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Bidding companies often pay too much for the acquired firm. The hubris hypothesis explains this by suggesting that the bidders:

 

 

1. have too little information to make an optimal decision.

 

2. have big egos and this impedes rational decision-making.

 

3. have difficulty in thinking strategically over the long-term.

 

4. are overly influenced by the tax consequences of an acquisition.

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Question added by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies
Date Posted: 2015/06/11
Shahbaz Hayder
by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies

Option2 is the right answer.

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