A major disadvantage of holding companies is the increased risk resulting from the leverage effect.

Question

Quizplus · Accepted Answer

Holding companies typically use leverage (debt) to finance their subsidiaries, which can increase the overall risk of the company. If the subsidiaries do not generate enough cash flow to service the debt, the holding company may be forced to use its own resources to make up the difference, which can put a strain on its financial position.

A Major Disadvantage of Holding Companies Is the Increased Risk