Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
25 Cards in this Set
- Front
- Back
|
Conglomerate |
Acquisition of multiple, unrelated acquisitions |
|
|
Primary driver for refocusing (conglomerate to non-conglomerate) |
Reordering of corporate goals from growth to profitability |
|
|
CAPM (Capital Asset Pricing Model) |
Risk that is relevant to determining the price of a security is not the overall risk of the security's return but the systematic risk |
|
|
CAPM is measured by |
Security's beta coefficient |
|
|
Porter's "Essential Tests" |
determine whether diversification will truly create shareholder value |
|
|
What are the three "Essential Tests" |
1. The Attractiveness Test 2. The Cost of Entry Test 3. The Better-off Test |
|
|
The Attractiveness Test |
Industries choice for diversification must be structurally attractive or capable of being made attractive |
|
|
The drawback to the Attractiveness Test |
Industry attractiveness is insufficient on its own |
|
|
The Cost-of-Entry Test |
The cost of entry must not capitalize all the future profits |
|
|
The Better-off Test |
Either the new unit must gain competitive advantage from its link with the corporation or vice versa |
|
|
What is Porter's only test that matters? |
MOST OF THE TIME: The Better-off Test |
|
|
When would it make sense for a company to enter an unattractive industry? |
When the cost of entry is sufficiently discounted and the better-off test is met |
|
|
Economies of Scope |
Exist when using a resource across multiple activities uses less of that resource than when the activities are carried out independently |
|
|
Economoies of Scale |
Relate to cost economies from increasing output of a single product |
|
|
Economies of Scope |
Are cost economies from increasing the output of multiple products |
|
|
Tangible Resources |
Offer economies of scope
Eliminate duplication between businesses through creating a single shared facility
The greater the fixed costs, the greater the associated economies of scope
Centralized provisions of admin and support services to different businesses of the corp |
|
|
Intangible Resources |
Offer economies of scope from the ability to extend them to additional businesses at low marginal cost |
|
|
Brand Extension |
Exploiting strong brand across additional products |
|
|
Organizational Capabilities |
Transferred within diversified company
General management capabilities |
|
|
Economies from Internalizing Transactions |
relative efficiency
the cost of internalization consist of the management costs of establishing and coordinating the diversified business |
|
|
Parenting Advantage |
deploying the resources and general management skills possessed by the parent company |
|
|
Diversified companies have 2 advantages: |
1. can avoid the costs of using external capital market
2. have better access to info on financial prospects of their different businesses than that available to external users |
|
|
Disadvantages of diversified companies: |
1. investment allocation within the diversified company is a politicized process: turf battles |
|
|
Private Equity Firm |
Raise money creating a fund that is then used to buy businesses |
|
|
Internal Labor Markets |
Transferring employees between divisions and to rely less on hiring
Severance payments must be offered |
