Certified Valuation Analyst (CVA) Practice Exam

What might be an impact of lack of control on a shareholder's decision-making authority?

1. Increased profit-sharing opportunities

2. Restricted ability to influence company policies

3. Improved access to exclusive investment opportunities

4. Guaranteed voting rights during meetings

The correct answer is: Restricted ability to influence company policies

The impact of a lack of control on a shareholder's decision-making authority primarily centers around the restricted ability to influence company policies. When a shareholder has limited control, they essentially do not possess sufficient power to affect the decisions made at the corporate governance level. This can occur in cases where the shareholder holds a minority stake in the company, meaning their voting power is diluted compared to majority shareholders or institutional investors. In the absence of control, shareholders often find themselves with minimal influence over strategic directions such as mergers-and-acquisitions, capital expenditures, or changes in management. Consequently, they may be unable to advocate for changes even if they believe those changes would benefit their investment or the company as a whole. This lack of influence can lead to frustration, as shareholders might feel disconnected from the company's operations and overall strategic vision. In contrast, options such as profit-sharing opportunities, exclusive investment access, or guaranteed voting rights do not necessarily correlate to the issue of control. These options either suggest benefits that might not depend on a shareholder's level of control or imply rights that do not exist in situations of limited authority.