The portfolio effect of a merger is greatest for the stockholders of the firm being acquired.

Question

Quizplus · Accepted Answer

The portfolio effect of a merger is actually greater for the stockholders of the acquiring firm. This is because the acquiring firm is able to diversify its portfolio with the assets and resources of the acquired company, while the stockholders of the acquired firm are essentially losing their diversification by becoming part of a larger entity.

The Portfolio Effect of a Merger Is Greatest for the Stockholders