Which of the following term refers to the situation when the management of the acquiring firm is too optimistic about the value than can be created via an acquisition and is willing to pay a significant premium over a target firm's market capitalization?
A)The optimistic hypothesis
B)The Golem effect
C)The hubris hypothesis
D)The rainbow effect

Question

Quizplus · Accepted Answer

Acquiring firms often overpay for the assets of the acquired firm.This can be because the management of the acquiring firm is often too optimistic about the value that can be created via an acquisition and is thus willing to pay a significant premium over a target firm's market capitalization.This is called the "hubris hypothesis" of why acquisitions fail.The hubris hypothesis postulates that top managers typically overestimate their ability to create value from an acquisition,primarily because rising to the top of a corporation has given them an exaggerated sense of their own capabilities.

Which of the Following Term Refers to the Situation When