What are the advantages of diversification strategy?
There are two main reasons to diversify: diversification may benefit the firm's owners through increasing the efficiency of the firm diversification decisions may reflect the preferences of the firm's managersShareholder motivation for diversification: econonomies of scale and scope to gain synergies to make use of internal capital markets to diversify shareholder portfolios to economise on transaction costs identifying undervalued firms when there is excess capacity internal labour market brand extensionManagement Motives: pecuniary advantages non-pecuniary (such as ego, social standing etc)
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