When coming out with public issues, companies usually appoint banking

Question

When coming out with public issues, companies usually appoint banking entities that have a solid reputation and that enjoy public trust as the lead managers to the issue. This lends a patina of respectability to even the offerings made by dubious promoters. Hence, the individual investor should not go by the names of the lead managers and allied agencies, but by the bottom-line financial performance of the concerned companies.

In the table, select the statement that would, if true, most strengthen the argument and most weaken it, respectively. Make only two selections, one in each column.

Edskore · Answer

This is a good one because it's really a Critical Reasoning strengthen/weaken question wearing a Two-Part Analysis costume, and the DI format makes people forget their CR instincts.

1. First nail down the actual argument: reputable lead managers can make even dubious promoters look respectable, so investors shouldn't trust the lead manager's name, they should look at the company's actual bottom-line financial performance instead.

2. For strengthen, you want something that shows the lead manager's involvement really is an unreliable signal. "The Lead Managers have been known to accept junkets from promoters of the issue" does exactly that, it gives a concrete reason a reputable manager might back a shaky company (they're getting perks from the promoter). That directly supports "don't trust the manager's name."

3. For weaken, most people reach for the option about institutional investors boycotting a Lead Manager who backed a "lame horse," because it feels like it's attacking the same idea. I almost picked that one too. But that's not the credited answer. The real weakener is "For a company in expansion mode, the net profit is low because the income is being invested in newer facilities." Why? Because the argument's whole recommendation is to judge companies by bottom-line financial performance. If low net profit can just mean a company is healthily reinvesting, then the suggested alternative measure isn't reliable either, and that undercuts the conclusion, not just the lead-manager part of it.

4. So Strengthen = the junkets option, Weaken = the expansion/reinvestment option.

The trap is assuming the weakener has to attack the same piece of the argument that the strengthener supported. Sometimes the better weakener goes after the "solution" being proposed instead of the "problem" being described. Worth rereading the conclusion sentence carefully every time before you pick.

Takeaway: in strengthen/weaken pairs, check whether each answer choice is attacking the diagnosis or the prescription, they're two different targets.

rojalin1601 · Answer

But the question asks about weakening the argument and not the conclusion?

egmat · Answer

Hi rojalin1601,

Great catch, and this is exactly the spot in Edskore's post you're reacting to, where he split things into "diagnosis" vs. "prescription." Let me untangle the worry that "argument" and "conclusion" are two different targets.

They're not separate targets - the conclusion IS the core of the argument.  An argument = premises + conclusion. When we say "weaken the argument," what we're really doing is weakening the link that lets the premises support the conclusion. So hitting the conclusion is the most direct way to weaken the argument. You can't weaken one without weakening the other.

Now look at what the conclusion here actually recommends. It has two moves:

-  Don't  go by the lead managers' names.
-  Instead do  go by the company's bottom-line financial performance.

That second half - "judge by bottom-line performance" - is part of the conclusion, i.e., part of the argument. So an option that shows bottom-line performance is itself an unreliable measure is attacking the argument, not something outside it.

That's why  "For a company in expansion mode, the net profit is low because income is being reinvested"  is the weakener: it says the very yardstick the argument tells you to trust can mislead you (a healthy company can show a weak bottom line). Undercut the recommended fix, and you've undercut the argument's conclusion.

A quick way to feel it:  imagine the argument ended at just "don't trust the managers' names," with no second recommendation. Then the expansion-mode option would be irrelevant, and you'd be right to look elsewhere. But because the conclusion  adds  "rely on bottom-line performance," any fact that dents that reliance dents the whole argument.

So weakening the conclusion and weakening the argument are the same job - you were just reading them as two different things.

Answer: Column 1 (Strengthen) = The Lead Managers have been known to accept junkets from promoters of the issue.; Column 2 (Weaken) = For a company in expansion mode, the net profit is low because the income is being invested in newer facilities.

SKP220292 · Answer

egmat  please don't respond.

Anyone else - please help me understand why B cannot strengthen.

egmat · Answer

SKP220292  - you can happily choose to ignore my response - close your eyes or read past it!!

Why B cannot strengthen this argument

First, what "strengthen" means here.  A strengthener is a statement that, taken together with the information already in the passage, increases your confidence that the conclusion is true. It does not have to prove the conclusion; it just has to make the conclusion more likely  given the premises already stated . So the test for any option is: with this added, do I now believe the author's conclusion more than I did before?

The argument's structure

Premise:  Companies hire reputable, trusted banks as lead managers. 
  Premise:  This makes even dubious promoters' offerings look respectable. 
  Conclusion:  So individual investors should ignore the lead manager's name and judge only by the company's financial performance.

The conclusion rests on one idea:  a lead manager's name is not a reliable signal of the issue's quality.

Step 1: What does B actually say?

Read it literally, without thinking about strengthen or weaken yet. B says: big institutional investors boycott  all  issues handled by a lead manager if they feel that lead manager has backed a "lame horse" – a bad company. So the statement describes a punishment. If a lead manager puts its name on one bad issue, the institutional investors do not just avoid that one issue; they walk away from  everything  that lead manager touches afterward.

Step 2: What does that mean in the context of this argument?

Now bring it into the passage. The author's whole position is that a lead manager's name tells you nothing about quality, because reputable banks will lend their name to dubious promoters too. So ask: given B, would a lead manager still be willing to do that?

B says backing one bad company costs the lead manager all of its institutional business. That is a severe consequence. A lead manager facing that kind of consequence has a powerful reason to   not   back bad companies – to screen promoters carefully and turn away the dubious ones. So the information B gives you leads you to believe that lead managers are likely to avoid bad issues - an outcome that somewhat goes against (Weakens) the conclusion. Why did you think that it would strengthen it?

Why - if lead managers avoid bad issues, then when you see a reputable lead manager's name on an offering, that name  does  tell you something: this issue probably passed a careful screen. The name becomes a meaningful quality signal.

What is the source of this question?

SKP220292 · Answer

egmat  how can you disregard a request for not soliciting your response? I was not rude, I simply requested that your team ignore my comment. How do you not do me that courtesy like any respectable adult/company would? Please, I again request - please don't respond to my comments. Let's stay civil and respectful here of folks' requests, yeah? Thanks.

egmat · Answer

SKP220292  - how am I not being civil. You are posting a doubt and I am repsonding. Unlike you, I am not stopping someone to respond. I want others to benefit from our responses. if you want another expert to respond to your doubt, the please request the same.

As a courtsey, we waited for 24+ hours to respond (check the time of your posting and our response), giving other experts plenty of time to respond. Do you have a problem with the content of my response? Do you disagree with any principle!

When coming out with public issues, companies usually appoint banking

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Strengthen	Weaken
		For a company in expansion mode, the net profit is low because the income is being invested in newer facilities.
		Big institutional investors boycott all issues handled by a Lead Manager if they feel that the agency has backed a lame horse.
		The hierarchical structure of Lead Managers' body ensures that only big names handle big issues.
		The Lead Managers have been known to accept junkets from promoters of the issue.
		Lead Managers routinely recommend preferential allotment of shares to existing shareholders.

GMAT Two-part Analysis (TPA) Questions

When coming out with public issues, companies usually appoint banking

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615 to 715 in 15 Days (Ria's Strategies)

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