When does corporate diversification and expansion enhance shareholder value?
When does corporate diversification and expansion enhance shareholder value?
While there are many stated rationales for a corporation's diversification and global expansion, numerous academic studies suggest that the majority of these activities fail to enhance shareholder value. This note discusses two essential tests for value creation in corporate scope—the value-added test and the contract test—as well as more recent theories of behavioral economics to guide students in their understanding of what creates long-term value for a firm.