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.
Which of the following reflect Jensen’s “Science” of takeovers ? A. Improve shareholder wealth B. Reallocate resources productively C. Impose financial discipline through debt D. Operate as hostile disruptions E. Function as an essential corrective force in capitalism Choose the correct answer from the options given below :
A, B, C and E only
A, B, C and E — every statement except D — option 2.
The distinction the question rests on. The passage says Jensen “distinguishes between the folklore — emotional and political arguments against takeovers, depicting them as harmful to employees and society — and the science, which demonstrates their role in improving efficiency and shareholder wealth.” So science = what the evidence shows takeovers do; folklore = what popular belief says about them. Each statement must be assigned to one side.
| Statement | Side | Where the passage supports it |
|---|---|---|
| A. Improve shareholder wealth | Science | Named explicitly as what the science demonstrates |
| B. Reallocate resources productively | Science | The mechanism by which takeovers “generate significant economic gains” |
| C. Impose financial discipline through debt | Science | “High leverage can impose financial discipline on managers by reducing wasteful spending” |
| D. Operate as hostile disruptions | Folklore | Precisely the misconception Jensen sets out to challenge — “takeovers are not merely hostile disruptions” |
| E. Function as an essential corrective force in capitalism | Science | Jensen’s concluding framing of takeovers |
How to answer it efficiently. Only one statement belongs to the folklore side, and it is the one that echoes the very phrase the passage negates. Recognising D as the odd one out is sufficient: every option containing D falls, and every option omitting one of A, B, C or E falls too, leaving option 2.
Why C deserves a note. The debt point is the least obvious of the four and the most contested. The argument is that a heavy interest obligation removes discretion: cash that would otherwise be spent on poor projects must go to servicing debt, so leverage substitutes for the monitoring a weak board fails to provide. That is Jensen’s free cash flow theory, and it was the intellectual case for the leveraged buyouts of the 1980s. The counter-argument, equally well known, is that high leverage leaves no margin for a downturn.
Hence, the answer is A, B, C and E only.
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:
