Exam 12: Diversification Strategy

The main difference between two businesses being strategically related rather thasn operationally related is:

Empirical evidence on the relationship between diversification and profitability shows that diversification has a negative impact on profitability.

The primary motive for diversification during the period 1960-1980 was the quest to create shareholder value.

18,The principle of "parenting advantage"-that a company should own a business only if it is able to add more value to that business than any other potential parent-is a more rigorous criterion for justifying diversification than Michael Porter's "three essential tests."

Tyco International's decision to split into three separate companies was motivated by:

When diversification combines two businesses in different industrial sectors,the most important determinant of whether the diversification is likely to create value is whether the diversification:

The British fashion company,Burberry,is considering diversifying into the hotel business.Its optimal strategy is to:

Diversification has been an important source of value creation for most of the firms that have dared to expand beyond the boundaries of their own industry.

The capital asset pricing model predicts that corporate diversification that reduces the unsystematic risk of a company's securities will result in those securities being higher valued by the stock market.

Economies of scope may be viewed as economies of scale that are exploited over multiple products.

Diversification decisions by firms involve the following key issues:

A critical advantage of diversified over specialized firms is in their allocation of human resources where diversified firms can utilize their superior information on their employees to allocate individuals according to their proven abilities.

A dominant trend in corporate strategy over the past three decades has been for companies to expand their product scope.

Several decades of empirical evidence indicates that the relationship between diversification and performance:

The expression "conglomerate discount" means:

The principle difference between the "parenting advantage" framework and Porter's "three essential tests" in evaluating the value-adding potential of diversification is:

When a firm is diversifying through acquiring a firm in another industry,the critical issue is whether the synergies that can be realized will offset the acquisition premium paid.

To determine whether a firm's diversification is related or unrelated,we need to consider:

According to Michael Porter,industry attractiveness is a sufficient justification for diversification.

Economies of scope in organizational capabilities can be exploited as effectively through contractual agreements with firms in anther industry as through diversifying into that industry.