Question

Which of the following statements is true concerning the use of mergers to reduce cyclicality and volatility? I. The merger of large, public firms is a cost-effective way for shareholders to shed firm-specific risk due to cyclicality and volatility II. The merger of a large firm with a small, private firm may reduce cyclicality and volatility risk for the small firm's owner. III. Mergers that reduce cyclicality and volatility may still result in additional costs that outweigh the benefits Select one: A. I only B. I and II only C. I and III only D. II and III only E. I, II, and III F. None of the above

Answer 1

When two competing firms join together to perform as one, it is known as merger of firms.

Generally two large firms join to eliminate competition and volatility and a small firm join the large company to reduce its risk.

Hence, the true statements concerning the use of mergers to reduce cyclicality and volatility are:

1. The merger of large, public firms is a cost-effective way for shareholders to shed firm-specific risk due to cyclicality and volatility
2. The merger of a large firm with a small, private firm may reduce cyclicality and volatility risk for the small firm's owner.
3. Mergers that reduce cyclicality and volatility may still result in additional costs that outweigh the benefits

Hence, E