Which of the Following Statements Regarding Mergers and Diversification Is

question 29

Multiple Choice

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

• A)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.
• B)Because it may be easier to measure performance accurately in a conglomerate, agency costs may be reduced and resources may be more efficiently allocated.
• C)Because most shareholders will already be holding a well-diversified portfolio, they get no further benefit from the firm diversifying through acquisition.
• D)Because employees are obligated to hold idiosyncratic risk, they benefit when the firm reduces that risk by conglomerating.

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Definitions:

Diplomatic Expertise

The skill and knowledge required to manage international relations and negotiate effectively on behalf of a state.

Differences in Tastes

Variations in consumer preferences that influence demand for products and services across different markets or demographics.

Resource Endowments

The natural resources, labor force, capital, and technology that a country possesses, which influence its economic potential.

Trade Gains

The benefits that countries receive from engaging in international trade, often leading to more efficient production and a greater variety of goods and services.