If firms wish to diversify their operations to reduce dependence on an intensely competitive market, they must make sure that shareholders cannot generate the same results merely by diversifying their portfolio.

Question

Quizplus · Accepted Answer

If shareholders can achieve the same diversification by adjusting their portfolio, then the diversification strategy of the firm would not provide any additional benefits for the shareholders, and the firm's efforts would be in vain. Therefore, firms must take measures to create value through diversification beyond what can be achieved by shareholders through simple adjustments to their portfolios.

If Firms Wish to Diversify Their Operations to Reduce Dependence