Risk Reduction as a Managerial Motive for Conglomerate Mergers

@article{Amihud1981RiskRA,
  title={Risk Reduction as a Managerial Motive for Conglomerate Mergers},
  author={Yakov Amihud and Baruch Lev},
  journal={The Bell Journal of Economics},
  year={1981},
  volume={12},
  pages={605-617}
}
A conglomerate merger generally leads, through the diversification effect, to reduced risk for the combined entity. As is well known, in perfect capital markets such risk reduction will not be beneficial to stockholders, since they can achieve on their own the preferred degree of risk in their "homemade" portfolios. What, then, is the motive for the widespread and persisting phenomenon of conglomerate mergers? In this study a "managerial" motive for conglomerate merger is advanced and tested… 
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