Diversification that reduces the risk of bankruptcy is more beneficial to managers than shareholders

Question

Quizplus · Accepted Answer

Managers have an incentive to reduce the risk of bankruptcy as it can lead to job loss or tarnish their reputation. However, shareholders are typically more risk-tolerant and may prefer higher returns even if it means higher bankruptcy risk. Therefore, diversification that reduces bankruptcy risk may be more beneficial to managers than shareholders.

Diversification That Reduces the Risk of Bankruptcy Is More Beneficial