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Findings from several studies on corporate mergers and acquisitions du

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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 29 Apr 2018, 02:03
I can eliminate other answers to choose C but I can not understand why C is true. Are "professed goals" = level of profitability? Is it common knowledge?

Quote:
"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?

(A) They include a decrease in value of many acquiring firms??? stocks.
(B) 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 beneficial to such firms in the long term even though apparently detrimental in the short term.
(E) They discourage many such firms from attempting to make subsequent bids and acquisitions."
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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 03 May 2018, 17:40
BinhFantasia wrote:
I can eliminate other answers to choose C but I can not understand why C is true. Are "professed goals" = level of profitability? Is it common knowledge?

Quote:
"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?

(A) They include a decrease in value of many acquiring firms??? stocks.
(B) 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 beneficial to such firms in the long term even though apparently detrimental in the short term.
(E) They discourage many such firms from attempting to make subsequent bids and acquisitions."

"Yet mergers and acquisitions remain common, and bidders continue to assert that their objectives are economic ones." - The bidders (i.e. the acquiring firms) assert (or profess) that the deals will benefit their firms economically.

But the "second study concluded that post-acquisition gains to most acquiring firms were not adequate to cover the premiums paid to obtain acquired firms." If the premiums paid exceed the post-acquisition gains, then the firm would have lost money on the deal. Obviously this would not benefit the firm economically.

The bidders profess that they are doing the deals for economic reasons, but the study suggests that most bidding firms lose money on the deals. Thus, the outcomes of the deals do not fulfill the professed goals (economic gains) of the acquiring firms.

I hope that helps!
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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 04 Jun 2018, 00:12
GMATNinja wrote:
BinhFantasia wrote:
I can eliminate other answers to choose C but I can not understand why C is true. Are "professed goals" = level of profitability? Is it common knowledge?

Quote:
"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?

(A) They include a decrease in value of many acquiring firms??? stocks.
(B) 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 beneficial to such firms in the long term even though apparently detrimental in the short term.
(E) They discourage many such firms from attempting to make subsequent bids and acquisitions."

"Yet mergers and acquisitions remain common, and bidders continue to assert that their objectives are economic ones." - The bidders (i.e. the acquiring firms) assert (or profess) that the deals will benefit their firms economically.

But the "second study concluded that post-acquisition gains to most acquiring firms were not adequate to cover the premiums paid to obtain acquired firms." If the premiums paid exceed the post-acquisition gains, then the firm would have lost money on the deal. Obviously this would not benefit the firm economically.

The bidders profess that they are doing the deals for economic reasons, but the study suggests that most bidding firms lose money on the deals. Thus, the outcomes of the deals do not fulfill the professed goals (economic gains) of the acquiring firms.

I hope that helps!



hello GMATNinja
I narrowed down to option C and E, but marked the wrong answer E.
of course the studies suggest that bidding firms are not making profits from the merger and acquisition. Shall not the study discourage new merger and acquisitions?
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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 27 Jun 2018, 11:48
Quote:
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.


Quote:
hello GMATNinja
I narrowed down to option C and E, but marked the wrong answer E.
of course the studies suggest that bidding firms are not making profits from the merger and acquisition. Shall not the study discourage new merger and acquisitions?

The question specifically asks about the outcomes of corporate mergers and acquisitions with respect to acquiring firms.

Immediately after the author cites three studies that raise questions challenging why firms should initiate and consummate mergers and acquisitions, the author says:

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

If mergers and acquisitions remain common, then the findings cited in the passage are not discouraging firms from initiating and consummating them. The author may intend to discourage acquiring firms, but despite the findings from studies cited, this outcome has not been achieved. For this reason alone we eliminate choice (E). But as you've noted, choice (C) is much more strongly supported by the passage, so in a contest between these two choices, (C) wins easily.

I hope this helps!
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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 12 Jul 2018, 05:12
GMATNinja wrote:
Quote:
(E) Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.

The factors cited in the final two sentences are possible explanations for the acquisitions. None of these describe situations that would benefit the firm, so choice (E) is the best answer.

I hope that helps!


Hi GMATNinja,

I think i do not absolutely understand "frequency" in choice E,
IMO, a part of the passage states why appeal acquisitions, but does not invlove the frequency of acquisitions,
would you please clarify further.

Thanks in advance

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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 03 Aug 2018, 12:56
zoezhuyan wrote:
GMATNinja wrote:
Quote:
(E) Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.

The factors cited in the final two sentences are possible explanations for the acquisitions. None of these describe situations that would benefit the firm, so choice (E) is the best answer.

I hope that helps!


Hi GMATNinja,

I think i do not absolutely understand "frequency" in choice E,
IMO, a part of the passage states why appeal acquisitions, but does not invlove the frequency of acquisitions,
would you please clarify further.

I'm happy to clarify further, zoezhuyan.

As we've reviewed before, the passage states:
Quote:
Yet mergers and acquisitions remain common, and bidders continue to assert that their objectives are economic ones.

And here's choice (E) again:
Quote:
(E) Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.

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.
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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 28 Aug 2018, 09:50
siddharthfrancis wrote:
Can someone please explain why the answer is B for question 70. Thanks !!


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!
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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 24 Sep 2018, 18:43
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
---------------------------------------------------------
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

---------------------------------------------------------
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.
---------------------------------------------------------

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
---------------------------------------------------------

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.
---------------------------------------------------------
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.

---------------------------------------------------------
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
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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 25 Sep 2018, 05:50
Hi everyone, can you please provide an explanation for question 70. Thanks in advance.....

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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 01 Oct 2018, 23:20
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?
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Re: Findings from several studies on corporate mergers and acquisitions du  [#permalink]

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New post 03 Oct 2018, 05:14
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Ilishar wrote:
Hi everyone, can you please provide an explanation for question 70. Thanks in advance.....

Posted from my mobile device


Dear Ilishar

Happy to help you on this.

Quote:
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?
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.

Quote:
(A) Managers wished to imitate other managers primarily because they saw how financially beneficial other firms’ acquisitions were.
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.
Quote:
(B) Managers miscalculated the value of firms that were to be acquired.
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
Quote:
(C) Lack of consensus within boards of directors resulted in their imposing conflicting goals on managers.
Passage no where mentions the lack of consensus. Hence out of scope.
Quote:
(D) Total compensation packages for managers increased during that period.
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....
Quote:
(E) The value of bidding firms’ stock increased significantly when prospective mergers were announced.
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.
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