Mergers Acquisitions And Corporate Restructurings 6th Edition by Patrick A. Gaughan – Test Bank
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Sample
Questions
Questions: Chapter 4 – Merger Strategy
1. Which
motives are often cited as reasons for M&As?
1. Growth
2. Synergy
3. Improved
R&D
4. Improved
distribution
5. All
of the above
2. The
process of consolidation of fragmented industries is referred to as:
3. Synergistic
deals
4. Roll-ups
5. Vertical
integration
6. None
of the above
3. Markides
and Oyon found positive announcement effects for acquisitions by U.S.
firms of:
4. Continental
European targets
5. British
or Canadian target firms
6. South
and Central American firms
7. Asian
companies
4. United
Airlines’ merger with Continental Airlines is an example of:
1. Vertical
integration
2. Conglomerate
formation
3. Horizontal
integration
4. None
of the above
5. With
respect to diversification programs, Berger and Ofek found:
1. Reduced
Tobin q values
2. Evidence
of higher premiums
3. No
significant shareholder wealth effects
4. None
of the above
6. Both
Eckbo and Stillman found:
1. No
negative shareholder responses from competitors to horizontal deals
2. Significant
negative effects
3. The
shareholder wealth effects were delayed and occurred one to two years later
4. None
of the above
7. Haywood
and Hambrick found:
1. Horizontal
integration yields positive shareholder wealth effects
2. Horizontal
deals yield negative shareholder wealth effects
3. Hubris-related
deals have higher premiums
4. There
is a diversification discount
8. Varaiya
found:
1. Higher
premiums in horizontal deals
2. Evidence
of a winner’s curse
3. Related
diversification generates positive gains
4. Vertical
deals decrease shareholder value
9. Research
shows that for companies that often acquire other companies there is:
1. No
relationship between size and executive compensation
2. There
is a good relationship between size and executive competition
3. Their
shares trade at a diversification discount
4. Their
acquisition prowess is unrelated to how often they do deals
10.
Bradley, Desai, and Kim found:
1. Horizontal
deals yield greater gains than vertical deals
2. Evidence
of the winner’s curse
3. Tender
offers yield gains for target shareholders
4. Bad
bidders make good targets
True or False
11.
Doukas and Travlos found that, unlike many domestic
acquisitions, acquirers enjoyed positive (although not statistically
significant) returns when they acquired targets in countries in which they did
not previously have operations.
True or False
12.
United Airlines was finally able to realize synergies when they
acquired travel-related businesses such as hotels and car rental companies.
True or False
13.
Revenue enhancing synergies are more difficult to achieve than
cost economies
True or False
14.
Wachovia’s acquisition of Golden West Financial provided
significant economies of scope which enabled the bank to show steady profits
even during the subprime crisis.
True or False
15.
Cybo-Ottone and Murgia found positive abnormal returns for
European bank merger announcements.
True or False
16.
Schipper and Thompson found positive stock market announcement
effects from diversification acquisition programs in the 1960s.
True or False
17.
The Merck-Medco deal is an example of related diversification.
True or False
18.
Mitchell and Lehn found that bad bidders are more likely to
become takeover targets.
True or False
19.
Improved R&D is a common motive for deals in the airline
industry.
True or False
20.
Vivendi under Meissier is a good example of a hubris-related
M&A program.
True or False
Questions: Chapter 7 – Hedge Funds as Activist Investors
1. Which
of the following are examples of factors that facilitated the growth of
activist hedge funds over the years 2012-2015?
1. Rising
stock market
2. High
cash balances of U.S. companies
3. Growth
of the U.S. economy
4. All
of the above
2. Which
of the following is not an example of an activist hedge funds?
3. Carl
Icahn Enterprises
4. Relational
Investors
5. Goldman
Sachs
6. Jana
3. Which
of the following may be a valid criticism of activist hedge funds?
1. May
cause target firms to be too short-term oriented
2. Tend
to reduce target financial performance
3. Often
fail to yield positive returns for investors
4. All
of the above
5. None
of the above
4. Which
of the following is a potent defense against activist hedge funds?
5. Poison
pills
6. Staggered
boards
7. Improved
financial performance
8. All
of the above
9. None
of the above
5. Which
of the following is true?
1. Hedge
funds tend to facilitate more M&As
2. Hedge
funds tend to have a dampening effect on M&As
3. Hedge
funds are neutral as it relates to M&A activity
4. None
of the above
True or False
6. Activists
acquire stock positions with intent to make changes in the company which will
increase the stock price and give them a profit.
True or False
7. Research,
such as the work of Clifford, has established that when activists establish
share position in target shareholder wealth declines.
True or False
8. Research,
such as the work of Huang, found that companies which had activists in their
shareholder base tended to receive higher takeover premiums when they are sold.
True or False
9. Research,
such as the work of Greenwood and Schoar, found that financial performance of
companies improve after activists establish stock positions in the firms.
True or False
10.
There is research which supports the view that Investments in
activist funds tend to outperform nonactivist hedge fund investments.
True or False
Questions: Chapter 9 – The Private Equity Market
1. Which
of the following are examples of private equity firms?
1. KKR
2. Blackstone
3. Morgan
Stanley
4. Apollo
Group
5. All
of the above
6. Both
a and c
7. a, b,
and d
2. Private
equity firms have typically been compensated according to the following
“formula”:
3. 2% of
invested capital
4. 5 and
1
5. 2 and
20
6. None
of the above
3. Which
of the following is a way that private equity firms can extract money from the
targets they take over:
1. LBOs
2. Dividend
recapitalizations
3. Additional
acquisitions
4. All
of the above
5. None
of the above
4. Kaplan
and Schoar found which of the following with respect to private equity firms?
5. Growth
in the industry
6. Decline
in the industry
7. Persistence
in returns
8. All
of the above
9. None
of the above
5. Examples
of the types of institutions that become limited partners in private equity
funds include:
6. insurance
companies
7. pension
funds
8. endowments
9. all
of the above
True or False
6. Private
equity firms used to be referred to as LBO firms.
True or False
7. Drexel
Burnham and Lambert and Michael Milken were pioneers in the development of the
hedge fund industry.
True or False
8. Glode
and Green theorize that the findings of Kaplan and Schoar may be due to
insufficient disclosure by private equity firms.
True or False
9. Carried
interest refers to the gains on transactions by private equity firms.
True or False
10.
Officer et al. found that target companies received higher
takeover premiums in club deals.
True or False
11.
Phalippou and Gottschalg analyzed the same return data as Kaplan
and Schoar but found that private equity returns trailed the S&P 500 when
unexited deals were taken into account.
True or False
Questions: Chapter 11 – Corporate Restructuring
1. Which
of the following are examples of pension-related employee benefit plans?
1. Defined
benefit
2. Defined
contribution
3. Profit
sharing
4. All
of the above
2. Kaplan
and Weishbach found that diversifying deals were which of the following with
respect to the
likelihood of subsequent divestiture?
3. Four
times more likely to be divested
4. Equally
likely
5. Two
times less likely
6. None
of the above
3. Which
of the following are common reasons cited for selling off prior acquisitions?
1. Poor
fit
2. Poor
performance
3. Cash
flow needs
4. All
of the above
5. None
of the above
4. Which
of the following studies showed positive shareholder wealth effects for
sell-offs?
5. Cusatis,
Miles, and Wooldridge
6. JP
Morgan
7. Kudla
and McInish
8. All
of the above
9. Both
a and c
5. Involuntary
divestitures generally have what effects?
6. Positive
7. Negative
8. No
consistent effects
9. None
of the above
6. The
sell-offs by Starwood following its acquisition of Taittinger were motivated
by:
1. Eliminating
a nonstrategic component
2. Eliminating
a poorly performing unit
3. Raising
cash to pay off debt
4. None
of the above
7. The
following describes reverse synergy:
1. 2 + 2
= 5
2. 2 + 2
= 4
3. 4 – 1
= 5
4. none
of the above
8. The sale
of Miller by Altria accomplished what:
9. Narrowed
Altria’s strategic focus
10.
Improved Altria’s overall financial performance
11.
Enabled Inbev to gain market share
12.
All of the above
13.
Both a and b
14.
Both a and c
9. In
the United States, in order for a spin-off to be nontaxable, the following must
be the case:
10.
Both the parent company and the spun-off entity must be in
business for at least five years before the restructuring.
11.
The subsidiary must be at least 80% owned by the parent company.
12.
The parent company and the spun-off entity must be in the same
industry
13.
Both a and b
14.
Both b and c
10.
Asian spin-off volume:
1. Historically
follows the same pattern as the U.S. spin-off volume
2. Followed
the same pattern as European spin-off volume
3. Has
declined in the past when spin-offs rose in European and the United States
4. None
of the above
True or False
11.
The trend in the number of divestitures and sell-offs tends to
be opposite that of M&As and the movement in the economy in general.
True or False
12.
A defensive spin-off is where a target sells off a division to
make the company less attractive to bidders.
True or False
13.
In a spin-off the entity being separated from the parent company
often is assigned specific debt attributable to it as part of the sale process.
True or False
14.
Many studies covering a quarter of a century document the
positive shareholder wealth effects of sell-offs.
True or False
15.
The trend in European sell-offs is opposite that of the United
States.
True or False
16.
Sell-offs of their parts supplier units enabled GM and Ford to
successfully use sell-offs to avoid union compensated-related liabilities of
those units.
True or False
17.
First Data shareholders were able to realize increased value
when Western Union was spun off.
True or False
18.
Cash flow needs motivated the sell-off of Hertz by GM.
True or False
19.
Boise Cascade abandoned its core business and focused on the
business of Office Max, which it had previously acquired.
True or False
20.
If a public company issues stock in its own subsidiary, these
shares do not have to be registered by the SEC in order to be publicly traded
as the parent company’s shares are already registered.
True or False
Questions: Chapter 13 – Corporate Governance
1. The
European Union has enacted its own version of the Sarbanes-Oxley Act. It is
called:
2. European
Accounting Regulatory Mandate
3. 8th Company
Directive
4. European
Commission Accounting Regulatory Reform Law
5. None
of the above
2. Foreign
companies which have what percent of the trading volume on U.S. exchanges have
to comply with SOX:
3. More
than 5%
4. More
than 10%
5. Less
than 50%
6. More
than 50%
3. Yermack
found that companies which had significant managerial perks such as use of
corporate aircraft:
4. Exhibited
no difference in financial performance compared to those without perks
5. Exhibited
poorer performance
6. There
was no significance difference in performance
4. Core,
Holthausen, and Larker’s research found:
5. An
inverse relationship between CEO compensation and the percentage of
outside directors on the board
6. An
inverse relationship between CEO compensation and the size of the board
c.
None of the
above
7. Both
a and b
5. Malmendier
and Tate analyzed the performance of CEOs who were awarded this status in the
form of relatively high compensation, awards, and press coverage. They found:
6. Such
CEOs underperforming compared to their prior performance as well as the
performance of their peers
7. The
compensation of such CEOs rose significantly on attainment of the superstar
status but their performance declined
8. Such
CEOs spent a disproportionate amount of time doing other activities such as
attending public and private events as well as writing books
9. All
of the above
10.
None of the above
6. With
respect to companies with golden parachute agreements, Machlin, Choe, and Miles
found:
7. The
number of multiple takeover offers was significantly greater for firms that
possessed golden parachute agreements than for those firms without such
agreements
8. A
positive relationship between the size of the golden parachute agreement and
the magnitude of the takeover premium
9. Negative
shareholder wealth effects after the adoptions of such agreements
10.
All of the above
11.
Both a and b
12.
Both b and c
7. One
study by Cyert, Kang, and Kumar of a large sample of companies found:
1. The
average CEO in their study was 55 years of age, and had served in that position
for an average of eight years
2. Found
that in 70% of the cases the CEO was also the board chairman
3. The
equity ownership of the largest shareholder and the board was negatively
correlated with CEO compensation.
4. All
of the above
5. Both
a and b
8. A
study by Core, Holthausen, and Larker, as well as other research, indicates the
following characteristics of boards would be desirable:
1. Fewer
or no gray directors
2. Fewer
inside board members
3. Fewer
interlocked directorships
4. All
of the above
9. Research,
such as the study by Fich and Shivdasani, has shown that companies that have
over half of the outside directors sitting on three or more boards have which
of the following?
10.
Better financial performance but not better governance
11.
Better governance but not better financial performance
12.
Better governance and better financial performance
13.
Neither better governance nor better financial performance
10.
Research, such as research by David Yermack, has found which of
the following with respect to larger board size:
1. Positive
shareholder wealth effects
2. Negative
shareholder wealth effects
3. No
significant market reactions
True or False
11.
Stock options are one method which may be used to align
management and shareholder’s interests.
True or False
12.
Cooper, Gulen, and Rau found that firms in the highest decile
ranking of executive compensation earned significant negative excess returns.
True or False
13.
Core, Holthausen, and Larker’s research found that CEO
compensation was greater for the directors who were gray, over age 69, or who
served on three or more boards.
True or False
14.
Research by Bizjak, Lemmon, and Nguyen provided support for the
contention that the peer group used to determine the CEO’s compensation level
tends to be opportunistically selected so as to derive a higher compensation
level for the CEOs.
True or False
15.
Lambert and Larker found that the trigger control percentage for
activation of golden parachutes agreements was when a bidder acquired
approximately 51% of the company outstanding stock.
True or False
16.
When challenged, which is not common, courts have found golden
parachute agreements to be an illegal giveaway of shareholder wealth.
True or False
17.
A study by Hartzell, Ofek, and Yermack showed that in deals
where target CEOs enjoyed extraordinary personal treatment and benefits, such
as high compensation or other special benefits, shareholders received lower
acquisition premiums
True or False
18.
Malmendier and Tate analyzed the role of CEO overconfidence in
the tendency for CEOs to engage in M&As. They measured CEO overconfidence
using factors such as the tendency for
CEOs to hold options in their company’s stock until their expiration.
True or False
19.
Research shows that companies tend to have positive shareholder
wealth effects when outside directors are added to a company’s board.
True or False
20.
Research, such as a study by Hallock, shows the CEO compensation
is higher for company with interlocked boards.
True or False
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