Final answer:
Managers may over diversify their firm due to risk reduction, market expansion, and pressure from investors.
Step-by-step explanation:
Managers may be motivated to over diversify their firm for several reasons:
- Risk Reduction: By diversifying their firm's portfolio, managers can reduce the risk of losses if one particular investment or business area performs poorly. This can help protect the company's overall financial stability.
- Market Expansion: Over diversifying allows a firm to enter new markets and explore different industries. This strategy can be motivated by a desire for growth and increased market share.
- Pressure from Investors: Shareholders and investors may encourage managers to over diversify as a way to mitigate risk and increase the chances of positive returns. This pressure can influence managers to take on more diverse ventures.