Question

The market for corporate control

leads to less diversification
leads to higher firm profits
limits unprofitable acquisitions by managers
leads to higher managerial compensation
none of the above

Answer 1

The market for corporate control

limits unprofitable acquisitions by managers

Step-by-step explanation:

Some managers engage in the indiscriminate acquisition of other companies because they are interested in increasing their prestige. Prestige and power are increased by managing a bigger entity. In this way, the market for corporate control has been known to limit managerial discretion. Managerial discretion refers to the freedom that managers exercise in the pursuit of their own objectives (pay, power, status, and prestige) rather than shareholders' interests. It also creates room for the shareholders to replace inefficient management. It enables the management team to pursue shareholders' interests, at least in the interim.