When one company merges with another, common business wisdom suggests that the newly combined firm has a lower risk of going into default, because the transaction gives the merged corporation greater diversity than the two individual participants. However, according to a study by Craig Furfine, a Professor of Finance at the Kellogg School of Management, and Richard Rosen, of the Federal Reserve Bank of Chicago, that common wisdom is wrong. On average, Furfine says, acquiring firms become riskier post-merger (Kellogg Insight Online, 2011).

a) Discuss at least four reasons why companies engage in mergers and acquisitions. b) Critically evaluate the claim that mergers and acquisitions reduce risk and increase shareholder wealth. Your answer should elaborate on any examples of concepts and theories which suggest this is not the case. c) Briefly discuss the findings of Levi et al (2014) in relation to the influences of directors gender on bid premia paid in acquisitions.