Which of the following statements regarding mergers and taxes is FALSE?
A)Because it may be easier to measure performance accurately in a conglomerate,agency costs may be reduced and resources may be more efficiently allocated.
B)Because some employees holding company stock are obligated to hold idiosyncratic risk,they benefit when the firm reduces that risk by conglomerating.
C)Like a large portfolio,large firms bear less idiosyncratic risk,so often mergers are justified on the basis that the combined firm is less risky.
D)Because most stockholders will already be holding a well-diversified portfolio,they get no further benefit from the firm diversifying through acquisition.

Question

Quizplus · Accepted Answer

The statement that agency costs may be reduced and resources may be more efficiently allocated due to easier measurement of performance in conglomerates is not necessarily false, but it is not directly related to taxes, which is the focus of the question. The other statements are all related to the tax implications of mergers.

Which of the Following Statements Regarding Mergers and Taxes Is