Evidence shows that investors will generally pay a premium for diversified firms, thus firms should merge for this reason.

Question

Quizplus · Accepted Answer

Investors can achieve diversification on their own more efficiently by buying a variety of stocks, rather than paying a premium for diversified firms. Mergers based solely on achieving diversification do not necessarily create value for shareholders and can lead to inefficiencies.

Evidence Shows That Investors Will Generally Pay a Premium for Diversified