Which of the Following Statements Regarding Mergers and Taxes Is

question 24

Multiple Choice

Which of the following statements regarding mergers and taxes is false?

• A) Because it may be easier to measure performance accurately in a conglomerate, agency costs may be reduced and resources may be more efficiently allocated.
• B) Because employees holding a large fraction of their wealth in shares of the corporation for which they work are obligated to hold idiosyncratic risk, they benefit when the firm reduces that risk by conglomerating.
• C) Like a large portfolio, large firms bear less idiosyncratic risk, so often mergers are justified on the basis that the combined firm is less risky.
• D) Because most stockholders will already be holding a well-diversified portfolio, they get no further benefit from the firm diversifying through acquisition.

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Definitions:

External Customers

Individuals or entities outside of an organization that receive or consume the products or services offered by the organization.

Dependent Employees

Employees who rely on their employers for work direction and income, typically having less autonomy in their roles compared to independent contractors or freelancers.

Symbolic Leader

Uses symbols to establish and maintain a desired organisational culture.

Organisational Culture

The shared values, beliefs, practices, and norms that define the social and psychological environment of a business or organization.