Which of the Following Statements Regarding Mergers and Diversification Is

question 28

Multiple Choice

Which of the following statements regarding mergers and diversification is FALSE?

• A) Because it may be easier to measure performance accurately in a conglomerate, agency costs may reduce and resources may be more efficiently allocated.
• B) Because these employees 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:

Social Security Taxes

Taxes collected by governments to fund social security programs, including retirement benefits, disability insurance, and survivor benefits.

Automatic Stabilizers

Economic policies and programs that automatically adjust to counteract economic fluctuations without additional government action.

Real GDP

Gross Domestic Product adjusted for inflation, measuring the value of goods and services produced in a country using constant prices.

Balanced Budget Amendment

A proposed amendment to a government's constitution that requires the annual budget to be balanced, so that expenditures do not exceed revenues.