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.

---

Definitions:

General Course

A broad educational path focusing on a wide range of subjects or skills.

Equal Dignities Rule

A legal principle stating that agents appointed to perform tasks that must be in writing, such as real estate transactions, also must have their authority granted in writing.

Mortgage

A loan secured by the collateral of specified real estate property that the borrower is obliged to pay back with a predetermined set of payments.

Assignment

The transfer of rights, property, or responsibilities from one party to another.