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
23
(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
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
Answer:
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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.
23
Answer:
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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.
Answer:

*****I do not know what i was thinking or what i understood, but got all the selected answers wrong.******

D, E, B

Q11: E
Q12: E
Q13: B

Q11
A. tended to be more profitable before a merger than after a merger
- not mentioned in the paragraph.
B. were more often concerned about the impact of acquisitions on national
economies
- not directly mentioned.
C. were run by managers whose actions were modeled on those of other managers
- same as B
D. anticipated greater economic advantages from prospective mergers
- they *only* say that they expect economic advantages from mergers.
E. experienced less of an increase in stock value when a prospective merger was announced
- this is the result of the third study cited. MY CHOICE

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.
-Lines 23-26 actually argue against this claim. OUT

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.

- It may be one of the ways but nowhere does it say it is the *best* way. OUT

C. They are as likely to occur because of poor monitoring by boards of directors as to be caused by incentive compensation for managers.
- these are likely causes, but are NOT compared in the paragraph OUT

D. They will be less prevalent in the future, since their actual effects will gain wider recognition.
-no such conclusion is provided OUT

E. Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.
-Lines 31-33 clearly state this. MY CHOICE

Q13

Lines 37 & 38 clearly state this.

In last question # 13 which is about the partial explanation for acquisition behavior; I really don't don't understand this one. OA is B.....why can't it be d?

Are findings of studies (listed in the passage) possible explanations of Mergers or are these findings possible objections to the mergers?

"possible partial explanation" - does this refer to economic reasons or non- economic reasons mentioned by the author in the end of the passage?