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:

Unconscious Insecurity

A feeling of lack of confidence or assurance that operates below one's conscious awareness, affecting behavior and perception.

Reaction Formation

A defense mechanism in which an individual unconsciously replaces an undesirable or anxiety-inducing emotion or impulse with its opposite.

Excessive Self-Love

An inflated sense of one's own importance or abilities, often leading to a lack of empathy for others and an excessive need for admiration.

Carl Rogers

An influential American psychologist and one of the founders of the humanistic approach to psychology.