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Most large corporations in the United States were once run by individu

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Re: Most large corporations in the United States were once run by individu [#permalink]

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New post 08 Mar 2015, 03:08
PrashantPonde wrote:
Adding one more question:
The passage supports which of the following statements?
(A) Antitrust laws prevent any single shareholder from acquiring a majority of the stock in a corporation.
(B) Institutions that intend to sell a large block of stock in a single corporation must give at least twenty-four hours notice of the sale.
(C) In most corporations it is the board of directors rather than the corporate managers who make policy decisions.
(D) The sudden sale of a large amount of stock in any one corporation makes the value of the stock go down.
(E) The way corporations are currently run, it is unlikely that increased productivity would lead to short-term increases in stock values.


I think the answer here is D. To me, the contenders were D and E.

Going through the choices, my thought process was:

A - antitrust laws apply to large institutions only, and the answer of 'any single shareholder' is too broad.
Today, with few exceptions, the stock of large United States corporations is held by large institutions-pension funds, for example-and because these institutions are prohibited by antitrust laws from owning a majority of a company's stock

B - this is a proposal, not a law or regulation, so the passage does not support this choice. This is in the second paragraph.

C - this choice is a tough one. The passage doesn't make explicit the nexus between policy decisions and the board or managers; the only mention is in the first sentence of the passage. But I think the last sentence of the first paragraph implies management are responsible for policy decisions - there's no mention of the board in making decisions. Or put another way, you need to negate the answer by making an inference, and here it's that boards may provide company policy but it's management that makes the decisions.
As a result, United States productivity is unlikely to improve unless shareholders and the managers of the companies in which they invest are encouraged to enhance long-term productivity (and hence long-term profitability), rather than simply to maximize short term profits.

D - I think the relevant line was too clear, making me more than suspicious that I've selected the wrong answer!
Because putting such large amounts of stock on the market would only depress its value, they could not sell out for a quick profit and instead had to concentrate on improving the long-term productivity of their companies.

E - this one looks like a stretch. Using the final line of the first paragraph (again), my take is that companies are currently run to maximise short term profits, but there is no linking of productivity and stock values in the short term. If I was looking for a way to negate the answer, putting on my investor hat, I'd say investors are influenced by quarterly earnings (or similar) so any news that companies are trying to increase productivity should increase the stock price.

As I note above, E was one of my contenders. My rationale at rejecting the answer was that the passage refers only to long-term productivity, so we have nothing about short-term productivity to draw any inferences. It also helps that the relevant part of the passage for choice D was pretty clear (I think it is!). Still, my answer, and therefore my reasoning, could be wrong.

I would love to know the answer for this one if someone is willing to help out.
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Re: Most large corporations in the United States were once run by individu [#permalink]

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New post 01 Sep 2016, 21:12
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9:30 mins all correct. Edited para to add markers from the questions.
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Re: Most large corporations in the United States were once run by individu [#permalink]

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New post 13 Feb 2017, 02:26
Amazing all are correct :)
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Re: Most large corporations in the United States were once run by individu [#permalink]

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New post 01 Dec 2017, 02:20
Bhartiindia wrote:
The Official Guide for GMAT Review 10th Edition, 2003

Practice Question
Question No.: RC 88 ~ 94
Page: 348

[box_out][box_in]Most large corporations in the United States were once run by individual capitalists who owned enough stock to dominate the board of directors and dictate company policy. Because putting such large amounts of stock on the market would only depress its value, they could not sell out for a quick profit and instead had to concentrate on improving the long-term productivity of their companies. Today, with few exceptions, the stock of large United States corporations is held by large institutions — pension funds, for example — and because these institutions are prohibited by antitrust laws from owning a majority of a company's stock and from actively influencing a company's decision-making, they can enhance their wealth only by buying and selling stock in anticipation of fluctuations in its value. A minority shareholder is necessarily a short term trader. As a result, United States productivity is unlikely to improve unless shareholders and the managers of the companies in which they invest are encouraged to enhance long-term productivity (and hence long-term profitability), rather than simply to maximize short term profits.

Since the return of the old-style capitalist is unlikely, today's short-term traders must be remade into tomorrow's long-term capitalistic investors. The legal limits that now prevent financial institutions from acquiring a dominant shareholding position in a corporation should be removed, and such institutions encouraged to take a more active role in the operations of the companies in which they invest. In addition, any institution that holds twenty percent or more of a company's stock should be forced to give the public one day's notice of the intent to sell those shares. Unless the announced sale could be explained to the public on grounds other than anticipated future losses, the value of the stock would plummet and, like the old-time capitalists, major investors could cut their losses only by helping to restore their companies' productivity. Such measures would force financial institutions to become capitalists whose success depends not on trading shares at the propitious moment, but on increasing the productivity of the companies in which they invest.

Responding to a pm:
Quote:
1. It can be inferred that the author makes which of the following assumptions about the businesses once controlled by individual capitalists?

(A) These businesses were less profitable than are businesses today.
(B) Improving long-term productivity led to increased profits.
(C) Each business had only a few stockholders.
(D) There was no short-term trading in the stock of these businesses.
(E) Institutions owned no stock in these companies.


The passage tells us that "Because putting such large amounts of stock on the market would only depress its value, they could not sell out for a quick profit and instead had to concentrate on improving the long-term productivity of their companies".
So the capitalists could not make profits by selling the stock on the market and hence had to focus on productivity. This implies that higher productivity led to increased profits and that is how the capitalists made profit. Hence (B) is true.

Quote:
2. The passage supports which of the following statements?
(A) Antitrust laws prevent any single shareholder from acquiring a majority of the stock in a corporation.
(B) Institutions that intend to sell a large block of stock in a single corporation must give at least twenty-four hours notice of the sale.
(C) In most corporations it is the board of directors rather than the corporate managers who make policy decisions.
(D) The sudden sale of a large amount of stock in any one corporation makes the value of the stock go down.
(E) The way corporations are currently run, it is unlikely that increased productivity would lead to short-term increases in stock values.


There are multiple references to (D):
Because putting such large amounts of stock on the market would only depress its value,
Unless the announced sale could be explained to the public on grounds other than anticipated future losses, the value of the stock would plummet

Hence the passage supports (D)
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Re: Most large corporations in the United States were once run by individu [#permalink]

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New post 09 Dec 2017, 07:48
Time Taken - 12 minutes

Got 4/8 correct. :|
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Re: Most large corporations in the United States were once run by individu   [#permalink] 09 Dec 2017, 07:48

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