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:

Mutually Exclusive

Mutually exclusive refers to situations or events that cannot occur at the same time or cannot both be true.

Solution Process

A systematic series of steps taken to solve a problem or achieve a particular outcome.

Brainstorming

A creative group activity aimed at generating a large number of ideas for problem-solving or innovation.

Spontaneous

Occurring without premeditation or external stimulus, often marked by a natural, unplanned flow.