The managers of Firm A recommend that Firm A purchase Firm B because the purchase will diversify
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Question:
The managers of Firm A recommend that Firm A purchase Firm B because the purchase will diversify the business of Firm A. Diversification of risks is a desirable strategy for individual shareholders, but if shareholders can diversify their risk by holding stock in Firm B, is there any reason for Firm A to purchase Firm B? Suppose labor turnover is costly, could that provide an efficiency saving to support the proposed purchased? (Hint: If output is less variable, labor employment can be steadier.)
Related Book For
Economics of Money, Banking and Financial Markets
ISBN: 978-0321598905
9th Edition
Authors: Frederic S. Mishkin
Posted Date: