problem.

2. It is often mentioned that the United States has a “market-centered” corporate governance system, whereas Germany has a “bank-centered” system. Review the website of OECD, or any other relevant websites and answer the following questions:

(a) Compare and contrast the corporate governance systems of the two countries.

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(b) How did the two countries come to have the particular governance systems?

(c) What are the consequences of the different governance systems in the two countries?

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