Corporate Finance, Student Value Edition (4th Edition)
4th Edition
ISBN: 9780134101446
Author: Berk, Jonathan; DeMarzo, Peter
Publisher: PEARSON
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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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Students have asked these similar questions
Many firms have devised defenses that make it more difficult or costly for other firms to take them over. How might such defenses affect the firm's agency problems? Are managers of firms with formidable takeover defenses more or less likely to act in the shareholders' interests rather than their own? What would you expect to happen to the share price when management proposes to institute such defenses?
Are managers of firms with formidable takeover defenses more or less
likely to act in the shareholders’ interest rather than their own?
Which 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.
Chapter 28 Solutions
Corporate Finance, Student Value Edition (4th Edition)
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
- It 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_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_forwardIt 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.arrow_forward
- 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.arrow_forward1.Why the limitation of portfilio analysis is it naively following the prescriptions of a portfolio model may actually reduce corporate profits if they are used inappropriately?arrow_forwardExplain the mechanism of using financial leverage as a takeover defense toolarrow_forward
- Which 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_forwardWhich of the following statements is false? Group of answer choices a.If management does not consider the needs of the bondholders of a firm, they could end up destroying shareholder value b.If management chooses to ignore the needs of bondholders when structuring a firm, the firm can be expected to have to pay a higher interest rate on its debt c.In a perfect capital market, if a firmʹs current capital structure is not optimal, one can expect that firm to be a takeover target d.Management should focus only on the needs of a firmʹs shareholders since they are the true owners of the firm and, as such, they elect the firmʹs directorsarrow_forwardDiscuss the validity of risk diversification as a motivation for companies engaging in merger and acquisition activity?arrow_forward
- You 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_forwardIs it repurchase shares good for growth company, that does not pay dividends, and have undervalued stock, and have a future investment opportunities? or should maintain its liquidity to fund its investment rather than repurchase shares?arrow_forwardWhat does it mean to say that managers should maximize shareholders' wealth "subject to ethical constraints"? What ethical considerations might factor into decisions that result in lower cash flow and stock price effects than they might have otherwise been valued?arrow_forward
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