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OG In an effort to explain why business acquisitions

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OG In an effort to explain why business acquisitions

Post Thu Jul 27, 2017 7:56 pm
Elapsed Time: 00:00
  • Lap #[LAPCOUNT] ([LAPTIME])
    In an effort to explain why business acquisitions
    often fail, scholars have begun to focus on the role
    of top executives of acquired companies. Acquired
    companies that retain their top executives tend to
    have more successful outcomes than those that do
    not. Furthermore, existing research suggests that
    retaining the highest-level top executives, such as the
    CEO (chief executive officer) and COO (chief operating
    officer), is related more positively to post acquisition
    success than retaining lower-ranked top executives.
    However, this explanation, while insightful, suffers from
    two limitations. First, the focus on positional rank does
    not recognize the variation in length of service that
    may exist in top executive posts across companies,
    nor does it address which particular top executives
    (with respect to length of service) should be retained
    to achieve a successful acquisition outcome. Second,
    the relationship between retained top executives and
    acquisition outcomes offered by existing research
    is subject to opposing theoretical explanations
    related to length of service. The resource-based view
    (RBV) suggests that keeping acquired company top
    executives with longer organizational tenure would lead
    to more successful outcomes, as those executives
    have idiosyncratic and nontransferable knowledge
    of the acquired company that would be valuable for
    the effective implementation of the acquisition. The
    opposing position, offered by the upper echelons
    perspective (UEP), suggests that retaining top
    executives having short organizational tenure would
    lead to more successful outcomes, as they would have
    the adaptability to manage most effectively during the
    uncertainty of the acquisition process
    Responding to these limitations, Bergh conducted
    a study of executive retention and acquisition
    outcome that focused on the organizational tenure of
    retained company top executives in 104 acquisitions,
    followed over 5 years. Bergh considered the
    acquisition successful if the acquired company was
    retained and unsuccessful if it was divested. Bergh’s
    findings support the RBV position. Apparently, the
    benefits of long organizational tenure lead to more
    successful outcomes than the benefits of short
    organizational tenure. While longer tenured top
    executives may have trouble adapting to change, it
    appears that their perspectives and knowledge bases
    offer unique value after the acquisition. Although
    from the UEP position it seems sensible to retain
    less tenured executives and allow more tenured
    ones to leave, such a strategy appears to lower the
    probability of acquisition success.

    427) According to the passage, the research mentioned in line 6 suggests which of the following about lower-ranked top executives and postacquisition success?
    A. Given that these executives are unlikely to contribute to postacquisition success, little effort should be spent trying to retain them.
    B. The shorter their length of service, the less likely it is that these executives will play a significant role in postacquisition success.
    C. These executives are less important to postacquisition success than are more highly ranked top executives.
    D. If they have long tenures, these executives may prove to be as important to postacquisition success as are more highly ranked top executives.
    E. Postacquisition success is unlikely if these executives are retained.

    428) The resource-based view, as described in the passage, is based on which of the following ideas?
    A. The managerial skills of top executives become strongest after the first five years of their tenure.
    B. Company-specific knowledge is an important factor in the success of an acquisition process.
    C. The amount of nontransferable knowledge possessed by long-tenured top executives tends to be underestimated.
    D. Effective implementation of an acquisition depends primarily on the ability of executives to adapt to change.
    E. Short-tenured executives are likely to impede the implementation of a successful acquisition strategy.

    429) The passage suggests that Bergh and a proponent of the upper echelons perspective would be most likely to disagree over which of the following?
    A. Whether there is a positive correlation between short organizational tenure and managerial adaptability
    B. Whether there is a positive correlation between long organizational tenure and the acquisition of idiosyncratic and nontransferable knowledge
    C. Whether adaptability is a useful trait for an executive who is managing an acquisition process
    D. Whether retaining less-tenured top executives of an acquired company is an optimal strategy for achieving postacquisition success
    E. Whether retaining highest-level top executives of acquired companies is more important than retaining lower-ranked top executives

    430) According to the passage, prior to Bergh’s study, research on the role of top executives of acquired companies in business acquisition success was limited in which of the following ways?
    A. It did not address how the organizational tenure of top executives affects postacquisition success.
    B. It did not address why some companies have longer-tenured CEOs than others.
    C. It did not consider strategies for retaining long-tenured top executives of acquired companies.
    D. It failed to differentiate between the contribution of highest-level top executives to postacquisition success and that of lower-ranked top executives.
    E. It underestimated the potential contribution that lower-level top executives can make to postacquisition success.

    Q427: C
    Q428: B
    Q429: D
    Q430: A

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