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1. Operational synergy involves economies of scale.
a. True
b. False
2. In diversification, firms benefit from declining unit costs by leveraging product relatedness.
a. True
b. False
3. Operational synergy is a primary goal of product-unrelated diversification.
a. True
b. False
4. The mechanisms needed to obtain financial synergy in diversification are the same as those needed to obtain
operational synergy.
a. True
b. False
5. Firms that engage in product-related diversification as well as far-flung multinational expansion are following a classic
conglomerate strategy.
a. True
6. Not all product-related diversifiers outperform product-unrelated diversifiers.
a. True
b. False
7. Porter’s five forces affect the structural attractiveness of an industry.
a. True
b. False
8. The economic benefits of the last unit of growth (such as the last acquisition) can be defined as MBC.
a. True
9. The scope of the firm is thus determined by a comparison between MEB and MBC.
a. True
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10. In the United States between the 1950s and 1970s MEB decreased, resulting in a decreased scope of the firm
into conglomeration.
a. True
b. False
11. By the 1980s MBC began to decrease.
a. True
b. False
12. Interest in conglomerates has declined in emerging economies due to their developed capital markets.
a. True
b. False
13. Answering why firms choose different diversification strategies does not help answer why firms differ and how they
behave.
a. True
14. A superior product-related diversification strategy does not require a centralized and cooperative organizational
architecture in order to add value.
a. True
15. The most straightforward motivation for a firm to diversify is growth opportunities in an industry.
a. True
b. False
16. High entry barriers are a main factor in the decision to avoid diversification.
a. True
17. A nondiversified single-business firm faces less risk than a diversified firm.
a. True
b. False
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18. Firms that excel in postacquisition integration tend to possess hard-to-imitate capabilities.
a. True
19. Instead of operational synergy, conglomerates focus on financial synergy.
a. True
b. False
20. Diversification discount is the situation when unrelated-product diversification enables conglomerate units
to beat stand-alone rivals.
a. True
b. False
21. When conglomerate units are better off competing as stand-alone entities, we call it diversification
premium.
a. True
22. Research shows that the linkage between product diversification and firm performance seems to be inverted-
U shaped.
a. True
b. False
23. Porter’s five forces model can be used in regards to the structural attractiveness of an industry.
a. True
b. False
24. High entry barriers often result in green-field entries as opposed to acquisitions.
a. True
b. False
25. An industry whose products can be easily substituted faces more threats from other firms currently not in the
same industry.
a. True
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b. False
26. Although the term mergers and acquisitions (M&As) is often used, in reality, acquisitions dominate the
scene.
a. True
27. For definitional purposes, mergers and acquisitions are exactly the same thing.
a. True
b. False
28. Most cross-border deals are mergers rather than acquisitions.
a. True
b. False
29. Horizontal and vertical M&As are typically involve product-related diversification.
a. True
b. False
30. Conglomerate M&As are transactions involving firms in product-related industries.
a. True
b. False
31. Gaining access to complementary resources is an institution-based motivation for acquisitions.
a. True
b. False
32. Hubris often leads to acquisition premiums.
a. True
b. False
33. In an acquisition, shareholders of the acquiring firm typically see a greater increase in stock value than do
shareholders of the target firm.
a. True
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34. Traits such as goals, experiences, and behaviors of a target firm that complement those of the acquiring firm lead to
good organizational fit.
a. True
b. False
35. For firms considering an acquisition, product relatedness is easy to measure.
a. True
b. False
36. Product relatedness is determined exclusively by visible product linkages.
a. True
37. Compared with acquisitions, alliances cost less and allow for opportunities to learn from working with each other
before engaging in full-blown acquisitions.
a. True
b. False
38. You should understand that the nature of your industry might call for diversification, acquisitions, and
restructuring.
a. True
b. False
39. You and your firm need to develop policies that avoid acquisitions and restructuring.
a. True
40. Engaging in thorough due diligence concerning both strategic fit and organizational fit will not guarantee successful
M&As.
a. True
b. False
41. Sources of operational synergy include:
a. Technologies.
b. Marketing.
c. Manufacturing.
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d. All of the above.
42. Conglomeration tends to provide all of the following EXCEPT:
a. Product-unrelated diversification.
b. Financial synergy.
c. Economies of scale.
d. Economies of scope.
43. Diversification premium is the same thing as:
a. Conglomerate advantage.
b. Diversification discount.
c. Measurement of firm performance.
d. Level of product diversification.
e. Measurement of firm performance.
44. Which would be more characteristic of conglomerates?
a. “Putting one’s eggs in one basket.”
b. “Putting one’s eggs in similar baskets.”
c. “Putting one’s eggs in different baskets.”
d. None of the above..
45. Research regarding the relationship between product diversification and firm performance indicates that:
a. Putting your eggs in similar baskets,” has emerged as a balanced way to both reduce risk and leverage
synergy.
b. Performance may decrease as firms change from product-related to –unrelated.
c. The linkage between diversification and performance is inverted U shaped.
d. All of the above.
46. Which geographic diversification is most likely to reduce the liability of foreignness?
a. Culturally adjacent countries.
b. Extensive international scope.
c. Beyond geographically neighboring countries.
d. Beyond culturally neighboring countries.
47. Which is not true regarding geographic diversification and firm performance?
a. U-shaped relationship at low level of internationalization.
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b. Initially a negative effect of international expansion on performance.
c. Inverted-U shape at moderate to high levels of internationalization.
d. Positive only at high levels of internationalization.
48. In combining product and geographic diversification, which is not one of the four possible combinations?
a. Anchored replicators.
b. Multinational replicators.
c. Far-flung conglomerates.
d. Classic replicators.
49. A classic conglomerate is characterized by:
a. Product-related diversification and limited geographic scope.
b. Product-unrelated diversification and limited geographic scope.
c. Product-unrelated diversification and extensive geographic scope.
d. Product-related diversification and extensive geographic scope.
50. In general, the costs associated with doing business abroad but maintaining product-related diversification are:
a. Greater than the costs of managing a conglomeration while mostly staying at home.
b. Less than the costs of managing a conglomeration while mostly staying at home.
c. About the same as the costs of managing a conglomeration while mostly staying at home.
d. Greater than the costs for all other combinations of geographic and product scope.
51. At its core, diversification is essentially driven by all of the following EXCEPT:
a. Economic benefits.
b. MEB.
c. Synergy.
d. Less complicated information systems.
52. Among the industry-based considerations that motivate a firm to diversify is:
a. Substantial growth opportunity in an industry.
b. Decreased bargaining power of buyers and suppliers.
c. Decreased bargaining power of buyers and suppliers.
d. Decreased bargaining power of buyers and suppliers.
53. Which of the following statements is TRUE?
a. Diversification creates value in all circumstances.
b. Diversification can create value by leveraging certain core competencies and capabilities.
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c. Compared with diversified firms, non-diversified single-business firms are better able to spread risk.
d. Firms that undertake acquisitions have mastered the art of post-acquisition integration.
54. To add maximum value, a product-related diversifier needs to:
a. Focus primarily on geographic diversification.
b. Switch to a product-unrelated diversification strategy.
c. Foster a centralized organizational structure with a cooperative culture.
55. One of the dangers of a centralized structure for a product-unrelated diversified conglomerate is:
a. Information overload.
b. Inability to spread out risk.
c. The opportunity for financial synergy.
d. None of the above.
56. To best add value, a product-unrelated diversifier needs to focus on:
a. Economies of scale.
b. Centralization.
c. Financial synergy.
d. Cooperative organizational culture.
57. Managerial motives for diversification that may advance their personal careers without aligning with the interests of
the firm include:
a. Leveraging connections with foreign governments.
b. Reducing managers’ employment risk.
c. A focus on the core competencies of the firm.
d. Searching for formal marketing-supporting and marketing-opening policy changes.
58. The optimum level for a firm’s diversification is where:
a. Marginal bureaucratic costs are greater than marginal economic benefit.
b. Marginal economic benefit is less than marginal bureaucratic costs.
c. Total bureaucratic costs equal marginal economic benefits.
d. Marginal bureaucratic costs equal marginal economic benefits.
59. In reality, the need for flexible diversification strategies is because of the static nature of:
a. Industry dynamics.
b. Resource repertoires.
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60. Select the best choice: a company that is engaged in oil production, pipelines and tankers, refining, and
gasoline stations has engaged in ______________ expansion.
a. Horizontal
b. Vertical
c. Hostile M&A
d. Friendly M&A
61. Which of the following motives for M&A does NOT necessarily increase shareholder value?
a. Synergy.
b. Hubris.
c. Performance.
62. Corporate scope is shaped by:
a. Industry conditions.
b. Firm capabilities.
c. Institutional constraints.
d. All of the above.
63. Which of the following is true of mergers?
a. A new legal entity is established.
b. A target firm becomes a unit of the acquiring firm.
c. Control of assets is turned over from one firm to its partner.
d. Mergers are much more common than acquisitions.
64. Cross-border M&As:
a. Are rare.
b. Have increased in the past 20 years.
c. Have decreased in the past 20 years.
d. Consist mainly of mergers rather than acquisitions.
65. With _________ M&As, Firm A, which is a gas and oil company, acquires a chemical company, a transportation
company, and a financial services company.
a. Horizontal.
b. Vertical.
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c. Conglomerate.
d. Hostile.
66. Among the following synergistic motives for M&As, which is a resource-based consideration?
a. Learning and developing new skills.
b. Overcoming entry barriers.
c. Responding to formal institutional constraints.
d. Reducing risk.
67. The manager of Firm X watches the manager of a competing firm (Firm Y) successfully pursue some vertical
integration up the supply chain; Firm A’s manager immediately begins acquiring companies in its supply chain. At first
glance, the manager’s motives appear to be:
a. Synergistic.
b. Risk reducers.
c. Hubris.
d. Self-interest.
68. When a firm experiences a failure to integrate its M&As after the acquisition, it is most likely the result of:
a. An inadequate number of worthy targets.
b. Poor strategic fit.
c. Far-flung conglomerates.
d. Poor organizational fit.
69. Product-related diversification involves all of the following EXCEPT:
a. A single business strategy.
b. Synergy.
c. The emphasis is on economies of scale rather than scope.
d. Increases in competitiveness.
70. Sources of operation synergy:
a. Technologies.
b. Marketing.
c. Manufacturing.
d. All of the above.
e. None of the above.
71. Diversification is beneficial for all of the following situations EXCEPT:
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a. Risk is spread over several (product or country) markets.
b. Core resources are leveraged.
c. The art of post-acquisition integration has been mastered.
d. Commonly shared industry skills are used.
72. Which of the following managerial motives for conglomerations benefits shareholders?
a. Norms.
b. Reducing managers’ employment risk.
c. Organizational stability.
d. Pursuing power, prestige, and income.
73. Which of the following is TRUE regarding M&As?
a. As many as 70 percent of M&As reportedly fail.
b. On average, the acquiring firms’ performance improves after acquisitions.
c. The outstanding success of M&As is due to pre- and postacquisition phases.
d. The only identifiable losers are the shareholders of target (acquired) firms.
74. To ensure the success of the M&A, managers need to make sure of all the following EXCEPT:
a. Be willing to walk out when premiums are too high.
b. Engage in adequate due diligence concerning strategic fit.
c. Seek organizational contrast and variety rather than organizational fit.
75. Which of the following is TRUE regarding restructuring?
a. The two primary ways of restructuring are downsizing and upsizing.
b. Restructuring (downsizing) is used more often by acquiring firms than by seller firms.
c. Corporate restructuring is the primary tool for reducing firm size and scope.
d. Restructuring is easier in knowledge-intensive firms than capital intensive firms.
76. In addition to product relatedness as a factor when considering acquisitions, relatedness can come in the form of:
a. Hubris.
b. Dominant logic.
c. Bureaucratic costs.
d. Acquisition premiums.
77. Which of the following is the most likely reason Firm A would decide to forgo an acquisition and pursue an alliance
instead?
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a. It wants learning opportunities without long-term commitment.
b. It wants greater control of day-to-day operations.
c. It wishes to engage in a long-term enduring relationship.
d. It wishes to consolidate market power, reduce risks, and leverage economies of scope.
78. Firm A is operating in a sunset industry; what is its most prudent strategic move?
a. Engage in vertical acquisitions.
b. Diversify out of the industry.
c. Acquire its rivals.
d. None of the above.
79. To improve the odds for success with its acquisitions, a firm should:
a. Engage its rivals in a bidding war.
b. Look for potential firms with high acquisition premiums.
c. Conduct due diligence concerning strategic and organizational fit.
d. Only acquire after participating in an alliance first.
80. Which of the following is true of relatedness?
a. Measurement of product relatedness is no longer debatable.
b. A “product–related” firm will be considered related regardless of the measure used.
c. Product-unrelated conglomerates are not linked by institutional relatedness.
d. Relatedness can be a common underlying dominant logic that connects various businesses in a
81. Your manager tells you that your firm is considering several acquisitions. The manager asks you for an
assessment of which one might be the best for your firm in the immediate future. Without knowing any details
about the acquiring or target firms, provide a general checklist of information your manager will need to make a
decision.
82. Describe how a firm goes from a single product to conglomeration and what the primary issues on that
journey might be.
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83. You are managing a firm in a developing economy. What advantages might you have in pursuing
conglomeration for your firm?
84. Describe the four “types” of firms that come from combining product and geographic diversification. Explain which
form is most successful and why.
85. What is the difference between strategic fit and organizational fit?
86. You recently noticed a comment in a blog which stated: “By its very nature, restructuring is a violation of
CSR!” How do you feel about that?
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87. In that same blog another person stated: “Decisions about diversification and acquisition are not based on
the well-being of the shareholder but instead on the needs of the CEO such as ego and job security. As a result,
all such decisions should be submitted to a government agency for approval.” Do you agree? Why or why not?
88. Other comments you saw in the blog are less hostile to business. In one, the person was claiming that recent
developments in financial markets suggest that it is time to revive the use of conglomerates. Based on what is
happening now, do you agree? Why or why not?
89. You are the CEO of International Widget and you are contemplating expanding into Lower Slobovia. You
have the resources needed to start from scratch in that country but it would be possible to acquire the company
that dominates the Lower Slobovian Widget industry. Which do you think would be best: start from scratch or
an acquisition?
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90. You are the CEO of Mega Global Corporation and you are weighing a number of decisions involving
diversification, acquisition, and restructuring. Long ago you were the manager of a mutual fund and you decide
to make your decisions using the same approach as you used in managing that fund. How would that affect
your decisions and decision process?