Companies that pursue related diversification often receive a diversification premium,leading to a stock price valuation that is higher than the sum of their individual business units.This premium indicates that investors:
A) Are hedging their bets that at least a few of the related businesses will experience high performance.
B) Believe that firms with related diversification strategies are more likely to be restructured in the future.
C) Are experiencing the bandwagon effect when it comes to investment choices.
D) Understand that firms with related diversification strategies are more likely to improve their performance than other diversified firms.

Question

Quizplus · Accepted Answer

Companies that pursue related diversification are more likely to improve their performance and thus receive a diversification premium.

Companies That Pursue Related Diversification Often Receive a Diversification Premium,leading