Practice question · Put in order
Order the market-for-corporate-control mechanism from cause to consequence.
- Management persistently underperforms
- A takeover bid is launched for the discounted shares
- An acquirer sees profit in buying and fixing the firm
- The share price sags below the firm’s potential value
- Incumbent management is replaced
Hints
- Poor management shows up first in the share price.
- A depressed price is what makes the firm worth buying.
Show the answer
- Management persistently underperforms
- The share price sags below the firm’s potential value
- An acquirer sees profit in buying and fixing the firm
- A takeover bid is launched for the discounted shares
- Incumbent management is replaced
Why
The share price converts bad management into a takeover opportunity, and the mere anticipation of this chain disciplines managers who never face a bid.
Practise Corporate Governance
The app has 6 more questions on this lesson, and keeps your place in the course. Business I is free to start.
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