Conglomerate mergers provide each firm in the merger with some security against high industry risk. If one part of the merged firm suffers losses because of weak market demand,
A) the losses can be hidden in accounting techniques due to the larger and more complex nature of the company
B) it can quickly get rid of the weak part of the conglomerate by selling off the assets
C) other firms in the industry that did not merge with unrelated firms will have losses also
D) the merger will have been proven to be a failure
E) the merged firm will suffer but its impact on the firm will be more moderate than it would have been on the non-merged firms in the weak-market industry

Question

Quizplus · Accepted Answer

Conglomerate mergers, which involve firms from unrelated industries, can provide a buffer against industry-specific risks. If one segment of the conglomerate faces a downturn, the diversity of the conglomerate's business operations means that the overall impact on the firm is moderated compared to a company solely operating within the affected industry. This diversification helps in spreading risk.

Conglomerate Mergers Provide Each Firm in the Merger with Some