What rationales for unrelated diversification are not likely to increase shareholder value?

Question

Quizplus · Accepted Answer

Management sometimes undertakes a strategy of unrelated diversification for the wrong reasons: (1) risk reduction by spreading the company's investments over a set of diverse industries; (2) expectations for rapid or continuous growth; (3) earnings stabilization,that is,market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses; and (4) managerial motives,including the prospects for higher compensation-diversification for this reason alone is far more likely to reduce shareholder value than to increase it.

What Rationales for Unrelated Diversification Are Not Likely to Increase