Even though a business firm can be viewed as a portfolio of assets, firms are not rewarded for selecting a diversified portfolio of assets because investors can more efficiently diversify the risk on their own.

Question

Quizplus · Accepted Answer

Investors can diversify their own portfolios more efficiently due to their specific risk preferences and investment opportunities, making firm-level diversification less valuable and often leading to a diversification discount in the valuation of firms.

Even Though a Business Firm Can Be Viewed as a Portfolio