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Findings from several studies on corporate mergers and

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Findings from several studies on
corporate mergers and acquisitions
during the 1970’s and 1980’s raise
Line questions about why firms initiate and
(5) consummate such transactions. One
study showed, for example, that acquiring
firms were on average unable to
maintain acquired firms’ pre-merger
levels of profitability. A second study
(10) concluded that post-acquisition gains
to most acquiring firms were not adequate
to cover the premiums paid
to obtain acquired firms. A third
demonstrated that, following the
(15) announcement of a prospective
merger, the stock of the prospective
acquiring firm tends to increase in
value much less than does that of
the firm for which it bids. Yet merg-
(20) ers and acquisitions remain common,
and bidders continue to assert that
their objectives are economic ones.
Acquisitions may well have the desirable
effect of channeling a nation’s
(25) resources efficiently from less to
more efficient sectors of its economy,
but the individual acquisitions executives
arranging these deals must see
them as advancing either their own or
(30) their companies’ private economic
interests. It seems that factors having
little to do with corporate economic
interests explain acquisitions. These
factors may include the incentive
(35) compensation of executives, lack
of monitoring by boards of directors,
and managerial error in estimating the
value of firms targeted for acquisition.
Alternatively, the acquisition acts of
(40) bidders may derive from modeling:
a manager does what other managers


Q.2 The findings cited in the passage suggest which of the following about the outcomes of corporate mergers and acquisitions with respect to acquiring firms? 

((Al They include a decrease in value of many acquiring firms' stocks.

(8) They tend to be more beneficial for small firms than for large firms.

(C) They do not fulfill the professed goals of most acquiring firms.

(D) They tend to be beneficia l to such firms in the long term even though apparently detrimental in the short term.

(El They discourage many such firms from attempting to make subsequent bids and acquisitions


I do feel that B is more clear than C, but the OA is C. Both B and C are quite good enough to be the answer choice. please help.



Official Answer
B is incorrect since no where  in passage it is mention that acquisition is benegicial for small firm.
commented Nov 29, 2014 by Beginner (1 point)

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