Which type of diversification is most likely to create value through financial economies?
A) Related constrained
B) Operational and corporate relatedness
C) Unrelated
D) Related linked

Question

Quizplus · Accepted Answer

Financial economies of diversification are achieved through the reduction of risk and the increase of financial efficiency. Unrelated diversification allows for risk reduction as investments are spread across unrelated industries, and increases financial efficiency by utilizing excess cash flow from one division to finance investments in others. Related constrained and related linked diversification focus on operational synergies, while operational and corporate relatedness involves sharing common resources and capabilities within a related industry, but not necessarily achieving financial economies.

Which Type of Diversification Is Most Likely to Create Value