Findings from several studies on corporate mergers and acquisitions

I'm happy to clarify further, zoezhuyan.

As we've reviewed before, the passage states:
And here's choice (E) again:
If mergers and acquisitions are a common practice, then they take place regularly. This is a kind of frequency. So (E) essentially states, "Factors other than economic benefit to the acquiring firm help to explain how often they occur."

You can think the same way when saying that a practice is uncommon, irregular, or atypical; these are all ways of saying that a practice doesn't happen often. Choice (E) is stating that these alternate factors help to explain why mergers and acquisitions remain common, and that's why it's the best choice available.

Evidence in the passage:
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.

70. The author of the passage implies that which of the following is a possible partial explanation for acquisition behavior during the 1970s and 1980s?

(A) Managers wished to imitate other managers primarily because they saw how financially beneficial other firms’ acquisitions were => in the passage it says "a manager does what other managers do", but does it say anything about why they imitate others?. Hence this choice might be partially correct & watch out for the use of "primarily" since GMAT is pretty neutral (unless it is stated explicitly in the passage)
(B) Managers miscalculated the value of firms that were to be acquired => "managerial error in estimating the value of firms targeted for acquisition", now this is a restatement of the info in the passage
(C) Lack of consensus within boards of directors resulted in their imposing conflicting goals on managers. => same as A, this stem introduces the second part which does not appear in the passage
(D) Total compensation packages for managers increased during that period. => same as A & B, mentioned compensation but introduces 'increased during that period"
(E) The value of bidding firms’ stock increased significantly when prospective mergers were announced. => "the stock of the prospective acquiring firm tends to increase in value much less than does that of the firm for which it bids.", it does not increased significantly

Hope it helps!

P1- Even with the flaws, mergers remain common.
P2- trying to explain above raised concerns.
Main point - acquisitions, their flaws, why they are there.

64. The primary purpose of the passage is to

(A) review research demonstrating the benefits of corporate mergers and acquisitions and examine some of the drawbacks that acquisition behavior entails -- benefits of corporate mergers/ no
(B) contrast the effects of corporate mergers and acquisitions on acquiring firms and on firms that are acquired - no
(C) report findings that raise questions about a reason for corporate mergers and acquisitions and suggest possible alternative reasons - yes. why acquisitions defined.
(D) explain changes in attitude on the part of acquiring firms toward corporate mergers and acquisitions - no
(E) account for a recent decline in the rate of corporate mergers and acquisitions - no
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65. The findings cited in the passage suggest which of the following about the outcomes of corporate mergers and acquisitions with respect to acquiring firms?

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.

(A) They include a decrease in value of many acquiring firms’ stocks. - no
(B) They tend to be more beneficial for small firms than for large firms. - no
(C) They do not fulfill the professed goals of most acquiring firms. - yes, this one must be the answer.
(D) They tend to be beneficial to such firms in the long term even though apparently detrimental in the short term. - no
(E) They discourage many such firms from attempting to make subsequent bids and acquisitions. - no

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66. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about corporate acquisitions?
anchor - corporate acquisitions

(A) Their known benefits to national economies explain their appeal to individual firms during the 1970s and 1980s.- no
(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. - we donr know about it.
(C) They are as likely to occur because of poor monitoring by boards of directors as to be caused by incentive compensation for managers. - this made the factor huge. well its not the main reason.
(D) They will be less prevalent in the future, since their actual effects will gain wider recognition. - no
(E) Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur. - yes
It seems that factors having little to do with corporate economic interests explain acquisitions.
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67. The author of the passage mentions the effect of acquisitions on national economies most probably in order to

(A) provide an explanation for the mergers and acquisitions of the 1970s and 1980s overlooked by the findings discussed in the passage - no
(B) suggest that national economic interests played an important role in the mergers and acquisitions of the 1970s and 1980s - no
(C) support a noneconomic explanation for the mergers and acquisitions of the 1970s and 1980s that was cited earlier in the passage - no
(D) cite and point out the inadequacy of one possible explanation for the prevalence of mergers and acquisitions during the 1970s and 1980s - y; well no one explanation is there.
(E) explain how modeling affected the decisions made by managers involved in mergers and acquisitions during the 1970s and 1980s - no
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68. According to the passage, during the 1970s and 1980s bidding firms differed from the firms for which they bid in that bidding firms

(E) experienced less of an increase in stock value when a prospective merger was announced - y
the stock of the prospective acquiring firm tends to increase in value much less than does that of the firm for which it bids.
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69. According to the passage, which of the following was true of corporate acquisitions that occurred during the 1970s and 1980s?
look into P1

(D) The gains realized by most acquiring firms did not equal the amounts expended in acquiring target firms. - no

A second study concluded that post-acquisition gains to most acquiring firms were not adequate to cover the premiums paid to obtain acquired firms.

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70. The author of the passage implies that which of the following is a possible partial explanation for acquisition behavior during the 1970s and 1980s?

(A) Managers wished to imitate other managers primarily because they saw how financially beneficial other firms’ acquisitions were. - no
(B) Managers miscalculated the value of firms that were to be acquired - yes; managerial error in estimating the value of firms targeted for acquisition. best of the lot.
(C) Lack of consensus within boards of directors resulted in their imposing conflicting goals on managers. - No; lack of monitoring by boards of directors.
(D) Total compensation packages for managers increased during that period. - no; the incentive compensation of executives
(E) The value of bidding firms’ stock increased significantly when prospective mergers were announced.- no

daagh GMATNinja egmat

when i first attempted this set. I got 3 right but today I got all right and I was able to understand why the right answer is right...

This is clearly the case of Timing Pressure. How to work on this?

Dear Ilishar

Happy to help you on this.

So the author basically asks the partial explanation. An explanation which is true to some extent for the acquisition behavior during the 1970s and 1980s.

Let's go answer option by answer option.

The passage definitely mentions that "Alternatively, the acquisition acts of bidders may derive from modelling: a manager does what other managers do", but the passage doesn't explain the reason why managers did so.
Author presents this just as an alternative explanation for the acquisition.
The second paragraph in the later half mentions " 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." which clearly presents the point highlighted in bold. The answer option seems just the rephrase of the one in bold. Let's keep B
Passage no where mentions the lack of consensus. Hence out of scope.
The passage mentions the " These factors may include the incentive compensation of executives" but dear managers are just getting the blame without getting benefitted. Out of scope....
One this particular stuff is mentioned in the first paragraph, where the factors of mergers aren't discussed at all.
Secondly the passage mentions the opposite "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." Goes Out....

B is the best option available.

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

(C) They do not fulfill the professed goals of most acquiring firms.
(E) They discourage many such firms from attempting to make subsequent bids and acquisitions.

Hello.

I am particularly not able to justify the reasoning for option E.
The findings showed that there was no economic advantage. So in a way findings are discouraging firms to not make attempts by showing the disadvantages of merging.

Now this option has been cited as incorrect by citing the following sentence:

Yet mergers and acquisitions remain common, and bidders continue to assert that their objectives are economic ones.

Since the many entities continued to do this practice, the findings did not discourage.

My doubt:

If we say that the poor scores discourage students to give the exam. It doesnot mean many students did not give the exams.
Taking exams may still be common.
Similarly,
THe finding may continue to discourage companies, but the companies continued to invest anyways.

Where am I going wrong in this line of reasoning?
Would love to hear from someone soon!

GMATNinja
daagh
mike
DmitryFarber
mikemcgarry
aragonn

nitesh50 - My take on option E is that firms get discouraged due to failures, but firms are not giving any efforts to discourage other firms. These firms are not acquiring other firms just to get fail. I think you can find the explanation for C in My post.

Hi All,

Just wanted to provide some tips on how to improve RC. I am by no means perfect as there are times I can get half of the questions wrong but there are some things I always keep in mind when facing a RC passage, no matter the difficulty.

1)Every answer to a question CAN and MUST be supported directly from the passage.Sometimes you have to be a detective. Looking at just a few lines might not be enough. Always scan throughout the ENTIRE passage to pick up on the main points talked about. This will help eliminate wrong answers.
2)Avoid trap/warped answer choices. The words might look nearly identical from the passage but reading the specific lines a second time will show that the answer choice distorts the original meaning.
3)SKEPTICISM. While this may eat up more of your clock, never stick with a choice until you conclusively eliminate everything else. If you are really short on time and are confident, then by all means move forward. If not, there may be an answer choice you overlooked.
4) Talk to yourself mentally. Yes, this may seem weird but keep asking yourself "Did the author mention this"? "Does this adequately answer the question"? I found this helped me tremendously.
5)Cut your losses when needed. Usually, a really annoyning detail or tough inference question could be a clock eater. If you are not any closer to an answer, cut your losses, see if you can eliminate choices that are 100% wrong, and move on. Perfection on both section is rather impossible. Be smart with your time.

I hope this advice helps other. My 2nd attempt at the GMAT is tomorrow. Hoping to bump up my previous score (560 35Q 32V) to a 650+. Best of luck with all your studying folks.

Easy to understand the passage.
But ALL WRONG. because I failed to check the detail of the passage. I recon that the test maker creates such traps especially on the easy passage. I should have checked all the details more carefully

siddharthfrancis ,
[b]Can someone please explain why the answer is B for question 70. Thanks !![/b]

Q70 says:
70. The author of the passage implies that which of the following is a possible partial explanation for acquisition behavior during the 1970s and 1980s?

(A) Managers wished to imitate other managers primarily because they saw how financially beneficial other firms’ acquisitions were.-- no where mentioned in passage
(B) Managers miscalculated the value of firms that were to be acquired. see below mentioned in passage
(C) Lack of consensus within boards of directors resulted in their imposing conflicting goals on managers. extreme to be taken
(D) Total compensation packages for managers increased during that period. out of scope
(E) The value of bidding firms’ stock increased significantly when prospective mergers were announced. not mentioned anywhere in passage

'B' is the correct answer as it is explicitly stated in 2nd last line of last paragraph (highlighted):

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.[quote][/quote] Alternatively, the acquisition acts of bidders may derive from modeling: a manager does what other managers do.


Please feel free to give Kudos if it's helpful to anyone..

GMATNinja egmat VeritasKarishma Please explain Q 69! Thank you!

69. According to the passage, which of the following was true of corporate acquisitions that occurred during the
1970s and 1980s?

(A) Few of the acquisitions that f rms made were subsequently divested.
(B) Most such acquisitions produced only small increases in acquired firms’ levels of profitability.
(C) Most such acquisitions were based on an overestimation of the value of target firms.
(D) The gains realized by most acquiring firms did not equal the amounts expended in acquiring target firms.
(E) About half of such acquisitions led to long-term increases in the value of acquiring firms’ stocks.


Here is what we know from studies:

- Acquiring firms were on average unable to maintain acquired firms’ pre-merger levels of profitability.
(B) is incorrect. It says there were small increases in profitability.

- Post-acquisition gains to most acquiring firms were not adequate to cover the premiums paid to obtain acquired firms.
Exactly what (D) says.

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.
- (E) is not implied in any way.

(A) is not discussed. We don't know anything about how many were divested later. As for (C), we know that managerial error in valuing target firms may have been responsible but were MOST such acquisitions based on it? We don't know.

Answer (D)

I ran into the same exact problem. B is clearly stated whereas D is the implied meaning. My initial doubt in answer choice D was that it mentions an increase in compensation for executives, whereas the passage doesn't mention any increase, per se. That's where I revisited the question and saw that it must've been an implied answer, and that led me back to D.

Not sure why the heck B works here better than D does.

The problem with (D) is that there is no evidence in the passage that there was such an increase. Perhaps if we were told that mergers and acquisitions INCREASED during that period we could speculate that the increase may have been partially caused by an increase in total compensation packages for managers.

But all we are told is that we are looking at studies on corporate mergers and acquisitions during the 1970s and 1980s. We are told that "mergers and acquisitions remain common," but there is nothing to suggest that mergers and acquisitions increased during that time.

As for your concern with choice (B), I think this post will help.

Got 2 incorrect(Q Nos 3 & 4) out of 7 . Time - 10mins 13 secs
Though i realised that for Question no 3, i marked wrong choice after i chose answer. Was able to drop down to C and E choice.
However for question no 4. , I am not clear. The question reads as

The author of the passage mentions the effect of acquisitions on national economies most probably in order to

(A) provide an explanation for the mergers and acquisitions of the 1970s and 1980s overlooked by the findings discussed in the passage
(B) suggest that national economic interests played an important role in the mergers and acquisitions of the 1970s and 1980s
(C) support a noneconomic explanation for the mergers and acquisitions of the 1970s and 1980s that was cited earlier in the passage
(D) cite and point out the inadequacy of one possible explanation for the prevalence of mergers and acquisitions during the 1970s and 1980s
(E) explain how modeling affected the decisions made by managers involved in mergers and acquisitions during the 1970s and 1980s

Now A is out because of the "Overlooked by the findings"
B is out because of too narrow interest. Just before the statement, it says M&A are common and firms bid.
C looks a good option because the author specifically says about corporate economic benefits and thing having little do with corporate economic benefits explains acquisitions. So i thought , the author brought that out primarily in order to discuss non economic and little benefits as mentioned in the passage in the last second sentence
D . Could not related.
E. Irrelevant

I marked C however OA is D. Can experts shed some light into this?

GMATNinja and VeritasKarishma

Thanks

(C) is incorrect because it is not a non-economic factor. We are talking about 'effect on national economies'; it is an economic effect.

Look at the structure of the passage:

First paragraph talks about how acquisitions don't benefit the acquiring firm a whole lot.

Second paragraph - 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...

The second paragraph starts with the benefit to the national economy but says that these deals MUST be advancing executives or companies' economic interests. So though national economic benefit does arise and could be a reason but it is certainly not an adequate reason. Executives or companies' economic interests must be served through these deals. Then he goes on to explain how the executives interests could be the reason for acquisitions.

Hence (D) is correct.

Thank you . I reread the whole passage again and now i got where i got wrong with the help of your summary. Its difficult to comprehend in such a hurry. There are many gimmicks flying on the internet saying this and that strategy . But i think it ultimately boils down to one's reading and comprehending skills , the fact which GMATNinja has been stressing about in his every videos of RC. Thank you for the in-depth analysis of the passage.