Whenever governance mechanisms are implemented,managers will not attempt to diversify the firm to a point at which it fails to earn average returns.

Question

Quizplus · Accepted Answer

This statement is not necessarily true. While governance mechanisms can discourage managers from making overly risky investments, it does not guarantee that they will always make decisions to earn average returns. Some managers may still take risks in the hope of achieving above-average returns, even if it means the possibility of failure. Additionally, the concept of "average returns" is relative and constantly changing, so what is considered average in one industry or market may not be in another.

Whenever Governance Mechanisms Are Implemented,managers Will Not Attempt to Diversify