Read the following passage and answer the questions : Jensen examines the dynamics of corporate takeovers and challenges prevailing misconceptions surrounding them. He argues that takeovers are not merely hostile disruptions but serve as a crucial mechanism of the market for corporate control. According to Jensen, inefficient management teams often fail to maximize shareholder value and takeovers act as disciplinary tool by transferring control to more competent managers. He emphasizes that while popular belief portrays takeovers as destructive to employees and communities, empirical evidence suggests that they frequently generate significant economic gains by reallocating resources to more productive uses. Jensen distinguishes between the folklore-emotional and political arguments against takeovers depicting as harmful to employees and society and the science, which demonstrates thier role in improving efficiency and shareholder wealth. He also addresses concerns about debt financing in leveraged buyouts, contending that high leverage can impose financial discipline on managers by reducing wasteful spending. Ultimately, Jensen frames takeovers as an essential corrective force within capitalism, countering managerial inefficiency and aligning corporate behavior with shareholder interests. His analysis laid the groundwork for modern corporate finance debates on governance, agency costs and the value-creating potential of mergers and acquisitions.
Match List - I with List - II. Choose the correct answer from the options given below :List - I
(Term)List - II
(Description) A. Folklore view I. Portrayed as destructive to employees and communities B. Scientific evidence II. Generates significant economic gains by reallocating resources C. Inefficient management III. Fails to maximize shareholder value D. Debt financing IV. Imposes financial discipline by reducing wasteful spending
A-I, B-II, C-III, D-IV
The correct matching is A-I, B-II, C-III, D-IV — option 3. Every pairing is a direct lift from the passage, and the four terms appear in the same order as their descriptions.
| Term | Description | The words in the passage |
|---|---|---|
| A. Folklore view | I — portrayed as destructive to employees and communities | Jensen distinguishes “the folklore — emotional and political arguments against takeovers depicting them as harmful to employees and society” |
| B. Scientific evidence | II — generates significant economic gains by reallocating resources | “Empirical evidence suggests that they frequently generate significant economic gains by reallocating resources to more productive uses” |
| C. Inefficient management | III — fails to maximize shareholder value | “Inefficient management teams often fail to maximize shareholder value” |
| D. Debt financing | IV — imposes financial discipline by reducing wasteful spending | “High leverage can impose financial discipline on managers by reducing wasteful spending” |
How to solve it in one step. Two pairings are unmistakable because the key noun appears in both columns: folklore with the emotional charge of harm, and debt financing with financial discipline. Fixing A-I and D-IV leaves only option 3.
What the four terms amount to together. They are the whole of Jensen’s argument set out in four lines :
The folklore says takeovers destroy → the science says they create gains by moving resources → because the problem being corrected is inefficient management that leaves shareholder value unrealised → and the debt used to finance the deal is itself part of the correction, since it removes the free cash a manager might otherwise waste.
Why the passage is set as a comprehension exercise. It is a compressed statement of the agency-theoretic view of corporate governance — the same framework that appears elsewhere in this paper in the questions on agency theory and on takeover defences. A candidate who has the framework can predict the pairings before reading the passage closely; one who has not can still recover them by matching phrases. Both routes lead to option 3.
Hence, the answer is A-I, B-II, C-III, D-IV.
Similar Questions
Which one of the following is not a principle of corporate Governance ?
Match the items given in the List - I and List - II and suggest the correct code :
List - I List - II (a) Ethics (i) Right code of behaviour for a group or profession (b) Morality (ii) Prescribes right conduct for everyone (c) Moral standard (iii) Needs some inclination to follow morality (d) Meta Moral Standard (iv) Practical and pragmatic Code :
Assertion (A) : When a corporation acts ethically and socially responsible in its business decisions and strategic planning, then the corporation will be more sustainable.
Reason (R) : Socially responsible corporate behaviour is increasingly seen as essential to long-term survival of companies.
Social responsibility of business while appropriating natural resources by a corporate entity has been recommended in which one of the following?
Disclosure of corporate governance practice and its compliance has been stipulated in which one of the following?
Kumar Mangalam Birla Committee Report, Ramesh Chandra Committee Report, Cadbury Committee Report primarily focus on which one of the following?
'The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.'
This may be attributed rightly to which one of the following?
Read the following passage and answer the questions :
Jensen examines the dynamics of corporate takeovers and challenges prevailing misconceptions surrounding them. He argues that takeovers are not merely hostile disruptions but serve as a crucial mechanism of the market for corporate control. According to Jensen, inefficient management teams often fail to maximize shareholder value and takeovers act as disciplinary tool by transferring control to more competent managers. He emphasizes that while popular belief portrays takeovers as destructive to employees and communities, empirical evidence suggests that they frequently generate significant economic gains by reallocating resources to more productive uses. Jensen distinguishes between the folklore-emotional and political arguments against takeovers depicting as harmful to employees and society and the science, which demonstrates thier role in improving efficiency and shareholder wealth. He also addresses concerns about debt financing in leveraged buyouts, contending that high leverage can impose financial discipline on managers by reducing wasteful spending. Ultimately, Jensen frames takeovers as an essential corrective force within capitalism, countering managerial inefficiency and aligning corporate behavior with shareholder interests. His analysis laid the groundwork for modern corporate finance debates on governance, agency costs and the value-creating potential of mergers and acquisitions.
Statement (I) : The science of ethics is a normative science.
Statement (II) : Normative sciences judge the value of the facts in terms of an idea; concerned with judgements of ‘what ought to be’ but not with factual judgements.
Code :
Assertion (A) : Decisions in small matters largely tend to set a pattern for the more important ones you may make as managers.
Reasoning (R) : A multi-industry survey conducted in the USA indicated that 40% of the managers said that their superiors had at some time told them to do certain things unethical.
Code :
Important Questions from Corporate governance and business ethics
As per the Anglo-Saxon Model of Corporate Governance, the authority lies with the following. Arrange these in decreasing order of authority.
A. Board of Directors
B. Managers
C. Shareholders
D. Employees (Company)
E. Trade unions
Choose the correct sequence from the options given below
Assertion (A) : Corporate governance is an important instrument of investor protection.
Reason (R) : Strong corporate governance is indispensable to resilient and vibrant capital markets.
Which one of the following options is correct?
Which one of the following is not a norm of corporate governance ?
Which one among the following is not a true statement?
Ethics are moral principles and values which:
