If investors believe a firm may be acquired, they may cause the true market value of the firm to be overstated by overvaluing the firm's shares.

Question

Quizplus · Accepted Answer

This is true because investors may engage in speculation and bid up the price of the firm's shares in anticipation of a potential acquisition, which can lead to an inflated market value. However, if the speculation turns out to be false and the acquisition does not materialize, the firm's share price may decline, leading to a correction in the market value.

If Investors Believe a Firm May Be Acquired, They May