Management's propensity to overestimate the value of the target company in a merger can lead to:
A)financial disaster for the acquiring company.
B)a financial windfall for the stockholders of the target company.
C)an irrational transfer of wealth from the shareholders of the acquirer to those of the target.
D)All of the above

Question

Quizplus · Accepted Answer

Management's overestimation of the value of the target company can lead to a number of negative consequences, including financial disaster for the acquiring company, a windfall for the stockholders of the target company, and an irrational transfer of wealth from the shareholders of the acquirer to those of the target. All of these outcomes are possible depending on the specifics of the merger and the degree to which management overestimates the value of the target company.

Management's Propensity to Overestimate the Value of the Target Company