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Hello.
Strategies including mergers and acquisitions that aim at diversification of business portfolio frequently result in diminished values for the shareholders.
If the firm use mergers and acquisitions for diversification it reduces shareholder value. Why? (asking for reasons related to agency costs and the roles of financial markets)
Diversification does not necessarily means diminished values for shareholders.
However it can result in diminished values because shareholders can diversify themselves (by buying shares in different sectors) and may well have chosen the particular company precisely because of the sector that it is in – in which case they will not be happy if the company chooses to diversify.
I do explain this in my free lectures on portfolio theory and CAPM.
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