Diversiﬁcation into unrelated businesses can add value for shareholders if:
A) the brand is licensed to other users.
B) retaining control of the economies of scope reduces transaction costs.
C) the unrelated businesses have a high risk component.
D) managers' pay is linked to the size of the ﬁrm and not proﬁts.

Question

Quizplus · Accepted Answer

Diversification into unrelated businesses can add value for shareholders if it allows the firm to retain control of the economies of scope, thereby reducing transaction costs. Economies of scope occur when it's cheaper to produce two products together than separately, and managing these within a single firm can reduce costs associated with market transactions.

Diversiﬁcation into Unrelated Businesses Can Add Value for Shareholders If