Which of the Following Statements Regarding Mergers and Diversification Is

question 18

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 be reduced 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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