Consider a case in which existing shareholders do not have to invest time and effort,but still participate in the gains from a takeover,while the bidder who puts in the time and effort is forced to give up substantial profits.This situation is called:
A)the free rider problem.
B)a toehold.
C)a leveraged buyout.
D)a freezeout merger.
E)a management buyout.

Question

Quizplus · Accepted Answer

The described situation is a classic example of the free rider problem, in which some shareholders benefit from a takeover without contributing anything to it, while other shareholders (including the bidder) bear the costs and effort. The other answer choices are unrelated to this scenario.

Consider a Case in Which Existing Shareholders Do Not Have