Research suggests that _____ has decreased while _____ has increased possibly due to the

a. backward vertical integration; forward vertical integration

b. related diversification; unrelated diversification

c. unrelated diversification; related diversification

Answer: unrelated diversification; related diversification

In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?

a. economies of scope

b. desire for increased compensation

c. reduced managerial risk

d. low performance

Answer: economies of scope

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify?

a. the market for corporate control

b. the Board of Directors

c. surveillance technologies

d. executive compensation practices

Answer: surveillance technologies

During the 1990s top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they

a. plan to take poison pills.

b. have golden parachutes.

c. have silver handcuffs.

d. have ironclad contracts.

Answer: have golden parachutes.

Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because

a. a successful acquisition will increase the CEO's power over the board of directors.

b. making an acquisition is an easier route to increased firm value than is improving the firm's core competencies.

c. higher CEO pay is related to larger organization size.

d. CEOs nearing retirement seek to create empires to continue their legacy.

Answer: higher CEO pay is related to larger organization size.

Managerial motives to seek diversification include a desire to

a. improve their marketability to other firms.

b. effectively use corporate resources.

c. provide higher returns to corporate stakeholders.

d. increase their compensation.

Answer: increase their compensation.