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Findings from several studies on corporate mergers and acquisitions during the 1970s and 1980s raise questions about why firms initiate and 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 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. Yet mergers 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 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. Alternatively, the acquisition acts of bidders may derive from modeling: a manager does what other managers do.

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Type : MCQ

Question Statement :

The primary purpose of the passage is to

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Type : MCQ

Question Statement :

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

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Type : MCQ

Question Statement :

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?

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Type : MCQ

Question Statement :

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

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Type : MCQ

Question Statement :

According to the passage, during the 1970s and 1980s bidding firms differed from the firms for which they bid in that bidding firms

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Type : MCQ

Question Statement :

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

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Type : MCQ

Question Statement :

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