The critical test of whether diversification will create shareholder value is whether it will contribute to competitive advantage.

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Diversification can create shareholder value only if it contributes to competitive advantage. If diversification does not lead to a competitive advantage, it may not generate any value and could even destroy value for shareholders. Competitive advantage can come from a range of factors such as economies of scale, scope, learning effects, and synergies between businesses. Therefore, the critical test of diversification's impact on shareholder value is whether it enhances the company's competitive advantage.

The Critical Test of Whether Diversification Will Create Shareholder Value