The "Bootstrap Game" may mislead investors regarding the prospects for a merged firm. How are investors potentially misled?
A)The firm's management generates cost savings via temporary layoffs of highly paid executives.
B)The firm gains intellectual property in a merger but then divests the operations of the target firm.
C)The firm's management changes the name of an acquired firm to feign diversification.
D)The firm acquires a target with low a P/E ratio, which generates short-term earnings per share growth without any true economic advantage.

Question

Quizplus · Accepted Answer

The "Bootstrap Game" involves acquiring a target with a low P/E ratio, which is misleading as it generates short-term earnings per share growth without any true economic advantage. This can mislead investors into thinking that the merged firm is stronger than it actually is.

The "Bootstrap Game" May Mislead Investors Regarding the Prospects for a Merged