A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT:
A) corporate headquarters can allocate capital according to more specific criteria than is possible with external market allocations.
B) corporate headquarters has more complete information about the subsidiary businesses than the external capital market.
C) the firm can acquire other firms with innovative products instead of allocating capital to research and development.
D) corporate headquarters can more effectively discipline underperforming management teams through resource allocation than can the external market.

Question

Quizplus · Accepted Answer

Unrelated diversification does not inherently mean that a firm will acquire other firms with innovative products instead of investing in R&D. This option does not relate to the firm's ability to make better capital allocations than the external market.

A Firm Practicing Unrelated Diversification Can Make Better Capital Allocations