A major conflict of interest between top executives and owners is that top executives wish to diversify the firm in order to __________, whereas owners wish to diversify the firm in order to __________.
A) generate free cash flows; reduce the risk of total firm failure
B) increase the price of the firm's stock; increase the dividends paid out from free cash flows
C) reduce the risk of total firm failure; reduce their total portfolio risk
D) reduce their employment risk; increase the company's value

Question

Quizplus · Accepted Answer

Top executives may want to diversify to reduce their employment risk by spreading the firm's operations across different areas, while owners typically want diversification to increase the company's value and, consequently, their investment's worth.

A Major Conflict of Interest Between Top Executives and Owners