Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
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Question
Chapter 28.3, Problem 2CC
Summary Introduction
To explain why “risk diversification benefits” and “earnings growth” are not good justifications for a takeover, intended to increase shareholder wealth.
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Can the goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior?
It is generally argued that the takeover constraint :
Deters management from engaging in opportunistic behavior.
Deters management from considering acquiring other companies.
Deters management from declaring dividends.
Deters management from increasing a firm’s level of borrowing.
Are managers of firms with formidable takeover defenses more or less
likely to act in the shareholders’ interest rather than their own?
Chapter 28 Solutions
Corporate Finance
Ch. 28.1 - Prob. 1CCCh. 28.1 - Prob. 2CCCh. 28.2 - On average, what happens to the target share price...Ch. 28.2 - Prob. 2CCCh. 28.3 - What are the reasons most often cited for a...Ch. 28.3 - Prob. 2CCCh. 28.4 - Prob. 1CCCh. 28.4 - What do risk arbitrageurs do?Ch. 28.5 - Prob. 1CCCh. 28.5 - Prob. 2CC
Ch. 28.6 - Prob. 1CCCh. 28.6 - Prob. 2CCCh. 28 - What are the two primary mechanisms under which...Ch. 28 - Prob. 2PCh. 28 - What are some reasons why a horizontal merger...Ch. 28 - Prob. 4PCh. 28 - Prob. 5PCh. 28 - Prob. 6PCh. 28 - How do the carryforward and carryback provisions...Ch. 28 - Diversification is good for shareholders. So why...Ch. 28 - Your company has earnings per share of 4. It has 1...Ch. 28 - If companies in the same industry as TargetCo...Ch. 28 - Prob. 11PCh. 28 - Prob. 12PCh. 28 - Prob. 13PCh. 28 - Lets reconsider part (b) of Problem 99. The actual...Ch. 28 - ABC has 1 million shares outstanding, each of...Ch. 28 - Prob. 16PCh. 28 - How does a toehold help overcome the free rider...Ch. 28 - Prob. 18P
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Similar questions
- Why do most acquisitions fail to create shareholder value?arrow_forwardWhich of the following is NOT normally regarded as being a barrier to hostile takeovers? a. Abnormally high executive compensation. b. Targeted share repurchases. c. Poison pills. d. Shareholder rights provisions. e. Restricted voting rights.arrow_forwardSuppose you need additional capital to expand,and you sell some stock to outside investors. If youmaintain enough stock to control the company,what type of agency conflict might occur?arrow_forward
- Explain Limitations that have caused some companies to reduce their use of portfilio analysis. 1. Naively following the prescriptions of a portfolio model may actually reduce corporate profitsif they are used inappropriately.arrow_forwardWhich of the following statements is CORRECT? One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the capital structure. The threat of takeover generally increases potential conflicts between stockholders and managers. Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers. The threat of takeovers tends to reduce potential conflicts between stockholders and managers. The creation of the Securities and Exchange Commission (SEC) eliminated conflicts between managers and stockholders.arrow_forwardDiscuss the validity of risk diversification as a motivation for companies engaging in merger and acquisition activity?arrow_forward
- What are the TWO primary advantages of using CAPM over DDM? It adjusts for risks It does not explicitly consider risk Applicable to companies that pay steady dividends Applicable to companies that pay no dividendsarrow_forwardSuggest some ways in which firms have tried to avoid being part of a target takeover.arrow_forwardIt is quite often we observe some firms takeover target firms from a different industry. If diversifying harms firm value and it is more efficient to make diversification at the investor (shareholder) level than at the firm level, why do you think the managements still choose to make diversified acquisitions?arrow_forward
- In theory, market risk should be the only “relevant” risk. However, companies focus asmuch on stand-alone risk as on market risk. What are the reasons for the focus on standalonerisk?arrow_forwardYou observed that high-level managers make superior returns on investments in their company’s stock. Would this be a violation of weak-form market efficiency? Would it be a violation of strong-form market efficiency?arrow_forwardWhich of the following is NOT normally regarded as being a barrier to hostile takeovers? (Points : 5) Abnormally high executive compensation Targeted share repurchases Shareholder rights provisions Restricted voting rights Poison pillsarrow_forward
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