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Findings from several studies on corporate mergers and

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Findings from several studies on corporate mergers and [#permalink] New post 01 May 2013, 19:26
Findings from several studies on corporate mergers and acquisitions during the 1970s and 1980s raise questions about why firms initiate and 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 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 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 mergers 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 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 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 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 bidders may derive from modeling: a manager does what other managers do.
Q11:According to the passage, during the 1970’s and 1980’s bidding firms differed from the firms for which they bid in that bidding firms
A. tended to be more profitable before a merger than after a merger
B. were more often concerned about the impact of acquisitions on national economies
C. were run by managers whose actions were modeled on those of other managers
D. anticipated greater economic advantages from prospective mergers
E. experienced less of an increase in stock value when a prospective merger was announced
[Reveal] Spoiler:
E


Q12:It can inferred from the passage that the author would be most likely to agree with which of the following statements about corporate acquisitions?
A. Their known benefits to national economies explain their appeal to individual firms during the 1970’s and 1980’s.
B. Despite their adverse impact on some firms, they are the best way to channel resources from less to more productive sectors of a nation’s economy.
C. They are as likely to occur because of poor monitoring by boards of directors as to be caused by incentive compensation for managers.
D. They will be less prevalent in the future, since their actual effects will gain wider recognition.
E. Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.
[Reveal] Spoiler:
E


Q13:The author of the passage implies that which of the following is a possible partial explanation for acquisition behavior during the 1970’s and 1980’s?
A. Managers wished to imitate other managers primarily because they saw how financially beneficial other firms’ acquisitions were.
B. Managers miscalculated the value of firms that were to be acquired.
C. Lack of consensus within boards of directors resulted in their imposing conflicting goals on managers.
D. Total compensation packages for managers increased during that period.
E. The value of bidding firms’ stock increased significantly when prospective mergers were announced.


[Reveal] Spoiler:
B




For Q12, B is clearly stated in line no 17 but I am surprised to see the answer as E/

PLease explain
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Re: Confused between B/E [#permalink] New post 01 May 2013, 21:55
RP:

Just to answer to your query first:

B. is too strong a statement. although line no 17 says, "Acquisitions may well have the desirable effect of channeling a nation's resources efficiently from less to more efficientsectors of its economy", it does not mean "they are the best way to channel resources....". Here the word "best way" in my opinion has negated that option.

coming back to the rest of the options.

A. there is no such mention of "benefit to national economies", its just a relative comparison of national and self interests.

C. I have my doubts on this answer. i went with this.

D. clearly NOT.

E. i opted out of this answer because there in no mention in the passage about the "frequency of acquisition".

IMO C.

please someone explain why E ??
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Re: Confused between B/E [#permalink] New post 01 May 2013, 23:09
C is incorrect since while both the reasons are the causes of mergers and acquisitions no mention is given of the equal likelihood. E correctly states the crux of the passage that factors other economics are responsible for the popularity of mergers and acquisitions
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Re: Confused between B/E [#permalink] New post 01 May 2013, 23:18
C is incorrect since while both the reasons are the causes of mergers and acquisitions no mention is given of the equal likelihood. E correctly states the crux of the passage that factors other economics are responsible for the popularity of mergers and acquisitions
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Re: Confused between B/E [#permalink] New post 06 May 2013, 23:05
rajmatthew wrote:
C is incorrect since while both the reasons are the causes of mergers and acquisitions no mention is given of the equal likelihood. E correctly states the crux of the passage that factors other economics are responsible for the popularity of mergers and acquisitions


I am still confused between C and E. while C refers to likelihood which is not directly mentioned in the passage anywhere, E talks about frequency of acquisitions, which is also not directly mentioned in the passage. How does E stand correct then?
Even the explanation given in OG does not seems satisfactory.
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Re: Confused between B/E [#permalink] New post 07 May 2013, 06:00
The term common is used in the passage which refers to frequency Hope this clarifies why E.
Re: Confused between B/E   [#permalink] 07 May 2013, 06:00
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