CFA Practice Question

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CFA Practice Question

Which of the following statements is false with respect to the motives for the mergers?

A. A horizontal merger attempts to diversify the earning volatility of the acquiring firm by merging with a firm from an unrelated industry.
B. A vertical integration involves either merging with a firm that's regarded as an end user of the acquiring firm's product or a merger with a firm that's regarded as a supplier to the acquiring firm.
C. A merger may simply be the result of management's desire to engage in empire building, as opposed to sound economic reasoning.
Explanation: A conglomerate merger attempts to diversify the earnings volatility of the acquiring firm by merging with a firm from an unrelated industry. On the other hand, a horizontal merger attempts to exploit the economies of scale that will arise from a combined larger operation.

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