Consider a case in which existing shareholders do not have to invest time and effort, but still participate in the gains from a takeover, while the bidder who puts in the time and effort is forced to give up substantial profits. This situation is called ________.
A) the free rider problem
B) a toehold
C) a leveraged buyout
D) a freezeout merger

Question

Quizplus · Accepted Answer

The situation described is known as the free rider problem, where existing shareholders benefit from a takeover without contributing any time or effort towards it, while the bidder loses out on potential profits. A toehold refers to a small stake in a company that a bidder acquires to gain a foothold for a potential takeover. A leveraged buyout involves using borrowed money to acquire a company. A freezeout merger is a type of merger where the acquiring company forces out minority shareholders.

Consider a Case in Which Existing Shareholders Do Not Have